Is EB-5 coming apart at the seams?, one article asks, pointing to allegations of fraud, enormous wait lists among visa-seekers from China, and a series of short-term extension to the key element of the investments-for-green-cards program, which involves Regional Centers, which can pool investments.
The article points to some tensions aired at June Senate hearing:
“We’re talking about a program that allows rich people to buy legal status in the United States with their wealth at the same time as poor people are risking their lives and the health of their children to even apply for legal status in the United States,” said Illinois Sen. Dick Durbin.But the issue goes beyond fraud or even national security concerns.
And Republican Sen. Chuck Grassley of Iowa — one of the program’s most vocal opponents in Washington — maintained that the EB-5 economy of brokers, dealers and developers is so fraught with corruption, the program should be closed if it is never adequately reformed.
After all, Grassley just wants the program modified to ensure that more investments go to rural states. There are currently various proposals to raise the threshold investment from $500,000--currently available in a so-called Targeted Employment Area, typically a gerrymandered urban district with an aggregate high unemployment rate--to assist such rural areas, and also to cut down on gerrymandering. (The next deadline for an extension is Sept. 30, 2018.)
A fundamental flaw, unmentioned
Unmentioned, as I've pointed out multiple times, is the fundamental flaw in EB-5: the investments aren't needed to create jobs. They just create profits for the real-estate industry. As I wrote in May 2017 for City & State, drawing on a video that the Real Deal itself produced:
However, Mastroianni devastatingly undermined the justification for his projects – including, presumably, One Journal Square – at a little-noticed panel in Shanghai last November for EB-5 insiders.The flow changes
"Projects that don't typically need the capital are the projects that we look to lend money on," he said, on video. "If a project can't be developed without the EB-5 capital, it's not a project that you should be looking to invest in, because you've got a desperate situation."
But if One Journal Square doesn't need that EB-5 capital, the immigrant investor funds don't create jobs at all.
Moreover, the gloss has left the Chinese market. The Real Deal reports:
Since USCIS only issues 10,000 new EB-5 visas a year and imposes quotas on individual countries, the wait list for a Chinese national to get a green card through the program is now about 15 years.
“China is dead,” said Min Chan, an immigration attorney who specializes in the EB-5 program and has helped regional centers attract investors. “No one is going to waste 15 years to get a green card and have their money tied up for that long.”
Another article, Chinese EB-5 investors in major New York developments want their millions back, describes how lawyers are helping Chinese investors get their money back, even without green cards, given the long delay to get their visas.
Because the law "requires that investments remain “at risk” in an active project until all of that project’s investors’ visas are approved," what that means is that EB-5 funds must often be moved to a different project--something the Chinese investors' lawyers say they were not warned about.
The article states:
USIF’s [U.S. Immigration Fund] founder Nicholas Mastroianni said in an interview that investors can drop out of the green card process and take their money back once the original loan they invested in is paid off. Those financings usually carry five-year terms.Well, why haven't we heard about the first round of the Atlantic Yards EB-5 fundraising being paid off? That was secured in 2010, via the New York City Regional Center (NYCRC), while Mastroianni's firm did the next two rounds of Atlantic Yards EB-5 financing.
Typically--though I'm not sure about that fundraising effort--the term is five years, with possibly a two-year extension.
The NYCRC gets some scrutiny
From the article:
Olsen and Levinsohn launched their firm, the New York City Regional Center, 10 years ago with just $300,000. Since then the company has raised over $1.5 billion in foreign capital to fund 21 real estate and infrastructure projects across the city, while securing more than 4,500 green cards for foreigners, according to its website.“They’ve done some things that weren’t the best practice,” EB-5 advisor Michael Gibson told the Real Deal. Their former partner Mona Shah said, “And they’ve made their money. Not always in the correct way.”
Among the 903 regional centers designated by the federal government, as of June 2018, NYCRC is considered one of the most prolific EB-5 conduits in the country....
But the company’s reputation is being tested by two ongoing lawsuits that allege the regional center has defrauded investors and refused to pay an overseas migration firm that sent hundreds of investors to NYCRC.
Those are tough quotes, but the article is still too gentle:
In [South] Korea, one migration agent hired by NYCRC told investors that their money would be used to fund the construction of an arena — the Barclays Center, future home of the New Jersey Nets NBA team — and that their green cards were “guaranteed,” according to a 2010 Reuters report. But the marketing pitch was not totally true. The funding would go toward infrastructure near the Barclays Center, and green cards cannot be guaranteed under the EB-5 program because investments must be “at risk.” Olsen told Reuters that the agent had misrepresented the project.
As I wrote in December 2010 for the Huffington Post, Reuters seemingly nailed the NYCRC on several misrepresentations. The deceptive statements highlighted by Reuters and explained away by Olsen had been made by the NYCRC’s own principals in a project video, the audio of which I reproduced on my blog.
And the same statements had been made by the NCYRC’s point man in China, Gregg D. Hayden, during investment seminars and webcasts there, as I described, with video.
Eight years later, the skepticism is welcome, but a little overdue.