Skip to main content

As EB-5 faces reauthorization, proposed reforms include $800K minimum, narrowed TEAs; Grassley questions foreign companies using program

It's that time again, another renewal of the EB-5 Regional Center program, and there are actually some belatedly reasonable reforms floated, such as raising the minimum to trade a purportedly job-creating investment for green cards from a decades-long $500,000--money that is merely parked for five-plus years--to $800,000.

Or, as program critic David North of the right-wing Center for Immigration Studies put it, "If we are going to sell visas – a fundamentally terrible idea – we might as well get 60 percent more for them."

The problem, however, as with last year's unsuccessful attempt at reform, is that the main goal of Congressional reformers is to spread the wealth more broadly, so that blatant evasion of the law's initial purpose is replaced by something closer to--though, I'd say, hardly guaranteed--that purpose.

The issue, as I've written, is not what's illegal, but rather what's legal, and when defenders like the head of an EB-5 trade group claim it "creates jobs" at no cost to taxpayers, that's bogus.

The framing

As the New York Times reported 9/12/16, Visa Program Up for Renewal Amid Allegations of Fraud
A contentious visa program that allows wealthy foreigners to obtain a green card by investing in economic development projects will expire at the end of this month unless Congress acts to extend it.
The program, called EB-5, allows foreign investors to gain a quicker path to citizenship by investing from $500,000 to more than $1 million to finance a business that eventually employs, directly or indirectly, at least 10 American workers in economically depressed areas.
Developers and supporters in Congress say the program, run by theDepartment of Homeland Security, has brought billions of dollars to areas that would otherwise not have access to capital.
But the program has been marred by fraud and used to build large projects in wealthier areas like Manhattan and the Las Vegas Strip instead of high-unemployment or rural areas. Federal investigators have also discovered that attempts to infiltrate the program were made by people with possible ties to Chinese and Iranian intelligence, and that international fugitives who laundered money in their home countries gained citizenship through the program.
Indeed, one of the one-time poster children for EB-5 progress, a project in Vermont, has been the subject of fraud charges. 

Bisnow, a voice of the real estate industry, asked IF CRE SUPPORTS EB-5, WHY IT IS IN JEOPARDY? Indeed, if Commercial Real Estate is the only voice lobbying--because no one really represents the public at large--EB-5 is in jeopardy not because the program deserves but because some want to spread the wealth.

Reforms suggested

The new bill, sponsored by Congressman Bob Goodlatte (R-Va.), would raise the minimum amount investors would need to pump in to get a green card. That in itself was expected. But what makes it unusual is a provision that would require existing investors to retroactively cough up the additional amounts. It is this provision, real estate insiders say, that could cause investors to pull their money out of U.S. real estate projects, leaving developers in the lurch.
The retroactive provision would go back to applications filed by investors starting in June 2015, but that could be a bargaining chip. After all, Goodlatte has received a good amount of cash from EB-5 promoters.

The consensus now is that EB-5 likely will be extended until December, whereupon a provisions would be negotiated.

As the Real Deal reported, Goodlatte's bill helps crack down on fraud by tightening financial reporting. And it narrows the gerrymandering of so-called TEAs, part of the history of Atlantic Yards EB-5 efforts:
It would also crack down on developers’ ability to present their projects as being in high-unemployment areas by creatively cobbling together census tracts, a process some have likened to gerrymandering. Many New York developers, including theRelated Companies and Extell Development, have been accused of manipulating census tracts to make sure their developments are located in “Targeted Employment Areas,” allowing them to qualify for the lower investment threshold.
Under the bill, combining census tracts would no longer be permitted. In addition, approximately 2,000 visas would be reserved for projects in rural areas, which are seen as high-risk. Those visas would not be reallocated to urban projects even if they remain unused.
The Hill reported that Sen. John Cornyn (R-TX) confirmed that EB-5 would be extended until December. He and Sen. Chuck Schumer (D-NY) blocked reform effort last year.

The foreign influence

As The Hill reported:
Grassley, separately, sent a letter to Homeland Security Secretary Jeh Johnson on Monday, writing that the program "has significant problems that not only pose a threat to our national security, but also threaten the integrity of our financial and legal immigration systems."

The Iowa Republican added that he is concerned that foreign governments and corporations "are increasingly taking advantage" of the program. He wants a briefing on policies that permit foreign ownership of an EB-5 regional center or allow foreign corporations to profit from the projects.
That Grassley letter warns:
It has come to my attention that USCIS has approved several large-scale EB-5 projects in affluent, gateway markets that involve Chinese companies (and/or their domestic subsidiaries) with substantial financial interests in the underlying real estate assets. For many years, China has been the major source country for immigrant investors. To attract these investors, U.S.-based EB-5 regional centers often contract with Chinese EB-5 capital placement firms to recruit investors for their respective projects. These Chinese firms are not subject to U.S. securities regulations; and are able to collect monetary payments from U.S. regional centers and in some instances even obtain equity interests in the EB-5 project. Regional centers typically pay top placement agents an up-front fee of $75,000 or more per $500,000 investment they obtain, plus a 3 to 8 percent share of the interest over the term of the loan.
He adds:
Moreover, EB-5 investment projects that create a tangible output, such as a real estate development, that is principally if not exclusively available for the enjoyment only of the foreign investors themselves, have a snake-eating-its-own-tail quality about them that Congress absolutely did not intend; they subordinate any benefit to the American people actually living in the Targeted Employment Area to the benefit of wealthy foreign investors. Despite these conflicts of interests, USCIS has approved several other EB-5 projects that are owned or influenced by foreign corporations and foreign governments to develop major real estate projects in Illinois, New York, and California. ...The EB-5 program has derailed from the original intent of revitalizing distressed and urban communities who desperately need the additional investment capital. Instead, the program is increasingly becoming dominated by mega-projects in the most affluent areas, and foreign corporations are mostly likely to reap the economic benefits... Pacific Park, also in New York, is seventy percent owned by Chinese-owned Greenland.... 
It is obvious that foreign corporations and foreign governments are increasingly taking advantage of the EB-5 regional center program to establish ownership in U.S. based real estate projects. I am concerned that this may allow foreign corporations and foreign governments to profit from marketing U.S. green cards to their citizens in return for investments and ownership in EB-5 real estate projects. 
Well, Greenland entered Atlantic Yards/Pacific Park after original developer Forest City Ratner joined the EB-5 gravy train, but it is benefiting--bizarrely enough--from the marketing of green cards to Chinese nationals.

Grassley asked for "a briefing on the policies and guidance that permit foreign ownership of an EB-5 regional center and allow foreign corporations to invest in and profit from EB-5 projects."

GAO update

Meanwhile, the Government Accountability Office has taken another look at program oversight, citing improvements that don't go far enough
The Department of Homeland Security's U.S. Citizenship and Immigration Services (USCIS) has recently taken steps intended to enhance fraud detection and mitigation activities for the Employment-Based Fifth Preference Immigrant Investor Program (EB-5 Program) and address previous GAO recommendations.
This includes actions such as conducting and planning additional risk assessments to gather additional information on potential fraud risks to the program. For example, USCIS is leveraging overseas staff to investigate potential fraud associated with unlawful sources of immigrant investor funds and is conducting a site visit pilot to help assess the potential risks of fraud among EB-5 program investments. USCIS is also taking steps to collect more information about EB-5 program investments and immigrant investors through new, revised forms and expanding its use of background checks, among other things, to help improve its ability to identify specific incidence of fraud. However, fraud mitigation in the EB-5 Program is hindered by a reliance on voluminous paper files, which limit the agency's ability to collect and analyze program information. 
(Emphasis added)

So there could be progress, albeit belated:
GAO recommends that USCIS develop a fraud risk profile that aligns with leading practices identified in GAO's Fraud Risk Framework. The Department of Homeland Security concurred with GAO's recommendation.

Comments

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…

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…

Former ESDC CEO Lago returns to NYC to head City Planning Commission

Carl Weisbrod, Mayor Bill de Blasio's City Planning Commission Chairman and Director of the Department of City Planning, is resigning,

And he's being replaced by Marisa Lago, currently a federal official, but who Atlantic Yards-ologists remember as the short-term Empire State Development Corporation CEO who, in an impolitic but candid 2009 statement, acknowledged that the project would take "decades."

Still, Lago not long after that played the good soldier at a May 2009 Senate oversight hearing, justifying changes in the project but claiming the public benefits remained the same.

By returning to City Planning, Lago will join former ESDC General Counsel Anita Laremont, who after retiring from the state (and taking a pension) got the job with the city.

Back at planning

Lago, a lawyer, in 1983 began work as an aide to City Planning Chairman Herb Sturz, and later served as the General Counsel to the president of the NYC Economic Development Corporation, Weisbrod himself.