March 23, 2012
BusinessWeek takes look at "dodgy" EB-5 program, cites AY figure at $228 million; Forest City claims money is going to infrastructure, but documents suggest it's just replacing land loan
Atlantic Yards Report
In Coming to U.S. Costs $500K With Dodgy Job Plan, Bloomberg BusinessWeek takes a critical look at the fast-growing EB-5 program, in which developers and others have found a source of cheap financing: immigrants and their families can get green cards for themselves and their families if their $500,000 investment creates ten jobs.
The investigation, which looks at several projects, takes a somewhat critical look at Atlantic Yards, and reveals some new information: a total of $456 million raised, not the announced $498 million, and a questionable explanation for how the money is being used. But it leaves some lingering questions unanswered or unaddressed.
Overall, the portrait of EB-5 is tough, citing limited federal oversight:
Projects aren’t rigorously vetted and have been hyped by operators and brokers, and immigration authorities have botched visa claims and stranded investors and their families, according to lawsuits and participants critical of government supervision.
Several of the projects described are fairly small time, involving a few million dollars, not the $400 million-plus Brooklyn project.
AY and jobs
The article states:
In one case, Brooklyn’s Atlantic Yards real-estate development, immigrant investors are putting about 30 percent of the capital into one pool financing the project, and claiming all jobs that pool is expected to create, according to George Olsen, managing principal of New York City Regional Center LLC.
The EB-5 program rules don’t demand enough proof that promised jobs, however they’re calculated, will be generated, said Jose Latour, a Miami immigration lawyer who co-owns American Venture Solutions Regional Center LLC in Florida.
“There’s no accountability,” he said. “Atrociously inflated projects are going to result in a lot of rejected green card applications.”
Latour may be right, but that's not an apt criticism of the Atlantic Yards EB-5 venture. In that case, the applications have been approved. The question is whether that approval meets the letter of the law (apparently) and the spirit of the law (dubious).
BloombergBusinessweek, Coming to U.S. Costs $500,000 With Job Plan
Civic leaders in El Monte, California, saw the Transit Village development planned for land around the bus station as a way to revitalize downtown.
Developers John Leung and Jean Lang pitched it as something else to wealthy Asians: a ticket to a U.S green card.
The pair solicited $500,000 from a South Korean eager to win a resident visa through a federal program designed to stimulate job creation. The developers’ company went bust, the investor doesn’t have a green card and Transit Village didn’t produce any jobs in El Monte, a city of about 120,000 east of Los Angeles. Leung and Lang said they did nothing wrong. City officials said federal authorities didn’t do enough.
“Little El Monte stepped up to expose these people,” said Rene Bobadilla, the city manager. “Where the heck is the federal government?”
If the Feds aren't going to crack down on a couple of two-bit California developers, who's going to police Bruce Ratner?
Some claims about job generation are dubious, said Michael Gibson, a Tampa-based investment adviser who vets EB-5 deals for foreigners. When a project “substitutes EB-5 capital for more expensive bank financing or bond funding or even equity,” he said, “that isn’t really creating new economic activity. It’s margin for the developer.”
The Atlantic Yards developer, Forest City Ratner Cos., is borrowing $228 million in EB-5 money for a $1.4 billion infrastructure and arena fund that’s paying for a new subway entrance, parking facilities, municipal water and sewer line upgrades and other work in the vicinity of Barclays Center, according to Joe DePlasco, a spokesman for the company. The arena, which is being built for the National Basketball Association’s New Jersey Nets, will be an anchor of the $4.9 billion development, planned to include up to 6,430 housing units and 247,000 square feet of retail space.
The loan money is coming from 456 foreigners through the New York City Regional Center, according to Olsen, the managing principal. Forest City first asked for EB-5 money to pay off loans to the company from a unit of New York-based Gramercy Capital Corp., a real estate investment trust. When USCIS ruled against that, the plan was revised, Olsen said.
As Norman Oder points out in his coverage of the Businessweek story:
Hold on. There's no $1.4 billion infrastructure and arena fund. There is a purported $1.4 billion infrastructure and arena project, a fiction created to market a portion of the overall Atlantic Yards project to investors.
The money for the arena, and infrastructure, was already in place when the then-$498 million investment was marketed to potential investors. There was an existing arena project, funded mainly by $511 million in bonds, plus private equity and city and state subsidies. And the subsidies were supposed to go to infrastructure, in the main.
Posted by eric at March 23, 2012 11:59 AM