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As state is poised to give Fresh Direct subsidies, project relies on funds from immigrant investors under dubious EB-5 program; pitch in China was misleading

This isn't about Atlantic Yards/Pacific Park, or even a similar megaproject, but the EB-5 angle is too glaring to ignore.

Update: the subsidies were approved unanimously. Nearly everyone making public comment offered support of the project, while one representative of South Bronx Unite asked the board to take more time and acknowledge the health impacts. No one mentioned EB-5, though it's obviously crucial to the project.

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At a board meeting (webcast) this morning starting at 9:30, Empire State Development, the state economic development agency, is set to approve what the agenda describes as:
A. Bronx (New York City Region – Bronx County) – Fresh Direct Capital – Urban and Community Development Program – Urban and Community Project Development Assistance (Capital Grant) – and Metropolitan Economic Revitalization Fund (Capital Loan) – Findings and Determinations Pursuant to Sections 5(4), 16-d and 10(g) of the Act; Authorization to Adopt the Proposed General Project Plan; Authorization to Make a Loan and a Grant and to Take Related Actions; Determination on No Significant Effect on the Environment
From ESD Board Materials; go to p. 51
In other words, ESD is about to give Fresh Direct a $9 million grant and a $1 million loan to move/expand from Long Island City to the South Bronx.

That's on top of $10.5 million from the New York City Industrial Development Authority and $1 million from the New York State Department of Transportation and $5 million in New Markets Tax Credit Equity.

Add $15 million from the investment fund Brightwood Capital, $40 million in the company itself, and a whopping $84,168,000 in an EB-5 loan.

Unmentioned are previous promises (which may have been adjusted) of $18.9 million in state Excelsior tax credits; $4 million in state energy grants and incentives; up to $1 million in vouchers for the purchase of electric vehicles; about $74 million in city sales tax exemptions, mortgage recording tax deferral, and real estate tax exemptions; $4.9 million in city energy benefits; $1 million capital grant from Bronx Overall Economic Development Corporation; and a $3 million loan and $500,000 capital grant from the Borough President

Pitching Fresh Direct to Chinese investors
Let's put aside the strangeness of the city and state subsidizing a cross-borough move based on a perceived threat from New Jersey, an unlikely base for a delivery service that needs quick access to Manhattan.

Or that Fresh Direct is moving after having gotten subsidies to stay in Queens through 2025.

Or that neighbors (see South Bronx Unite) pose some heavy concerns about the project's environmental impacts, and that if the promised job total is not reached, there's no "clawback provision" to recover subsidies. (See Good Jobs New York timeline.)

Looking at EB-5: total funding

The really strange thing is the reliance, according to ESD Board Materials (p, 51ff.), on the EB-5 immigrant investor program, in which foreign millionaires, mostly from China, park $500,000 in a purportedly job-creating investment, get green cards for themselves and their families, and later get their money back. (In this case, they're getting a relatively high--for EB-5--rate of 4.5%.)

The pitch in China, translated
The developer gets cheap capital. The public is supposed to get 10 jobs for each investor.

According to promotional material supplied almost surely by the New York City Regional Center, the private investment pool set up to market EB-5 investments (and reap fees), the project would not be $166 million in total, but $208 million.

Looking at EB-5: percentage of funding

That's not the only misleading part. EB-5 funding is said to make up just 40% of the project, rather than more than 50%.

And Fresh Direct is said to be providing the rest of the funds, which is clearly not true.

In fact, the "government support" is key in reassuring potential investors that the project is solid.

Looking at EB-5: projected funding doubled in less than a year

Also particularly strange is, as of last December, when the project was up for Bronx Economic Development Corporation funding via the New York Empowerment Zone Corporation, the EB-5 funding was only supposed to be $40 million. See graphic below.

That's a huge jump in eight months or so.

Looking at EB-5: the jobs

As noted in the graphic above, 170 investors contributing $85 million--or, apparently, 168 contributing $84 million--must create about 1,700 jobs.  And the EB-5 project, according to an economist's report--not a head count--is said to create 2,145 jobs.

However, the New York City Economic Development Corporation has said the new project would retain nearly 2,000 existing jobs, create almost 1,000 new jobs, and create about 684 construction jobs.

Pitching Fresh Direct to Chinese investors
So, even under this optimistic scenario, there would be less than 1,700 new jobs.

However, we must consider an extraordinarily generous feature of the EB-5 program (see overall analysis in Fortune), one which makes the program especially attractive to developers and entrepreneurs, since, as long as they go through the hoops of the EB-5 project, they can profit by selling public property (visas) they should not own.

No wonder, according to the Wall Street Journal, the annual quota for visas is subscribed. (No, despite the caption in the article, EB-5 funds did not help build the Barclays Center.)

Job creation for the immigrant investors is calculated based on the value of the entire project, not their investment. So the job calculations should be based on the entire $166 million project. (Or, if they're based on the purported $208 million project, they're completely bogus.)

Another twist: different state programs have different job requirements. In order to retain state tax credits, Fresh Direct must create 946 new jobs. But ESD's grant and loan merely require retention of 1,949 jobs through 2025, according to the graphic below, from board materials.




Comments

  1. Anonymous2:52 PM

    And note that Fresh Direct AND NYCEDC are BOTH represented by lobbyists and real estate agents http://www.washsquare.com/clients.html

    definitely NOT seeking the best deal for the tax payer.

    ReplyDelete
  2. Anonymous2:55 PM

    Let's not forget that Joe Chan former Brooklyn Partnership president & now real estate VP & ESD was behind the Fresh Direct project.

    ReplyDelete

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