Skip to main content

Congressman says allowing EB-5 investors, who contribute a fraction of project funds, to claim all jobs is a "mockery" (and that's what happened with AY)

Something very interesting happened during yesterday's House Judiciary Committee hearing on the EB-5 program, titled IS THE INVESTOR VISA PROGRAM AN UNDERPERFORMING ASSET?

Committee Chairman Bob Goodlatte (R-VA), in his opening statement, expressed surprise and dismay about many aspects of the program, though he wants to mend it, not end it, as the Hill reports.

He seemed particularly outraged about about one lucrative feature of the program, in which immigrant investors must "create" at least 10 jobs by temporarily investing at least $500,000 and thus get gain green cards for themselves and their family. 

Job creation is not based on a head count but rather calculated via a paid economist's report, and the numbers--such as regarding the Staten Island Wheel, as I've reported--strain credulity and differ dramatically from head-count reports.

Claiming jobs created b y other people's money

Goodlatte raised an issue I've pointed out for years in this blog, noting that federal rules "allow foreign investors to receive credit for all the jobs, even those created by other people's money." He cited one case in which EB-5 funds represented just 18% of the total. "This makes a mockery of the job creation goal of EB-5," he said.
He seemed to be referencing a December 2013 report from the Office of the Inspector General of the Department of Homeland Security (which also houses the United States Citizenship and Immigration Services, USCIS, which oversees EB-5):
In one case we reviewed, an EB-5 project received 82 percent of its funding from U.S. investors through a regional center. The regional center was able to claim 100 percent of the projected job growth from the project to apply toward its foreign investors even though the foreign investment was limited to 18 percent of the total investment in the project. Every foreign investor was able to fulfill the job creation requirement even though the project was primarily funded with U.S. capital. When we questioned USCIS about this practice, the officials explained that the EB-5 project would not exist if not for the foreign investment.
That's perhaps plausible when the EB-5 money is seed money, but in a large majority of cases it is not, experts agree, but rather "margin for the developer."

In fact, the "other people's money" in the case of the first round of Atlantic Yards EB-5 fundraising, which brought the developer a $228 million low-interest loan and saved tens of millions of dollars, included public funds.

Questioning the director

Under questioning, Nicholas Colucci, Chief of the Immigration Investor Program for USCIS, could not quite share Goodlatte's outrage. He repeated his statement from a hearing the previous week, that some 160 industries would not qualify for EB-5 funding, because $500,000 could not create ten jobs, even though federal rules allow indirect and "induced" jobs to be counted.

Colucci added that "the reverse is true," that "many projects" consist solely of EB-5 funds--a contention about which I'd like to learn more details. And he added that in some cases, loans from other sources are contingent on EB-5 funds. This was not the case in the slightest regarding the Atlantic Yards fundraising.

Indeed, Goodlatte drilled down, pointing out that the federal government had not increased the minimum investment level for inflation--the $500,000 floor has existed for 25 years, but is expected to rise. "If you had done so, wouldn't jobs have increased?"

"Sir, that is correct," Colucci responded.

Similar to the 18% example: Atlantic Yards EB-5

The first two rounds of Atlantic Yards fundraising portrayed the EB-5 funds as a fractional piece of a purported larger "project," which itself is smaller than the full Atlantic Yards project.

As I wrote in December 2010,  the "project," as presented involves a total of $511 million in state bond financing, $457 million in Forest City Enterprises/partners' bonds, $131 million in city funding, $100 million in state funding, and $249 million in EB-5 investment funding, for a total of $1.448 billion.

As shown in the graphic, prepared by one of the Chinese migration agencies helping recruit investors, the latter were were told that EB-5 funding was only 17% of total "project" funding, with the rest coming from government funds, private investments, and "New York State Municipal Bonds." (Actually, government-authorized tax-free bonds, via the Brooklyn Arena Local Development Corporation, are not municipal bonds.)

So 17% is even less than the 18% cited by Goodlatte.

Similarly, as I wrote in January 2014, in the second round of EB-5 fundraising for Atlantic Yards, the EB-5 funds were portrayed as 20% of the vaguely defined $1.235B "project" subset.

As seen in the screenshot at left, 41% of the $1.235B "project" would be a senior loan--I'd guess that's tax-exempt bonds--while 37% would be the developer's capital.

Of course, in both cases, the "project" at issue is cooked up for the purposes of EB-5.

But these "projects," as portrayed, accomplished two things: they suggested that the EB-5 funds were mere fractions of the overall cost, thus lowering the risk to investors, and they allowed the investors to get credit for the full project costs.

It's nice that Congress is finally waking up, but it sure took a while.


Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…