Monday, November 16, 2015

Massaging history: principal in raising EB-5 funds for Atlantic Yards claims all projects "are in poor areas of Brooklyn..."

Five years ago, I reported on the deceptive marketing by the New York City Regional Center (NYCRC), a privately owned, federally authorized investment pool, of Forest City Ratner's Atlantic Yards as an EB-5 investment, raising $228 million in in 2010. (Since then another $349 million in EB-5 funds for the project has been raised via another firm.)

Well, the deception continues, as talk about EB-5 rises, given that a key aspect of the program is up for Congressional renewal next month. And the deception is on video, as I describe below.

Remember, under EB-5, immigrant investors who care more about green cards than investment return offer low-cost loans of $500,000 that purportedly create or retain ten jobs each. Developers reap low-cost financing and middlemen take their cut.

The investors don't mind low or no interest because they want the green cards and, anyhow, they're just parking their $500,000 for five years or so, the main sacrifice foregone interest. (The investment is supposed to be "at risk," and some tiny fraction of investors do lose their money.) The federal government lets private entities profit from valuable public assets: green cards.

The NYCRC on a panel

Guess what, the NYCRC, which has partnered on projects involving numerous governmental entities, including the MTA and the Port Authority, not only was unscathed by critical press coverage by Reuters and this blog.
The firm has grown so successful that "they’re just sort of not making loans anymore, they made some money and they've kind of retired," a Forest City official said earlier this year. (Actually, they're not so much retired as just stopped taking on new projects.)

So NYCRC co-founder George Olsen is an eminence in the EB-5 world, appearing with two former state Governors in a 9/17/15 panel discussion in Washington, DC, EB-5 Program: Successes, Challenges and Opportunities for States and Localities, hosted by the Bi-Partisan Policy Center, or BPC. (Note the absence of any EB-5 critics on the panel.)

The issue of gerrymandering

Please go to 20:49 of the video, when moderator Theresa Brown, the BPC's Director of Immigration Policy (and a former staffer at pro-EB-5 organizations like the U.S. Chamber of Commerce and the American Immigration Lawyers Association), gingerly brought up the issue of "gerrymandering," saying "it's been a little bit of a controversial area."

Gerrymandered TEA, Wall Street Journal
Actually, it's been controversial since a front-page New York Times article in December 2011, which followed up in part on some less-publicized coverage, including from me.

You see, the standard EB-5 investment is $1 million, but no savvy immigrant investor shells out that sum. The figure is cut in half if the investment is in a rural area or a zone of high unemployment, or Targeted Employment Area (TEA). Naturally, nearly all investments are in TEAs, and it's in a state's interest to draw them creatively, thus attracting cheap capital.

To create TEAs, states go through convoluted exercises to create strings of census tracts which average 150% of the national unemployment rate. Just a week before the panel, the Wall Street Journal reported on the distended shape of the TEA created to support a Related project in Hudson Yards. (See graphic at left.)

"The states get to decide," Brown stated, "and sometimes it is where the residents are largely unemployed, and sometimes it's adjacent to, and there's this talk of gerrymandering."

Olsen's response

The NYCRC's Olsen was unbowed. He referenced his firm's work with the Brooklyn Navy Yard, which is one census tract "has zero unemployment because no one lives there... so you need to combine census tracts."

If a TEA were limited to a Congressional District, he added, "I'm going to be accused of gerrymandering," because some of those districts have odd shapes.

"We try to work in high unemployment areas," he continued. "All our projects are in poor areas of Brooklyn, the Bronx, Upper Manhattan, the Lower East Side. So I really can't address what happens with other people."

(Emphasis added)

Oh, really? (Challenged by Reuters in 2010, Olsen blamed deception in marketing EB-5 on his firm's partners, perhaps in the same even tone.) Remember the "Bed-Stuy Boomerang," the odd TEA drawn for the NYCRC  to connect the not-so-high-unemployment area around the Atlantic Yards site to struggling parts of Bedford-Stuyvesant? 
Atlantic Yards site in blue

And didn't Olsen's firm raise money for the Battery Maritime Building in wealthy Lower Manhattan, which jumps the East River to encompass the Farragut Houses in Brooklyn, as the New York Times reported four years ago?

The lingering problem

One panelist, former Vermont Governor Jim Douglas, referenced the Wall Street Journal article (as WSJ reporter Eliot Brown pointed out), saying that a high jobless district that's contiguous "only if you can walk on part of the Hudson to get to another portion of Manhattan does seem to be somewhat beyond the intent of creating a Targeted Employment Area."

That, former Arkansas Governor Mike Beebe followed up, was a "testament to American ingenuity. You can set up any type of program you want to.... and we've got really smart people that can figure out how to get it another direction."

And that's the problem, as regional center component of EB-5 faces renewal by December 11. (Here's a report focused on a split within the world of real estate regarding EB-5 reforms, while one prominent lawmaker, who's in the minority, would like to kill the program in its entirety.)

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