The truth within Trump's offhand $5M "Gold Card" visa proposal: EB-5, per Lutnick, is "full of nonsense, make-believe, and fraud." But defenders are lobbying.
On Feb. 25, President Donald Trump announced, apparently ahead of schedule, a plan for a $5 million "Gold Card" visa that might replace the EB-5 investor visa program, in which immigrants can get green cards for themselves and their families by making a purportedly job-creating investment.
Moreover, EB-5 marketing, as evidenced in investor session and later reports regarding three rounds of fundraising for Atlantic Yards, is riddled with nonsense, make-believe, and fraud.
Remember how Forest City Ratner and the New York City Regional Center sent retired hoopster Darryl (Chocolate Thunder) Dawkins to investment seminars in China in 2010?
As I wrote, it was a magical moment of international arbitrage, as slick marketing and basketball fever aim to sell investors on their green card dreams,perhaps likely distracting them from due diligence.
Fast forward to the 2014 marketing of Atlantic Yards II and Atlantic Yards III, with another regional center, the USIF, again with the participation of yes, Chocolate Thunder.
Another issue: does EB-5 create jobs?
With Atlantic Yards, the economist working for the USIF even claimed that railyard work--infrastructure!--counted as "residential construction," likely because the latter triggered a higher multiplier.
“Cheap capital is the crack cocaine to the real estate industry and probably every other industry,” industry player Matt Gordon told the newspaper. "They and their rather large political donations are going to be very motivated."
A webinar today is titled "The EB-5 Program: Strengthening Our Industry Through Opportunity." You could imagine the lobbying is going hard.
As Barrons reported today in Why ‘Gold Cards’ for Rich Immigrants Don’t Have to Replace EB-5:
While the proposal has been embraced and pooh-poohed, I was struck by Commerce Secretary Howard Lutnick's savage description of EB-5 as "full of nonsense, make-believe, and fraud." That, as I explain below, has prompted pushback, but in some ways didn't go far enough.
EB-5 basics
Note that the current EB-5 minimum is $800,000, while many investors, such as those with the three Atlantic Yards fundraising rounds, put up $500,000. Each investment must purportedly create ten jobs, but 1) that relies not on a head count but a "multiplier" applied to money spent and 2) that multiplier is used against the entire project budget, not just the EB-5 component.
In other words, nonsense.
In the case of Atlantic Yards, the developer recipient pays the lending entity--formed by a middleman known as a regional center--below-market interest, which is mostly kept by the middleman. So, assuming they get their money back after five to seven years, the cost is foregone interest plus fees.
With Atlantic Yards, the first round of EB-5 financing, $228 million, was repaid. The next two rounds were not--$286 million of $349 million remains--which is why developer Greenland USA is losing six tower sites put up as collateral, with that middleman, the U.S. Immigration Fund, somehow in control of the investment.
Fuzzy plans
Yes, most commentators think Trump's estimates are untenable, but, as CNBC's Robert Frank pointed out Feb. 27, Trump’s proposed ‘gold card’ visa comes with a hidden tax break for the wealthy: they wouldn't face taxes on their overseas income, "a lucrative benefit not available to American citizens."
That might justify the cost premium for some.
However, a certain number of projects, even ones embraced as exemplars like the Jay Peak ski resort in Vermont, turned out to be scams.
Barrons, citing a lawyer who represents EB-5 projects, suggests that reforms required by a 2022 Congressional reauthorization "vastly improved oversight," requiring third-party audits of funds.
Well, maybe. But that does nothing to oversee, for example, an EB-5 marketer--like the U.S. Immigration Fund (USIF) with Atlantic Yards--claiming that its projects are fully subscribed but failing to disclose that the loans haven't been repaid.
Trump's announcement was hardly definitive and, as EB-5 analyst Suzanne Lazicki, who helpfully posted transcripts, observed, Trump focused "on a Gold Card 'green card for sale' idea, with a range of objectives from deficit reduction to helping companies employ talented young graduates," without mentioning EB-5.
Meanwhile Lutnick "was negatively focused on EB-5, suggesting yesterday that EB-5 would be eliminated and replaced by the Gold Card, and today suggesting that EB-5 would be moved to his department, with contradictory statements on whether it would then be a project investment or a buy-a-green-card program," observed Lazicki, who writes EB-5 business plans and understandably defends the industry.
As one industry lawyer observed, "Trump Announces 'Gold Card' Program to Potentially Replace EB-5; Legality and Politics Unclear."
Fantasy math
Trump's projection of 1 million to 10 million applicants is a fantasy, with some--see this discussion on LinkedIn, or Axios--estimating 100 to 1,000, at least if it's faster than the far cheaper EB-5 program, assuming EB-5 sticks around. (It needs to be reauthorized in 2027.)
Trump said, in part: "We’re going to be doing something else that’s going to be very very good. We’re going to be selling a gold card. If you have a green card, this is a gold card. We’re going to be putting a price on that card of about $5 million dollars, and that’s going to give you green card privileges plus it’s going to be route to citizenship. And wealthy people will be coming into our country by buying this card."
The bonus
Yes, most commentators think Trump's estimates are untenable, but, as CNBC's Robert Frank pointed out Feb. 27, Trump’s proposed ‘gold card’ visa comes with a hidden tax break for the wealthy: they wouldn't face taxes on their overseas income, "a lucrative benefit not available to American citizens."
That might justify the cost premium for some.
David Bier of the libertarian Cato Institute suggested that implementation would be far tougher than proclaimed, and that wealthy people would thus be wary.
Lutnick's criticism
Lutnick said: "So the EB-5 program, was really, you lend some money, but it was all, it was full of nonsense, make-believe, and fraud. And it was a way to get a green card that was low-priced. So the President said rather than having this sort of ridiculous EB-5 program we’re going to end the EB-5 program. We’re going to replace it with the Trump Gold Card which is really a Green Card Gold so they’ll be able to pay $5 million dollars to the U.S. government."
EB-5 defenders like this association of investors suggest that Lutnick was exaggerating, as one GAO study found that less than 1% of petitions were fraudulent.
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| Dawkins signs autographs at investor event 2010 photo from consultancy Qioawai |
Barrons, citing a lawyer who represents EB-5 projects, suggests that reforms required by a 2022 Congressional reauthorization "vastly improved oversight," requiring third-party audits of funds.
Well, maybe. But that does nothing to oversee, for example, an EB-5 marketer--like the U.S. Immigration Fund (USIF) with Atlantic Yards--claiming that its projects are fully subscribed but failing to disclose that the loans haven't been repaid.
Marketing b.s.
Moreover, EB-5 marketing, as evidenced in investor session and later reports regarding three rounds of fundraising for Atlantic Yards, is riddled with nonsense, make-believe, and fraud.
Remember how Forest City Ratner and the New York City Regional Center sent retired hoopster Darryl (Chocolate Thunder) Dawkins to investment seminars in China in 2010?
As I wrote, it was a magical moment of international arbitrage, as slick marketing and basketball fever aim to sell investors on their green card dreams,
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| Dawkins back in China in 2014 |
Is that how real investments are sold?
Job creation?
Such federal job-creation credit is plausible only if, as NYU scholar Gary Friedland observed, “development and construction of the project would not proceed without EB-5 capital, a position that few project developers could likely demonstrate.”
As I wrote in 2017 for City & State, USIF Foundar Nicholas Mastroianni II devastatingly undermined the justification for his projects when he said, "Projects that don't typically need the capital are the projects that we look to lend money on. 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."
That means the immigrant investor funds don't create jobs at all. If EB-5 is just "free money, basically," as one EB-5 player put it or "legalized crack cocaine," as a finance broker reported after talking with Mastroianni, the program doesn't pass the smell test. That's still true.
That means the immigrant investor funds don't create jobs at all. If EB-5 is just "free money, basically," as one EB-5 player put it or "legalized crack cocaine," as a finance broker reported after talking with Mastroianni, the program doesn't pass the smell test. That's still true.
With Atlantic Yards, the economist working for the USIF even claimed that railyard work--infrastructure!--counted as "residential construction," likely because the latter triggered a higher multiplier.
A Rube Goldberg formula
Moreover, Trump's words touched on a fundamental problem with EB-5: the federal government controls the green cards, but they are distributed via a Rube Goldberg system in which the regional centers market projects to investors, with the purported public good the creation of jobs.
But that math is ridiculous, as I argued.
"We give them away," Trump said at the press conference. "Why should we give them away. We shouldn’t give them away."
Or, more precisely, we shouldn't let a gravy train of developers, lawyers, and regional centers control them. If we're going to sell green cards--and if others countries act similarly, there's a case for the U.S. to do so--the money should go into deficit reduction or infrastructure. (Still, the tax break bonus seems a giveaway.)
I've long quoted a Feb. 22, 2013 essay, Why Is the U.S. Government Selling Green Cards?, in U.S. News by Dartmouth business professor John Vogel, who concluded:
I've long quoted a Feb. 22, 2013 essay, Why Is the U.S. Government Selling Green Cards?, in U.S. News by Dartmouth business professor John Vogel, who concluded:
One of the oddities about the EB-5 program is that the U.S. government is giving out the green cards, but the entrepreneur who puts together the investment gets the money. This scheme seems inefficient and open to corruption. If our government really believes that it is a good idea to sell green cards, maybe we should drop the pretense that this is a job creation program. It might be more efficient to have the money go directly to the U.S. Treasury and reduce the deficit by billions of dollars a year. In fact, the U.S. government could auction off these green cards and perhaps raise even more money.
In 2016, immigration hawk David North suggested auctioning off visas, with a $1 million floor, with the money going into infrastructure projects.
Not really like Europe
How Trump’s ‘Gold Card’ Plan Echoes the Golden Visas Programs in Europe, the New York Times reported Feb. 26, suggesting it was somewhat like programs requiring investors spend typically 250,000 to 500,000 euros, whether by purchasing property, via venture capital funds or as an approved donation.
That, of course, is closer to EB-5, and far less costly than Trump's plan.
The article noted that various programs have since been closed or modified, since they've led to unexpected outcomes, such as a plethora of short-term rentals, or concerns about money laundering.
Panic in real-estate land
A March 1 Times follow-up, Trump’s ‘Gold Card’ Set Off Panic in an Unexpected Place: Real Estate, noted that EB-5 last year brought about $4 billion but "represents a huge profit bump for a small but powerful political contingency: major real estate developers."
A March 1 Times follow-up, Trump’s ‘Gold Card’ Set Off Panic in an Unexpected Place: Real Estate, noted that EB-5 last year brought about $4 billion but "represents a huge profit bump for a small but powerful political contingency: major real estate developers."
“Cheap capital is the crack cocaine to the real estate industry and probably every other industry,” industry player Matt Gordon told the newspaper. "They and their rather large political donations are going to be very motivated."
It's not just developers. Middlemen "regional centers" like the USIF also aim to sway politicians, as do immigration lawyers.
The Times's summary of the debate:
Proponents point to the jobs created. Critics say the EB-5 program falls short of its goal to stimulate investment in rural and distressed urban areas. Previous iterations allowed developers to gerrymander maps so that even densely populated and highly employed districts like Hudson Yards qualified for preferable terms. A 2022 law ended that practice and added new incentives to build in rural areas.Sigh: the jobs aren't necessarily "created."
Saving EB-5?
The Times pointed out that Lutnick later said the new program would “modify” EB-5 program, not necessarily kill it.
Invest in the USA (IIUSA), a trade group of regional centers, sees the glass half-full, stating, "IIUSA looks forward to working with the Administration and Secretary Lutnick to achieve the President’s bold vision and to ensure that investment-based immigration programs like EB-5 continue to be a powerful tool to drive new U.S. jobs creation and economic growth."
Invest in the USA (IIUSA), a trade group of regional centers, sees the glass half-full, stating, "IIUSA looks forward to working with the Administration and Secretary Lutnick to achieve the President’s bold vision and to ensure that investment-based immigration programs like EB-5 continue to be a powerful tool to drive new U.S. jobs creation and economic growth."
A webinar today is titled "The EB-5 Program: Strengthening Our Industry Through Opportunity." You could imagine the lobbying is going hard.
“The market for a gold card versus the market for an EB-5 visa is incredibly different—they can exist side by side and even augment one another,” said Aaron Grau, executive director of Invest in the USA, a nonprofit trade association for professionals serving the EB-5 market.
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