February 6, 2012
EB-5 visa use booms; ex-elected officials cash in; immigrant investor funding eyed for sports facilities in Sacramento, Oakland
Atlantic Yards Report
EB-5 is all over the news these days, in terms of record-breaking statistics, new opportunities to deploy immigrant investor funds, former elected officials cashing in, and some questionable deals.
The Association to Invest In the USA (IIUSA), the trade association for the EB-5 Regional Center Investment Pilot Program, on 2/1/12 celebrated a new peak in investment immigration....
Related coverage...
Atlantic Yards Report, New cautions from China about EB-5 investments (taxes, investment risk)
Even as EB-5 business--and the ambition behind it--continues to grow, there's new caution in China about the benefits and costs of EB-5 investments, in which a $500,000 investment in a purported job-creating enterprise brings green cards for the immigrants and their families.
In a 1/10/11 article headlined Expats in US pay high price, China Daily reported some pitfalls, given that not only must residents pay taxes on worldwide income, there are new reporting requirements....
Posted by eric at 11:12 AM
February 4, 2012
Super Bowl 2012: Are Sports Stadiums Ripping Off Cities?
International Business Times
By Roland Li
No story about public financing of sports facilities would be complete without a mention of the poster child of wasteful public spending: Atlantic Yards.
But the most controverial arena has been Forest City Ratner's Barclays Center at Atlantic Yards in Brooklyn. Conceived in the early 2000s, the project received $511 million tax free bonds in 2009, but had to clear lawsuits challenging the use of eminent domain to seize private property. A design by Frank Gehry was later dropped in favor of SHoP to cut costs, and prefabricated steel is being used on residential towers for more savings. The arena is set to open later this year.
NoLandGrab: Let's see: Government subsidies and use of eminent domain and all we get is a money-losing arena? I do believe we've been ripped off.
Posted by steve at 3:03 PM
January 31, 2012
Ratner’s parent company unveils $300M in NYC property financings
Company closes loans on Queens Place, Nine Metrotech
The Real Deal
by Katherine Clarke
And we thought lenders had learned their lessons...
 |
Forest City Ratner’s Cleveland-based parent company Forest City Enterprises completed more than $300 million in property financings in the quarter ending Jan. 31, 2012, including two worth a combined $163 million in New York City, it announced today.
The company closed a 10-year, $87 million loan for Queens Place, a 455,000-square-foot, five-level retail center on Queens Boulevard. It also purchased the existing $75 million loan at Nine Metrotech, a 317,000-square-foot office building in the MetroTech Center office campus in downtown Brooklyn, and then closed a new 10-year, $63 million loan for the same property.
Posted by eric at 10:27 AM
January 25, 2012
Federal agency overseeing EB-5 immigrant investment program confirms that it will continue to let states gerrymander districts of high unemployment
Atlantic Yards Report
I wrote 1/11/12 how a revised draft memo on EB-5 Adjudications Policy, issued that day by the United States Citizenship and Immigration Services (USCIS), punted regarding the practice by states of gerrymandering maps to ensure projects aimed at immigrant investment were located in areas of high unemployment.
And that allows for a lower investment level, $500,000, rather than $1 million, for those seeking green cards and their families.
Last month, in a front-page article, the New York Times put the gerrymandering issue on the national agenda, forcing USCIS Director Alejandro Mayorkas to acknowledged concern about the spirit of the legal provision which aims to help high-unemployment districts.
The Times article, which focused on the odd maps approved for New York projects (including what I've dubbed the "Bed-Stuy Boomerang" involving Atlantic Yards), even generated an editorial chiding the federal agency.
But the memo issued earlier this month stated that the USCIS would continue to give deference to the lines drawn by the state.
NoLandGrab: We suppose it's too much to ask for that boomerang to come back and hit Bruce Ratner in the tuches.
Posted by eric at 12:02 PM
January 19, 2012
Is America shutting the door on expats?
After an eight-year battle to become a US citizen, London-born Sebastian Doggart looks at how the Obama administration has tightened the defences of Fortress America
The Telegraph
by Sebastian Doggart
Bruce Ratner's favorite immigration program is the one place where America's borders have not been solidified.
The Obama administration has overseen an escalation of America’s greenbacks-for-Green-Cards policy. These visas are called EB5s, and getting them has become a whole lot easier recently. Their cost has dropped from $1million to $500,000. The requirement that an EB5 investor should employ at least 10 workers is rarely enforced. EB5s have been used to refinance troubled schemes, including, in my own neighbourhood of Brooklyn, the blighted Atlantic Yards project. The subject of a powerful, new documentary called Battle for Brooklyn, this highly controversial scheme was backed by New York City Mayor Michael Bloomberg, and sought to evict local residents to build high-rise buildings and a new stadium for the New Jersey Nets basketball team. When financing dried up after the 2008 financial crisis, developer Bruce Ratner had to find new financial instruments to pay for construction. These included raising $249 million from 498 investors, mostly from China and South Korea, in exchange for EB5 Green Cards, as well as the sale of the Nets to Russian oligarch and presidential candidate, Mikhail Prokhorov.
For anyone not in the one per cent, the locks on the gates to America have been fortified.
Posted by eric at 9:40 AM
January 14, 2012
In the New Yorker, a dissection of plans behind a new stadium (and some AY echoes); also, a look at the modest study of the Staples Center economic impact
Atlantic Yards Report
Connie Bruck's New Yorker profile of Philip Anschutz and the Anschutz Entertainment Group, The Man Who Owns L.A.: A secretive mogul’s entertainment kingdom., is subscribers-only, but it's well worth reading, especially for the machinations behind plans for a new football stadium in Los Angeles.
Anschutz owns the Staples Center and L.A. Live, and via key lieutenant Tim Leiweke, has proven quite adept at getting city and state legislators on their side.
Getting going
Bruck writes:
For the nation's second-largest city, L.A.'s downtown was shockingly underdeveloped. By the late nineties, many of its biggest firms... had been bought by other companies and their headquarters moved elsewhere. It was the perfect place for Anschutz, a confirmed bottom-fisher, to buy low and build a new empire.
Of course, L.A. is a more sprawling, West Coast city, and it had a large downtown, not a small piece of land, as in Brooklyn, designated for sports facility development.
...
As it happens, the Los Angeles City Controller commissioned a 2003 study by sports economist Robert Baade, which aimed to "address the issue of whether the City of Los Angeles derives revenue sufficient to justify their $71.1 million investment in the Staples Center." The report says yes, but the claims are modest, not outlandish.
Baade notes that the investment--which likely involved lower exposure to taxpayers--was quite low in the general realm. And Staples houses five professional sports teams.
...
Baade offers some guidance to those who present gauzy projections regarding sports facilities:
If prospective estimates are to be used in assessing the merits of subsidies for sports facilities, then they should, at the very least, be filtered through retrospective analyses for cities of a similar economic character to lend some context or supportive evidence.
Regarding Atlantic Yards, we could do that already. All the optimistic studies--from the developer's consultant Andrew Zimbalist, the NYC Economic Development Corporation, the Empire State Development Corporation--depend on a full buildout of the project in a decade. No alternative numbers were offered, based on a slower, or less complete, buildout. Thus the extant numbers are all suspect.
Posted by steve at 10:28 PM
January 11, 2012
Federal agency not yet ready to deal with EB-5 gerrymandering, as new draft memo still defers to state's mapmaking
Atlantic Yards Report
A revised draft memo on EB-5 Adjudications Policy, issued today by the United States Citizenship and Immigration Services (USCIS) to further discussion of policy regarding immigrant investors, makes no attempt to deal with issues of gerrymandering the map to help those promoting projects to claim they are in areas of high unemployment.
Gerrymandering is crucial, because areas where unemployment is 150% of the national average qualify as Targeted Employment Areas (TEAs), where the minimum investment--for an immigrant investor who seeks green cards for his/her whole family--is $500,000, rather than $1 million.
That issue came to the fore last month after the New York Times published a front-page article describing the odd maps approved for New York projects and an editorial calling for reforms. (I had written previously about the "Bed-Stuy Boomerang" involving Atlantic Yards.)
In the Times, USCIS Director Alejandro Mayorkas expressed concern whether the spirit of the law is being followed. If he's urging reform, though, his agency apparently will wait until legislative renewal of the regional center program--the investment pools through which immigrants invest--rather than via regulation.
Posted by eric at 6:51 PM
January 8, 2012
Crain's: gerrymandering of EB-5 districts "irrelevant to supporters because the projects are within commuting distance of these jobless areas"
Atlantic Yards Report
It's not usual that I'll chide the press for focusing on Atlantic Yards Report coverage while ignoring the New York Times, but Crain's New York Business deserves such treatment, in an article posted today headlined Green card program a boon for development funding: Foreigners eager to supply financing; will EB-5 be renewed?.
It provides the unsurprising round-up of projects funded under the federal government's EB-5 program--in which immigrant investors get green cards for themselves and their families in exchange for a $500,000 investment that purportedly creates ten jobs.
Dismissing the controversy
And it mentions--and dismisses--a recent controversy:
Proponents of the program, including President Barack Obama and Mayor Michael Bloomberg, hype its low-interest financing, lack of taxpayer subsidies and ability to create jobs. As it has become increasingly popular in New York, however, it has drawn critics who believe developers and state officials have massaged the rules and not hewed to the spirit of the program. With EB-5 set to expire in September, some potential participants have been given pause.
...But some believe its success in New York stems from developers and economic development officials gerrymandering zones so foreigners can readily invest in projects. Norman Oder, an Atlantic Yards critic and blogger, has shown how officials used census statistics to map districts that connect areas of high unemployment to projects in prosperous parts of Brooklyn and Manhattan. But the issue is irrelevant to supporters because the projects are within commuting distance of these jobless areas.
Well, there's no proof that people from those areas--remember the Bed-Stuy Boomerang?--are working at that site, nor that "commuting distance" meets the letter or spirit of the law.
More importantly, Crain's ignores that the New York Times put the issue on the front page and then published an editorial criticizing the program for such abuses.
Related content...
Crain's NY Business, Green card program a boon for development funding
“It was like a gift from the gods,” Mr. Kimball said of the program, recalling how American lenders had been reluctant to offer the Navy Yard financing after the recession. “We'd been exploring every option under the sun.”
Mr. Kimball returned from China with millions of dollars in commitments. Since then, a growing number of developers across the city have taken advantage of the federal program, known as EB-5. Once virtually unknown in New York, the 20-year-old program has become a lifeline for economic development in recent years, raising hundreds of millions of dollars for film studios, hotels and even Brooklyn's Atlantic Yards project.
NoLandGrab: "A gift from the gods?" Kinda like Bruce Ratner, almost.
Posted by steve at 10:41 PM
Brooklyn's fractured demographics, as seen in a new report on health care
Atlantic Yards Report
A report from the state Department of Health, At the Brink of Transformation: Restructuring the Healthcare Delivery System in Brooklyn (see Greater NY Hospital Association comments), aims to restructure Medicaid, but also offers some broader perspective on Brooklyn's fractured demographics and deep disparity between progress and need, a backdrop to the Atlantic Yards debate.
Brooklyn is the state's most populous county, and it has big problems. (Crain's is sponsoring a discussion 1/11/12 on Solving Brooklyn's Hospital Crisis.)
From the report's Executive Summary:
Today, Brooklyn is grappling with high rates of chronic disease and a healthcare delivery system that is, in many areas, ill-equipped to address them. High rates of preventable hospital admissions and avoidable emergency department visits indicate deficiencies in primary care and inefficient use of high-cost resources. Further, while there are several fine hospitals in Brooklyn that are well-managed and financially-stable, Interfaith Medical Center, Wyckoff Heights Medical Center and Brookdale Hospital Medical Center are experiencing financial crises. At the same time, great opportunity presents itself in new models of patient-centered care, focused on prevention, and supported by technology and appropriate reimbursement incentives... With Brooklyn’s high rates of obesity, high blood pressure and diabetes, and 1 million Medicaid beneficiaries among its [2.5 million] residents, the state has a strong interest in the quality, accessibility, efficiency and viability of healthcare in the borough.
Posted by steve at 10:35 PM
January 6, 2012
After 15 months, still waiting for response to a Freedom of Information Law request regarding ESDC official's trip to China to support Forest City Ratner's EB-5 sales efforts
Atlantic Yards Report
So, how far did New York State go to assist Forest City Ratner in its efforts to raise a low-interest loan of $249 million from immigrant investors seeking green cards under the federal government's EB-5 program?
After 15 months, I'm still waiting for a response to my Freedom of Information Law (FOIL) request to the Empire State Development Corporation. Nothing's changed since I wrote about my request nearly five months ago, in August.
Still, thanks to New York Times coverage of EB-5 gerrymandering, there's now much more concern about whether New York State bends the rules to help favored projects. So there's even more reason the state should practice transparency.
NoLandGrab: Yeah, how's that transparency thing coming along, Status Cuomo?
Posted by eric at 12:33 PM
December 28, 2011
Million-Dollar Visas
The New York Times, Editorial
The Times has a big, fat blind spot — and it obscures 22 acres in Prospect Heights.
The federal government’s investor visa, created in 1990, gives foreigners a chance at green cards if they invest $1 million to build a business in the United States that creates at least 10 jobs. Investing in an area with high unemployment would cut that price in half.
The program, known as EB-5, has led foreigners to invest in projects around the country, like factories, resorts, shipyards and other enterprises in designated poor areas in need of jobs. A report in The Times last week found that EB-5 applications have nearly quadrupled in two years, to more than 3,800 in the 2011 fiscal year.
But the program has spawned cynical practices that are stretching the rules and violating the spirit of the law. Some participants in New York, the report found, are pouring money into development zones that are misleadingly labeled as high-unemployment areas to qualify for the lower $500,000 investment threshold, but are not poor or underdeveloped.
For example, a $750 million office tower in the mid-Manhattan diamond district has raised 20 percent of its financing through the EB-5 program. This was made possible through a trick of mapmaking in which state officials counted the number of unemployed people in the census tract next door, which includes Times Square, to justify calling the whole area a high-unemployment zone.
Likewise, the gerrymandered lines of the development zone in Lower Manhattan near Wall Street skirt the wealthy enclaves but cross the East River to enfold a public-housing project in Brooklyn. Visa-seekers have used this district in three separate projects to qualify for the $500,000 discount.
NoLandGrab: Is it just coincidence that The Times fails to mention the grandaddy of EB-5 abuse, their development partner Bruce Ratner's Atlantic Yards?
Related coverage...
Atlantic Yards Report, Times editorial criticizes EB-5 gerrymandering, ignores Atlantic Yards example, as well as other EB-5 abuses
What's missing
Well, it's good that the Times is taking EB-5 issues seriously, but it's glaring that one of the key projects to take advantage of this gerrymandering, the Atlantic Yards project, went unmentioned. (Is that the "spirit of the Times," channeled through the publisher, a former business partner with Atlantic Yards developer Forest City Ratner?)
It's also notable that the Times does not recognize that the intent of Congress--to create jobs--is subverted in other ways, such as giving immigrant investors credit for jobs created by money contributed by taxpayers, or by allowing dubious calculations of indirect job creation.
MichaelBenjamin2012's Blog, Using Poor NYers as window dressing…Again! – UPDATED
Projects such as Atlantic Yards, the Battery Maritime Building, and the International Gem Tower have used questionable maps and the EB-5 program to attract foreign investors. Blogger Norman Oder and Reuters have revealed that manipulation of the program extends beyond deceptive zoning districts to misrepresentations and flat-out lies told to potential Chinese and Korean investors.
Posted by eric at 11:02 AM
December 27, 2011
States push further into the EB-5 act: New York offers grant to get Capital area regional center off the ground, Maine backs application in progress
Atlantic Yards Report
Given that states and cities benefit when local developers and businesses get cheap foreign capital, it's no surprise that states have begun to assist efforts to establish regional centers that recruit green card-seeking immigrant investors.
According to a 12/8/11 article in The (Albany) Business Review, State plan includes $125K to create EB-5 visa program in Albany:
The state will pay $125,000 [see p. 59 of this awards list] to help establish a federal visa program in the Albany, New York, area that would match wealthy foreign investors with local developers.
The funding is among the $62.7 million awarded to the Capital Region today through a competition set up by Gov. Andrew Cuomo to promote economic development.
The money was requested by the Center for Economic Growth to create the EB-5 visa program.
There are significant start-up costs to a regional center, including a lengthy application and an economic analysis--apparently funded by the grant--that must be submitted to the United States Citizenship and Immigration Services. Then there are marketing costs. The total can reach $600,000.
The Center for Economic Growth (CEG), a not-for-profit membership organization in the Capital Region, would not operate the regional center, according to the article; rather, the overseer would be another not-for-profit or, as is most common, a private business.
CEG President F. Michael Tucker told the 11/8/11 Business Review, “It basically provides a tranche of financing that would complement traditional bank debt and developer equity because right now in this credit market developers need more equity than they have in the past,” Tucker said.
Posted by eric at 11:10 AM
December 26, 2011
Defender of EB-5 program recommends "leveling the playing field," but doesn't recognize that ending gerrymandering would kill many regional center projects
Atlantic Yards Report
The front-page 12/19/11 New York Times article on EB-5 abuses, Rules Stretched as Green Cards Go to Investors, generated a defensive and somewhat naive commentary by EB-5 practitioner Scott Barnhart, who serves an an EB-5 economic consultant via his firm, Barnhart Economic Services.
Given that Barnhart's 12/22/11 commentary appeared on a very popular EB-5 web site, Brian Su's EB-5 News Blog: Regional Centers in the USA, it's worth a careful look as an example of industry thinking.
Too much regulation?
First, Barnhart suggests that the article "illustrates the problems encountered when regulators, developers and regional center owners must comply with the myriad regulations set forth by Congress surrounding the EB-5 immigrant investor pilot program."
However, the problems are not caused by over-regulation; they've been enabled by (take your pick) poorly drawn regulation or under-regulation. No one has blown the whistle on such problems previously, but they've long lingered, and the industry has not publicly pushed for reforms.
Posted by eric at 10:05 AM
European banks retreat from U.S. property sector
Reuters
by Ilaina Jones
In September, German bank Eurohypo and developer Forest City Enterprises Inc (FCEa.N) were negotiating a $65 million loan for 9 MetroTech, part of a 11-building office campus in Brooklyn, New York.
By October, the European bank told Forest City to find another lender, according to sources familiar with the talks. A month later, Eurohypo announced it was halting lending for U.S. commercial real estate altogether.
Eurohypo is not alone. Many European banks are retreating from the United States property market to deal with problems at home.
With other lenders also pulling back from the market, borrowing costs for property developers and buyers could jump, said Michael Higgins, managing director and head of U.S. real estate finance for CIBC World Markets Inc.
The end result could be higher construction costs and lower property values, putting a drag on the U.S. commercial property sector's recovery.
Posted by eric at 9:58 AM
December 22, 2011
Immigrant investors seeking green cards now own mortgage on development rights for Atlantic Yards tower; more mortgages coming
Atlantic Yards Report
Chinese millionaires are closer to owning a piece of the Atlantic Yards project.
Immigrant investors now own a $24.7 million mortgage on the 1.24-acre site for B12, the first of seven development parcels promised as collateral for a low-interest loan to developer Forest City Ratner.
More such mortgages are coming, a state official says, indicating that proceeds from the $249 million low-interest loan garnered through the EB-5 visa program are being delivered.
Forest City Ratner is thus transferring portions of a longstanding high-interest loan to the cheaper capital raised via Brooklyn Arena Infrastructure and Transportation Improvement Fund, an affiliate of the New York City Regional Center (NYCRC), a private investment pool authorized to recruit immigrant investors.
It looks like the large majority of the cheaper capital will replace that existing loan rather than be used, as Forest City officials once said, to build a new railyard.
Posted by eric at 12:51 PM
December 20, 2011
Psst, you want to buy a green card? It’ll cost you $500,000
KPCC/Southern California Public Radio
A federal program, known as EB-5, was created by Congress during the recession of 1990 to offer foreigners a way to earn a green card by investing in American construction projects.
The program is so successful that applications have quadrupled in the last two years. The minimum investment in the program was set at $1 million, but if the project is in a rural area or a place where the unemployment rate is fifty percent above the national average, the minimum investment is $500,000. The program is intended to encourage more development and job growth in poor areas, but some evidence suggests that, through selective use of census statistics, state officials are using gerrymandering techniques to designate development zones as having high unemployment in areas that are actually economically flourishing.
Related coverage...
Atlantic Yards Report, EB-5 controversy makes CA public radio show; CA rep says state doesn't bend rules
Yesterday, the Patt Morrison Show, on KPCC/Southern California Public Radio featured a segment taking off from the New York Times's coverage of how EB-5 projects in New York City stretch the rules.
The first guest on Psst, you want to buy a green card? It’ll cost you $500,000 was Times reporter Patrick McGeehan, who gave a basic summary of his article, explaining of state officials "string together census tracks" to claim projects are located in high-unemployment areas, thus allowing a more attractive minimum investment to those seeking green cards: %500,000 versus $1 million.
McGeehan used the term "little private investment banks" to describe the middlemen, formally known as regional centers, who earn both fees and the spread between the low interest the borrower is paying and the no-interest paid by those seeking green cards.
He also noted that the EB-5 program is dependent on "theoretical" job creation, based on a formula.
The program, he said, "was used quite effectively in Vermont, to build ski resorts... Now the problem is these big shiny projects... like a pro basketball arena in Brooklyn [are] stealing away the oxygen."
Actually, though the Atlantic Yards EB-5 project was pitched as an investment into the arena, does not involve a piece of the arena.
NY Observer, New York [Hearts] EB-5 Visas
The Farragut Houses, which like many city housing projects suffers from especially high unemployment, is actually included in three different EB-5 zones, including Atlantic Yards. Whether anyone in the houses is actually benefiting from the jobs is unknown. Whatever the ethics of the program, it should at the very least be helping them.
NoLandGrab: And who wants to bet that it's not?
Forbes, Job Creation Program Stretches Claims About Low-Income Neighborhoods
One example: the huge $4.9 billion Atlantic Yards project in Brooklyn. To attract financing under the EB-5 program, the developer, Forest City Ratner, has claimed the project is going up in an oddly-shaped zone that stretches more than two miles from the site and includes low-income parts of Crown Heights and Bedford-Stuyvesant. Longtime journalist and Atlantic Yards watchdog Norman Oder, author of the Atlantic Yards Report blog, has used Freedom of Information Act requests and translators to comb through piles of documents. Oder has described the developers’ supposed project area as “the Bed-Stuy boomerang,” akin to a gerrymandered political district.
...Oder has written more than 100 articles on the EB-5 program and he tells me the gerrymandered districts only scratch the surface of EB-5’s many problems.
Curbed, Green Cards Go For Real Estate Cash in Visa Deals
In a bid to finance real estate projects, developers have been ferreting out the hungry, tired, and poor already in NYC to qualify for the creation of special development zones, so they can sell visas to wealthy foreign investors.
Posted by eric at 12:37 PM
December 19, 2011
Times, in front-page story, critiques gerrymandering in New York's EB-5 projects, gets defensive response from feds; unmentioned are other rules being stretched
Atlantic Yards Report
In a front-page article today headlined Rules Stretched as Green Cards Go to Investors, the New York Times jumps on one aspect of the EB-5 story, the gerrymandering to ensure that immigrant investor projects qualify as located in high-unemployment areas.
The Times cites the International Gem Tower in the diamond district, the Battery Maritime Building in Lower Manhattan, and yes, Atlantic Yards (as I wrote 12/9/11), as taking advantage of gerrymandering. The Battery Maritime Building's Targeted Employment Area, the Times reveals, even "jumps across the East River to annex the Farragut Houses project in Vinegar Hill, Brooklyn."
Unmentioned: other rules being stretched regarding EB-5, such as the lack of actual job creation (defined via murky, non-public reports by hired economists), or the credit given to immigration investors for investments made by others, including taxpayers.
Also unmentioned is the enormous, sometimes deceptive hype behind project promotion, as well as the participation by city and state officials in such promotion--and the finder's fee to the New York City Economic Development Corporation in brokering EB-5 deals.
In other words, the problem goes much deeper than gerrymandering.
...Diminishing AYR impact
Describing me as a "local blogger," while not inaccurate, also is imprecise, and diminishes my experience as a journalist. It makes it harder to believe that I might have written more than 100 articles investigating the EB-5 issue.
Moreover, the paragraph leaves the impression that the gerrymandered map was publicly known, and that I merely named it. Rather, the issue was first reported on this blog, based on documents gathered via a Freedom of Information Act request.
Posted by eric at 10:26 AM
Rules Stretched as Green Cards Go to Investors
The New York Times
by Patrick McGeehan and Kirk Semple
Look who just caught on! In typical half-assed fashion, The Times barely scratches the surface of the EB-5 green cards-for-cash scam, a story on which they would have whiffed completely if not for Norman Oder's dogged reporting.
Affluent foreigners are rushing to take advantage of a federal immigration program that offers them the chance to obtain a green card in return for investing in construction projects in the United States. With credit tight, the program has unexpectedly turned into a mainstay for the financing of these projects in New York, California, Texas and other states.
The number of foreign applicants, each of whom must invest at least $500,000 in a project, has nearly quadrupled in the last two years, to more than 3,800 in the 2011 fiscal year, officials said. Demand has grown so fast that the Obama administration, which is championing the program, is seeking to streamline the application process.
Still, some critics of the program have described it as an improper use of the immigration system to spur economic development — a cash-for-visas scheme. And an examination of the program by The New York Times suggests that in New York, developers and state officials are stretching the rules to qualify projects for this foreign financing.
"Examination?" That's a bit much.
These developers are often relying on gerrymandering techniques to create development zones that are supposedly in areas of high unemployment — and thus eligible for special concessions — but actually are in prosperous ones, according to federal and state records.
...The giant Atlantic Yards project in Brooklyn, which abuts well-heeled brownstone neighborhoods, has also qualified for the special concessions using a gerrymandered high-unemployment district: the crescent-shaped zone swings more than two miles to the northeast to include poor sections of Crown Heights and Bedford-Stuyvesant. A local blogger and critic of Atlantic Yards, Norman Oder, has referred to the map as “the Bed-Stuy Boomerang.”
Posted by eric at 10:15 AM
December 15, 2011
EB-5 News Blog: continued uneasiness in China about marketing of EB-5 projects to immigrant investors
Atlantic Yards Report
Apparently there's continued uneasiness in China about marketing of immigrant investor projects, as detailed in the EB-5 News Blog, compiled by Brian Su, head of the EB-5 China Market Council and an EB-5 consultant in Illinois.
On 1/9/11, I pointed to five reports in Su's blog about Chinese officials cracking down on abuses or expressing concern. More recently, Su's EB-5 News blog reported 12/12/11, Report from China: Beijing Exit & Entry Service Association Issues Warning on EB-5 Program:
Beijing Exit & Entry Service Association recently issued a risk warning notice to local Chinese emigration agents and potential investors on EB-5 regional center program. The year of 2011 has been a very busy one for many Chinese emigration brokers that promote EB-5 projects to Chinese investors; various EB-5 projects have been marketed to Chinese investors, and the EB-5 regional center activities in China have been alarming to Chinese emigration trade associations around the country.
Related coverage...
Atlantic Yards Report, A view of EB-5 regional centers from the inside: marketing key to success, as is endorsement by local government, even though it's a private project
A 4/5/10 report by the Portland (OR) Development Corporation on the possibility of setting up a regional center to market EB-5 investments contains some interesting insights, based on calls to current regional center providers.
The report notes that marketing overseas is crucial, which means local government is rarely the applicant, because it lacks such marketing resources. A minimum of $600,000 is needed to set up, apply, and administer a regional center.
However, endorsement (or the appearance thereof) by local government is critical (as suggested in my coverage of the Atlantic Yards EB-5 venture in China) because it indicates political support, provides the appearance of financial stability, and plays well with investors from China, the largest source of EB-5 funds.
Posted by eric at 11:51 AM
December 14, 2011
Everybody's getting into the EB-5 Act
The green cards-for-cash scam is going viral!
Atlantic Yards Report, Former Governor Paterson signs up to promote an EB-5 project
Former New York State Governor (2008-10) David Paterson, whose post-office roles include hosting a drive-time radio show and teaching at New York University, has also signed on to promote an EB-5 investment immigration program, helping recruit investors seeking green cards for purportedly job-creating investments in the Times Square Hotel.
On 5/27/11, the New York Immigration Fund (NYIF), a federally approved regional center--a private investment pool formed to recruit investors--announced a partnership with Paterson, suggesting in a press release (also at bottom) that it was part of "his long-standing agenda of expanding and improving economic development in New York."
NoLandGrab: Especially his own economic development.
Atlantic Yards Report, Extell turns to immigrant investor funding to support its International Gem Tower in the Diamond District
The Extell Development Corporation, one of the city's most bold and ambitious developers, was the only rival to the belated RFP for the Vanderbilt Yard issued by the Metropolitan Transportation Authority in July 2005, some 18 months after city and state officials announced their backing for the Atlantic Yards plan, which included the railyard.
Now Extell is taking a cue from Forest City Ratner, seeking a low-interest loan from immigrant investors under the EB-5 program to help finance its $750 million International Gem Tower, a long-gestating--and apparently, under-financed--tower in the Diamond District of Manhattan, on 47th Street between Fifth and Sixth Avenues.
It's established the Extell New York Regional Center, with federal approval.
NLG: By the way, we're launching the NoLandGrab Regional Center this week. And we're throwing our hat into the race for Russian President.
Posted by eric at 11:32 AM
December 13, 2011
How Invested Is Bruce Ratner In Prefab? Oh, Only a Few Million
NY Observer
by Matt Chaban
Forest City Ratner has spent $3.5 million on research and development for prefab construction, according to The Journal, which dug the number out of its annual report. Since Mr. Ratner began considering prefab apartment towers in 2009, that is more than a million dollars per year. Add to that the lawsuit Forest City helped fight, and this seems like a considerable commitment to this new approach.
This may put to rest claims that the developer was only looking at prefab as a means to break the unions and get a better rate from them on Atlantic Yards. Then again, with 15 towers containing millions of square feet of space, a few million could be but a drop in the bucket if it means bigger labor saving on the future of the site.
Related coverage...
Park Slope Patch, Ratner Still Wants Cheaper Prefab Towers at Atlantic Yards
A five percent savings on the $5 billion project through labor negotiations could mean about $250 million in savings, so even if the developer spends $50 million researching modular construction, Ratner will still be saving money, according to the report.
Posted by eric at 1:21 PM
December 10, 2011
At Forest City Enterprises conference call, CEO claims first Atlantic Yards residential tower "clearly meets" marketplace demands, doesn't mention modular plan (or EB-5)
Atlantic Yards Report
Forest City Ratner has gotten a lot of local ink for its ambitious announced plans to built modular towers at the Atlantic Yards site.
However, at a conference call yesterday (transcript) with investment analysts, David LaRue, CEO of parent Forest City Enterprises, talked up the first Atlantic Yards tower without mentioning modular.
“I want to reiterate our goal to move forward with the construction of the first residential tower in 2012," LaRue said. "This is a very important project for Forest City, and clearly meets demands reflected in the marketplace.”
Well, there's surely demand for housing, but not at the costs Forest City Ratner told government officials it expected. LaRue reiterated a "goal," not a plan. None of the analysts asked a question about it.
Nor did Forest City Enterprises executives, while talking about lowering the cost of capital and refinancing loans, talk about FCR's efforts to raise $249 million from immigrant investors via the EB-5 program.
Posted by steve at 3:57 PM
An arena grows in Brooklyn
The Record
by John Brennan
The financing of the Atlantic Yards project in Brooklyn – which includes the Nets’ Barclays Center arena – includes about $250 million in investment by about 500 mostly Chinese immigrants who receive green cards in return for investing $500,000 apiece.
That number would be $1 million each, except that the arena neighborhood is said to be an area of “high unemployment.” The estimate by blogger Norman Oder is that Forest City Ratner, the project developer, saved about $140 million by the inclusion of some Bedford-Stuyvestant tracts in a….. rather creatively-designed map.
...
Good luck finding mainstream newspaper coverage of this issue, though. The entire Atlantic Yards saga, dating back to 2003, has been plagued by a lack of consistent coverage by New York City newspapers (I say “consistent,” because sporadically I’ve seen good pieces written). I always recall that line by a Brooklyn activist to me after I had attended a court hearing related to the project that the NYC papers skipped : “It’s a sad day when you have to read a Jersey newspaper to find out what’s going on in Brooklyn.”
Posted by steve at 3:52 PM
December 9, 2011
The Bed-Stuy Boomerang: how state officials gerrymandered a map to help Forest City Ratner recruit immigrant investors and save big (and how the EB-5 program is riddled with such practices)
Atlantic Yards Report
Just when you think the Atlantic Yards green-cards-for-cash scheme couldn't get any more crooked, Norman Oder unearths a crooked map.
Public officials have done much to help developer Forest City Ratner (FCR) recruit Chinese investors to provide a $249 million low-interest loan in exchange for green cards--and now there's new evidence.
We knew that officials from New York City, New York State, and Brooklyn wrote letters to the United States Citizenship and Immigration Services (USCIS), the federal agency overseeing the EB-5 Immigrant Investor program, to get Atlantic Yards approved as an investment vehicle.
And we knew that Empire State Development Corporation official Peter Davidson joined a road show in China to hype the project before potential investors, misleadingly claiming that Atlantic Yards "will be the largest job-creating project in New York City in the last 20 years."
Now, evidence suggests that two New York State agencies helped gerrymander a map of Brooklyn unemployment--beginning at the Atlantic Yards site (in blue) in Prospect Heights, omitting more affluent census tracts nearby, and extending east to encompass poorer tracts in Bedford-Stuyvesant. (I'm dubbing the map "The Bed-Stuy Boomerang.")
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The map ensured that the promoters of the EB-5 project could tell the needed 498 immigrant investors that the project was located in a Targeted Employment Area, featuring high unemployment. That meant investors had to put up only $500,000, rather than $1 million.
By getting this EB-5 project off the ground, the state helped FCR save more than $140 million, by my estimate, on a $249 million loan.
And it could help the New York City Regional Center (NYCRC), a private investment pool federally authorized to attract purportedly job-creating investments, reap some $50 million.
NoLandGrab: Hello, New York Times, HELLO! While you're devoting an entire Sunday magazine to Hollywood, you're missing out on rampant fraud and abuse being perpetrated on behalf of your "business partner."
Related coverage...
Field of Schemes, New York gerrymandered arena district to aid Nets' green-card-for-arena-funds deal
For those unfamiliar with the nuances of Brooklyn geography, the left end of what Oder calls "the Bed-Stuy Boomerang" is mostly old warehouses along the Long Island Rail Road tracks. The right end, meanwhile, loops up into Bedford-Stuyvesant — and not its rapidly gentrifying western edge, but the still-impoverished middle. Neatly omitted, meanwhile, are the largely affluent brownstone blocks of Fort Greene to the project's north, Park Slope to the southwest, and Prospect Heights to the south.
Posted by eric at 12:01 PM
Senators show enthusiasm for EB-5 regional center program; questions raised about level of investment, length of term; a skeptic vs. Sen. Leahy
Atlantic Yards Report
The EB-5 program of investment immigration--at least via its most popular incarnation, the regional center program--has been booming, with the number of regional centers, privately owned (mostly) investment pools set up to recruit immigrants seeking green cards, growing from some 35 to 200 in three years.
However, the regional center program is a pilot program, extended five times for 19 years, and set to expire at the end of September 2012. So Congress has begun considering making the program permanent, and the Senate Judiciary Committee 12/7/11 held a hearing on a bill (Creating American Jobs Through Foreign Capital Investment Act) sponsored by Chairman Patrick Leahy (D-VT) to do just that.
The only cosponsor so far is Sen. Chuck Schumer (D-NY), but, as at previous Congressional hearings, most legislators seemed positive about a program Leahy called “as much of a win-win program as one could think of.”
Two of the three witnesses program boosters, and the few Senators skeptical seemed more exercised by the rare intersection between EB-5 and illegal immigration than questions of fraud and enforcement.
Still, one Senator put it plainly, that the program is selling green cards.
And the program’s one prominent critic, David North of the (right-wing) Center for Immigration Studies got his due, suggesting that the U.S. scrap the regional center program, that it delivers results that have been poorly documented, and that Senators should not be seduced by positive anecdotes. At the least, he said, the minimum investment--which hasn’t been raised since 1993--should be increased.
...Some skepticism
Sen. Chuck Grassley (R-IA) offered some skepticism, suggesting that “we need to enact reforms to make the EB-5 regional center program worthy of its goals.”
“At the end of the day, one fact remains,” Grassley declared. “The program is simply a way for wealthy investors to buy a green card, not only for themselves but for their families. No skills or management experience is needed. One only needs to write a check... While taking a financial risk... is admirable, evidence suggests that it’s not doing enough to spur job creation.”
But he didn’t drill down very far.
As usual, however, Norman Oder drills down much farther. Click through for more.
Posted by eric at 11:47 AM
Schumer endorses EB-5 bill making regional centers permanent, cites projects in New York (City Point?!), avoids Atlantic Yards
Atlantic Yards Report
Sen. Chuck Schumer (D-NY), who chairs the Senate Judiciary Committee's Subcommittee on Immigration, didn’t attend a hearing 12/7/11 on making permanent a provision that allows regional centers--federally authorized private (mostly) investment pools--recruit immigrant investors under the EB-5 program.
But Schumer is the first co-sponsor on a bill by Sen. Patrick Leahy (D-VT) to renew the program, and he did offer an enthusiastic statement for the record, applauding “a program that has done so much good in New York State, and which needs to be made permanent.”
“In New York State, we have 9 USCIS-approved regional center projects that are doing a world of good to create good-paying American jobs,” Schumer said, glossing over the fact that, at least with the Atlantic Yards investment, the job-creation calculation is extremely dubious.
The list, including City Point
Schumer proceeded to list five projects, conspicuously omitting the largest, Atlantic Yards, but mentioning--news to me--that the City Point project in Downtown Brooklyn by Acadia Realty Trust has raised $200 million in EB-5 funding.
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(Graphic from NYCRC Chinese web site promoting the project.)
Posted by eric at 11:39 AM
Forest City Enterprises reports: third quarter losses less than last year; some setbacks with New York properties, but expected gain from sale of Nets; forecasted arena revenues stalled at 56%
Atlantic Yards Report
Developer Forest City Enterprises, parent of Forest City Ratner, today announced EBDT (earnings before depreciation, amortization and deferred taxes), net earnings/loss and revenues for the three and nine months ended 10/31/11, saying its net loss was lower this quarter than in the comparable period last year.
EBDT
Third-quarter 2011 EBDT was $77.5 million, compared with $90.7 million in the third quarter of 2010. Year-to-date EBDT was $275.6 million, compared with $266.7 million for the first nine months of 2010.
On a fully diluted, per-share basis, third-quarter 2011 EBDT was $0.37, compared with $0.46 for the third quarter of 2010. Year-to-date per-share EBDT was $1.34, compared with $1.37 for the first nine months of 2010.Net Earnings and Loss
The third-quarter 2011 net loss attributable to Forest City Enterprises, Inc. was $38.0 million, compared with a net loss of $46.8 million in the third quarter of 2010. For the nine months ended October 31, 2011, net earnings attributable to Forest City Enterprises, Inc. were $17.7 million compared with $60.5 million for the same period in 2010.
After preferred dividends, the third-quarter 2011 net loss attributable to Forest City Enterprises, Inc. common shareholders was $41.9 million, or $0.25 per share, compared with a net loss of $50.6 million, or $0.33 per share in the third quarter of 2010. For the nine months ended October 31, 2011, net earnings attributable to Forest City Enterprises, Inc. common shareholders were $6.1 million, or $0.03 per share, compared with $52.5 million or $0.33 per share, for same period in 2010 (per share amounts are on a fully diluted basis).What went wrong? The Village at Gulfstream Park, a specialty retail center in Hallandale Beach, FL, opened in the first quarter of 2010, and has faced "very difficult economic conditions." Also, "250 Huron, an office building in Cleveland, was vacated by its single tenant, which had occupied the entire building," and the building will no longer be rented.
...Some setbacks with New York properties, but expected gain from sale of Nets
Third-quarter 2011 total EBDT of $77.5 million was impacted by the following factors:
Pre-tax EBDT from the company’s combined Commercial and Residential Segments (also referred to as the rental properties portfolio), decreased $14.9 million compared with the third quarter of 2010, [including] lower EBDT of $4.3 million due to previously anticipated vacancies at two Brooklyn office properties... reduced EBDT from new property openings of $3.3 million (primarily due to lease-up losses at 8 Spruce Street and Westchester’s Ridge Hill)....The Nets provided a pre-tax EBDT decrease of $10.9 million, as expected, due to the increase in the company’s allocated share of losses.... Decreased EBDT [year-to-date] from the Nets of $34.6 million, primarily due to the nonrecurring 2010 gain on disposition of partial interest in the team.
...Arena progress, but forecasted revenues stalled
In discussion of the construction pipeline, the company said:
Work continues at Barclays Center at Atlantic Yards, and the arena is on schedule for opening in September 2012. More than 90 percent of steel erection has been completed and installation of the roof deck has begun. Interior build-out is underway on all levels and the structure is expected to be fully enclosed and water tight in the first quarter of 2012. Approximately 56 percent of forecasted contractually obligated revenues for the arena are currently under contract.
That was the same percentage as in September.
Related coverage...
PR Newswire via Marketwatch, Forest City Reports Fiscal 2011 Third-Quarter and Year-to-Date Results
Realty & Investments, Forest City Enterprises Narrows 3Q Loss to $41.9 Million on Stronger Residential Leasing
Seeking Alpha, Forest City Enterprises CEO Discusses Q3 2011 Results - Earnings Call Transcript
The Real Deal, Forest City sees losses of $41.9M
Posted by eric at 11:29 AM
December 6, 2011
Who's Suin' Who? Atlantic Yards EB-5 Marketer NYC Regional Center is Awash in Lawsuits
Atlantic Yards Report, Former affiliate of NYC Regional Center files suit, claiming firm stole confidential Chinese client list, thus saving millions in finder's fees for EB-5 investors in Atlantic Yards, other projects
The New York City Regional Center, which has marketed Atlantic Yards as an investment for green card-seeking investors, is the busiest regional center in the China market, and seems to be New York City's designated third-party source for such cheap capital, is embroiled, directly and indirectly, in two lawsuits, one described below, the other here.
Given the early stage of the lawsuits, and the confidentiality of certain exhibits, it's difficult to fully evaluate them. But it is clear that the EB-5 program can bring significant sums to the middlemen, and thus fuel disputes.
The New York City Regional Center (NYCRC), which has focused on recruiting green card-seeking investors in China, is facing a lawsuit filed by a former affiliate, which claims that the NYCRC appropriated its confidential client list and thus evaded obligations to pay $6 million in finder's fees for new investors.
The lawsuit, filed 4/18/11 by Lion's Property Development Group, also names Hoche Partners Capital and its president, Gregg D. Hayden as defendants. Hayden has served as the NYCRC's chief salesman in China (as I've described) under the title "General Manager Asia" on behalf of NYCRC.
Lion's (led by Chaim Katzap) argues that NYCRC has thus recruited more than 200 investors without paying the $30,000 fee it owed Lion's, or a total of $6 million. (That $30,000 fee, however, would have included a downstream finder's fee of $15,000 from Lion's to each local affiliate.)
There's good reason to pay a big referral fee; I estimated that the 498 investors in the Atlantic Yards project might earn NYCRC $50 million. Meanwhile, Forest City Ratner will get the benefit of a $249 million low-interest loan, from 498 immigrant investors, itself saving perhaps $140 million.
The NYCRC would benefit from the spread between the no-interest offered investors--who care more about green cards than investment returns--and the low interest, perhaps 4% to 5%, charged to the borrower.
Indeed, the suit charges that NYCRC told the local affiliates, aka Network Agents, they'd get $20,000 rather than the $15,000 offered by Lion’s if they worked directly with NYCRC to recruit investors for Atlantic Yards and the other two projects, involving the Brooklyn Navy Yard and Steiner Studios.
Atlantic Yards Report, Lawsuit over control, revenues of NYC Regional Center: co-founder charged with fraud by former partner; counterclaim also charges fraud
The New York City Regional Center (NYCRC), the private firm authorized to raise funds from immigrant investors under the EB-5 program is embroiled in a lawsuit one of its founders filed against another, and that engendered a counter-claim.
Empire Gateway, LLC which owns more than half the NYCRC, and Empire's controlling owner, George Olsen, charge that Sandra Kim Dyche fraudulently gained "membership interest in Empire" and never recruited investors. Thus she should return her membership interest, which is nearly half the value of Empire (and about a quarter of the value of the NYCRC).
In return, Dyche charges that Olsen fraudulently gained control of Empire, and that she deserves damages of at least $5 million. ...
The suit has no direct bearing, apparently, on the NYCRC's Atlantic Yards effort, in which it has apparently raised $249 million from 498 investors, mostly from China but some from Korea.
But there's big money at stake.
Posted by eric at 12:53 PM
December 5, 2011
The latest green-card-scam news from EB-5 Report Atlantic Yards Report
Atlantic Yards Report, Senate hearing on EB-5 program December 7; Obama's jobs council recommends EB-5; USCIS issues draft memorandum consolidating EB-5 policy
The EB-5 Regional Center Investment Pilot Program--the main vehicle for immigrant investors seeking green cards--is due to expire in September 2012, unless Congress acts, and advocates and legislators are beginning to take a closer look.
The EB-5 program, which grants green cards to investors and their families who invest $500,000 (or $1 million if it's not in a Targeted Employment Area) to create ten jobs, initially required the investment itself to create the jobs directly.
But investments through regional centers--federally authorized private (or sometimes governmental) investment pools--make it much easier, as indirect jobs can be calculated via an economist's report. No wonder the number of regional centers has been skyrocketing, and developers (like Forest City Ratner) and others seeking cheap capital have glommed onto EB-5.
Hearing December 7
On December 7 at 10 am, the Senate Judiciary Committee will hold a hearing titled “Reauthorizing the EB-5 Regional Center Program: Promoting Job Creation and Economic Development in American Communities.” It will be webcast.
Based on the title, it sounds unlikely that criticism of the program will be highlighted.
Atlantic Yards Report, At last Congressional hearing on EB-5, little skepticism, some evasion, calls for streamlining program
Given the upcoming Senate Judiciary Committee hearing December 7 on the EB-5 investment immigration program, it's worth a look back at a House hearing 9/14/11 held by the Judiciary Committee's Subcommittee on Immigration Policy and Enforcement.
Unsurprisingly, the hearing, titled "The Investor Visa Program: Key to Creating American Jobs" (video), featured little skepticism about the program and some fudging from witnesses. One evaded the fundamental reason why developers and entrepreneurs like EB-5: foreign investors are willing to accept little return in exchange for green cards. (Hence the support for Atlantic Yards.)
Atlantic Yards Report, A new, questionable EB-5 project in China is being called "the new Atlantic Yards"
Would you believe that Atlantic Yards--after my reporting and other reasons for controversy--has now become a cautionary example in the international world of investment immigration?
From EB5info.com, Huge Chicago EB-5 Multi-Hotel Project Under Scrutiny by Investors:
Several Chinese agents and investors are calling into question the claims being made by a new EB-5 Visa Regional Center, The Intercontinental Regional Center Trust of Chicago.
Many are calling this project the new Atlantic Yards due to the extremely large size of the offering ($249.5 million) and the claims being made by its promoters and migration agents in China. The agents need to heavily promote issues of this magnitude in order to raise such an exceptionally large offering (most EB-5 visa project offerings are under $50 million) in a very short period of time.
Posted by eric at 10:56 AM
December 2, 2011
Fraud? Immigrant investors in Atlantic Yards were told their green cards were guaranteed, but New York City Regional Center typically warns investors it makes no warranties
Atlantic Yards Report
Why should the green cards-for-cash scam be any different from all the other Atlantic Yards "guarantees?"
There's a huge gap between what the assurances the New York City Regional Center (NYCRC) gave to potential Chinese investors in Atlantic Yards about the certainty of their expected green cards and the "no warranty" message the firm typically tells investors.
The warning
The following passage appears in the confidential offering memoranda for two previous NYCRC projects, regarding the Brooklyn Navy Yard and Steiner Studios:
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In other words, the company offers no warranty and no assurances that the investors, who parked $500,000 for five years and eschewed interest (mostly) in lieu of green cards for themselves and their families, would actually get the green cards.
Presumably, such boilerplate also appeared in the memorandum for the Brooklyn Arena and Infrastructure Project, which sought (and apparently achieved) $249 million from 498 investors, mostly from China.
In China, green cards guaranteed
As I reported last year, in webcast presentations, representatives of the NYCRC offered public assurances that green cards were guaranteed.
Posted by eric at 11:25 AM
Another look at the huge benefits from the EB-5 program: perhaps $140 million to Forest City Ratner, and $50 million to NYCRC
Atlantic Yards Report
"EB-5 Friday" continues at Atlantic Yards Report.
So, how much is Forest City Ratner saving on its $249 million low-interest loan from immigrant investors under the EB-5 program? And what are the earnings of is the New York City Regional Center (NYCRC), the private investment pool that was marketing the project--green cards in exchange for $500,000 in purportedly job-creating investments?
I have to revise some of my reporting from last year, when I calculated a gain of some $191 million to Forest City, based on the difference between the interest rate the developer might have to pay on the open market and the no-interest being offered to Chinese investors.
I also have to revise my calculations regarding benefits to the NYCRC, which I calculated would earn $38,000 per client in fees, or nearly $19 million.
Earning money on the interest
Rather, the NYCRC may be keeping very little of those fees, since it has to share fees with affiliates. It earns its money on the spread between the interest rate on loan offered to Forest City and the return received by the 498 investors.
Forest City likely will pay 4% to 5%, as with other NYCRC projects promoted by the city, while the majority of the investors, from China, will get no interest, and the 40 or so Korean investors will get .25%.
So it's a win for Forest City and the NYCRC: they both make money. I think Forest City's benefit is still more than $100 million, while NYCRC may earn some $50 million (see bottom).
It's a win for the immigrants: they get green cards for themselves and their family, with the cost being the foregone interest on the investment they get back. (Of course there is a risk, and not every EB-5 investor gets a green card.)
What about the public benefit? The investments are supposed to create jobs, but in some case--as I've shown with the Atlantic Yards investment--they don't create new jobs, and the immigrant investors get credit--apparently legal, though logically questionable--for the jobs created by the entire $1.448 billion in the "Brooklyn Arena and Infrastructure Project."
Posted by eric at 10:05 AM
New York City Regional Center was busiest nationally in Chinese market in 2011; EB-5 financing via NYCRC seen by city as potential funding for engineering campus, Willets Point
Atlantic Yards Report
Speaking of Willets Point, its future "redevelopers" might be the latest beneficiaries of the ol' green cards-for-dollars scheme.
As I reported 12/17/10, the New York City Economic Development Corporation (NYC EDC) proposed that the NYCRC and Forest City Ratner meet to discuss a potential collaboration, and that the NYC EDC has an agreement with the Regional Center that provides a finder’s fee for projects that it refers and are ultimately are financed through their program.
Now NYC EDC sees EB-5 as an integral part of its arsenal, as it gives developers access to low-cost capital while costing the city nothing. The discount comes because the investors are willing to forego much or any return on their $500,000, since they're looking to gain a green card and, after parking their $500,000 for some five years, their money back.
Request for Proposals (RFPs) for both the Willets Point Development Phase 1, released 5/9/11, and the Applied Sciences Facility in New York City, released 7/19/11, list the EB-5 program via the NYCRC as part of a suite of potential economic development benefits....
Posted by eric at 9:54 AM
November 29, 2011
The EB-5 files: federal agency stonewalls request for info on job creation by immigrant investors, reveals misleading claim about arena bonds, withholds a letter made public elsewhere
Atlantic Yards Report
So, how exactly did Forest City Ratner and the New York City Regional Center (NYCRC) aim to convince federal overseers and potential investors that the plan to seek $249 million in funds from 498 green card-seeking immigrant investors was kosher?
We may never know, since the federal agency overseeing the EB-5 program is keeping most key information under wraps. For example, the document explaining how that investment would produce--as required by federal law--at least ten jobs per $500,000 investor was redacted, deemed a trade secret.
Other documents deemed trade secrets have already been made public by other parties, suggesting that the United States Citizenship and Immigration Services (USCIS) has a rather heavy hand when it comes to transparency.
No way to evaluate job-creation claim
So, while the EB-5 program is justified as supporting job creation, there's no way to evaluate that claim when it comes to the Brooklyn Arena & Infrastructure Project--said to consist of the arena, infrastructure, and a new railyard--marketed to immigrant investors.
And that's quite curious because the arena was and remains already funded. That makes it questionable that immigrant investors could get credit for jobs created not merely by their investment but by the entire $1.448 billion project, a project that did not need their money to proceed.
NoLandGrab: If by "trade secret" they mean "complete and utter bulls**t," then by all means, it's a "trade secret."
Posted by eric at 11:53 AM
November 18, 2011
Learning from Atlantic Yards (?): city will no longer "routinely sweeten deals for developers" after selection
Atlantic Yards Report
From Crain's New York Business Insider, today:
City's Tech Campus Leverage
The Bloomberg administration believes that the new way it negotiates deals will produce a better tech campus project for the city. In the past, the city would routinely sweeten deals for developers or have projects die, because bidders were allowed to negotiate terms after being selected and praised at a press conference. No more. “We keep multiple horses in the race until we reach an actual deal,” an administration source said. “We actually make our counterparties bid on the contract document itself and mark it up. And that's part of our evaluation.” With skin in the game, the source added, “if [bidders] walk away or try to kill the deal, they have something to lose.”
(Emphasis added)
With Atlantic Yards, the city and state both anointed Forest City Ratner as the developer before the public process, including the bidding for the key piece of public property--the MTA's Vanderbilt Yard--began.
And Forest City Ratner, after a Memorandum of Understanding was signed with the city and state, then changed the deal, getting more city subsidies in 2007.
In 2009, Forest City renegotiated settled deals with the MTA and the Empire State Development Corporation.
After that was accomplished, FCR brought in Russian billionaire Mikhail Prokhorov as majority owner of the Nets and minority owner of the arena holding company, thus allowing public assistance to flow to an "oligarch of our own."
In 2011, the modular plan emerged.
Posted by steve at 3:47 PM
October 21, 2011
Schumer sponsors bill to bail out housing industry by selling temporary visas to immigrant investors; wouldn't this distort the market (and maybe even help AY)?
Atlantic Yards Report
Apparently, essentially selling green cards through the questionable EB-5 program--under which prospective immigrants must create ten purported jobs with their $500,000 investment--was only the start.
Now Congress is considering selling three-year residence visas to foreigners who invest $500,000 in the housing market, and co-sponsor Sen. Chuck Schumer (D-NY) somehow thinks "it won't cost the government a nickel."
Schumer doesn't seem familiar with opportunity cost, the notion that we might choose a different alternative that could prove more beneficial.
For example, immigration analyst David North of the conservative Center for Immigration Studies thinks EB-5 investors should also have to buy a $50,000 U.S. bond for each visa issued. So why not ask prospective home purchasers do more than bail out the housing industry in exchange for those visas?
Schumer's proposal could have major unintended consequences, such as rising prices in prime areas (Hello, Brooklyn) while little impact on foreclosed subdivisions in, say, suburban Las Vegas. (See similar skepticism from a law firm involved in EB-5.)
But this bill, which requires investors to pay cash, will surely gain support from FIRE (Finance, Insurance, Real Estate), the pillars of New York City's uneven economy and, not coincidentally, Schumer campaign support. The founder of the Toll Brothers firm is already on board.
Heck, it just might goose demand for Forest City Ratner's unbuilt luxury condos in the Atlantic Yards project. After all, if the developer wants to sell condos in 2015 for $1217/sf--more than double nearby Atlantic Terrace, it sure helps if buyers care more about visas than price.
NoLandGrab: Now there's an enervating idea.
Posted by eric at 12:01 PM
October 4, 2011
Cuomo's new regional economic development councils: potential source of new state subsidies for Atlantic Yards?
Atlantic Yards Report
Where will Forest City Ratner look for additional subsidies to meet Atlantic Yards profit goals, to get that first tower built (after additional city subsidies were denied), to finish the Carlton Avenue Bridge (after Carl Kruger came up empty), finish a new railyard (if EB-5 immigrant investor funds aren't enough), and to do much more?
They have to be considering the New York City Regional Economic Development Council, one of ten regional economic development councils established this past summer, as noted in a 7/20/11 press release headlined Governor Cuomo Announces $1 Billion in Economic Development Funding Will be Available Through New Consolidated Application Process.
Posted by eric at 11:18 AM
September 30, 2011
Comic: Gladwell Goes HAM
HoopSpeak.com
by Anthony Bain
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Posted by eric at 12:41 PM
Malcolm Gladwell, in Grantland, gets the Atlantic Yards big picture: "a man buys a basketball team as insurance on a real estate project"
Atlantic Yards Report
Well, New York Daily News sports columnist Mike Lupica was right all along, writing 11/13/05:
If Caring Bruce Ratner is still the owner of the Nets in five years, I'll eat my hat.
...He doesn't want the team.
He never really did.
He wants the land.
After the March 2010 groundbreaking, Lupica commented, "It was a hustle in broad daylight by Caring Bruce Ratner from the start."
Enter Gladwell
That same sentiment comes from New Yorker writer and Grantland contributing editor Malcolm Gladwell, in a 9/26/11 essay in the latter headlined The Nets and NBA Economics: David Stern would have you believe the Brooklyn-bound franchise embodies everything wrong with the league's finances. It's not true.
His conclusion:
The rich have gone from being grateful for what they have to pushing for everything they can get. They have mastered the arts of whining and predation, without regard to logic or shame. In the end, this is the lesson of the NBA lockout. A man buys a basketball team as insurance on a real estate project, flips the franchise to a Russian billionaire when he wins the deal, and then — as both parties happily count their winnings — what lesson are we asked to draw? The players are greedy.
Related coverage...
Develop Don't Destroy Brooklyn, It's A Tipping Point: Malcolm Gladwell Nails Bruce Ratner on His Trojan Horse Nets
Malcolm Gladwell is about eight years late to the party nonetheless he has penned a must-read column revealing the bogusness of Bruce Ratner the Basketball Man, and how his toying with the Nets exemplifies the absurd notion that NBA owners are suffering financially.
The main point, which has been one of our mantras since DDDB's inception, is that Atlantic Yards has never been about basketball.
Rainman Suite, Even Malcolm Gladwell Thinks Bruce Ratner Is A Scumbag
Malcolm Gladwell wrote a piece on Grantland about the scam Bruce Ratner pulled on New York to get his massive development built in Brooklyn under the guise of moving the Nets and helping the community. It’s been under-the-radar for a long time but I think this is the most informative article I’ve read about the subject.
NoLandGrab: Under-the-what?! You must have missed our 18,000 or so posts on the subject.
Posted by eric at 12:27 PM
September 27, 2011
How the New Jersey Nets are like Van Gogh’s “Starry Night”
Billy Paultz Reconsidered
by Mike Gross
Terrific piece here from Malcolm Gladwell on the NBA lockout, and especially the colorful recent business history of the New Jersey Nets.
Gladwell’s overarching point here, and in a previous piece on Grantland, is one I’ve made many times. Pro sports teams are not businesses. They are luxury goods like works of art, yachts, Ferraris or Italian Villas.
...Consider the Nets’ situation, in which the previous owner, Bruce Ratner, wanted the team as part of a mega-real estate arena project in Brooklyn. A competing offer to buy the property from the city, from a developer named Gary Barnett, would have used less land, been far less intrusive to the existing neighborhood, and would have resulted in just apartment buildings. No arena. No Nets.
Oh: And Barnett’s offer was triple Ratner’s.
Gladwell: “Barnett lost. He never had a chance. He wanted to build apartments. Ratner was restoring the sporting glory lost when the Dodgers fled for Los Angeles.”
Related coverage...
Nets Are Scorching, Gladwell on the Nets and NBA Economics
That said, you don’t need financial expertise to detect BS from billionaires, and Ratner laid it on thick today about youth — citing the prospect of a child seeing their first circus at the Barclays Center as his driving inspiration. Come on, Bruce. If this didn’t give you the opportunity to make boatloads of money, you wouldn’t do it. I’m sure that Barclays will do a lot for kids, but it’s not about them.
The sad truth, though, is that Ratner can always pretend otherwise. We can paint him as a greedy, dirty billionaire as much as we want (fair or not), and he’ll remain a billionaire. That’s the game. I’d just rather watch a different one.
NoLandGrab: It's small consolation, but Bruce Ratner, while rich, is by all reports worth considerably less than a billion dollars.
Posted by eric at 12:57 PM
September 26, 2011
The Nets and NBA Economics
David Stern would have you believe the Brooklyn-bound franchise embodies everything wrong with the league's finances. It's not true.
Grantland
by Malcolm Gladwell
Speaking of must-reads, here's one from Malcolm Gladwell, who does his best impression of Toto pulling back the curtain on the Great and Powerful Bruce's big Monday morning press conference.
Here's an excerpt — but be sure to read the whole thing.
Ratner has been vilified — both fairly and unfairly — by opponents of the Atlantic Yards project. But let's be clear: What he did has nothing whatsoever to do with basketball. Ratner didn't buy the Nets as a stand-alone commercial enterprise in the hopes that ticket sales and television revenue would exceed players' salaries and administration costs. Ratner was buying eminent domain insurance. Basketball also had very little to do with Ratner's sale of the Nets. Ratner got hit by the recession. Fighting the court challenges to his project took longer than he thought. He became dangerously overextended. His shareholders got restless. He realized had to dump the fancy Frank Gehry design for something more along the lines of a Kleenex box. Prokhorov helped Ratner out by buying a controlling interest in the Nets. But he also paid off some of Ratner's debts, lent him $75 million, picked up some of his debt service, acquired a small stake in the arena, and bought an option on 20 percent of the entire Atlantic Yards project. This wasn't a fire sale of a distressed basketball franchise. It was a general-purpose real estate bailout.
Did Ratner even care that he lost the Nets? Once he won his eminent domain case, the team had served its purpose. He's not a basketball fan. He's a real estate developer. The asset he wanted to hang on to was the arena, and with good reason.
...Let us recap. At the very moment the commissioner of the NBA is holding up the New Jersey Nets as a case study of basketball's impoverishment, the former owner of the team is crowing about 10 percent returns and the new owner is boasting of "explosive" profits. After the end of last season, one imagines that David Stern gathered together the league's membership for a crash course on lockout etiquette: stash the yacht in St. Bart's until things blow over, dress off the rack, insist on the '93 and '94 Cháteau Lafite Rothschilds, not the earlier, flashier, vintages. For rich white men to plead poverty, a certain self-discipline is necessary. Good idea, except next time he should remember to invite the Nets.
Related coverage...
ESPN.com, What kind of business are the Nets in?
In a must-read story on Grantland, Malcolm Gladwell uses the Nets as an example of how an NBA team's business role can have almost nothing to do with what's at the crux of the current CBA debate: Basketball revenues.
Gladwell tells the tale of Bruce Ratner's business goals in buying the Nets, which he explains started not with a love of basketball, but with a need to build a stadium to inspire the eminent domain seizure of some particularly valuable land he had his eye on.
Posted by eric at 5:22 PM
September 19, 2011
Sports Business Journal confirms Barclays naming rights deal was $200 million, not $400 million
Atlantic Yards Report
Is the Barclays Center naming rights deal worth "nearly $400 million," as the New York Times reported 7/19/11 or is it closer to $200 million and change?
I pointed 8/3/11 to circumstantial and documentary evidence that the deal was worth less, including a report by an FCR-commissioned consultant valuing the deal at $200 million, the loss of architect Frank Gehry, and two renegotiations.
Nets and Forest City officials have claimed that the total value of the deal remains around $400 million, but never offered any documentation.
Now, as noted by NetsDaily, "the authoritative" Sports Business Journal is using the $200 million figure.
Posted by eric at 3:14 PM
September 18, 2011
China Buys US For A Bargain
The Bull
This item speaks about Chinese investments includes Atlantic Yards, but the EB-5 program is not mentioned. Besides getting Green Cards, it's not clear what return Chinese investors would get from their AY investment.
According to a recent report in the New York Times, investors from China are "snapping up luxury apartments" and are planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies also have signed major leases at the Empire State Building and at 1 World Trade Center, the report said.
Posted by steve at 10:36 PM
September 17, 2011
Mr. Moinian goes to Beijing
Real Estate Weekly
By Roland Li
Developer Joseph Moinian is emulating Bruce Ratner as he prepares to find Chinese investors as part of the EB-5 program. This federal program is meant to create jobs, but apparently createsd no jobs when used for Atlantic Yards.
Soon, the developer will make another move to attract Chinese business. In November, Moinian will partner with Windham Realty Group and travel to China to meet with prospective buyers, eventually visiting seven cities.
....
Another appeal of investing in American is a federal program called EB-5, which allows foreigners who invest at least $500,000 to gain a green card and possible foreign residence. Forest City Ratner used the program to raise $249 in Chinese loans for the Atlantic Yards project in Brooklyn.
Posted by steve at 6:31 PM
September 8, 2011
Forest City Enterprises reports big drop in quarterly profits, mainly because last year they could sell Nets share; "forecasted contractually obligated revenues for the arena" have risen only from 51% to 56% in one year
Atlantic Yards Report
Forest City Enterprises's FY 2011 second-quarter and year-to-date results, as noted a press release yesterday, show earnings down, mainly because the company--parent to Forest City Ratner--didn't have shares in a losing Nets team to sell this year.
Also, as noted below, the public statement contained an indication that sponsorship sales for the Barclays Center arena could be more robust.
Earnings down
For this quarter, net earnings declined from $.62/share to $.02/share over last year, a phenomenon that was emphasized by the AP and Cleveland Plain Dealer in their stories.
...Arena forecast revenues up only slightly
From the release:
Work continues at Barclays Center at Atlantic Yards, and an official opening date of September 28, 2012 has been set for the arena. Approximately 56 percent of forecasted contractually obligated revenues for the arena are currently under contract.
They haven't made much progress in the past year. Three months ago, the figure was 55%. Six months ago, the figure was 55%. In September 2010, one year ago, the figure was 51%.
At the past year's pace, they won't be that much past 60% in September 2012 when the arena opens. I wouldn't doubt they're working on some deals and that they want a much higher number.
Related content...
Forest City Enterprises Press Release
Posted by eric at 11:04 AM
September 1, 2011
Who got the Liberty Bonds?
The Torch
by Nicole Gelinas
The journalist and free-marketeer reminds us that Bruce Ratner got a chunk of taxpayer money to rebuild that portion of Fort Greene damaged in the 9/11 attacks.
The city’s independent budget office (IBO) has released a report on New York’s post-9/11 disaster and recovery spending. So who got the Liberty Bond money?
As part of its $20.5 billion aid package, remember, Washington gave the city $1.2 billion to support $8 billion worth of “Liberty Bonds” — bonds that private companies could issue for real-estate development projects. No level of government (federal, state, or local) guaranteed the bonds’ repayment, but the bonds are exempt from federal, state, and local taxes, meaning that investors demand a lower interest rate on them.
Of the $6.4 billion in Liberty Bonds issued since 2003, only $3.8 billion – 59 percent — went to build projects at the World Trade Center site. WTC developer Larry Silverstein got about $3.1 billion, and the Port Authority took (or will take) $701.6 million for itself.
Who got the rest? Goldman Sachs got $1.7 billion for its downtown tower. The Dursts got $650 million for the Bank of America building (in Midtown). A Forest City (that’s Bruce Ratner of Atlantic Yards) office-tower project for BONY Mellon in Brooklyn got $90.8 million.
Posted by eric at 9:28 PM
August 16, 2011
Ten months later, still waiting for a response to my FOIL request about state official Peter Davidson's trip to China promoting Forest City Ratner's misleading "green cards for investments" venture
Atlantic Yards Report
On 10/5/10, I sent the following letter to the Empire State Development Corporation (aka Empire State Development):
Under the Freedom of Information Law, I request records regarding Executive Director Peter Davidson's planned trip to China this month on behalf of the New York City Regional Center's effort, under the EB-5 visa program, to market an investment in Atlantic Yards.
Specifically, I seek records, including but not limited to correspondence to, from, and within the Empire State Development Corporation, that explain:
--the cost and itinerary of the trip
--what Mr. Davidson is expected to do (outline of remarks, etc)
--the solicitation for and decision to make the trip
--any evaluation on ESDC's part of the job numbers used by NYCRCLast week, I received yet another letter from the state agency telling me they were still evaluating my request and searching for responsive records. I am to get an update on that search, and possible delivery of such records, by September 29.
I wonder why it's taking so long. Is the information really that obscure?
Posted by eric at 10:21 AM
August 12, 2011
Taking the Times to task for its EB-5 coverage, again
Atlantic Yards Report.
The Times opened up comments on its curious article today on Chinese investment in New York. Almost nobody commented on the EB-5 angle, which seemed shoehorned into the story. My comment again took the Times to task...
Posted by eric at 7:11 AM
August 11, 2011
Times article on Chinese investment in New York whiffs on Forest City Ratner's EB-5 venture
Atlantic Yards Report
A front-page article in today's New York Times, headlined As Investors, Chinese Turn to New York, stunningly maintains the newspaper's see-no-evil posture toward Forest City Ratner's questionable recruitment of investors seeking green cards.
...The Chinese putting money into Atlantic Yards--'scuse me, the "Brooklyn Arena and Infrastructure Project"--aren't making real investments. They're buying green cards for themselves and their families, allowing their children to be educated in America.
...They're supposed to create jobs. No jobs would be created.
Would the Chinese money support residential and office towers? Forest City's partner in China told the investors they were putting money into a basketball arena. That's why Forest City sent Darryl (Chocolate Thunder) Dawkins to China.
More recently, Forest City executives have said the money would be used to refinance a land loan, as well as pay for infrastructure. Or that they haven't decided.
Posted by eric at 9:32 AM
August 10, 2011
As Investors, Chinese Turn to New York
The New York Times
by Kirk Semple
Leave it to The Times to completely gloss over the controversial nature of its development partner's EB-5 investment program.
Chinese banks have poured more than $1 billion into real estate loans in New York City in the past year. Investors from China are snapping up luxury apartments and planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies have signed major leases at the Empire State Building and at 1 World Trade Center, which is the centerpiece of the rebuilding at ground zero.
...Chinese money is also poised to flow into the city through a federal program that offers the possibility of permanent residency to foreigners who invest at least $500,000 in certain development projects.
Under this program, known as EB-5, Forest City Ratner Companies has arranged for $249 million in loans from Chinese investors for residential and office towers at Atlantic Yards, the commercial and residential project in Brooklyn that includes a new stadium for the New Jersey Nets.
NoLandGrab: That's it, the full extent of The Times's coverage of EB-5 investments in Atlantic Yards.
Posted by eric at 10:00 PM
Immigrant investors helping foot bill for NYC projects
Real Estate Weekly
by Daniel Geiger
A type of transaction that permits foreigners to invest in the United States in exchange for residency rights has caught on as a popular financing mechanism for real estate and development deals in the city.
The EB-5 Immigrant Investor Program, as the vehicle is called, has been used on a number of recent real estate projects in the city, including the just signed $180 million deal to redevelop the George Washington Bridge Bus Terminal.
...About $250 million of EB-5 money is also being used on the construction of the Net Arena in the Atlantic Yards in Brooklyn.
The pipeline of funds, much of which comes from China, has helped pay for projects that would otherwise be difficult to finance or would have to borrow the money at higher interest rates.
...The participants typically earn a relatively low rate of return on their money, which allows the developers of the projects being funded a low cost of financing.
Most EB-5 investors aren’t in it for the profits but because they will receive a green card if the deal delivers the promised number of jobs.
NoLandGrab: In the case of Atlantic Yards, the EB-5 investments aren't going to create any jobs, as Forest City will be using the money to restructure debt. And most EB-5 investors "aren't in it for the profits" because there are no profits; they're buying green cards, plain and simple. So why doesn't the State Department just auction them to the highest bidders?
Posted by eric at 5:51 PM
August 9, 2011
In the midst of a steep market decline, Forest City Enterprises shares plummet nearly 25% over five days
Atlantic Yards Report
Forest City Enterprises shares went from $17.63 at the opening, Tuesday, August 2, and closed yesterday at $13.24. down 13.46% for the day.
By contrast, the Dow Jones Industrial Average was down 5.55% and the iShares Dow Jones U.S. Real Estate Fund was down 8.51%.
Forest City's stock is down 24.9% over five days, as shown in the first chart, via Morningstar.
 |
NoLandGrab: Given FCE's reliance on government hand-outs, it's no surprise that the specter of fiscal austerity would spook stockholders.
Posted by eric at 10:33 AM
August 8, 2011
Qiao Wai immigration agency in China subject to skeptical local report regarding Brooklyn arena project
Atlantic Yards Report
The Chinese immigration agency recruiting the largest chunk of potential investors for the "Brooklyn Arena and Infrastructure Project"--the odd packaging of a loan to attract immigrant investors to Atlantic Yards--was recently subject to some skeptical mention in the local press. An article pointed to reported exaggerations in the promotion of the Brooklyn project as well as irregularities in the promotion of a project in Philadelphia.
The artilce--from the online news site of People's Daily, one of the country's largest newspapers--is hardly definitive, but it suggests some willingness in the Chinese press to look skeptically at the burgeoning world of EB-5 investment, in which those seeking green cards for themselves and their families park $500,000 in a purportedly job-creating investment.
The 8/2/11 article, was headlined, according to a translation I commissioned, "Risks involved in Immigrant Investment Programs; Qiao-Wai Group In Question." (Here's the Google Translate version.)
Posted by eric at 11:31 AM
August 1, 2011
Down the rabbit hole: federal agency says immigrant investors in EB-5 program can get credit for all the jobs created or saved; critic suggests most EB-5 investments "are of much lower quality"
Atlantic Yards Report
I'm still waiting for more media outlets to latch on to the absurdity of the federal EB-5 program, which is exploding as immigrants seeking to buy their way into the country hook up with entrepreneurs who devise plans that aim to meet the letter, if not the spirit, of a vaguely defined law.
Remember, the $500,000 from each immigrant investor, which gains green cards for the investor and his/her family, is supposed to generate ten jobs.
In the case of Atlantic Yards, no new jobs would be created, but Forest City Ratner's raising $249 million from 498 investors who've been told, misleadingly, that they're investing in an arena.
Most people, learning that wealthy foreigners can buy their way into the country, are taken aback that the program even exists. I focus on whether the letter and spirit of the law are being followed, and whether there's sufficient oversight.
And, as noted below, critic David North suggests that most EB-5 investments are of lower quality than other deals on the open market, which makes sense, since the lure is not financial return but green cards.
Posted by eric at 10:14 AM
July 26, 2011
Fitch downgrades pool of loans led by Metrotech Center building
The Real Deal
by David Jones
Fitch Ratings downgraded a $6.6 million class of commercial real estate loans led by 10 Metrotech Center, a seven-story office building owned by Forest City Ratner in Downtown Brooklyn.
Fitch downgraded one class of COMM Mortgage Trust 2005-FL-10, saying 42 percent of the pool is expected to default due a 10 percent overall decline in cash flow compared with the last update.
The 359,000 square foot property, located at 625 Fulton Street in Brooklyn, is faced with an expiring lease with the Internal Revenue Service, which occupies nearly 88 percent of the building. The loan represents 7.4 percent of the pool balance.
The lease is scheduled to expire in February 2012, though the General Services Administration has announced plans to extend the IRS lease for at least six months. The loan is currently in special servicing and has been listed as distressed since early 2010.
Posted by eric at 1:01 PM
July 8, 2011
Exclusive: Recent New Jersey Nets Books Reveal Huge Losses
CNBC
by Darren Rovell
News flash! Under Bruce Ratner's stewardship, the woeful New Jersey Nets lost a lot of money.
The biggest battle in the NBA lockout right now might be the public relations battle. Are the losses the owners are claiming real or fictional?
...Not many teams have balance sheets that are publicly available, but there is one team whose balance sheets anyone can view and it happens to be a team that at least claims to have lost a ton of money.
With that in mind, we were provided the financial statements of Nets Sports & Entertainment LLC, that included the finances of New Jersey Nets properties in 2009 and 2010 (through June 30). The team was owned through April of 2010, by Bruce Ratner, chairman and CEO of Forest City Ratner Companies.
If you go through the report, audited by PWC, and you understand how the NBA reported what was in this document to the Players Association, you will understand that it's not out of the realm of possibility that the league's owners were losing north of $300 million for years.
...For the 2008-09 season, the documents reflect that the Nets lost $77,227,184.
NoLandGrab: The news that the Nets lose big money isn't news. Also not news is that NBA owners and players disagree about how losses (or profits) are measured, which is at the core of negotiations over a new NBA collective-bargaining agreement.
Related coverage...
Atlantic Yards Report, CNBC analysis: even if the Nets lost $44 milion, not $77 million, it suggests NBA losses (but what about the new arena?)
CNBC's analysis of Nets Sports and Entertainment Consolidated Financial Statements for the years ending June 30, 2010 and 2009 (embedded below) is billed as an "exclusive," but the exclusive, I believe, is the analysis, not the documents, which were made available to the Securities and Exchange Commission.
According to CNBC Sports Business Reporter Darren Rovell's analysis, even if the team's claimed $77.2 million loss in 2008-09 is overstated, a more realistic $44 million figure could be used to back claims of NBA losses.
...I'd suggest an additional conclusion: the new arena will help the team do much, much better.
Atlantic Yards Report, Nets financials point to 11% loan from Prokhorov, 5% (minimum) development fee to Forest City for arena
The document describes the loan between Brooklyn Arena Holding Company (ArenaHoldCo) and entities controlled by Mikhail Prokhorov (MP Entities) that filled an arena financing gap. The loan was reported back in May 2010, but not, to my knowledge, that it bore a junk-bond level interest rate of 11%:
On May 12, 2010, ArenaHoldCo entered into a loan agreement with an affiliate of the MP Entities in the amount of $75,842,086 (the “Loan”). The Loan bears interest at 11% per annum, compounded monthly and matures on June 12, 2013. Both interest and principal are due at maturity. As of June 30, 2010, accrued interest on the loan of $1,162,947 is recorded as part of the Loan from affiliate and has been capitalized to Land and Arena under construction.
A fee equal to $1,000,000 is due on the date the Loan is paid in full, or a pro-rated portion on the date of any partial repayment of the Loan, which is recorded in Accounts payable — affiliates. In the event the Loan is not paid upon maturity, the Loan converts into an equity position in Brooklyn Arena based on a stipulated formula.So if ArenaHoldCo, which is controlled by Forest City Enterprises, does not pay Prokhorov back, his share in the arena would be converted to equity (as has been reported).
Ratner gets at least 5%
Since July 2007, when the Times reported it, we've known that Forest City Ratner would get a development fee of 5%. This document suggests the fee could be somewhat more:
Developer Agreement
On June 1, 2005, Brooklyn Arena entered into a Development Agreement with an affiliate (the “Developer”), pursuant to which the Developer will plan, develop and oversee construction of the Arena for a fee not to exceed the lesser of $7,000,000 per year or 5% of the total project cost at completion. Through June 30, 2010, $35,000,000 of development fees have been incurred and capitalized to Land and Arena under construction.
...Forest City likely would earn much more, especially if it can cut costs via modular construction and continue to finagle low-cost financing from immigrant investors.
NBC Sports, Books show Nets with $44 million loss in 2008-09 season
Posted by eric at 11:17 AM
July 6, 2011
Forest City sells 49% stake in two New York rental buildings, Beekman and 80 DeKalb, at apparent discount to raise cash
Atlantic Yards Report
Like New York, it seems "Forest City Ratner is open for business." But maybe the line should be "everything must go — no reasonable offer will be refused!"
To lower debt payments, Forest City Enterprises is selling nearly half of two New York rental properties developed by subordinate Forest City Ratner, keeping 51% ownership. Similarly, the company sold nearly half of New York area retail properties in March to raise cash.
The press release at bottom, which is distilled in The Real Deal, Forest City restructures financing at 8 Spruce, DKLB BKLN, provides the developer's preferred angle:
Forest City Enterprises and National Real Estate Advisors [NREA] announced agreements to restructure the financing at 8 Spruce Street, the Frank Gehry-designed 76-story rental tower in Lower Manhattan and at DKLB BKLN the luxury tower in Fort Greene, Brooklyn, saving the companies hundreds of millions of dollars in debt payments.
Crain's Cleveland Business also distilled the press release.
But there's a trade-off: while Forest City may save hundreds of millions in debt, it sold stakes in both buildings for what seem to be discounts. (I suspect I'm missing some elements of the financial deal, but the raw math is still worth a look.)
In the press release, Forest City CEO David LaRue hinted that times are still tough: "Finally, by extending the bank credit facilities, it allows additional time for economic conditions and rents to further improve before refinancing is necessary."
Related coverage...
The Real Deal, Forest City restructures financing at 8 Spruce, DKLB BKLN
Forest City Enterprises and National Real Estate Advisors announced agreements to restructure the financing at 8 Spruce Street, the Frank Gehry-designed 76-story rental tower in Lower Manhattan and at DKLB BKLN the luxury tower in Fort Greene, Brooklyn, saving the companies hundreds of millions of dollars in debt payments.
The development is key for Forest City, the parent firm of Forest City Ratner, as this $876 million rental tower, formerly known as the Beekman, was under pressure to bring in enough renters to become profitable in a market that is just getting its sea legs.
Crain's Cleveland Business, Forest City Enterprises, National Real Estate Advisors recapitalize two N.Y. apartments
Posted by eric at 11:30 AM
June 26, 2011
How the New York Times's watchdog coverage of a supplements company could be transposed to the New York City Regional Center and EB-5
Atlantic Yards Report
A lengthy 6/21/11 New York Times article about Senator Orrin Hatch R-UT), headlined Support Is Mutual for Senator and Utah Industry, described his relationship with the supplements industry, which wants freer reign to make some self-serving claims.
One passage jumped out:
But Xango’s record illustrates how companies eager to exploit the law can go too far.
In 2006, federal regulators warned Xango that brochures improperly promoted mangosteen juice as a disease cure, not just a healthy option. Xango is among more than a dozen Utah companies cited by federal regulators over the last decade for apparent violations of the law.
Xango, whose executives are the single biggest Utah-based contributors to Mr. Hatch’s political campaigns and have drawn Mr. Hatch to its headquarters to down shot glasses of their juice, blamed a marketing company that had printed the brochures. The company also insisted that it was closely monitoring distributors to make sure they did not make inappropriate claims.
But in his talk at Xango in March, [distributor] Dr. [Vaughn T.] Johnson — who lectures across the country at other company events — used some of the same language the F.D.A. had cited in its 2006 warning letter, and he referred the sales agents to a nearby company that still sold brochures making the improper claims.
(Emphases added)
The EB-5 analogue
Why did I highlight the above?
As I wrote 12/27/10, it's stunning how George Olsen, managing principal of the New York City Regional Center (NYCRC), could profess to be shocked, shocked that the firm's affiliates in Asia were deceptively marketing green cards in exchange for investments in Atlantic Yards.
As Reuters reported:
At a recent seminar in Seoul, an agent for the Kookmin Migration Consulting Co., working on behalf of the New York City Regional Center, told would-be investors if they invested in the company's latest project their permanent green cards were "guaranteed." He also implied the investors would be financing the construction of the new home for the New Jersey Nets NBA basketball team.
In a subsequent interview with Reuters, George Olsen, managing principal of the New York City Regional Center acknowledged the claims were "not accurate" - the investors will finance the rebuilding of a rail yard and some related infrastructure near the new basketball court -- and promised he would jump on Kookmin "with two feet."
"But that's what's frustrating," Olsen said. "You can't be at every seminar, you can't be at every meeting, you can't be in the room when one of these people is talking. To raise $100 million, you have to get 200 investors. That's a lot of people. So there's a certain amount of mass marketing that has to go on.
Nah. As I pointed out December 23, those same claims were made by Olsen's own point man in China, Gregg D. Hayden.
More here, including audio.
Posted by steve at 7:17 PM
June 25, 2011
No suprise: NYU Schack's Stuckey intersects with EB-5 promotion
Atlantic Yards Report
The immigrant investor law, known as EB-5, has gotten a lot more popular in the past two years, because low-interest loans from immigrants more interested in green cards than returns are now available to clever investors, and the requirement of job creation can be finagled via paper calculations.
From GlobeSt.com, 6/21/11, Shopping the EB-5 Supermarket:
As access to traditional forms of capital continues to tighten, an often underlooked source of funding can help foreign investors establish themselves in the US while benefiting the American economy: the federal EB-5 Immigrant Investor Program. Panelists discussed “The Art of the EB-5 Real Estate Transaction” at a conference hosted by Akerman Senterfitt in conjunction with the Urban Land Institute and the NYU Schack Institute of Real Estate on Monday morning at the Cornell Club in Midtown Manhattan.
...When structuring an EB-5 project, Park asks two questions: Does it meet the legal requirements, and from an investment standpoint, will it sell? “EB-5 projects nowadays are like commodities,” Park says. “You have to think of it in the view of the investor. They want a green card and they walk into a ‘supermarket.’ You go in, look at the shelf and see all these products and if you pick a good one and you get the job, you get your permanent green card two years later.”
And if you think of it in the view of public policy, well, maybe the question is whether the project actually creates jobs.
...
And the article combines former Atlantic Yards point man Jim Stuckey with the clever packagers at the New York City Regional Center, who helped raise $249 million for Atlantic Yards:
The most successful EB-5 projects have demonstrated creative real estate solutions in major metros, explained moderator James P. Stuckey, divisional dean at NYU’s Schack Institute of Real Estate. With a refocus on urban manufacturing, Andrew Kimball, president and CEO of Brooklyn Navy Yard Development Corporation, became the city’s first organization to access low-cost financing--about $60 million--through the EB-5 Regional Center program.
The article mentions the more legitimate Navy Yard program, but, really, shouldn't someone follow up on the revelations about the Atlantic Yards pitched raised by Reuters and by me? The Times has not.
Posted by steve at 9:17 PM
June 8, 2011
The EB-5 story: WSJ offers less skepticism than Houston Chronicle; federal agency announces plan to streamline applications
Atlantic Yards Report
One of the lessons of the Atlantic Yards saga, and highlighted in the film Battle for Brooklyn, is the importance of a skeptical approach to the media.
Nowhere is such skepticism more important than in coverage of the EB-5 phenomenon, in which would-be immigrants trade purportedly job-creating investments for green cards for themselves and their families.
Despite ample evidence that the program is dubious, especially related to the Atlantic Yards project, the Wall Street Journal yesterday proceeded with some shoddy journalism, in an article headline Program Gives Investors Chance at Visa.
It's in line with the Journal's lame coverage in February, which ignored misrepresentations made by the New York City Regional Center, the first investment fund in the city that recruited investors, in signing up Chinese and Korean millionaires to invest in the Atlantic Yards project.
Posted by eric at 7:20 AM
June 7, 2011
Program Gives Investors Chance at Visa
The Wall Street Journal
by Sumathi Reddy and Joseph De Avila
A 38-story luxury Times Square Hotel. A medical center, hotel and condominium development in downtown Flushing. And New York City's reportedly first Proton Therapy Cancer Treatment Center.
All rely on an unusual source of funding: immigrants who invest $500,000 for a shot at a shortcut to permanent residency.
...The program has its critics. They say it has been pitched at times to foreigners as a sure-fire way to get a green card or as a risk-free investment—which it's not.
Some immigrants have experienced deteriorating investments and been sent home packing after developments flop. Since all of the regional centers in New York City are relatively new, none of the investors have reached the point where they would have applied for permanent residency.
Michael Gibson, who researches EB-5 projects for investors through his Florida-based business, said it's hard to monitor what overseas agents are pitching to foreign investors.
...The New York City Regional Center has raised $60 million for the Brooklyn Navy Yard and $65 million for Steiner Studios, a film and television studio in Brooklyn. The center is in the process of raising $249 million to pay for infrastructure costs for developer Forest City Ratner Cos.'s Nets basketball arena in Brooklyn, its biggest project so far.
Posted by eric at 1:10 PM
Forest City Enterprises reports earnings rise for first quarter 2011, claims Brooklyn office vacancies being addressed, must absorb Nets losses
Atlantic Yards Report
Forest City Enterprises, whose Forest City Ratner arm is developing Atlantic Yards, reported positive earnings results yesterday, though the company's Brooklyn portfolio may not be as rosy as some of the rest of the business.
...The most significant driver of results: $42.6 million from the sale of land and air rights to Rock Ohio Caesars Cleveland LLC for construction of a casino in downtown Cleveland, where FCE is headquartered. (Here's the Plain Dealer coverage.)
...AY update
In both the press release and the conference call, FCE officials said that approximately 55% of the forecasted contractually obligated revenues for the arena are currently under contract.
Three months ago, FCE reported the same percentage. In September 2010, the figure was 51%.
"We are also in the process of initial planning, design, and engineering for work on the first residential multifamily building at Atlantic Yards," [incoming CEO David] LaRue added.
Related coverage...
Cleveland Plain Dealer, Forest City reports Q1 profit, sees $42.6 million boost to pre-tax EBDT from Cleveland casino deal
Monday's earnings call was the last with a member of the Ratner family at the company's helm. At Forest City's annual meeting Friday, longtime CEO Charles Ratner will become chairman of the board. He will be succeeded by David LaRue, the company's chief operating officer.
...Shares of Forest City's stock (NYSE: FCE-A) closed trading Monday at $18.71, down 21 cents or 1.1 percent.
Posted by eric at 12:39 PM
June 6, 2011
FCE PRESS RELEASE: Forest City Reports Fiscal 2011 First-Quarter Results
via PR Newswire
Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced EBDT, net earnings and revenues for the first quarter ended April 30, 2011.
EBDT
First-quarter EBDT (earnings before depreciation, amortization and deferred taxes) was $127.4 million, an increase of $56.9 million compared with 2010 first-quarter EBDT of $70.5 million. On a fully diluted, per-share basis, first-quarter 2011 EBDT was $0.63, a 70.3 percent increase compared with 2010 first quarter EBDT of $0.37.
For an explanation of EBDT variances, see the section titled "Review of Results" in this news release. EBDT and EBDT per share are non-Generally Accepted Accounting Principle (GAAP) measures. A reconciliation of net earnings (the most directly comparable GAAP measure to EBDT) to EBDT is provided in the Financial Highlights table in this news release.
Net Earnings/Loss
First-quarter net earnings attributable to Forest City Enterprises, Inc. were $47.6 million, or $0.25 per share, compared with a net loss of $15.6 million, or $0.10 per share, in the first quarter of 2010. After preferred dividends, net earnings attributable to Forest City Enterprises, Inc. common shareholders was $43.7 million, or $0.24 per share, for the quarter ended April 30, 2011.
Revenues
First-quarter 2011 consolidated revenues were $316.9 million compared with $271.5 million last year. The year-over-year revenue variance was impacted primarily by the same factors impacting EBDT, as described below under "Review of Results."
Review of Results
An exhibit illustrating factors impacting first-quarter 2011 EBDT results, compared with results for the comparable period in 2010, is available on the Investor Relations page of the Company's web site: www.forestcity.net, and is included in the company's first-quarter 2011 Supplemental Package furnished to the Securities and Exchange Commission.
For the three months ended April 30, 2011, the Company's combined Commercial and Residential Segments (also referred to as the rental properties portfolio) provided a pre-tax EBDT increase of $55.7 million, compared with the first quarter of 2010. The year-over-year increase was primarily the result of initial proceeds of $42.6 million from the previously announced sale of land and air rights to Rock Ohio Caesars Cleveland LLC for construction of a casino in downtown Cleveland, increased income of $7.7 million from tax credits, the ramp-up of new properties of $2.6 million, and decreased interest expense on the mature portfolio of $2.2 million. These increases in the portfolio were partially offset by reduced EBDT from properties sold of $4.6 million.
Related...
PR Newswire, REMINDER: Forest City Enterprises Fiscal 2011 First-Quarter Earnings Conference Call
Forest City Enterprises, Inc., (NYSE:FCE-A) has released its first-quarter 2011 financial results and will hold a conference call today at 11:00 a.m. ET to discuss these results. Investors are invited to dial into the conference call hosted by Charles A. Ratner, president and chief executive officer, or to listen to a live webcast of the call through www.forestcity.net.
Posted by eric at 10:21 AM
June 2, 2011
Ratner Seeking $100 Million for Apartment Tower at Atlantic Yards Site
Bloomberg
by David M. Levitt and Betty Liu
The developer of the Atlantic Yards project in New York’s Brooklyn borough plans to borrow about $100 million to construct an apartment tower near the basketball arena now going up on Flatbush Avenue.
Work should start on the apartment building in December or January, Bruce Ratner, Forest City Ratner Cos. chairman and chief executive officer, said today in an interview on Bloomberg Television. The tower would join the Barclays Center sports arena as the second structure at the $4.9 billion, 22-acre project in downtown Brooklyn.
“We’ve already talked to banks and we will be able to get a loan,” Ratner said.
NoLandGrab: We'll believe construction of any Atlantic Yards housing when we see it, not when Bruce predicts it. And for the millionth time, the project is not in downtown Brooklyn.
Posted by eric at 8:54 AM
May 30, 2011
Goldman Sachs buys Google ads to promote its role in getting Louisville arena built; what about Brooklyn?
Atlantic Yards Report
Attached to a 5/7/11 Boston Globe review of sportswriter Robert Lipsyte's new memoir was the advertisement at right, in which financial behemoth Goldman Sachs promotes its role in the new arena in Louisville, KY.
Presumably such Google ads are being bought wholesale, attached to other sports coverage.
"See how the construction of a new arena helps businesses downtown," states Goldman, pointing to a web page and film, with the summary:
Now, new businesses are opening, new jobs have been created and downtown Louisville is more vibrant than ever, with new restaurants and services available to local residents and visitors.
What about Brooklyn?
Will Goldman, which arranged the bond financing for the Atlantic Yards arena (aka Barclays Center), promote its role in the new facility? Likely.
But the promotion will have to be more subtle. New businesses? Sports bars, sure, but local residents surely have enough restaurants and services.
New jobs? Surely not nearly as many as promised during the heady days of "Jobs, Housing, and Hoops."
New housing? Not Goldman's problem.
Posted by eric at 10:46 AM
May 26, 2011
Forest City Enterprises gets one-third off loan due Cleveland; will subsidary FCR pursue similar discounts regarding Atlantic Yards?
Atlantic Yards Report
Is a discount on a Forest City Enterprises loan from the city of Cleveland a harbinger of further requests to adjust Forest City Ratner's public obligations regarding Atlantic Yards?
Well, we can't be sure, but the Forest City modus operandi, it's clear, is to play hardball, taking advantage of what public agencies allow.
(FCR doesn't have any loans to pay back, but it is supposed to create new public infrastructure, and already renegotiated a discount on the development rights to the Vanderbilt Yard and got permission to build a replacement yard smaller than promised.)
The discount in Cleveland
From the Cleveland Plain Dealer's blog, a post headlined Forest City paying $10.3 million to close out $15 million in city loans:
Forest City Enterprises will pay Cleveland $10.3 million of $15.4 million owed on three development loans, and the city will call it even.
About half the money will replenish a "rainy day" fund that is to run out this year, and $3.9 million will go to economic development. The City Council has set aside $1.4 million for neighborhood projects, with each of the 19 members receiving $75,000.
The deal, initiated by the city, involves loans made to the real estate and development company with federal Urban Development Action Grant money in the late 1980s and early 1990s. Forest City used the low- and no-interest loans to develop The Avenue at Tower City Center.
Forest City had faced balloon payments totaling about $15.4 million due in 2016 or 2020, depending on the loan.
Ken Silliman, Mayor Frank Jackson's chief of staff, said the deal ensures the city will collect two-thirds of a debt that would be hard to recover if Forest City defaulted. He and Economic Development Director Tracey Nichols said it also makes money available for economic development at a time when private financing remains tight.
(Emphasis added)
Making the deal
Why should Forest City default? They can afford to pay back the loan. They just don't want to.
The question is why Cleveland let them get away with it.
Related content...
Cleveland.com, Forest City paying $10.3 million to close out $15 million in city loans
Silliman acknowledged that the city is unlikely to recoup the full value of the three Forest City loans.
Posted by eric at 11:01 AM
May 20, 2011
SQUARE FEET | THE 30-MINUTE INTERVIEW: Ronald Dickerman
The New York Times
by Vivian Marino
Mr. Dickerman, 47, is the founder and president of Madison International Realty, a real estate private equity firm, which through its investment funds holds ownership stakes in buildings around the world, including several in the New York area, among them the Chrysler East Building and 520 Madison Avenue. The company has also had investments in the Seagram Building over the years.
Q Tell me about your business.
A I think we do something very unusual in the world of commercial real estate and investing: we acquire ownership interests in Class A assets from existing investors looking for an early exit strategy. Our objective is not to seek control of the properties — it’s to provide liquidity, which means buy their interest. We’re not a loan-to-own shop.
...Q You recently announced a deal to acquire a 49 percent interest in 15 retail and entertainment properties owned by Forest City Ratner.
A They came to us, I think, in September 2010 to fund their go-forward investments. You may know that the Atlantic Yards development is something like $4 billion.
These properties are as core as core can be. They’re 99 percent occupied; the average lease term is over eight years.
Related coverage...
Atlantic Yards Report, Why did Forest City Ratner sell a 49 percent stake in its malls? To help pay for Atlantic Yards, and to combat investor "fatigue"
In a "Square Feet" interview in the upcoming Sunday New York Times Real Estate section, Ronald Dickerman, founder and president of the private equity firm Madison International Realty, explains his business and talks about the deal announced at the end of March to acquire a 49 percent interest in 15 retail and entertainment properties owned by Forest City Ratner.
So what do companies like Forest City do with the cash?
"To redeploy into other investment opportunities, to fund other liabilities within their portfolio," responded Dickerman.
In other words, to help pay for Atlantic Yards.
...Madison investors see a rate of return "between 17 and 18 percent gross," so that suggests Forest City Ratner gave up something significant.
Asked if his firm adds value to its holdings, Dickerman said no:
We invest in core Class A assets where the building itself is relatively stable and the deal is not distressed. What’s distressed about the transaction is the fatigue of the underlying investor.
Posted by eric at 11:38 AM
April 28, 2011
FCR may raise $40M more from immigrant investors; document confirms that EB-5 loans can be used to pay off mortgages, says nothing about job creation
Atlantic Yards Report
We would call this unbelievable, but Atlantic Yards is so crooked that nothing is unbelievable.
An Empire State Development Corporation (ESDC) document reveals that developer Forest City Ratner, which already has signed up 498 immigrant investors to offer a $249 million low-interest loan, may seek another 80 investors for a $40 million loan.
The agreement between the ESDC and a Forest City Ratner affiliate was acquired via a Freedom of Information Law request. Though it offers much detail on how the money might be spent--Forest City has wide latitude--it says nothing about the ostensible purpose of the funding under the federal government's EB-5 immigration program: job creation.
The issue of job creation must be addressed in documents submitted to a federal agency, United States Citizenship and Immigration Services. The investors park their money for perhaps five years, and can get green cards for themselves and their families, assuming the claims of job creation pass muster.
...[T]he loan proceeds could be used to reimburse Forest City Ratner for its costs on the Arena, the Subway Entrance, the public plaza, the upgrade railyard, demolition of project structures, utility work, the construction of the Carlton Avenue Bridge, the creation of arena parking, and preparation of development sites.
Essentially it's a piggy bank for whatever Forest City Ratner wants, including the final category, which I highlighted: paying off any liens and encumbrances, such as the existing land loan from Gramercy Warehouse Funding.
Does any of this create or retain jobs? That's what they may say on paper, but it seems clear that the developer is substituting lower-cost capital for higher-cost capital.
Take for example the Carlton Avenue Bridge; the developer is obligated to reconstruct it, whatever the source of the capital. So the use of immigrant investor funds for the bridge doesn't add jobs.
NoLandGrab: As some people are fond of saying, "f**k the bridge." And the jobs, and the investors, and the taxpayers, and....
Posted by eric at 10:32 AM
April 27, 2011
Numbers up: The New York Times Is Counting Wealthy Chinese, In A Too-Short Story
Noticing New York
This week it was impossible not to notice that the New York Times was prominently featuring the number “585" for a short little blurb of a story featured in its "News of the Week in Review" section. Turns out they were counting wealthy Chinese. (See: Prime Number, Published: April 23, 2011.) The Times was taking note that 585 is the estimated number, in the thousands, of people in China who this year will have investable assets of $1.5 million or more. This was according to a study by Bain & Company, a Mitt Romney connected consulting firm.
The number, the subject and the calculation couldn’t help but remind us all of another number, “498" which is the number of Chinese that Forest City Ratner is soliciting to “invest” $538,000 in order get American government issued green cards that Forest City Ratner is being allowed to sell more or less exclusively for its own private benefit. After some time (five years), the Chinese are supposed to get back less money ($500,000) which, other than their green cards, constitutes the return on their investment provided the deal Forest City Ratner has structured for them doesn’t tank. This all has to do with something known as the federal EB5 program, a program Congress created supposedly to produce jobs in the U.S. but which Forest City Ratner is taking advantage of in a non-job producing way. Essentially, the Ratner firm is abusing the EB-5 program in a way that Congress is now letting it be abused: Ratner is selling United States green cards to rake in cheap capital without producing jobs.
In other words, if, as reported in the Times, there are 585,000 Chinese who have $1.5 million or more to invest, 498 of them, or one out of every 1,197 of them are expected to pony up $538,000 of that available $1.5 million to pay Forest City Ratner for green cards.
Posted by eric at 9:33 AM
April 25, 2011
Kunpeng, consultancy promoting AY to immigrant investors in China, among firms willing to deceive regulators, according to newspaper investigation
Atlantic Yards Report
There's new evidence that consultants helping Chinese millionaires immigrate, as in the program involving the "Brooklyn Arena and Infrastructure Project," are skating toward fraud.
In this case, the evidence does not involve the EB-5 program, in which investors park $500,000 for a purportedly job-creating project in exchange for green cards for themselves and their family, but rather a similar Canadian program.
Kunpeng International, a consultant prominent in promoting the Brooklyn project as an associate of the New York City Regional Center (NYCRC), an investment pool working with Forest City Ratner, has been identified as one willing to deceive Canadian regulators.
(Kunpeng's head is at right in the photo with the Empire State Development Corporation's Peter Davidson, who provided a certificate during a roadshow in China last October. That proclamation, as I wrote, elides the difference between the Brooklyn Arena and Infrastructure Project before the potential investors--purportedly the arena, infrastructure, and railyard--and the Atlantic Yards project as a whole, which would produce many more jobs and potential benefits.)
Helping a fictitious applicant
In a 4/22/11 article headlined How China’s ‘crooked consultants’ help the rich enter Canada, the Globe and Mail reports that a fictitious potential immigrant created for the purposes of the article--who has the required minimum $1.6 million CAD in assets but not the required documentation providing the wealth is legitimate--was offered help in sugarcoating his past by 18 of the 22 China-based immigration consultants approached.
Of the 22, 12 said that even a criminal record--jail time for stabbing someone in a fight--could be overcome:
If the relative were to persuade – bribe, if necessary – someone at his local police station to issue such a certificate, explained an agent at Kunpeng International, a Beijing-based firm, Canadian officials “can’t come to China to check the archives” in person.
John Ryan, chief executive officer of the Canadian Society of Immigration Consultants, a former consultant in China, told the newspaper that business ethics in China are flexible:
“In Chinese culture, they feel that, in dealing with governments, they need an edge. They don’t really understand that, in our Canadian system, they can deal openly and honestly with the government and be dealt with fairly.”
NoLandGrab: Is it us, or does our system sound much closer to China's than to Canada's?
Posted by eric at 11:00 AM
April 1, 2011
Cash-Strapped Forest City Ratner Sells 49% Stake in Atlantic Center and Atlantic Terminal Malls
The L Magazine
by Mark Asch
Bruce Ratner's company has sold a 49% interest in 15 NYC shopping centers, the Wall Street Journal reported yesterday. This includes the Atlantic Center and Atlantic Terminal malls, those two monstrosities across Flatbush from the project which has put Ratner into such dire financial straits.
As if the implications of the sale—the largest possible non-controlling stake in privately owned, healthy income-generating retail developments—weren't clear enough, graf 2 of the WSJ article notes, with killing objectivity, "The sale... comes as Forest City has been hobbled by major development projects that were started at the market's peak, when prices and expectations were far higher than they are today." (One thing they don't mention: this isn't the first time Ratner's sold off assets to keep Atlantic Yards moving. Remember that time he sold his basketball team to the richest man in Russia?)
...Ratner, you may recall, had several blocks of Prospect Heights declared "blighted" so that the state could claim eminent domain to hand them over to him. Ratner and the state's urban renewal project apparently consists of letting huge swaths of the neighborhood remain vacant and undeveloped indefinitely, or at least until he can find a few million more pennies under the couch.
Related coverage...
Park Slope Patch, Ratner Sells Big Stake in Atlantic Terminal Mall
Madison International, a real estate private equity firm, will pay the developer’s company, Forest City Ratner, $172 million for properties that include both Atlantic Center and Atlantic Terminal. Madison will also take on $499.9 million of debt.
Ratner will retain the majority share and continue to manage the properties, including the Atlantic Terminal Mall.
Ratner’s plans for 16-tower mini-city and basketball arena at Atlantic and Flatbush avenues was on the brink of financial ruin in 2008 when the economy tanked. Since then, the original architect of the project, Frank Gehry, has been fired, and the developer has said the project could be completed in 25 years, rather than the original 10 years.
Posted by eric at 11:01 AM
March 31, 2011
FCE PRESS RELEASE: Forest City Reports Fiscal 2010 Full-Year and Fourth-Quarter Results
Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) today announced EBDT, net earnings and revenues for the fourth quarter and full year ended January31, 2011.
EBDT
EBDT (Earnings Before Depreciation, Amortization and Deferred Taxes) for the full year ended January 31, 2011, was $309.9 million, a new record for the company and a 2.9 percent increase compared with last year's $301.1 million. EBDT for the fourth quarter was $43.1 million, a 45 percent decrease compared with last year's fourth-quarter EBDT of $78.4 million.
EBDT for the fourth quarter and full year 2010 were impacted by a loss on early extinguishment of debt of $31.7 million ($0.16 on a fully diluted, per-share basis), related to inducement payments for the early exchange of a portion of the company's 2016 Senior Notes for Class A common stock, which occurred in the final week of the fiscal year.
On a fully diluted, per-share basis, full-year 2010 EBDT was $1.59, a 20.5 percent decrease from the prior year's $2.00 per share. Per-share EBDT for the fourth quarter of 2010 was $0.23, compared with $0.43 per share in the fourth quarter of 2009. Per-share data reflects new Class A common shares and the "if-converted" effect of convertible debt and convertible preferred stock issued in 2009 and 2010.
...
Net Earnings/Loss
For the full year, net earnings attributable to Forest City Enterprises, Inc., were $58.7 million, or $0.34 per share, compared with a net loss of $30.7 million, or $0.22 per share, in 2009. For the fourth quarter of 2010, net loss attributable to Forest City Enterprises, Inc. was $1.8 million, or $0.01 per share, compared with net earnings of $6.2 million, or $0.04 per share in the fourth quarter of 2009.
...
Work continues at the Barclays Center arena at Atlantic Yards, with steel now rising several stories above ground level at the site. With the building taking shape, the reality of major league sports returning to Brooklyn has helped generate additional momentum and enthusiasm for the project. Approximately 55 percent of forecasted contractually obligated revenues are currently under contract for the arena, which is expected to open in late summer 2012.
Posted by eric at 11:32 AM
March 30, 2011
Federal agency stonewalls Freedom of Information Act requests on Forest City's EB-5 green card scheme, waits four-plus months to send denial letters
Atlantic Yards Report
Are the Feds in on this crooked deal, too?
Will we ever find out how exactly federal authorities gave preliminary approval--and more--to the astounding efforts to get Chinese millionaires to invest in Atlantic Yards in exchange for green cards?
Not that likely.
During a crucial four-month period when developer Forest City Ratner and the New York City Regional Center successfully recruited immigrant investors in China and South Korea, the United States Citizenship and Immigration Service (USCIS) stonewalled my Freedom of Information Act requests in a very odd fashion.
The USCIS responded to me in letters dated 10/22/10 and 11/2/10, as well as two undated letters.
However, it did not mail those letters until early March, some four months later, and gave no explanation for the delay.
Moreover, the explanation given for three denials of my FOIA requests--that they were not of journalistic and public interest--seems belied by another letter that granted a request for expedited treatment, apparently because my request was of journalistic and public interest.
While that request was granted, I have not received the records at issue.
Read on for more of Norman Oder's back and forth with the USCIS. No word as to when, or if, he's going to start meeting shadowy Hal Holbrook-looking dudes in the bowels of parking garages. All we know is, follow the money.
Posted by eric at 12:53 PM
Ratner Sells Shopping-Center Stake
The Wall Street Journal
by Eliot Brown
Since more traditional means of raising money didn't work out, Forest City Ratner has turned to an asset sale.
Forest City Ratner, one of New York's largest developers, has sold a 49% stake in 15 shopping centers scattered throughout the metropolitan area in a deal that values the retail portfolio at $852 million, the company said Tuesday.
The sale to Madison International Realty comes as Forest City has been hobbled by major development projects that were started at the market's peak, when prices and expectations were far higher than they are today.
Madison, a firm that owns noncontrolling equity stakes in properties, is paying $172 million to Forest City, which holds the remaining equity and will still manage the properties. The portfolio has $500 million in debt connected with it.
The malls tend to be well-trafficked properties, with a list that includes the Atlantic Center at the edge of Fort Greene in Brooklyn, a property in the Times Square area and a mall on 125th Street in Harlem.
"This is probably the largest portfolio of retail properties owned by a single landlord in the New York area," Ronald Dickerman, Madison's president, said in an interview Tuesday.
...The Brooklyn-based Forest City Ratner subsidiary, led by Bruce Ratner, is in the process of developing three major projects, including a new Nets basketball arena and housing complex in Brooklyn, a 76-story apartment tower in Lower Manhattan and a large mall in Yonkers.
The Brooklyn arena has seen costs rise by hundreds of millions of dollars since it was initially planned, and the company is having difficulty starting the housing component. The mall in Yonkers envisioned a high-end retail tenant base that has proved difficult to attract because of the economic downturn.
NoLandGrab: No word as to whether the "colorful characters" (aka shoplifters, pickpockets and purse-snatchers) who frequent the Atlantic Center and Atlantic Terminal malls were included in the deal.
Related coverage...
Atlantic Yards Report, Seeking cash, Forest City Ratner sells 49 percent of Atlantic Terminal/Center malls, other retail and entertainment properties
In an effort to "create liquidity" (aka raise cash), Forest City Ratner has sold a a 49% stake in "15 mature retail and entertainment properties" in the New York City area, including the Atlantic Terminal and Atlantic Center malls in Brooklyn.
The buyer, Madison International Realty, will invest $172.3 million in cash. The properties are valued by this transaction at $851.5 million, including $499.9 million of debt. Forest City will continue to own a majority 51% stake, and manage the properties.
Is that a good deal for Forest City? Did Madison get a bargain? The only context I see is from the Wall Street Journal, in a short article today headlined Ratner Sells Shopping-Center Stake:
The sale to Madison International Realty comes as Forest City has been hobbled by major development projects that were started at the market's peak, when prices and expectations were far higher than they are today.
Those "major" projects include Atlantic Yards, the Ridge Hill project in Yonkers, and the Beekman Tower in Lower Manhattan.
Forest City Enterprises Press Release, Forest City Announces Joint Ventures with Madison International Realty for 15 New York City Area Retail Centers
The properties included in the transaction are: the 42nd Street Retail and Entertainment Complex and Harlem Center (retail component) in Manhattan; Atlantic Center, Atlantic Terminal (retail component) and The Heights in Brooklyn; Queens Place, Steinway Street Theatres and Shops at Northern Boulevard in Queens; Shops at Bruckner Boulevard, Castle Center and Shops at Gun Hill Road in the Bronx; Shops at Richmond Avenue and Forest Avenue Cinemas on Staten Island; and Columbia Park in North Bergen, New Jersey.
Posted by eric at 12:09 PM
March 29, 2011
Believable? Feds told $249M in immigrant investor (EB-5) funds would create 3705 construction jobs, 350 in retail, 1786 in art/entertainment
Atlantic Yards Report
How can Forest City Ratner and its partner, an investment pool called the New York City Regional Center (NYCRC), claim that 498 Chinese (and Korean) millionaires seeking green cards would create 7696 jobs by investing a half-million dollars each ($249 million total) in the Atlantic Yards project?
It's one of the most preposterous claims in the entire saga of Forest City Ratner's effort to gain a low-interest loan, saving perhaps $191 million, via the federal government's EB-5 program. Under the program, investors and their families gain green cards in exchange for purportedly job-creating investments, ten per investor.
Now there's new evidence undermining the claim, given that the claimed job total--including jobs in construction and entertainment--can't reflect how the money would be used.
A graphic on the web site of Kookmin, a South Korean immigration agency working with the NYCRC, suggests, for example, that the investment would create 3705 construction jobs and 1786.5 jobs in "art, entertainment."
Those numbers defy common sense--the entertainment jobs, for example, would have to be tied to the arena.
But the money isn't needed for the arena.
Read on [that means YOU, U.S. Citizenship & Immigration Services!] for Norman Oder's thorough dismantling of the Atlantic Yards EB-5 house of [green] cards.
NoLandGrab: We just emailed a link to this story to uscis.immigrantinvestorprogram@dhs.gov urging the Citizenship & Immigration Services to dig into this shady deal. We suggest you do the same.
Posted by eric at 11:16 AM
March 27, 2011
Noticing New York on "fictional job creation" and Atlantic Yards
Atlantic Yards Report
Drawing on some of my reporting, Noticing New York's Michael D. D. White takes off from a story about fictional job creation nationally to dissect claims of job creation with Atlantic Yards:
In the case of Atlantic Yards we have two levels of AWOL government, each level with its own fictional job creation program that is not fulfilling its ostensible purpose: At the state level the ESDC (the “New York State Urban Development Corporation” doing business as the “New York State Urban Development Corporation”) does not monitor or pay attention to how many jobs are created at the megadevelopment and on the federal level (Congress again neglecting the declared core of a program) we have the non-job-creating EB5 program that we will get to in a minute. Perhaps what mightily facilitates the ease with which the EB-5 program is abused is that it is not known by any formal title, like the American Jobs Creation Act, leaving the New York Times to struggle as it refers to Ratner’s 'enrollment’ of “498 Asian investors” in “an obscure federal program that grants [“sells” is a better word] green cards in exchange for a $500,000 investment in a job-producing American project,” thereby stumbling compliantly into having referred to `job-production’ which is, as discussed, actually nonexistent.
More here, including a list of six specific problems.
Posted by steve at 10:33 PM
March 14, 2011
Time for an update? Markowitz, on video, praised Forest City to potential investors: "I can assure you that their reputation is unbelievably reliable"
Atlantic Yards Report
In December, I first wrote about Brooklyn Borough President Marty Markowitz's hyperbolic praise for Forest City Ratner, assisting the developer's effort to raise low-cost capital from Chinese (and Korean) investors seeking green cards.
Now that Forest City executive Bruce Bender has been caught on government wiretap trying to get government help to fulfill the obligation to rebuild the Carlton Avenue Bridge, and also saying, "I don't mind fucking the bridge," maybe Markowitz's claims of FCR reliability deserve a rethink.
"The largest company in Brooklyn is Forest City development, and I can assure you that their reputation is unbelievably reliable," he declared on the video produced to pitch the project to the investors. "They're a great company to work with; they've worked very closely with government. And the most important thing: they make a promise, they keep it."
Posted by eric at 11:48 AM
March 9, 2011
Is the EB-5 money Plan B for infrastructure funding (after bonds plan was scotched)? Maybe, but maybe they're just winging it
Atlantic Yards Report
Is Forest City Ratner aiming to use $249 million from foreign millionaires under the EB-5 immigration program to make up for an infrastructure gap? There are some hints that's so, but also some counter-evidence.
In 2009, the Brooklyn Arena Local Development Corporation (BALDC), set up to issue tax-exempt bonds for Atlantic Yards arena construction, was also considering the issuance of up to $400 million in bonds for Atlantic Yards infrastructure.
That didn't happen. As I wrote 11/30/09, the Empire State Development Corporation (ESDC) stated, somewhat cryptically:
ESDC was at one time considering additional tax exempt bonds for infrastructure financing. Ultimately ESDC decided not to pursue that type of financing.
The gap
The ESDC's 2009 Modified General Project Plan budgeted $717 million for project infrastructure, with $100 million from the state for infrastructure and under $100 million--the amount is debatable--from the city.
The bonds presumably would have filled some of the gap.
Forest City Ratner executive MaryAnne Gilmartin once said the $249 million would be used for a new railyard (infrastructure) and perhaps to pay off a land loan.
I pointed to evidence that the latter--the loan repayment--was a more likely priority. Then another Forest City executive said last month they hadn't decided how to use the EB-5 funding.
So maybe they're just winging it, and when the numbers "pencil out," as Gilmartin likes to say, they will proceed.
Posted by eric at 12:44 PM
BP Markowitz Makes Video to Lure Asian Investors to Atlantic Yards
mcbrooklyn
Brooklyn Borough President Marty Markowitz made a video recently to lure Asian investors to the Atlantic Yards Project, telling them that "Brooklyn is 1000 percent behind Atlantic Yards."
There should be no language problem: "Land grab" is a term familiar to millions of Chinese farmers.
Posted by eric at 12:38 PM
If Cuomo's seeking to expand fight against financial fraud, maybe he should look at Forest City Ratner's EB-5 effort
Atlantic Yards Report
A front-age New York Times article February 16 headlined online Cuomo’s Deep Reach Into Regulatory Territory Could Provoke Clash in Albany and, in print, "Cuomo Seeking to Expand Grip to Fight Fraud," stated:
Buried in the governor’s new budget are provisions that would grant the executive branch sweeping new powers to investigate Wall Street banks, hedge funds and insurance companies, alarming some industry officials and raising the prospect of a major clash with his successor as attorney general, Eric T. Schneiderman, and local prosecutors over high-profile securities and investment cases.
The provisions accompany Mr. Cuomo’s proposed merger of the state’s Insurance and Banking Departments, along with the Consumer Protection Board, into a new Department of Financial Regulation. Mr. Cuomo has argued that those changes are necessary to create a more efficient and modern regulatory framework for businesses and better protection for consumers.
But the budget language would also empower the new agency to issue subpoenas, compel testimony and seek damages and penalties from anyone committing “financial fraud,” a term defined broadly to encompass investments, securities and derivatives marketed and sold by Wall Street investment houses, as well as financial services, life insurance and more.
Wouldn't it be worth looking into the potential "financial fraud" involved in Forest City Ratner's quest for $249 million from immigrant investors under the federal government's EB-5 immigration program?
After all, potential investors are clearly being misled, and the spirit--if not the letter--of the federal program is being violated.
And the Empire State Development Corporation, Cuomo's economic development agency, is helping.
Posted by eric at 12:15 PM
March 7, 2011
Brooklyn BP Markowitz's Atlantic Yards Falsehood (Video)
The Huffington Post
by Norman Oder
Even New Yorkers who've barely heard of Atlantic Yards, the Brooklyn mega-project with an under-construction arena for the basketball Nets plus 16 planned towers, know that it's been highly controversial since it was announced in December 2003.
(Why? Eminent domain based on dubious "blight," an arena encroaching on a residential neighborhood, significant government help and subsidies, and a process that bypassed local elected officials, just for a start.)
However, in lying blatantly to dismiss such division--"Brooklyn is 1000 percent behind Atlantic Yards"--Brooklyn Borough President Marty Markowitz has taken a quantum leap beyond his usual quota of boosterism.
Markowitz, who's endured jeers over the years for his fervent Atlantic Yards support, didn't make that claim in Brooklyn, or even in front of any American audience. Rather, he made it on a video aimed to recruit Chinese investors to the project, an effort that would save developer Forest City Ratner big bucks, perhaps $191 million.
Posted by eric at 11:38 AM
March 6, 2011
US cash for visas scheme targets China
Tom Spender
Tom Spender was instrumental in covering a campaign in China that included Gregg Hayden, general manager of the New York City Regional Center, along with Peter Davidson of the ESDC, the tool of developer Bruce Ratner, to help raise capital for Atlantic Yards. The vehicle used was the federal EB-5 program, which supplies green cards to investors on the basis of job creation. Claims of job creation for the Atlantic Yards project are dubious at best, and Spender is suspicious of claims guaranteeing green cards for the investors.
Dodgy dealings between developers and the authorities – sounds just like China! And there is a Chinese angle – under what’s known as an “EB-5” programme, foreigners invest $500,000 into America at almost zero interest rates, theoretically in return for Green Cards, for themselves and their families.
In credit-crunched times, a cheap cash for visas scheme appeals to developers. And it appeals to the Chinese too, who typically want Green Cards so their kids can go to university in the US, which they consider to have a superior education system.
...
I was asked to go along to an EB-5 roadshow in Beijing at which officials from the New York City Regional Center – one of many companies across the US dedicated to encouraging rich foreigners to invest in US projects – presented the Atlantic Yards scheme to rich Chinese.
...
Anyway, the roadshow – which ran for a gruelling 6 months – was due to end last month. According to a Wall Street Journal article, Hayden and his colleagues got the commitments they were looking for. The investors also include a small number of South Koreans.
That means 498 Chinese (and Koreans) have signed up to hand over half a million dollars each, having had assurances from Hayden and others that they are “100% sure” to get their Green Cards. It would be interesting to know what kind of background these investors have and how sanguine they are about the risk involved. From what I can see, China is a high-risk business environment where little can be taken for granted, so people here may be more familiar with risk than many westerners. The rich are spectacularly rich – for them, chucking half a million at the chance of a Green Card may not be a big deal – but some investors may have raised the money from family members and friends. In the past, some EB-5 investors have not only not got the Green Cards but have actually lost their investment. The current crop might do well not to take Hayden’s assurances too literally.
Posted by steve at 9:54 PM
March 2, 2011
Brooklyn is behind Atlantic Yards project, says Marty Markowitz
The Sports ITeam Blog [NYDaiyNews.com]
by Michael O'Keeffe
That's the story, Marty? That's the story!
Brooklyn Borough President and Atlantic Yards cheerleader Marty Markowitz lets loose his inner "Crazy Eddie" in this video posted this week by Atlantic Yards Report blogger Norman Oder. In the video, shown to Chinese investors interested in putting money into Nets' minority owner Bruce Ratner's massive development, Markowitz excitedly claims that Brooklyn is "1,000 percent" behind the project. I guess all those protests and lawsuits must have been organized by people from Queens.
The video was produced to promote a federal program that grants green cards to foreign investors whose money saves or creates jobs. But Elizabeth Mitchell, a spokeswoman for the Empire State Development Corporation, told the Daily News last year that AY developer and Nets minority owner Bruce Ratner turned to the program because it will save a ton of money on Atlantic Yards financing, not because the project was in danger.
Posted by eric at 12:29 PM
March 1, 2011
Since no one in America fell for it...
Queens Crap
These videos created to market the Atlantic Yards project to foreign investors - or should I say people who are being bribed with green cards in return for investing in this debacle - are really something else...
Meanwhile, the City apparently lured Caribbean teachers here with promises of green cards and never delivered on it.
Posted by eric at 10:03 AM
February 28, 2011
Video (finally) of Marty Markowitz's outrageous claim to potential immigrant investors: "Brooklyn is 1000 percent behind Atlantic Yards"
Atlantic Yards Report
OK, I posted the audio 12/8/10 and a link to the video on February 2.
But Brooklyn Borough President Marty Markowitz's performance in a video presented to potential immigrant investors in Atlantic Yards is so spectacular that it deserves its own video excerpt, below.
Markowitz claims, incredibly, "Brooklyn is 1000 percent, 1000 percent behind Atlantic Yards."
He knows that's false. But it could help save Forest City Ratner some $191 million under the dubious exploitation of a federal program in which immigrant investors get green cards for themselves and their families in exchange for purportedly job-creating investments.
The original video, produced by the New York City Regional Center, an investment pool, is made available by a South Korean video-sharing site. It is hard to download, so the excerpt was created the old-fashioned way, by filming the screen.
Markowitz closes by asserting that "there's nothing better than China and Brooklyn together."
There's some irony there, given that the version shown here is subtitled in Korean. Forest City Ratner and the New York City Regional Center have sought 498 investors, 40 from South Korea.
Posted by eric at 11:32 AM
February 18, 2011
Winning the lottery: The speculator who damned Ratner, got $3 million for his Pacific Street property, and then gushed about the developer
Atlantic Yards Report
Norman Oder tells the tale of a lucky (former) Atlantic Yards footprint property owner.
So, here's a story credulous Daily News columnist Denis Hamill somehow missed: a speculator (like the guys who bought the building housing Freddy's), who slammed Forest City Ratner when it was strategic, then, after he cashed in for $3 million, praised Bruce Ratner to the skies.
Crown Heights resident Menachem Friedfertig bought this empty garage, at 622 Pacific Street, in May 2003, for $382,000, as noted in the document embedded below. That was two months before any mention of Atlantic Yards surfaced in the press, and six months before the plan was announced.
According to the New York Sun, whose 9/2/04 article was headlined "Message to Ratner: ‘I Want My $4M’: Brooklyn Developer Looks To Cash In," Friedfertig planned a new building, with medical offices on the first floor, and five stories of condos, all permitted by current zoning, and got approval from the Department of Buildings.
He clearly felt he had lucked out, telling the Sun, "I have the winning lottery ticket and I want my $4 million."
When I wrote about this 1/20/06, I didn't know what kind of deal Friedfertig made. ACRIS as of 5/2/06 says it was $3 million, an enormous profit.
A better deal than Goldstein
That's a far better deal for Friedfertig than the $3 million Forest City Ratner paid in 2010 to get Daniel Goldstein to leave 636 Pacific Street condo he'd already lost to eminent domain, given the higher initial cost of Goldstein's property, taxes, the now-inflated cost of replacement, and attorney's fees. (The latter two push $2 million.)
Oh, and the fact that Goldstein lived there seven years, enduring demolition and other construction activities.
But Forest City Ratner did not orchestrate a media crusade against Friedfertig, as it's done with Goldstein.
Why not? Because Friedfertig changed his tune, very conveniently.
...
As I reported, Friedfertig, was effusive [at the 9/12/06 community forum (a not-quite public hearing) sponsored by the Empire State Development Corporation]. “It was the most amazing thing,” Friedfertig said. “Mr. Ratner, he was so fair. He was such a mensch.”
Friedfertig, an Orthodox, Hasidic Jew, unveiled a shofar—the ram’s horn used in Jewish ritual—as a gift to Bruce Ratner and proposed that the developer “should blow it on opening day at Ratner arena."
NoLandGrab: We have another thought as to what Bruce Ratner should blow on the arena's opening day.
Posted by eric at 11:02 AM
Ratner: I thought Nets arena was dead in '08
Field of Schemes
by Neil deMause
Hey, remember this blast from the past?
With the economy in
freefalla wee pickle and bank credit nearly impossible to get, people are starting to consider what this will mean for the sports-stadium biz. On the hot seat today: the New Jersey Nets' planned Atlantic Yards arena project in Brooklyn, for which Goldman Sachs had promised that $950 million in financing would be in place by today. Yesterday, asked by the Newark Star-Ledger about the status of the Nets financing, the former investment bank issued a terse "no comment."It turns out the Star-Ledger and I weren't the only ones wondering about this at the time: Nets part-owner Bruce Ratner tells the Daily News today that there was a time he doubted the arena would ever get built: "Yeah, in October of '08. Like a lot of people, I didn't know if we'd all be on breadlines. Goldman Sachs and Barclays Bank were always our underwriters. Greg Carey at Goldman, always a very optimistic guy, told me in October and November there was no financing available at all."
Of course, as I also wrote back then, "It's things like this [the collapsing real estate market] that are more likely to have a lasting impact on stadium and arena projects: Banks will start lending money again eventually, but the lousy economy is likely to last for years." The banks eventually started lending again, Ratner found a guy who was more interested in owning a basketball team than making money on a real-estate deal, and as of today the arena is taking shape, with about half the main vertical support girders in place. (More or less—I last walked past it on Monday.) Still, it's a reminder of how narrow the margin of victory (or defeat) can be in sports construction deals.
Posted by eric at 10:54 AM
February 16, 2011
Stern: Ratner Group Lost "Several Hundred Million" Selling Nets
NetsDaily
In defending his and owners' hardline in labor talks, David Stern told Bloomberg News that the Nets old ownership group, headed by Bruce Ratner, took a serious hit when they sold the franchise to Mikhail Prokhorov.
While discussing the NBA negotiations --and the owners' hardline, Woodruff asked, "Is it a contradiction to say that the current model does not work, and yet, franchises are being bought for huge sums by billionaires like Mikhail Prokhorov who just bought the Nets?"
"Stop there," said Stern, interrupting. "He just did [buy the Nets], and the previous ownership lost several hundred million dollars on that transaction".
While Ratner, his partners and parent group, Forest City Enterprises, did lose more than $200 million, Prokhorov assumed 80% of team debt as part of his purchase. He also agreed to eat up to $60 million in losses while the team is still in New Jersey, bringing the price tag for the team and part ownership of Barclays Center to nearly a half billion dollars.
David Stern Interview (Video) - Judy Woodruff - Bloomberg Television
NoLandGrab: Boo hoo. Ask Jay-Z, it's a business, man. But let's be clear. Bruce Ratner didn't really lose anything, when you factor in the full deal — Atlantic Yards. So who is left holding the bag? Residents in and around Prospect Heights, and New York's taxpayers.
Posted by eric at 9:57 AM
February 15, 2011
Flashback, 2005: “We don’t know when this [Vanderbilt Yard] sale will close," warned one dissenter on MTA board
Atlantic Yards Report
The Brooklyn Paper, in a 9/17/05 article headlined RATNER GETS SITE: With MTA’s blessing, Bruce leaves $10 million deposit on rail yards, reported on the Metropolitan Transportation Authority's acceptance of Forest City Ratner's $100 million cash bid--double the original, though less than the $150 million cash offered by rival bidder Extell--for the Vanderbilt Yard:
The vote followed hours of public testimony at the Sept. 14 hearing in Manhattan, both for and against Ratner’s plan. The only MTA board member to question the deal at the hearing was Mitchell Pally, a Suffolk county appointee.
Pally said he was baffled that the board didn’t insist on getting more money, or arrange a deal whereby Ratner had to pay the full price up front.
...Pally also questioned why the MTA was making its own transaction contingent upon the actions of other state authorities.
“Why is the MTA making closing contingent on these other bodies?” asked Pally. “We don’t know when this sale will close. It could be two years, it could be five years, it could be 10 years,” he said, pointing out that the MTA faces incredible demands in their current capital budget.
Indeed, four years later, Forest City Ratner renegotiated the deal and put down only $20 million for the segment of land needed for the arena block.
Posted by eric at 12:10 PM
February 14, 2011
Bait-and-switch on EB-5: FCR may use immigrant investor funds for housing, not arena, but says "we don't know" where money would go (Is this legit?)
Atlantic Yards Report
Forest City Ratner is playing "who's on first?" when it comes to the funds it's trying to raise via the hawking of green cards.
The saga of Forest City Ratner's attempt to raise $249 million from green card-seeking Chinese (and Korean) millionaires under the EB-5 program has reached a new level of absurdity, in which the developer and its allies have offered three separate explanations of how the money might be spent on Atlantic Yards.
This casts further doubt on the logic that each $500,000 investment would create ten jobs, as required under the federal immigration program.
And it suggests a bait-and-switch presented to the potential investors and possibly to the federal government.
Where would it go?
The destination for the funding keeps changing.
Remember, potential investors in the "Brooklyn Arena and Infrastructure Project" were promised glitz: they were told they were investing in an arena, infrastructure, and a railyard, even though the New York City Regional Center admitted to Reuters that the pitch was misleading.
FCR executive MaryAnne Gilmartin told the Wall Street Journal that the money would be used for the railyard, and maybe to pay off a land loan. I pointed to evidence that suggests the $153 million land loan would take precedence.
For housing?
At the Atlantic Yards District Service Cabinet meeting last Thursday, another explanation surfaced.
City Council Member Letitia James asked if the proceeds from the EB-5 program would be used for the financing of Building 2, the first planned (but stalled) tower, or for something else.
"We don’t know where those proceeds are going to go," Forest City executive Bruce Bender responded. "It’s a big project.”
Posted by eric at 10:35 AM
February 12, 2011
Ratner Hopes To Break Ground on First Tower, But Doesn't Have the Cash
Prospect Heights Patch
By Stephen Brown
The architects of the Barclays Center will also design the first residential tower of the Atlantic Yards project, though officials with the developer, Forest City Ratner, conceded the company still lacks the funding to start building.
A Ratner executive revealed that the company does not have the money in hand to start building the tower on Thursday during an unpublicized meeting called by the Empire State Development Corporation, the state agency overseeing the project. The news was first reported by The New York Post.
Posted by steve at 5:26 PM
February 3, 2011
FCR's Gilmartin slightly queasy about selling green cards, but not about misrepresentations made to potential investors
Atlantic Yards Report
The New York Observer catches up on news that Forest City Ratner has been trying to raise $249 million by "letting foreigners basically buy green cards":
The new-old program came to light this fall, when it turned out that Atlantic Yards' developer Forest City Ratner was using the program to help finance its Atlantic Yards project. But even Forest City VP MaryAnne Gilmarten [sic] seems a little queasy about the program.
"As citizen Gilmarten, I'm not sure how I feel about it," Ms. Gilmarten said at a New York Commerical [sic] Real Estate Women event attended by The Observer a couple of months back. But she continued that with conventional financing channels frozen, the project might otherwise never get built. "This is not your cleaning lady's green card program," she said.
It's curious that Gilmartin--whose name the Observer couldn't get right--feels queasy about the fundamental nature of the program, which, however questionable, at least was a response to similar programs in countries like Canada and Australia.
Misrepresentations and omissions
After all, she apparently doesn't feel queasy about the misrepresentations and lies used to pitch the project to unwary potential investors.
Related coverage...
Develop Don't Destroy Brooklyn, Ratner Exec Says What? "This is not your cleaning lady's green card program."
You gotta hand it to those Ratner folks, they are all about integrity!
Posted by eric at 11:15 AM
February 2, 2011
'Not Your Cleaning Lady's Green Card Program:' $500K Visas Finance U.S. Construction
NY Observer
by Laura Kusisto
Desparate times in the construction industry call for desperate measures. Like letting foreigners basically buy green cards, for example.
...The new-old program came to light this fall, when it turned out that Atlantic Yards developer Forest City Ratner was using the program to help finance its Brooklyn project. But even Forest City VP MaryAnne
GilmartenGilmartin seems a little queasy about the program."As citizen
GilmartenGilmartin, I'm not sure how I feel about it," Ms.GilmartenGilmartin said at a New York Commerical Real Estate Women event attended by The Observer a couple of months back. But she continued that with conventional financing channels frozen, the project might otherwise never get built. "This is not your cleaning lady's green card program," she said.
NoLandGrab: Not your what? We don't even know where to begin with how wrong this whole quote is, but the bottom line appears to be this: all's fair when it comes to Bruce Ratner's profit.
And believe it or not, some of us don't even have cleaning ladies.
Posted by eric at 8:58 PM
FCR, according to Wall Street Journal, has gotten $249M commitment in EB-5 funds; video of project pitch shows more lies, Markowitz mugging for camera
Atlantic Yards Report
Some four months after planting news in the Wall Street Journal regarding efforts raise $249 million from immigrant investors seeking green cards, developer Forest City today tells the Journal--well, it's sourced to "people familiar with the effort," who won't go on record--that 498 investors have committed the $249 million sought.
The news is slipped in an overview of the recent popularity of EB-5, headlined Help Fund a Project, and Get a Green Card: Once-Obscure U.S. Program Provides Alternative Financing for Developers, but New Flood of Interest Raises Concerns.
FCR's success is not surprising, given the popularity of basketball in China, the number of Chinese millionaires seeking green cards and the tendency in China, apparently, of doing little due diligence on such EB-5 immigration programs.
Failure of oversight
What is surprising is the failure of the Wall Street Journal, and the U.S. Citizenship and Immigraiton Services, the federal agency that oversees EB-5, to look closely.
After all, Reuters in December nailed the New York City Regional Center (NYCRC), the private investment fund pitching the project, on several misrepresentations:
- that investors need not worry about getting green cards
- that investors would be financing a new arena in Brooklyn for the National Basketball Association's Nets
- that the government of New York State is involved in the project being presented
And while the NYCRC blamed its foreign agents, I pointed out that such lies, and other misrepresentations, were at the heart of the pitch presented in an NYCRC video and by NYCRC staffers.
Click thru for much, much more.
Posted by eric at 11:18 AM
Help Fund a Project, and Get a Green Card
Once-Obscure U.S. Program Provides Alternative Financing for Developers, but New Flood of Interest Raises Concerns
The Wall Street Journal
by Eliot Brown
With bank financing for new construction in short supply, real-estate developers are turning to a federal program that grants green cards to foreign nationals who invest at least $500,000 in a project.
The new attention has turned a once-obscure alternative source of funds into a viable route toward development. Use of the 20-year-old program nearly doubled last year, to 1,995 investor applicants in the fiscal year ended last September from 1,031 in the prior year.
In 2006, when the economy was still roaring, there were just 486 applicants, according to the U.S. Citizenship and Immigration Services. The program is named EB-5 because it represents a fifth category of employment-based immigration.
...But amid the downturn, real-estate developers in particular have flocked to it. Perhaps the highest profile user is New York's Forest City Ratner, which is tapping the program for its Nets basketball arena under construction in Brooklyn, part of a larger residential project.
The developers, who have said they are looking to help refinance a loan and build out infrastructure, in recent weeks received final commitments for $249 million from 498 investors, according to people familiar with the effort. Such a sum, which comes at a lower cost than traditional financing, would have been difficult to receive from a bank or other standard lender.
NoLandGrab: If Bruce Ratner has indeed secured commitments, he has pulled off yet another in a series of successful Atlantic Yards-related scams.
Posted by eric at 11:09 AM
More details on the curious valuation of future AY development sites for potential immigrant investors
Atlantic Yards Report
Thanks to the website of a South Korean migration consulting firm working with the New York City Regional Center, we now have a few more details on the surprising valuation of the collateral offered to immigrant investors for the Brooklyn Arena and Infrastructure Project.
As I wrote in December, the $542.4 million valuation for the seven development sites, which averages about $179 per buildable square foot, seems overvalued, at least when compared to what Forest City Ratner paid the Metropolitan Transportation Authority for similar (and partly overlapping) development rights over the Vanderbilt Yard.
It may be that Forest City Ratner got a good deal, and that the estimates presented to the potential immigrant investors, given the cost of actually turning that value into cash, were overblown. I queried the real estate firm Massey Knakal, which produced the official estimate of value, but got no response.
Related coverage...
Atlantic Yards Report, How Bloomberg went to bat for Ratner's effort to gain $249 million in immigrant investor funding
Thanks to the website of an immigration broker in South Korea, we now have some of the documents used to promote the legitimacy of the effort to raise $249 million in EB-5 funds, mainly from Chinese investors, but partly from Korean ones, for Forest City Ratner's Atlantic Yards project.
Most of the documents are boilerplate recitations of money committed, though presumably presented as impressive signs of government and corporate commitment to so-called Brooklyn Arena and Infrastructure Project, a curious subset of Atlantic Yards as presented via the EB-5 program for immigrant investors.
Notably, however, one letter, from Mayor Mike Bloomberg, shows how much the city has gone to bat for such a questionable effort.
...Bloomberg calls the $249 million sought "vital to the initial stages" of Atlantic Yards. However, as state officials admit, the project would go forward with or without the new funding.
Atlantic Yards Report, In South Korea, unlike China, NYCRC promises a dollop of interest to sweeten the Brooklyn Arena and Infrastructure Project
Maybe potential immigrant investors from China really are seen to be dumber, or more desperate.
Remember, the New York City Regional Center (NYCRC) promises them zero interest on the $500,000 they would park in the Brooklyn Arena and Infrastructure Project, which is supposed to get them and their families green cards.
...In South Korea, however, the web site of the Kookmin migration consulting firm shows that investors would earn an annual .25% dividend rate, less than the 1% and 2.5% on two other projects represented by the firm, but at least something.
That would cut slightly into Forest City Ratner's savings on the $249 million loan, which I've estimated at $191 million.
While the NYCRC's efforts have been concentrated in China--a promotional video has Borough President Marty Markowitz claiming "there's nothing better than China and Brooklyn together"--the chart indicates that the firm is seeking 40 of 498 investors from Korea.
Posted by eric at 10:54 AM
January 31, 2011
Gramercy Recognition Agreement emerges, with hint that immigrant investor funds would mainly be used to pay off FCR's land loan
Atlantic Yards Report
There are two Atlantic Yards Recognition Agreements after all, both of which allow those loaning money to developer Forest City Ratner to gain development rights for part of the Atlantic Yards site, and also allow the minimum square footage of Phase 1 to be delayed.
And the earlier Recognition Agreement, which is the second to be released, offers hints that the money sought from immigrant investors, subject of the later Recognition Agreement, would be used mainly to pay off Forest City Ratner's land loan, not to build a new railyard, as the developer has said.
Background
As I wrote 12/16/10, the Recognition Agreement that the Empire State Development Corporation (ESDC) signed last October allowed potential immigrant investors development rights to part of the future Atlantic Yards site. And a previous Recognition Agreement did something very similar.
That latter agreement, embedded below and dated December 2009, allows at least 2.25 years of additional time, to February 2012, to reset the clock should FCR default on its obligation to Gramercy Warehouse Funding, which "holds a leasehold mortgage on certain Project parcels."
That would mean at least a 14-year deadline for Phase 1, rather than 12 years. The second Recognition Agreement offers a seven-year extension, meaning a 19-year deadline.
The loan at issue
The Gramercy mortgage, the balance of which was $153.9 million when the Recognition Agreement was signed in December 2009, expires in February 2012.
FCR seeks $249 million from immigrant investors via the New York City Regional Center under the EB-5 program--green cards for purportedly job-creating investments.
FCR executive MaryAnne Gilmartin told the Wall Street Journal that the money would be used for a railyard, but could be used, in part to pay off that land loan.
Given that some 60 percent of the $249 million could be used for the loan, my bet is that's the priority. After all, the railyard doesn't have to be completed until 2016.
That suggests that the developer how has a 13-month window of opportunity to get a no-interest (or low-interest) loan from the immigrant investors to repay Gramercy.
Posted by eric at 9:55 AM
January 25, 2011
Still waiting for some answers from the USCIS on EB-5 and the Brooklyn arena project
Atlantic Yards Report
So, the federal government's EB-5 immigration program, in which investors in purportedly job-creating projects can get green cards for themselves and their families, has been the subject of a broad investigation by Reuters and an Atlantic Yards-focused investigation by this blog, both concluding last month.
Three weeks ago, I posed the following query to the United States Citizenship and Immigration Services (USCIS), the federal agency overseeing the program:
I recognize that you may be unable to comment on specific procedures or projects, so not all my questions may be answered, but they include:
--what has been the reaction, from external and internal stakeholders, to the Reuters article?
--has the Reuters article prompted any changes, or consideration of any changes?
--can/should/will USCIS crack down on apparent abuses in the marketing of EB-5 projects?
--is USCIS satisfied with the guidance/rules on crediting immigrant investors with job creation based on money already committed by other sources, especially for a project that would move forward with or without the immigrant investor funds?
--does USCIS have any new concerns about the Brooklyn Arena and Infrastructure project, marketed by the NYC Regional Center?I'm still waiting for a response.
And yes, the second-to-last question points to the Brooklyn Arena and Infrastructure Project, given that Atlantic Yards would move ahead with or without immigrant investor funds, according to the state.
Posted by eric at 10:32 AM
China high court cracks down on illegal fundraising, said to be warning to EB-5 marketers
Atlantic Yards Report
It's not exactly clear how it applies to marketing of EB-5 investment projects like the one involving Atlantic Yards, but a new legal interpretation (translation, shorter version) by the Supreme People's Court of China should be considered a warning for EB-5 marketers, according to consultant Brian Su:
The detailed legal interpretation specifically target various illegal fundraising and PE [private equity] activities conducted by various unlicensed and unregistered agents without proper licence, including brokers and entities from foreign countries. It also addresses the issues of misinformation, mis-representation, and misuse of public media to illegally attract investors in China. The interpretation will have great implications and impacts on EB-5 regional center that are seeking Chinese investments through marketing activities in China.
Some of the provisions in the interpretation involve blatant fraud, such as promising a refund. It's unclear to me whether and how it extends to projects, for example, where investors are told they're investing in an arena that's already funded.
Posted by eric at 10:27 AM
January 19, 2011
Great moments in euphemistic coverage: the Wall Street Journal reports on Steiner Studios expansion, ignores EB-5
Atlantic Yards Report
From the Wall Street Journal yesterday, regarding the expansion of Steiner Studios at the Brooklyn Navy Yard, Take Two for a Brooklyn Film and TV Studio:
Doug Steiner, chairman of Steiner Studios, says about $65 million will come from private investors, $10 million to $20 million will come from Steiner and the rest will come from government programs.
Those private investors are immigrant investors trading $500,000 for green cards for themselves and their family under the federal government's EB-5 program, as the New York City Regional Center (NYCRC) reminds us.
The NYRCR is promoting another, more controversial effort to trade green cards for investments, involving Atlantic Yards.
Posted by eric at 11:12 PM
January 12, 2011
Atlantic Yards cited in Competitive Enterprise Institute report as example of bad public-private partnerships
Atlantic Yards Report
On the heels of state Comptroller Thomas DiNapoli's cautions on public-private partnerships comes The Limitations of Public-Private Partnerships: Recent Lessons from the Surface Transportation and Real Estate Sectors, by Marc Scribner of the libertarian Competitive Enterprise Institute.
Notably, Scribner suggests that the two categories are very different beasts, and that real estate projects should be avoided. Atlantic Yards is one of five examples in that sector.
His summary:
One has long been dominated by government monopolies and the other has been largely free of political forces. In the case of surface transportation infrastructure, innovative new private-sector financing, management, and ownership regimes have much to offer in terms of minimizing taxpayer exposure to risk, capturing user revenues, and creating an efficient transport network. In contrast, government’s recently expanded role in real estate development has increased taxpayer exposure to risk, socialized costs, and concentrated the benefits into the hands of select private developers and special interests.
He recommends that partnerships in the real estate sector be avoided, "[o]utside of limited instances such as the Department of Defense’s Base Realignment and Closure (BRAC) program."
The examples, including AY
The 30-page report cites five examples of dubious real estate deals, including:
- downtown Minneapolis’ Block E
- downtown Pittsburgh's Fifth and Forbes corridor
- New Jersey's Xanadu (recently renamed The Meadowlands) megamall
- Navy Yard development, including a new stadium, in Southeast Washington, DC
The fifth is Atlantic Yards, which "required extensive use of eminent domain—both the threat of condemnation and condemnation itself," relied on "hired-gun" Smith College economist Andrew Zimbalist, and involved “community activists” Al Sharpton and Bertha Lewis.
Whether the taxpayers will be "on the hook for at least $1.6 billion" is hard to ascertain, but the developer will be saving a bunch. (And that's before Chinese money for green cards, even.)
Posted by eric at 10:19 AM
January 11, 2011
Comptroller DiNapoli issues report on public-private partnerships: needed are full and fair value, realistic agreements
Atlantic Yards Report
State Comptroller Thomas DiNapoli has released a new report, Controlling Risk Without Gimmicks: New York’s Infrastructure Crisis and Public-Private Partnerships [PDF], an effort to evaluate both the opportunities and risks with turning infrastructure over to partnership with the private sector.
The report notes that the state faces an estimated $250 billion in infrastructure needs over the next 20 years, notably transportation ($175 billion), municipal wastewater ($36 billion) and clean water ($39 billion). (Here's coverage from City Hall News.)
The Atlantic Yards example is not mentioned, but is at least partly on point: the main issue was the marketing of public land without a fair process, and secondary issues involved the packaging and valuation of public infrastructure such as a new railyard and transit entrance.
Essential principles
So DiNapoli's conclusions are worth noting:
There are four essential principles that New York must adopt in order to mitigate the financial risks inherent in public-private partnerships:
Full and Fair Value: Identify and use the best practices for the valuation of public assets to ensure that the public receives the full, fair value for the use of its property.
Reasonable Pricing: Keep private sector profits within reason to ensure that P3 agreements do not burden the public with unwarranted expenses, excessive fees, or high toll increases.
Realistic Agreements: Carefully draft P3 agreements to ensure that they do not include unrealistic expectations or inaccurate financial calculations.
Responsible Budgeting: Avoid budget gimmickry by adopting financing rules that prevent a disproportionate shift of current capital costs onto future taxpayers. This must be based on a comprehensive reform of the State’s debt and capital financing practices.
What about AY?
Given the history of Atlantic Yards, I'd argue that public assets were not fairly valued, nor have costs and benefits been accurately assessed.
Meanwhile, developer Forest City Ratner's efforts to renegotiate the Vanderbilt Yard deal with the MTA suggests that private sector profits--bolstered by a mayor and governor firmly on board with the Atlantic Yards project-- held sway over public value.
Posted by eric at 11:23 AM
January 9, 2011
As China begins to crack down on EB-5 marketing, the Brooklyn arena roadshow continues; will it violate emerging standards?
Atlantic Yards Report
The recent Reuters investigation of the EB-5 program turned up several examples of immigration brokers in the Far East misleading those seeking green cards via investment immigration--though, as I've argued, the article gave a pass to the New York City Regional Center's framing and presentation of the Brooklyn Arena and Infrastructure Project.
Now several authorities in China are cracking down on abuses, as detailed in several examples within the last month from the EB-5 News Blog run by Brian Su, president of the EB-5 China Market Council and an EB-5 consultant in Illinois.
Report from China: Beijing Police Crack Down on Unlicensed EB-5 Immigration Intermediary Operations:
Beijing has 77 legitimate and licensed immigration agencies, however due to US EB-5 program and other foreign immigration business boom in last two years, many unlicensed immigration intermediary firms are operating without required licenses.
Report from China: City of Chongqing Cleans up Local Exit-Entry Market:
Municipal Public Security Bureau Assistant Commissioner Yang Jian pointed out that this cleaning up motion's goal is to set the standards for foreign immigration intermediary business.
Report from China: Shanghai Exit-Entry Services Association Issues Warning to Members:
On December 27, 2010, Shanghai Exit-Entry Services Association issued a warning notice to all association members that the association will prohibit members to participate in any un-authorized exit-entry industry competition or award events organized by un-authorized entities and organizations. The association has received numerous complaints that a newspaper publisher was hosting a so called "The Most Trustworthy Exit-Entry Service Agency 2011 Award" event.
Report from China: Guangzhou Exit-Entry Administration Sets New Rules for EB-5 Brokers:
In a recent conference with Guangzhou area immigration service providers, Guangzhou Exit-Entry Administration also set new requests to the Guangzhou immigration industry. 1) Set new mechanism for monitoring promotional activities and restrict excessive exaggerations; 2) Publicize risks on overseas investment projects; 3) Each exit-entry service agency must file annual compliance review documentation by the end of December every year; and 4) When handling U.S. EB-5 immigrant investors program, exit-entry service agencies must inform consumers and fully disclose risk factors associated with the program.
Report from China: Role Change of the Beijing Municipal Public Security Bureau Exit-Entry Administration:
As many EB-5 regional centers enter China market, the Beijing government is definitely nervous and closely watching.
And what about the NYCRC?
The basketball push continues. Report from China: New York City Regional Center Continues NETS EB-5 Project Promotion:
A promotional event for New York City Regional Center is to be hosted by a local migration agency in Guangzhou on January 15, 2011. The seminar will be held at 2:00 pm at Westin Hotel, 6 Lin He Zhong Road, Guangzhou. Mr. Gregg Hayden will be attending and entertaining questions. Two NYCRC seminars will take place in Beijing on January 8-9, 2011.
Will the local migration agency "restrict excessive exaggerations" and "fully disclose risk factors"?
Hayden has said the "EB-5 funding, the $249 million we are seeking to raise in the China market, is only 17%, the safest, most secure portion of the capital structure, 17%... portion of the capital structure is the EB-5 portion."
How exactly is that explained and disclosed?
Posted by steve at 4:27 PM
December 31, 2010
Arena pitch in China: ESDC's Davidson shares a laugh with FCR executives; long-departed Net Vince Carter portrayed as part of the attraction
Atlantic Yards Report
You didn't think a 16-part series was all Norman Oder had to say about Forest City Ratner's green card-selling adventure in China, did you?
Who are these happy Americans? They're Forest City Ratner executives, in China in October, along with a few others, trying to sell would-be immigrant investors on the questionable Brooklyn Arena and Infrastructure Project, a project of FCR and the New York City Regional Center (NYCRC).
(Photo from web page of Wailian immigration consultancy, which is still promoting events in January. Click on graphics to enlarge.)
From right: FCR's David Berliner, Christopher Clayton [I believe], and MaryAnne Gilmartin; the Empire State Development Corporation's Peter Davidson; the NYCRC's Paul Levinsohn; and Miller Mayer attorney Nicolai Hinrichsen.
Posted by eric at 10:10 AM
December 27, 2010
Reuters Nails Promoters of Green Cards for Investments as Liars, Gets Dubious Excuses on Brooklyn Arena
The Huffington Post
by Norman Oder
Norman Oder repackages some recent Atlantic Yards Report coverage of Bruce Ratner's green cards-for-dollars scheme, including a key player's dubious "hey, we're the victims here" claim about sales pitches packed with lies.
A couple of astonishing things happened last week in coverage of the EB-5 immigration visa program--green cards for investments--the dubious use of which I've investigated for months regarding Atlantic Yards, the controversial arena-plus-towers megaproject in Brooklyn.
Reuters, in "Special report: Overselling the American dream overseas," pointed to numerous problems in this essentially unregulated program, in which businesses and developers seeking cheap capital compete to recruit immigrant investors, who must park $500,000 in a purportedly job-creating investment in exchange for green cards for themselves and their families.
Many would-be immigrants don't get their green cards. Many don't get their money back. And many are misled by immigration brokers pimping the investment projects. And some of the regional centers--the federally-authorized investment pools that market the projects--are quite shady.
Posted by eric at 3:48 PM
Exclusive: New audio of arena project presentation shows NYCRC principals making same deceptive claims they admit their Asian affiliates should avoid
Atlantic Yards Report
On this citywide snow day, can you guess which blog is still open for business? Yup.
It's stunning how George Olsen, managing principal of the New York City Regional Center (NYCRC), could profess to be shocked, shocked that the firm's affiliates in Asia are deceptively marketing green cards in exchange for investments in Atlantic Yards.
As Reuters reported last week:
At a recent seminar in Seoul, an agent for the Kookmin Migration Consulting Co., working on behalf of the New York City Regional Center, told would-be investors if they invested in the company's latest project their permanent green cards were "guaranteed." He also implied the investors would be financing the construction of the new home for the New Jersey Nets NBA basketball team.
In a subsequent interview with Reuters, George Olsen, managing principal of the New York City Regional Center acknowledged the claims were "not accurate" - the investors will finance the rebuilding of a rail yard and some related infrastructure near the new basketball court -- and promised he would jump on Kookmin "with two feet."
"But that's what's frustrating," Olsen said. "You can't be at every seminar, you can't be at every meeting, you can't be in the room when one of these people is talking. To raise $100 million, you have to get 200 investors. That's a lot of people. So there's a certain amount of mass marketing that has to go on.
Nah. As I pointed out December 23, those same claims were made by Olsen's own point man in China, Gregg D. Hayden.
And those same claims were made in the official project video as presented to investors in China, the audio of which I reproduce below, with annotations.
NoLandGrab: Why is it that no one involved officially in promoting the Atlantic Yards project ever tells the truth about it?
Posted by eric at 9:45 AM
December 23, 2010
In Reuters investigation of EB-5 program, NYC Regional Center principal admits lies in arena project pitch, but blames affiliates. That's not so.
Atlantic Yards Report
Norman Oder's EB-5 series appears to have caught the eye of the folks at Reuters.
A major investigation of the EB-5 immigration visa program by Reuters, Special report: Overselling the American dream overseas, turns up numerous reasons for skepticism and an admission by a principal of the New York City Regional Center (NYCRC) that potential investors have been lied to about the Brooklyn Arena and Infrastructure project.
Astonishingly, however, the NYCRC's George Olsen gets away with blaming immigration brokers in foreign lands--in this case, Korea, not China--rather than acknowledging, or being forced to acknowledge, that the same statements have been made, in documents and on video, by the NYCRC itself.
In South Korea
Reuters reports:
At a recent seminar in Seoul, an agent for the Kookmin Migration Consulting Co., working on behalf of the New York City Regional Center, told would-be investors if they invested in the company's latest project their permanent green cards were "guaranteed." He also implied the investors would be financing the construction of the new home for the New Jersey Nets NBA basketball team.
In a subsequent interview with Reuters, George Olsen, managing principal of the New York City Regional Center acknowledged the claims were "not accurate" - the investors will finance the rebuilding of a rail yard and some related infrastructure near the new basketball court -- and promised he would jump on Kookmin "with two feet."
"But that's what's frustrating," Olsen said. "You can't be at every seminar, you can't be at every meeting, you can't be in the room when one of these people is talking. To raise $100 million, you have to get 200 investors. That's a lot of people. So there's a certain amount of mass marketing that has to go on. And once you get into that realm, it's hard to control."
Oh, come now. The same statements have been made by the NYCRC's Gregg D. Hayden in China, as I've documented. Here's my FAQ, and here's a report, with video.
NoLandGrab: Oh, please. Yes, we got caught, but it's "these people" [read: untrustworthy yellow people] who are the problem. Except it's your own right-hand man doing the lying — ON TAPE! HELLO?!
Posted by eric at 11:00 PM
December 21, 2010
Ratner's Green-Card Fundraising Scheme: Is This a Scandal, or What?
Runnin' Scared
by Neil deMause
The ever-epic Norman Oder of Atlantic Yards Report today closes out his epic series on Bruce Ratner's bizarre green-cards-for-financing scheme with a (wait for it) epic FAQ on exactly how the
New Jersey NetsBrooklyn New Yorkers co-owner plans to take advantage of an obscure federal job-promotion program to save himself a jabillion dollars.It's a great read if you're an economic development policy wonk; not so much if you're looking for something you can read on your phone during your morning commute and then convert into a Facebook status update. So, without further ado, here's the considerably-less-epic "The Great Ratner Green Card Fiasco: Who, If Anyone, Is Getting Screwed and How?"
Click through for deMause's three-bullet-point summary.
Related coverage...
Field of Schemes, Ratner's green card funding scheme explained (in brief, and in briefer)
If you were wondering what was up with that plan to trade green cards for Atlantic Yards arena development loans, Atlantic Yards Report just finished a 16-part series (no, seriously) on all the ins and outs of the proposed deal. And if you can't be bothered to read a 16-part series, AYR today sums it all up in a 2,400-word FAQ.
And if you can't even be bothered with a FAQ, there's my still-shorter "We read Atlantic Yards Report so you don't have to" summary for the Village Voice news blog.
NoLandGrab: Wait, we thought we were the "we read Atlantic Yards Report so you don't have to" guys.
Posted by eric at 12:14 PM
December 20, 2010
Anatomy of a Shady Deal: an FAQ and restrospective on the effort to recruit EB-5 investors in China for the Brooklyn Arena and Infrastructure Project
Atlantic Yards Report
After two weeks, this series (list of stories at bottom) deserves a retrospective and FAQ.
This is a complicated story. Can't you summarize it briefly?
Private interests win, the public interest loses. Not unlike much of the Atlantic Yards saga.
That's too brief.
Taking advantage of a federal immigration program known as EB-5 that's supposed to trade green cards for job-creating investments, developer Forest City Ratner (FCR) would get a no-interest (or low-interest) $249 million loan and save perhaps $191 million; the New York City Regional Center (NYCRC), a federally-authorized investment pool, would earn big bucks; and 498 Chinese millionaires would gain green cards for themselves and their families by parking $500,000 each for at least five years.
But no new jobs beyond those long forecast would be created thanks to that loan the immigrant investors would give to FCR via the NYCRC. Moreover, those investors are being told their money would go to the Atlantic Yards arena, which is already funded. And the process could delay Phase 1 of Atlantic Yards by another seven years, meaning it could take 19 years for the minimum square footage on the arena block to be built.
Is this legit? Doesn't anybody examine it?
Good question. We'll get to that below.
What's the "Brooklyn Arena and Infrastructure Project"?
That's what they're calling it in China. It's a curious, $1.448 billion subset of the $4.9 billion Atlantic Yards project, said to involve the Atlantic Yards arena, associated infrastructure, and a new railyard. No official body has ever approved or segmented Atlantic Yards in that way.
How can investors be investing in the arena--isn't it already funded? Does it need new money to go forward?
It is funded, state officials acknowledge, so new money isn't needed. (It is, however, wanted by the developer.)
According to available evidence, including statements from Atlantic Yards point woman MaryAnne Gilmartin, it looks like Forest City would substitute new, low-cost capital for at least part of an existing $161.9 million land loan at a much higher cost. (And, in 2012, use some money for the railyard, which should cost $147 million.)
Then why are they pushing the arena and the team in China?
Basketball is the most popular sport in China, silly. So a new arena is glamorous. Hoopsters are gods.
Don't developers try to refinance whenever they can?
Sure, but in this case, the only way they can get a cheap loan from green card-seeking investors is if the loan serves to create jobs. Should they really get credit for job creation simply by refinancing?
Well, how does job creation work?
Under the EB-5 program, you don't need to count employees to calculate job creation based on investments made through regional centers. Rather, a report by an economist--which applies a multiplier to the total amount of money spent--is used to calculate the jobs.
That's plausible, right?
Yes, if not uncontroversial. The problem is the total amount of money--in this case, $1.448 billion--is used as the base for the multiplier, not simply the $249 million in new money from immigrant investors. They're claiming 7696 jobs, far more than the 4980 required--ten per investor--and far more than we'll see on the Atlantic Yards site.
Should immigrant investors get credit for job creation based on the entire $1.448 billion, which is money already committed and already spent by private investors and government entities?
That's the big, unanswered question. It's plausible that EB-5 investors might get credit for job creation based on the whole pot of money--as long as their investment served as seed money or "last mile" funding, thus crucial to a project having enough to actually moving forward.
In this case, the project would go forward with or without EB-5 funding.
Are there any rules on this?
Well, there are, but they're very, very murky. I asked the federal agency that oversees this program, the United States Citizenship and Immigration Services (USCIS), if they could clarify the rules regarding whether and how immigrant investor capital gets credit for jobs created by the total amount of capital.
I was pointed to a vague portion of the Code of Federal Regulations.
Is that a loophole?
It looks that way to me. Proponents obviously believe what they're doing is legit, based on past practices. However, if this passes muster, what's to stop any developer from refinancing with immigrant investor capital and claiming job creation based on both the new capital and previously committed capital?
But the spirit of the law regards the creation of a new commercial enterprise. This episode just might prompt the USCIS into clarifying its rules. Though regional centers have until recently faced little oversight, the USCIS recognizes there may be a need for more scrutiny.
In an October 14, 2010 quarterly presentation to stakeholders, the agency stated: "Many USCIS External Stakeholders have expressed concerns regarding the potential for fraud and misrepresentation within the EB-5 program."
(According to that presentation, members of the public may report instances of fraud or misrepresentation to the EB-5 mailbox at Uscis.immigrantinvestorprogram@dhs.gov.)
NYCRC reps are telling potential investors immigration risk is eliminated--true?
Nope. That's not what the USCIS says.
Step back--why does a program like this exist in the first place? Isn't the U.S. just selling green cards?
So it seems, at least to some, but there's a logic to it. Twenty years ago, when the program emerged, countries like Canada and Australia were offering similar programs. The U.S. has to compete.
The regional center program, which allows investments into investment pools rather than directly into businesses, has gotten enormously popular lately, as domestic capital has become scarce. Of 10,000 EB-5 visas a year, 3000 are reserved for regional center-based investments, according to the trade group IIUSA.
Didn't the economics editor at Yahoo say it was a good idea to market green cards to investors?
He did. And, on a superficial level, there's a logic to it. But as we see, the program is run so loosely, at least for now, that dubious projects can move forward. Canada, by contrast, puts the money into public works.
Is this a lock for investors?
No. Their green cards are not a certainty, despite what the NYCRC is assuring them.
What about getting their money back?
That's also a question mark. There's no publicly stated plan for cash flow dedicated to repaying this loan.
Is this really senior-most debt, only 17% of the project?
Only if you think that immigrant investors get priority for repayment ahead of bond investors. The latter bought debt that was publicly rated, and for which specific arena cash flows have been identified for repayment.
What if Forest City Ratner defaults?
Then the immigrant investors would gain development rights to seven towers, appraised at $542 million.
Would they really double their money?
No way. The rights would have to be marketed to a buyer. And it takes subsidies and other investments to turn the development rights into an ongoing project. The fungible value of the collateral is pretty fuzzy--the appraisal isn't public--but it's likely much lower than the appraisal figure.
Has Congress done much oversight of this program?
Not really. A Senate hearing last year was a lovefest, with both Republicans and Democrats citing home state programs they like. The focus has been on streamlining the program to make it work better, not to look into possible abuses.
According to David North of the Center for Immigration Studies, one of the few people to look critically at EB-5, the USCIS does not keep statistics on such basic information as how many EB-5 investments are still in place after four years.
Is there any self-policing?
Not too much, it seems. The trade group Association to Invest in the USA (IIUSA) offers a list of Best Ethics Practices, including avoidance of "dishonesty, fraud, or deceit." There's evidence, at least, of dishonesty by the NYCRC and those supporting this effort.
Will Forest City Ratner really save $191 million? Are they getting a no-interest loan? Don't they have to pay something?
Well, it's clearly a no-interest loan in that the investors won't get any interest. It's not clear whether the NYCRC is charging FCR interest, or a fee, or nothing.
Still, my $191 million estimate was based on a conservative interest rate of 8.3%, so even a moderate interest rate charged by the NYCRC--in comparison with a more likely interest rate (such as 12%) FCR would have to pay for a non-recourse loan--might still provide savings of about $200 million.
What about that seven-year delay?
It's part of a Recognition Agreement that the Empire State Development Corporation (ESDC) signed with the NYCRC and FCR. The developer's supposed to pay back the loan in five years. They have two more years to "cure" the default.
If not, there's a complex process to market the collateral to another buyer. And that would re-set the clock on Phase 1, meaning that only after the loan is bought would the 12-year deadline kick in. That would add up to 19 years.
Isn't Phase 1 supposed to take four years and the entire project ten years?
Uh-huh. But no one believes that's going to happen. The question is whether delays in Phase 1 will make it into the legal arguments regarding the timetable in a pending case in New York Supreme Court.
So far they haven't, since the judge focused on the discrepancy between the official ten-year timetable and the 25 years allowed by the Development Agreement. But the Phase 1 gap is also significant.
That's not the first Recognition Agreement?
Right. Just last week we learned that a similar agreement was signed last December, as part of the master closing, with Gramercy Warehouse Funding, Forest City's lender for land in Phase 1.
The ESDC won't release the Recognition Agreement without a Freedom of Information Law (FOIL) request), but I'd bet that the collateral is similar, and so too is the delay.
How did you miss that part of the master closing documents?
Last January, the ESDC made the master closing documents available in response to FOIL requests in a massive set of hard copies, so anyone curious had to visit agency office and slog through literally dozens of binders.
I found the highlights in the Development Agreement, but missed the Recognition Agreement. Or maybe it wasn't there. If they'd provided the documents on disc, or online, I and others would have had more of a chance to peruse it. Maybe that was the plan.
Were these Recognition Agreements approved by the ESDC board?
No, just by staff.
So staff has been renegotiating the Atlantic Yards deal? Who's in charge?
Good question.
Why is the NYCRC pitching this project in China? Don't immigrant investors come from around the world?
That's where the money is, and the desire for green cards. It's also where marketers of EB-5 projects push the envelope on credibility.
Why are the city, state, and borough playing along?
They want to see the project get done, and Forest City Ratner has apparently convinced them, or threatened them, that without cheap capital it won't move ahead.
The ESDC even used taxpayer money--presumably--to send an executive, Peter Davidson, to China and present the NYCRC's Chinese partners with proclamations and to tell potential investors how great the deal is.
Did Davidson really say this would be the largest job-creating project in the past 20 years?
Yes. But I bet he wouldn't say so under oath.
Did Brooklyn Borough President Marty Markowitz, in an appearance taped for a project video, really say the people of Brooklyn support Atlantic Yards "1000 percent" and that Forest City Ratner's "reputation is unbelievably reliable"?
He did. And to think, when he campaigned in 2001, he vowed, "Real estate money will never control me."
Are potential investors told what the role of the city, state and borough is?
Unclear. They're told that this project is "in conjunction with" city and state governments. Presumably the fine print in project documents is more precise.
Public and elected officials have enthusiastically talked about the jobs and housing.
That's part of the problem. They keep pitching the entire Atlantic Yards project. That's not what immigrant investors have in front of them.
What's the role of retired hoopsters like Darryl (Chocolate Thunder) Dawkins at investment seminars in China?
Exotic window dressing, it seems.
As I wrote, it's a magical moment of international arbitrage, as slick marketing and basketball fever aim to sell investors on their green card dreams, perhaps distracting them from due diligence.
Is the misleading promotion unique to this project?
Apparently not. In September, Florida immigration attorney Jose Latour, who serves as one of the few EB-5 watchdogs, wrote (without reference to this or any specific project):
"Yes, we are not investment advisers, but as immigration counsel we are bound to reasonable care, and it doesn’t take Gordon Gekko to see the obvious scams and failures which characterize the majority of the Regional Center projects being shopped overseas."
Does it matter that NYCRC principal Paul Levinsohn was one of the "billboard boys" involved in getting rich from a dubious project in New Jersey?
Well, he wasn't charged with anything, but even his former boss, ex-Governor Jim McGreevey, thought it unseemly. Past practices at least hint at his willingness to push the envelope.
Does the law firm Miller, Mayer, working for the NYCRC and also representing investors recruited by the NYCRC, have a conflict of interest?
It may look like a conflict, but conflicts can be waived by clients. The question is: how much do clients actually know?
Who is the spiritual cousin of Gregg D. Hayden, the NYCRC's main pitchman in China?
Brett Yormark, the Nets' uber-marketer. Hayden, literally, is selling the Chinese an arena he doesn't--or shouldn't--have to sell. Then again, Hayden also spoke gibberish when asked about Nets majority owner Mikhail Prokhorov. They're trying hard to avoid talking about Prokhorov.
The list of articles
Part 1 of this series concerned the seven-year extension available on Phase 1 of the project should Forest City Ratner not repay the EB-5 loan. Part 2 estimated the developer could save at least $191 million. Part 3 examined the sales effort in China, with the arena front and center, even though it's already funded.
Part 4 reported on claims made in China, on video and in person, by public officials supporting the project. Part 5 concerned the value of the development rights, contrasted with those in last year's deal for the Vanderbilt Yard. Part 6 described reasons to think the development rights are overvalued.
Part 7 explained why China is such a popular target for those seeking EB-5 investors. Part 8 provided another reason why the Nets played exhibition games in China in October. Part 9 cited the curious avoidance of Mikhail Prokhorov during the pitch in China.
Part 10 noted NYCRC's belated announcement of the project in a newsletter. Part 11 described misleading promotion in the Chinese media and by Chinese firms working with the NYCRC. Part 12 covered the proclamations that are part of the pageantry in China.
Part 13 concerned the role of the NYCRC's preferred law firm. Part 14 linked the land loan to a previous one from Gramercy Capital. Part 15 analyzed the use of weasel words and ambiguous language. Part 16 took another look at a web video pitching the project.
Posted by eric at 10:39 AM
December 19, 2010
Flowers, champagne, and hoops: on web video from China, the EB-5 pitch
Atlantic Yards Report
Part 16 of a series
I already in Part 3 embedded the video below, excerpted from a video by the Wailan immigration consultancy, showing how the "Brooklyn Arena and Infrastructure Project" is being pitched to potential investors from China seeking green cards.
You don't need to understand that actual statements--about the value, importance, and alleged uniqueness of the project--to get the subtext.
The tower of champagne glasses says it all. So does the portrayal of Westerners as the generous heroes and exotic hoopsters. So does the continuing backdrop of basketball, the NBA, and the Nets.
Actually, some of the people in the crowd look a little glum, or skeptical. But they don't speak, so it doesn't matter.
The Nets are in action! Important men in suits travel across the ocean! There's a raffle! Winners get basketballs!
By the way, the same soaring soundtrack is used on another Wailan EB-5 video.
Posted by steve at 10:28 AM
December 18, 2010
Weasel words and ambiguous language: selling the Brooklyn Arena and Infrastructure Project to immigrant investors whose English may be shaky
Atlantic Yards Report
Part 15 of a series
One technique of salesmanship is deception. Presentations trying to convince Chinese to invest in the Atlantic Yards project obscure the nature of the project, One example is the way New York City Regional Center's Gregg D. Hayden says that the project will produce "abundant job creation" precisely because the project's job creation will be quite anemic.
What is abundant job creation?
According to NYCRC's Hayden, in a webcast (at 2:48), there's "abundant job creation that we are producing with this project." That refers to the Brooklyn Arena and Infrastructure Project--the arena, infrastructure, and railyard--not the entire Atlantic Yards project.
Jobs are calculated via an economist's report. There's no reason to think that the jobs calculated--7696, far more than the 4980 needed, ten per investor--have anything to do with the number of people who might be seen at the Atlantic Yards site, or even the number for the project as a whole in official estimates by the Empire State Development Corporation.
Why it matters: The phrase is used to convince potential investors that they will meet the requirements of federal immigration law: ten jobs per investor.
But the calculation seems to make a mockery of the immigration program, which aims to generate investment that actually creates jobs. This investment, in significant part, likely would substitute lower-cost funding for higher-cost capital rather than serve as seed money or matching funds.
Click on the link below to read more and watch the weasel words flow.
Posted by steve at 10:30 AM
December 17, 2010
What investing in the "Brooklyn Arena and Infrastructure Project" likely means: "Extend, pretend, and find some Chinese friends"
Part 14 of a series
Atlantic Yards Report
Where would the $249 million in EB-5 funding go?
In an unskeptical 9/21/10 article, Ratner Mulls Visa Financing, the Wall Street Journal nonetheless provided this important detail, one that seems contradicted by the project's promotion in China:
[Forest City Ratner executive MaryAnne] Gilmartin said she expects much of the money raised through the program would go toward financing the construction of a new rail yard for the Long Island Rail Road to replace the one that occupied a large portion of the site. Some may also be used to help pay off land loans on the project, she said.
(Emphasis added)
That last sentence is key. As I wrote in Part 3, Forest City Ratner need not begin to build the railyard until June 2012. The EB-5 loan would arrive next year.
Rather, new evidence suggests that a primary goal would be paying off land loans, thus arresting a cycle known in the real estate industry as "extend and pretend" (or sometimes "pretend and extend"), in which borrowers are simply given more time under the hope that the situation will improve.
"Extend and pretend" at Atlantic Yards
The developer's land loan from Gramercy Capital was reported 3/31/10 to be $161.9 million, and was refinanced earlier this year.
Earlier that month, Bruce Ratner suggested at the arena groundbreaking, Gramercy progressed from "our land lender" to "our partner." Apparently Gramercy, having already extended the loan, was given a piece of the Atlantic Yards project.
Yesterday, as I reported, an ESDC response to the State Supreme Court's 11/9/10 order regarding the failure to study a 25-year buildout confirmed that suggestion.
Read on to find out who all the winners are in this shell game — but before you do, see if you can guess who the big loser is.
Posted by eric at 11:17 AM
December 16, 2010
Before signing Recognition Agreement to allow immigrant investors more time for Phase 1, ESDC signed similar document with Gramercy, FCR's lender
Atlantic Yards Report
Documents released today by the Empire State Development Corporation (ESDC) indicate that the agency was willing to allow extended delay of the project's Phase 1 even as it signed Master Closing documents in December 2009.
An ESDC response (also embedded below) to the State Supreme Court's 11/9/10 order regarding the failure to study a 25-year buildout reveals that, while the Recognition Agreement the ESDC signed in October allowed potential immigrant investors development rights to part of the future Atlantic Yards site, a previous Recognition Agreement did something very similar.
In that case, additional time was allowed if Forest City Ratner defaulted on its obligation to Gramercy Warehouse Funding, which "holds a leasehold mortgage on certain Project parcels."
Neither the additional time nor the parcels were specified.
Phase 1 has an outside date of 12 years for a minimum amount of square footage, but the immigrant investors were given an additional seven years, for a potential 19-year outside date.
The new document suggests that Forest City Ratner, as it indicated to the Wall Street Journal, would at least in part use the $249 million no-interest loan from immigrant investors, via the EB-5 program, to replace higher-cost funding. The developer's land loan from Gramercy Capital was last reported to be $161.9 million.
Posted by eric at 3:11 PM
Conflict of interest? A law firm works for NYCRC, promotes "very exciting NBA arena project" in China, represents investors, won't answer questions
Part 13 of a series
Atlantic Yards Report
Crucial to the "Brooklyn Arena and Infrastructure Project" is Ithaca, NY, law firm Miller Mayer, a leading law firm in the narrow field of immigration investment.
Miller Mayer wears multiple hats regarding the project. It works directly for the New York City Regional Center (NYCRC), filing paperwork with the United States Citizenship and Immigration Services (USCIS), the federal agency overseeing the immigrant investor program.
Miller Mayer lawyers have helped the NYCRC recruit investor clients in China, while a NYCRC rep has called the firm "our preferred immigration attorney." It also represents such NYCRC clients in their applications to the USCIS.
While that could pose a conflict of interest, as described below, the firm wouldn't respond to my questions about how it safeguards against such a conflict.
I suspect that firm avoids conflict, following State Bar rules, by informing its clients of its roles and having them sign consent statements.
But the firm's performance still poses questions, especially since overseas clients likely have trouble getting independent information about the Brooklyn Arena and Infrastructure Project.
Posted by eric at 11:10 AM
December 15, 2010
Pageantry and puffery: doing EB-5 business in China involves proclamations stressing job creation, quality of local partners
Part 12 of a series
Atlantic Yards Report
Doing business in China involves pageantry and ceremony, and Chinese immigration consultancies--responsible in no small part for exaggerations regarding the Brooklyn Arena and Infrastructure Project--nevertheless can proudly display proclamations from governmental agencies and law firms honoring them.
In China, there's "a love of ceremony and ostentation and obsession with brands," as Christina Larson wrote in the November/December 2010 issue of the Washington Monthly. That plays into the elaborate seminars presented to potential investors.
The proclamations (in English) in the certificates below are piffle, but the form may impress some unsophisticated potential clients.
The first two proclamations, as noted below, were likely drafted by the New York City Regional Center (NYCRC).
Posted by eric at 10:04 AM
December 14, 2010
Lost in translation: Chinese promotional videos, web pages, and media reports present misleading account of the EB-5 "arena project"
Part 11 of a series
Atlantic Yards Report
Like a game of telephone in which the message gets mangled at each node, so has the story of the Atlantic Yards EB-5 deal been distorted in the Chinese media, due to the deceptive promotion of the project and sloppy and/or misleading reporting.
Compounding that are exaggerated promotional statements by Chinese immigration consultancies working with the New York City Regional Center (NYCRC).
A promotional video
Consider a promotional video produced by the Wailan consulting firm after a meeting for EB-5 investors in China in October 2010.
In the excerpts below, recorded with upbeat, triumphant music, the montage aims to convey luxury and inspire confidence. Flower arrangements and cascading champagne, as well as a raffle, help turn a hotel ballroom into launching pad for a new life.
Among people pictured, developer Bruce Ratner shakes hands with ex-NBA player Darryl Dawkins (aka "Chocolate Thunder") with Forest City Ratner executive MaryAnne Gilmartin looking on; a Chinese speaker is heard using the terms "NBA" and "Barclays;" the NYCRC's Paul Levinsohn turns to salute the crowd; the Empire State Development Corporation's Peter Davidson appears at the podium; and lucky raffle winners pose with Nicolai Hinrichsen of the law firm Miller Mayer.
But the message was quite misleading.
Posted by eric at 11:20 AM
December 13, 2010
In newsletter, NYCRC finally announces Brooklyn Arena and Infrastructure Project, "in conjunction with" city and state governments
Part 10 of a series
Atlantic Yards Report
The New York City Regional Center (NYCRC), as noted in Part 3, has not announced the Brooklyn Arena and Infrastructure Project on its current projects page.
However, the NYCRC's November 2010 newsletter, made available on the NYCRC's web site recently and embedded below, finally offers this announcement:
UPCOMING PROJECTS FOR THE NYCRC
Brooklyn Arena and Infrastructure Project
The NYCRC is pleased to announce another project in conjunction with the governments of both the City of New York and State of New York. Located at the Atlantic Yards development site in Brooklyn, this $1.4 billion Brooklyn Arena and Infrastructure Project is a subset of the $4.9 billion Atlantic Yards Project and is one of the most important development initiatives underway in New York City today and one of the largest job-creating projects in over a decade. EB-5 funding will be combined with significant funding from the City of New York, the State of New York, and the developer of the Project, Forest City. On September 23, 2010, all components and documents of the Brooklyn Arena and Infrastructure Project were fully approved by the United States Citizenship and Immigration Services (“USCIS”).(Emphases added)
Misleading the reader
As I suggested on Part 3, the phrasing here is misleading.
Despite the statement "in conjunction with," neither the city nor the state are formally involved in the Brooklyn Arena and Infrastructure Project beyond a finder's fee for the New York City Economic Development Corporation and a Recognition Agreement for a first mortgage, signed by the Empire State Development Corporation.
None of the above-mentioned contributors--city, state, developer--made their investments in a project purported to create jobs for immigrant investors at the time.
As described in Part 3, it's questionable to credit the latter for jobs created by funding committed long before.
After all, as state officials admit, the arena would be built with or without this funding.
Beyond that, the NYCRC's reference to "fully approved" does not mean potential investors face no risk their immigration petition would be denied, USCIS officials told me.
Posted by eric at 10:49 AM
The missing billionaire: Why nobody pitching EB-5 investments to Chinese millionaires wants to talk about Mikhail Prokhorov
Part 9 of a series
Atlantic Yards Report
Does Russian billionaire Mikhail Prokhorov, majority owner (80%) of the New Jersey Nets and minority owner (45%) of the arena, have anything to do with the "Brooklyn Arena & Infrastructure Project" for which immigrant investor funding is sought?
Of course.
However, when asked during a webcast in September why Chinese investment was needed if Prokhorov was the owner of the Nets, the New York City Regional Center's (NYRC) Gregg D. Hayden simply punted, deflecting the question with a nonsense answer.
Since then, he and colleagues, in presentations to potential investors, have assiduously avoided the suggestion that Prokhorov has a key role in the arena. That's part of the misdirection that characterizes the EB-5 sales job.
...That significant, strategic omission seems aimed to avoid this question: Why couldn't Prokhorov be asked to pick up the slack?
Answer: Presumably, in exchange for contributing more money, he'd ask for a greater share of the arena itself, rather than accept some murky collateral. And that would lower Forest City Ratner's return.
Posted by eric at 10:41 AM
Forest City nears selling stake in NYC retail portfolio
Forest City executives said the sale would involve a 49% stake in a portfolio that includes 15 New York properties; the portfolio is 96% leased and executives declined to name the buyer.
CrainsCleveland.com via Crain's NY Business
by Stan Bullard
Looks like money is still a little tight at Forest City.
Executives at Forest City Enterprises Inc. said in a conference call today that the company is close to selling a minority interest in its New York City retail properties and will exit the hotel market.
The measures are the latest to surface in the two-year odyssey by the Cleveland-based real estate developer to increase liquidity and to reduce debt to clean up its balance sheet. Forest City Ratner, a wholly owned subsidiary, currently owns and operates 11 million square feet of commercial property in the New York metro area.
...Charles Ratner, Forest City's chief executive, described the prospective investors as retail-oriented real estate investment trusts and real estate funds. However, he said the company would not disclose a prospective price, nor would it identify the properties or the prospective joint venture partners by name. Unlike a sale, a joint venture allows a company to continue to reap management and leasing fees on properties and to enjoy future gains from the properties if their fortunes improve.
Forest City developed its retail portfolio in New York over the last two decades by introducing large-format stores such as OfficeMax, Staples, Old Navy and H&M to the boroughs.
We commonly call those "big-box retailers."
“We remain cautious, but also very confident,” Mr. Ratner said, though he noted problems remain in the economy.
Indeed, the company in its earnings report issued Thursday, Dec. 9, reported impairment charges totaling $77 million that soured the improved performance of its properties and revenues in the quarter that ended Oct. 31.
NoLandGrab: Let's see, they've already partnered up with a billionaire Russian oligarch and they're trying to sell green cards to wealthy Chinese investors. How about a Middle Eastern sultan or an African dictator?
Posted by eric at 10:32 AM
December 10, 2010
Why seek immigrant investors in China? Much new (& dumb) money, bball fever, little transparency or tough reporting, flexible attitude toward truth
Part 7 of a series
Atlantic Yards Report
Under the EB-5 program, investment pools known as regional centers--an increasingly popular way to raise cheap financing--can solicit immigrant investors from around the world to park $500,000 each in a job-creating investment.
However, the New York City Regional Center (NYCRC), in the case of the "Brooklyn Arena and Infrastructure Project," has focused on China, a country that offers a particular set of advantages to EB-5 promoters, and an even greater set of advantages for this project.
For the NYCRC and Forest City Ratner, China presents a valuable, unique opportunity, given the confluence of basketball fever, plentiful new money, the desire to get children educated (and other opportunities) in the United States, a language barrier, limited watchdog reporting on this issue, little emphasis on transparency, variable amounts of business sophistication, and flexible business ethics.
It's the new Wild Wild West.
Road shows
Even before a series of high-profile sales sessions in major cities in October, involving developer Bruce Ratner and the Empire State Development Corporation's Peter Davidson (but not, as once billed, Brooklyn Borough President Marty Markowitz), the NYCRC was hustling.
As the NYCRC's Gregg Hayden said during a webcast produced by the Kunpeng immigration consultancy (excerpts) in mid-October, "Myself and my assistant General Manager, Zachary Woods, from Shanghai, have just finished a 45-day, 23-city tour, of the China market, raising preliminary interest and pre-sales for this project, and they're going extremely well, we have a lot of strong interest, because of the safety and security of this program, and the abundant job creation that we are producing with this project."
(Well, that's their story. This series challenges the claims of safety, security, and "abundant job creation.")
NoLandGrab: Why, Gregg Hayden sounds like the Brett Yormark of green-card sales.
Posted by eric at 11:27 AM
December 9, 2010
Anatomy of a Green Card Pitch: In China, Atlantic Yards Backers Rely on the Distraction of Basketball
The Huffington Post
by Norman Oder
Norman Oder somehow finds the time to repackage his EB-5 series for The Huffington Post.
The controversial Atlantic Yards megaproject in Brooklyn, involving a basketball arena for the relocating New Jersey Nets plus 16 planned towers, has already gotten a boost from Russian billionaire Mikhail Prokhorov, who last year bought 80% of the team and 45% of the arena, known as the Barclays Center.
But the next astounding step for Brooklyn developer Forest City Ratner (FCR)--which has already benefited from eminent domain, significant subsidies, a naming rights giveaway, and tax breaks--involves raising a $249 million interest-free loan from 498 Chinese millionaires seeking green cards.
The effort tests the spirit, and perhaps the letter, of an obscure federal immigration program known as EB-5, which trades immigration benefits for purportedly job-creating investments--as little as $500,000 per family.
In October, I wrote here about the emerging plan to use the program. Now, as suggested in the ongoing Anatomy of a Shady Deal series on my Atlantic Yards Report blog, it seems the benefit would tilt significantly to the developer rather than to the public or even the investors.
Posted by eric at 5:28 PM
Claimed value of collateral for immigrant investors lowered by lack of timetable for office tower; no announced publicly announced plan for revenue
Part 6 of a series
Atlantic Yards Report
Exactly how valuable is the collateral offered to 249 prospective Chinese investors seeking green cards in exchange for each parking $500,000 in an investment pool that would support the Brooklyn Arena and Infrastructure Project under the EB-5 program?
There are several reasons to think that a new appraisal that calculates $542,375,000 for 3,025,654 square feet--seven towers on both the arena block and Block 1129, the southeast block--may have overvalued the development rights.
First, as noted, the MTA in 2005 appraised development rights over the Vanderbilt Yard at $75 a square foot and said in 2009 that it would be dangerous to get a new appraisal because of the bad economy. The new appraisal, which includes some land over the railyard, values development rights at more than $179 a square foot.
Also, as noted, even if the actual value is closer to $179 a square foot, it would be tough for the creditors to unlock the stated value of the collateral without a series of transactions that likely would reduce the value.
Unknown timetable for office tower
Third, included in the collateral is the value of development rights for the tower known as B-1, currently slated to be an office building--for which no market is expected soon.
The new appraisal, by the real estate firm Massey Knakal, has not been made public, but the conclusions have been outlined in both a promotional brochure (excerpt at right) and public presentations by the New York City Regional Center (NYCRC), which is working with Forest City Ratner to raise $249 million from Chinese investors.
There's no demand for office space in Brooklyn. Manhattan already has an over-capacity of office space, plus an additional projected surplus, should the current office space now on the drawing board come to fruition.
B-1 requires both a boost in the economy and an anchor tenant. In November 2009, Forest City Ratner CEO Bruce Ratner asked Crain's rhetorically, “Can you tell me when we are going to need a new office tower?”
Posted by eric at 5:21 PM
Are Atlantic Yards development rights offered to Chinese overvalued as collateral, or should the MTA have gotten double from FCR for railyard?
Part 5 of a series
Atlantic Yards Report
Did the Metropolitan Transportation Authority (MTA) get snookered last year when it agreed to renegotiate the deal with Forest City Ratner (FCR) for Vanderbilt Yard development rights, giving the developer more generous terms than in 2005 because of the weakened real estate market?
Or are prospective Chinese investors seeking green cards in exchange for parking $500,000 each in an Atlantic Yards-related investment pool being misled about the value of the development rights on the site used as collateral?
One or the other seems likely, because a new appraisal of development rights on the site is more than double the 2005 appraisal. That appraisal was never re-done and last year was seen by the MTA as overvaluing the site.
And both may be true--that public transit is losing out on tens of millions of dollars, and the potential investors are being offered a shakier deal than billed--if the real value is somewhere in the middle.
The two parcels do not fully overlap--the Vanderbilt Yard (8.5 acres) occupies the northern portion of the 22-acre site, while the collateral offered to the immigrant investors involves two development parcels on that northern portion and five on the southern segment.
However, the value per square foot of development rights should be fairly constant across the site. (Development costs, such as the cost of a platform for the railyard, would serve as downward adjustments, as described below.)
Value per square foot: $75 vs. $179
The MTA in 2005 appraised railyard development rights at $75 a square foot--and said in 2009 that it would be dangerous to get a new appraisal because land values had undoubtedly declined.
However, the NYCRC and its Chinese agents, promoting Atlantic Yards to immigrant investors under the EB-5 program, tout a new appraisal that calculates the value of the seven parcels at more than $179 a square foot.
NoLandGrab: To be fair, the MTA's appraisal was just "some guy's idea of what it's worth."
Posted by eric at 5:12 PM
The Week Atlantic Yards Report Caused a Stir
Reports about Forest City Ratner's use of an immigration program to raise funding has also raised a few eyebrows.
Prospect Heights Patch
by Graydon Gordian
Norman Oder, ever-vigilant observer of the Atlantic Yards development, has created quite the buzz with his reports on Forest City Ratner's use of the EB-5 immigration program to raise money from Chinese investors interested in the Atlantic Yards project.
NoLandGrab: Well, a bit of a buzz, which hasn't quite reached The New York Times yet, among other media outlets.
Posted by eric at 4:20 PM
December 8, 2010
Forest City Enterprises reports third-quarter results; sale of Nets, smaller share of team losses help boost bottom line
Atlantic Yards Report
Forest City Enterprises announced, in a press release, Forest City Reports Fiscal 2010 Third-Quarter and Year-to-Date Results, results for the third-quarter that ended October 31, 2010.
This is the only reference to Atlantic Yards:
Work continues at the Barclays Center arena at Atlantic Yards in Brooklyn, where vertical steel erection began in mid-November. Since the beginning of the third quarter, the Company, together with its partners, has continued to add to a growing list of premier corporate sponsors and further increase the level of contracted revenue for the arena.
...For the third quarter, the "Nets provided a pre-tax EBDT increase of $10.4 million, compared with the same period in 2009, due to the decrease in Forest City's allocated share of team losses."
For the year to date, the increased EBDT was $31.4 million, "from the gain on disposition of a partial interest in the Nets."
NoLandGrab: In other words, the Nets are Proko's problem now.
Posted by eric at 10:39 PM
Anatomy of a Shady Deal: Norman Oder Takes A Close Look At Ratner's Quest for Money in China
Develop Don't Destroy Brooklyn
While The New York Times publishes its third article about The Civilians' extraordinary production of "In The Footprint: The Battle Over Atlantic Yards" (and we congratulate The Civilians for this deserved accomplishment and the rave reviews the play has been receiving) Norman Oder has been running an extensive series on Bruce Ratner's shady cash for green cards scheme otherwise known as the EB-5 program. The Times has not once made mention of this highly questionable use of the little-known immigration program.
...It is a complicated issue which boils down to this: The Ratner crew and its public and private enablers are gaming this federal EB-5 immigration program by making stuff up, deceiving potential Chinese investors, double counting and wildly exaggerating job numbers all to pump up the developer's bottom line rather than benefit the public.
In other words: The usual, only overseas.
Posted by eric at 10:02 PM
Pitching potential EB-5 investors, Markowitz shills on video ("BK is 1000% behind AY"); ESDC's Davidson stretches jobs claim; Bloomberg misleads
Part 4 of a series
Atlantic Yards Report
The New York City Regional Center's (NYCRC) misleading effort, in partnership with developer Forest City Ratner, to market the "Brooklyn Arena and Infrastructure Project" to Chinese investors seeking green cards, relies significantly on statements from public officials aimed at bolstering investor confidence.
Thus, Brooklyn Borough President Marty Markowitz, Empire State Development Corporation President Peter Davidson, and New York City Mayor Mike Bloomberg, on video and in person, have promoted the project to potential investors in misleading and even ridiculously dishonest ways.
The statements, which praise the overall Atlantic Yards project rather than the Brooklyn Arena and Infrastructure Project at hand, may distract potential investors from due diligence, despite reasons to question the job creation claims and the solidity of the investment.
Thus, the three officials help convince potential investors to commit their $500,000 to the project, benefiting Forest City Ratner and the New York City Regional Center but not necessarily the public: the loan process could delay the Atlantic Yards arena block another seven years and otherwise reduce public benefits.
Misleading the audience
Markowitz claimed that Brooklyn is "1000 percent" behind Atlantic Yards.
No way.
Davidson asserted that Atlantic Yards "will be the largest job-creating project in New York City in the last 20 years.”
Unbelievable.
NoLandGrab: Hey, that's only fair — why should Chinese investors get the truth when we've been getting lie after lie for the past seven years?
Posted by eric at 11:12 AM
Bruce Ratner Seducing Atlantic Yards Investors With Green Cards
New York Magazine
Norman Oder recently began his sixth year of reporting on the Atlantic Yards saga at his website, Atlantic Yards Report, and his best work may have just begun. This week he’s posted a fascinating series of stories about how developer Bruce Ratner, the city, and the state are dangling green cards in front of Chinese investors in order to lower Ratner’s funding costs and save him an estimated minimum of $191 million. The pieces are long and dense — though the sight of former Net Daryl “Chocolate Thunder” Dawkins signing autographs in Guangzho is entertaining — but they contain a bunch of intriguing and maddening insights, including how the deadline for building the first phase of the behemoth arena-and-skyscraper project may have been quietly extended to 2029, which could further stall the purported “community benefit” from subsidized housing. The green-card scheme, while apparently legal, is borderline sleazy; it’s supposed to swap immigration help for the creation of American jobs, but the economic worth of the program is highly dubious. But a Brooklyn NBA team owned by a Russian billionaire playing in a tax-break-larded arena surrounded by Chinese-backed buildings … hey, only in America, as the great hustler Don King would say.
Related coverage...
The Sports ITeam Blog [NY Daily News], Shady dealings surround Atlantic Yards project
Atlantic Yards Report blogger Norman Oder has posted "Anatomy of a Shady Deal," an exhaustive series that looks at Forest City Ratner and the EB-5 program, the federal program that provides green cards to foreign investors to obtain no-interest loans for its massive Atlantic Yards project.
...Oder notes that the pitch aimed at potential investors in China is questionable. The Barclays Center, the future home of the Nets, is featured in materials provided to the potential investors even though it is already funded. The chance of not getting the green cards is dismissed, and the risk of the investment is downplayed.
...The Daily News reported in October that the Empire State Development Corporation doesn't expect money raised through the EB-5 program to create any new jobs beyond those already forecast for the $4.9 billion project.
Posted by eric at 10:35 AM
December 7, 2010
As FCR pitches Chinese investors seeking green cards, ESDC admits EB-5 arena funds not needed; is this legit if money's supposed to create jobs?
Part 3 of a series
Atlantic Yards Report
Nearly 500 Chinese millionaires, hoping for green cards and starry-eyed at the thought of pro basketball, may hold the key to developer Forest City Ratner's (FCR) progress with the Atlantic Yards project. Potential investors have been attending investment seminars in China like the one October 19 (promoted below); such sessions continue through December 19.
However, as detailed below, the effort to raise $249 million tests the spirit and perhaps the letter of an obscure but newly popular federal law that grants fast-track green cards in exchange for job-creating investments.
Rather than use investors' money as seed money or matching funds, as in some other EB-5 projects, it seems that Forest City Ratner would in large part simply be trading higher-cost financing for a no-interest loan.
Thus, it wouldn't create new jobs, even if it may fit within the loose strictures of the federal law, in which the total sum of money must generate 4980 jobs, ten per investor.
Should such tactics--essentially endorsed by the state, city, and Borough President, who have joined in project promotion--pass muster, they invite an absurd process: any developer might save hundreds of millions of dollars, substituting cheaper capital for existing capital, claiming it creates jobs because it's tied to a project with existing, committed investment.
That would help monopolize a limited federal resource--visas for job creation--while skirting the goals of the immigration program.
The "Brooklyn Arena and Infrastructure Project," a $1.448 billion subset--the arena, plus infrastructure and a new railyard--of the $4.9 billion Atlantic Yards project, has never been approved by any official body nor previously announced before the effort to solicit immigrant investors.
It is apparently formulated to generate--at least on paper--the necessary number of jobs.
It prominently features the Barclays Center arena, as in the graphics above and below, but the pitch involves some dodges:
- the arena, though the prime attraction, is already funded
- the role of government is exaggerated
- the chance of not getting green cards is dismissed
- the risk regarding the investment is downplayed
And the public officials promoting the effort may be helping Forest City Ratner above all else.
Posted by eric at 11:27 AM
December 6, 2010
The savings on the $249 million no-interest loan sought by Forest City Ratner? Likely $191 million (at least) to $314 million over seven years
Part 2 of a series
Atlantic Yards Report
On October 11, I did some very imprecise math, trying to estimate the savings on a $249 million no-interest loan that Forest City Ratner seeks from immigrant investors under the EB-5 program, which trades green cards for supposedly job-creating investments.
I estimated the developer would save nearly $100 million over five years. Actually, the savings would likely be double that, at least, so it's no wonder the developer is pushing very hard to get this deal done.
My estimate needs an update because the loan could last seven years, not five, according to a Recognition Agreement signed by the state; the impact of compounding was not calculated; and a wider range of interest rates should be considered.
Savings: likely $191 million (at least)
A reader more versed in finance has produced the charts below. (Click to enlarge.) The bottom line: over seven years, at a conservative 8.3% interest rate, Forest City Ratner could save nearly $191 million.
At a somewhat more likely 10% interest rate, FCR could save $244 million--nearly the value of the loan.
At the plausible interest rate of 12%, the developer could save $314 million.
NoLandGrab: Did we mention that this series is a must-read?
Posted by eric at 9:12 AM
Arena block could take 19 years, as ESDC grants seven-year extension, enabling FCR's plan to recruit Chinese investors under EB-5 program
Part 1 of a series
Atlantic Yards Report
The effort by the New York City Regional Center (NYCRC), the private investment pool federally authorized to accept immigrant investor funds, and developer Forest City Ratner (FCR) to raise $249 million from 498 Chinese millionaires under the EB-5 immigration program may be legal, but there is ample reason to question whether it will serve the public interest. I called it "the most audacious quest for government assistance" in the Atlantic Yards saga.
Here's brief and extensive background on the "Brooklyn Arena and Infrastructure Project," an ad hoc name for the project as presented to immigrant investors. FCR likely would save at least $191 million with a no-interest loan, while the NYCRC, along with immigration attorneys, would reap substantial fees. Additional coverage will include the marketing effort in China, the role of public officials, and the collateral at issue.
The Empire State Development Corporation (ESDC), the state agency with oversight over Atlantic Yards, has again extended the deadlines to get the project built, allowing seven additional years for Phase 1.
Why? Because Forest City Ratner wants a valuable, no-interest loan from immigrant investors looking for green cards.
The beneficiaries? The developer, and the Chinese investors who might end up owning nearly half of the non-arena project site, development rights to seven of 16 towers, as shown in the screenshot below right.
The losers? The public, since expected project benefits such as affordable housing and new tax revenues could be delayed, while burdens like an interim surface parking lot could be extended.
Under the scenario--in a Recognition Agreement for the loan approved by ESDC staff, with no need for board action--the 12-year timetable for Phase 1 would be suspended for seven years.
Thus, the minimum square footage required for Phase 1 could take 19 years, nearly twice as long as the entire project was supposed to take.
Is such a delay likely? We can't be sure, but considering the extensive provisions documented in case Forest City Ratner defaults on the loan, the state and the developer seem to take a default scenario seriously.
Indeed, the scenario casts huge doubts on FCR's public rhetoric, via executive MaryAnne Gilmartin (video below) that it is "100 percent committed to delivering the Atlantic Yards project and all of its benefits to the borough of Brooklyn."
And it suggests that the ESDC, rather than protecting the public interest, is more concerned with saving the developer money.
Posted by eric at 9:04 AM
December 5, 2010
The worth of Wall Street, Goldman Sachs, and the arena bonds
Atlantic Yards Report
John Cassidy's much-remarked 11/29/10 New Yorker article, What Good Is Wall Street? Much of what investment bankers do is socially worthless, is worth a look:
In effect, many of the big banks have turned themselves from businesses whose profits rose and fell with the capital-raising needs of their clients into immense trading houses whose fortunes depend on their ability to exploit day-to-day movements in the markets. Because trading has become so central to their business, the big banks are forever trying to invent new financial products that they can sell but that their competitors, at least for the moment, cannot. Some recent innovations, such as tradable pollution rights and catastrophe bonds, have provided a public benefit. But it’s easy to point to other innovations that serve little purpose or that blew up and caused a lot of collateral damage, such as auction-rate securities and collateralized debt obligations. Testifying earlier this year before the Financial Crisis Inquiry Commission, Ben Bernanke, the chairman of the Federal Reserve, said that financial innovation “isn’t always a good thing,” adding that some innovations amplify risk and others are used primarily “to take unfair advantage rather than create a more efficient market.”
What does the tax-exempt bond issuance for the Atlantic Yards arena do? It allows the developer to save money, for New York state to poach local taxes from New Jersey, and represents a subsidy of perhaps $150 million from federal taxpayers.
Social purpose?
"Useless activity"
Cassidy writes:
Other regulators have gone further. Lord Adair Turner, the chairman of Britain’s top financial watchdog, the Financial Services Authority, has described much of what happens on Wall Street and in other financial centers as “socially useless activity”—a comment that suggests it could be eliminated without doing any damage to the economy. In a recent article titled “What Do Banks Do?,” which appeared in a collection of essays devoted to the future of finance, Turner pointed out that although certain financial activities were genuinely valuable, others generated revenues and profits without delivering anything of real worth—payments that economists refer to as rents. “It is possible for financial activity to extract rents from the real economy rather than to deliver economic value,” Turner wrote. “Financial innovation . . . may in some ways and under some circumstances foster economic value creation, but that needs to be illustrated at the level of specific effects: it cannot be asserted a priori.”
Turner’s viewpoint caused consternation in the City of London, the world’s largest financial market. A clear implication of his argument is that many people in the City and on Wall Street are the financial equivalent of slumlords or toll collectors in pin-striped suits. If they retired to their beach houses en masse, the rest of the economy would be fine, or perhaps even healthier.
What would Forest City Ratner have to have done? Paid for the arena itself.
...
As I wrote 1/25/10, there's much momentum for deals like the $511 million arena bond issuance because all parties involved get paid. As part of the Atlantic Yards master closing documents, there's a list of the funds paid various participants in the transaction...As I wrote 1/25/10, there's much momentum for deals like the $511 million arena bond issuance because all parties involved get paid. As part of the Atlantic Yards master closing documents, there's a list of the funds paid various participants in the transaction...
Mintz Levin, the bond counsel, earned $2,726,633
Fried Frank, the counsel to Forest City Ratner, earned $626,684
Nixon Peabody, the counsel to the underwriters (Goldman Sachs), earned $2,325,000
Ratings agency Moody's earned $360,000
Ratings agency Standard & Poor's earned $388,080
Auditor Price Watershouse earned $60,000
Printer Bowne & Co. earned $76,618.63Goldman Sachs presumably earned much, much more.
Posted by steve at 9:02 AM
November 22, 2010
NYC Regional Center feeling the heat? Lawyer for firm recruiting immigrant investors for AY project launches shallow attack on unnamed "blogger" (AYR)
Atlantic Yards Report
Looks like someone is unhappy that Norman Oder turned over a rock, and the EB-5 visa program crawled out.
Apparently my criticism of the emerging effort by the New York City Regional Center (NYCRC) and Forest City Ratner to raise $249 million from 498 Chinese millionaires under the EB-5 immigration program has its backers concerned.
In an 11/11/10 post on EB5info.com, a web site devoted to EB-5 issues, an attorney for the NYCRC presents a tendentious, shallow attack on me.
In the post, headlined In Defense of the EB-5 Program, Miller Mayer attorney Carolyn S. Lee disserves readers by not pointing them to my original critique, as posted in the Huffington Post under the headline Green Cards for Sale? Atlantic Yards Backers Seek Chinese Investors.
That allows her to cherry-pick the evidence, evade full responses, and deny readers the opportunity to make evaluations on their own.
Notably, Lee ignores the rising tide of concern, well beyond my alleged "false and ill-informed statements," regarding the EB-5 program, which allows immigrant investors parking $500,000 in job-creating investments to get green cards for themselves and their families.
Broad dismissal
Lee begins:
When there is misinformation in the public about the EB-5 program, attorneys in the trenches of this area have a duty to set the record straight. To permit otherwise leaves our clients – investors and regional centers – having to defend themselves against individuals and organizations maligning the EB-5 program for other ends.
I have an individual in mind. The Internet has given this person a wide-reaching forum to vent his ire against a large urban development project. His medium is his blog. As with many projects of this scale, this one involves a partnership of private and public funds. EB-5 capital is a component. In a down economy hostile to immigration, the EB-5 program has become an easy target for this individual, who is dedicated to the downfall of the overall project and who has latched onto the EB-5 part of the project for his latest criticism.
Lee, without using my name, suggests that I'm an venting amateur, rather than a journalist who's covered Atlantic Yards for a blog for more than five years and has been a critic credible enough to write for the New York Times and to co-write a law review article.
So too does the pointer blog on EB-5 Visa News, headlined New York Regional Center Coming Under Unfair Attack:
It’s one thing to have a discussion, but propaganda by a lone blogger is unfair.
Rather than focus on my arguments, they prefer to attack me. Meanwhile, lawyers representing the immigrant investors stand to earn $14,750 per client, while the NYCRC would earn a project issue fee of $38,000 per client.
That means Miller Mayer and the NYCRC have no small incentive to ensure the project succeeds. (Miller Mayer represents the NYCRC and immigrant investors.)
Oder's full post is well worth a read.
NoLandGrab: Carolyn Lee is so upset that she won't utter the name Norman Oder, nor link to his criticism — for fear that more people might discover the truth about the Atlantic Yards EB-5 scam.
Posted by eric at 10:17 AM
November 17, 2010
Over the 38-year term for arena bonds, lots of unknowns: continuing revenue, cost of renovations
Atlantic Yards Report
In ratings reports regarding the Atlantic Yards arena, Standard & Poor's assessed both the strengths and weaknesses of the project, justifying a rating of BBB-, or the lowest run of investment grade.
One weakness:
The 38-year debt term is longer than most comparable rated projects.
Well, it's true that the comparably rated bonds for the Yankees' and Mets' new stadiums have 40-year terms, but baseball stadiums generally endure longer than arenas and the two baseball teams have established track records in New York City.
The unknowns: who pays for renovation?
But there are two unknowns that I haven't seen addressed in the bond materials and ratings.
First, the arena would inevitably have to be renovated, given the track record of numerous arenas, as detailed below.
Second, the analyzed revenue--e.g., from naming rights and sponsorship deals--covers a term far shorter than 38 years.
...Short life spans for some arenas
In Seattle, the Washington State Pavilion (1962) was remodeled as the Washington State Coliseum, which in 1967 became home to the Seattle SuperSonics and was rebuilt 27 years later as Key Arena. Some 13 years after that, team owners were unsuccessful in getting public funding for a renovation or new arena, and the team moved to Oklahoma City for the 2008-09 season.
The Miami arena, completed in 1988, lost the Miami Heat in 2000 to the American Airlines Arena. The Florida Panthers left, as did concerts. The arena was sold via an auction in 2004 and demolished in 2008.
The Orlando arena opened in 1989 and, within eleven years, was deemed obsolete. A new arena will open later this year, 21 years later.
The Nets' most recent home, the Izod Center at the Meadowlands, opened in 1981 and lost the team just this year, 29 years later.
None of the four arenas noted above had the luxury suites and premium seating that are now standard.
Still, new bells and whistles surely will become standard. The Atlantic Yards arena won't last 38 years without a major renovation, or becoming obsolete. Who's going to pay?
NoLandGrab: "Who's going to pay?" That's obviously a rhetorical question, because we all know the answer, and it ain't Bruce Ratner.
Posted by eric at 12:37 PM
October 27, 2010
Why would EB-5 investors in Atlantic Yards earn no interest? Because it's such "a safe, secure position"
Atlantic Yards Report
From The National (published in the United Arab Emirates), an article headlined Green Card scheme a slam dunk in China covers one of the investment seminars put on by the New York City Regional Center (NYCRC) for its Atlantic Yards EB-5 investment project:
So keen are some Chinese to gain entry to America that they value the assurance of a Green Card over any financial return.
Most EB-5 schemes pay interest of between 2.5 and 2.75 per cent. But not this one, according to Gregg Hayden, the general manager of NYRC.
"The investor on this particular project, to simplify the process, is not getting paid any interest," says Mr Hayden. "We have put them in such a safe, secure position that they're not earning any interest. If you look at the spectrum of EB-5 projects, interest rates are paid according to risk."
To simplify the process? How about to maximize return to the New York City Regional Center and Forest City Ratner?
As for the security of the the position, well, that's a matter for continued debate.
Buying green cards
The report in The National shows a NYCRC rep pretty much contradicting what his boss said six weeks ago.
Posted by eric at 4:04 PM
Green Card scheme a slam dunk in China
The National
by Tom Spender
A UAE-based publication covers Bruce Ratner's green card-hawking magical mystery tour.
Some were dressed in suits, some in casual and even worn-out clothing, but all of the Chinese in the banqueting hall had one thing in common - money, or access to it.
About 200 potential investors had streamed into the west Beijing hotel to hear about an opportunity in New York that seems well-calibrated to a changing world: Green Cards in return for interest-free credit.
The roadshow was showcasing the biggest-ever use of the US government's EB-5 scheme, which offers Green Cards to foreigners who invest US$500,000 (Dh1.8 million) in America for two years, thereby creating at least 10 new jobs.
Officials from the New York City Regional Centre (NYCRC) are touring China to drum up 498 investors with the aim of contributing $249m to the city's biggest property project outside Ground Zero.
...Critics say reaching out to the Chinese is simply a way to save cash. If developers borrowed the same amount of money from a bank they would face tens of millions of dollars in interest repayments.
Additional coverage...
NetsDaily, Did Ratner Enlist Ex-Nets in Money-for-Visas Program?
Darryl Dawkins and Otis Birdsong were in China last week not just to watch the Nets play the Rockets but to attend an investment "roadshow" where Bruce Ratner sought to raise nearly a quarter billion dollars through a controversial money-for-visas program, an Abu Dhabi newspaper reports.
According to a reporter who was at one of the "roadshows" in Beijing, the two were on hand to mix with about 200 prospects Ratner and advisors had invited to invest in the Atlantic Yards project. Under the EB-5 visa program, those who invest $500,000 or more can receive US green cards in return.
Posted by eric at 3:43 PM
Moody's lifts rating on Forest City Enterprises from "negative" to "stable"
Atlantic Yards Report
According to an AP article yesterday headlined Moody's revises Forest City outlook to 'stable', the ratings firm has lifted Forest City Enterprises from "negative" to "stable," citing improved results and stable liquidity.
The AP reported:
Last month, Cleveland-based Forest City reported a second-quarter profit of $122.8 million. The results bested the company's prior-year quarter performance - a loss of $1.8 million.
Moody's noted Forest City has been addressing its mortgage debt maturities, refinanced its credit facility and significantly reduced its development exposure. Wonder if Moody's factored in an expected $249 million in immigrant investor funding, at low or no interest?
Morningstar, by the way, is a bit more cautious:
While we like Forest City's use of nonrecourse property debt and its geographically diverse footprint, we believe its extensive exposure to the volatile retail industry as well as its high degree of financial leverage warrant an extreme fair value uncertainty rating.
Related coverage...
AP via Forbes.com, Moody's revises Forest City outlook to 'stable'
Posted by eric at 11:23 AM
Citizenship for sale? Yahoo says yes, and endorses it (without looking closely at the Atlantic Yards deal)
Atlantic Yards Report
Would you believe that the brief mention in a Wall Street Journal article about Forest City Ratner's to raise $249 million via immigrant investors inspired an Oct. 25 analysis (Citizenship For Sale?) by Daniel Gross, economics editor and columnist at Yahoo! Finance, that concluded that not only is the EB-5 program a good idea, but it should be vastly expanded.
In other words, superficial journalism by the Wall Street Journal is compounded by superficial journalism by Yahoo!
...The problem is that, with Atlantic Yards, the signal example Gross chooses (and touts on the video accompanying his piece), no new jobs would be created, the Empire State Development Corporation acknowledges, but Forest City Ratner could save perhaps $100 million over five years on $249 million in low- or no-cost financing.
Would they be "created" according to the federal government's loose regulations? That's what proponents say. Still, there are several reasons to be skeptical about the project, as I've written.
NoLandGrab: Mr. Oder was kind enough not to put "journalism" in quotes.
Posted by eric at 11:17 AM
October 26, 2010
Citizenship For Sale?
Yahoo! Finance
by Daniel Gross
Some organizations, professional service firms, and companies promote the program as a whole, or market investment in particular projects as appropriate for EB5 aspirants, such as a ski resort in Vermont. Other entrepreneurs having a tough time raising cash are now seeking to use the program to tap into new sources of financing. The Wall Street Journal reported last week that developer Bruce Ratner is seeking to use the program to help raise funds in China for his massive, controversial Atlantic Yards development in Brooklyn, N.Y.
Now, many may view the prospect of giving favorable immigration treatment to investors as problematic. The phrase "bring us your moneyed investors yearning to breathe free" doesn't have the same poetic heft as the inscription about the tired, poor, huddled masses etched on the Statue of Liberty. From its inception, the price of citizenship has traditionally been a willingness to leave behind the old world and work hard -- not write a check to support the construction of a bunch of ski-in, ski-out condos.
Don't count Daniel Gross among those who view the EB-5 program as "problematic," however.
I happen to think this is a very good thing. If it were fully utilized, the EB5 program would bring at least $7 billion annually and create or preserve 100,000 jobs per year.
Someone needs to tell Gross that, based on the Atlantic Yards model, EB5 would bring in at least $7 billion annually and possibly create or preserve ZERO jobs per year.
Posted by eric at 12:04 PM
October 17, 2010
Times dispatches Beijing bureau chief to write Sports story about Nets (but not EB-5)
Atlantic Yards Report
In a Sports section article today headlined For the Nets, the Journey Has Just Begun, the New York Times dispatches its Beijing Bureau Chief, Michael Wines, to cover the marketing potential of Mikhail Prokhorov's New Jersey (and future Brooklyn) Nets.
(What hasn't the Times covered? The EB-5 story.)
The article begins with a nod to the team's marketing man:
Brett Yormark is talking about the incredible global marketing potential of the New Jersey Nets, a concept — New Jersey, the Nets and global marketing potential — that might seem unlikely until you hear his pitch, and remember that two years from now, they will probably be the New York Nets.
Probably the New York Nets, not the Brooklyn Nets? I doubt it, but, if so, Brooklyn Borough President Marty Markowitz will plotz.
Winner needed
Wines somehow grants newcomer Prokhorov credit for Yormark's global marketing, but offers a caution:
Like the Nets, a number of global corporate entities have bought into Prokhorov’s vision. Barclays Bank, a British company with operations in 50 nations but a low American profile, bought the naming rights to the new Brooklyn arena. Haier, a Chinese state-owned company that is the world’s fourth-biggest appliance maker but is relatively unknown outside China, is another sponsor. So is Willis & Company, an Irish insurance broker. So is Stolichnaya vodka, the arena’s official vodka.
The N.B.A. is a phenomenon here, and outside the Four Seasons this week, Chinese fans were eagerly seeking autographs from N.B.A. players. But here, at least, some people steeped in basketball doubted that the Nets’ global strategy, carefully bolted together as it might be, would work. Chinese fans, they said, do not care whether a team is beloved in Moscow or in East Orange, N.J. They just want it to win.
OK, so that's a balanced story, within the parameters of the story. It's just that there's another story to write.
NoLandGrab: The Times's refusal to cover the real story of Bruce Ratner's visit to China is like sending a reporter to cover a fire and then printing a story about the aesthetics of fire hydrants.
Posted by steve at 9:22 AM
October 14, 2010
The Story Behind the Atlantic Yards Green Card Controversy
NY Observer
by Matt Chaban
In The Observer's profile of Atlantic Yards watchdog Norman Oder, the master blogger laments how the mainstream media has ignored his biggest expose to date: plans by the state and developer Forest City Ratner to essentially sell green cards to Chinese investors in exchange for backing the arena-cum-condos project on the edge of brownstone Brooklyn.
If you are generous enough to lump The Observer in with the rest of the MSM, then — full disclosure — we have fallen short, too. But for two brief mentions, the Real Estate Desk has yet to take a serious look at the EB-5 saga. Perhaps it is time to address this "dereliction of duty," to quote Mr. Oder, and closely consider this latest twist in this most tangled of projects.
...[I]t is not clear that Forest City Ratner or the state are doing anything illegal here. Just because Mayor Bloomberg, Marty Markowitz, Jay-Z and the Nets are shilling for this project (as hilarious graphics Mr. Oder turned up show) does not mean they are doing anything wrong. In fact, it tends to fit with the behind-the-scenes, bending-the-rules nature that has plagued the project from its inception.
Then again, his frustration with the media for ignoring the story is understandable. Illegal or not, the papers have written about far more minor infractions by developers, politicians and joe sixpacks all over the city. Why they continue to ignore this story is a mystery. Whether they can for much longer remains to be seen.
As Mr. Oder recently told The Observer, he has plenty more bombshells to come. "This story is far from over," he said.
Posted by eric at 10:09 PM
Some props from the Observer on the EB-5 story, but more reporting is needed
Atlantic Yards Report
While I appreciate that the New York Observer's Matt Chaban was willing to recount the high points of my EB-5 coverage, and I appreciate the observation that my "frustration with the media for ignoring the story is understandable," that's not quite enough.
The government agencies backing this plan, the developer, and the New York City Regional Center need to show their math regarding the ten jobs that each of 498 investors is supposed to create or save.
Posted by eric at 7:37 PM
October 12, 2010
Chinese EB-5 Website Reports Atlantic Yards Report on NYCRC NETS Project
EB-5 Blog: Regional Centers in the USA
by Brian Su
Hey Norman Oder! You're ruining our scam — and the Chinese are starting to notice!
Atlantic Yards Report's negative blogging on NYCRC NETS project also draws attention from Shanghai based EB-5 Internet portal "Come2USA.com" - a popular Chinese language website that serves Chinese audience and prospective EB-5 investors. The website has been reporting Atlantic Yards daily blogs and updates on the NYCRC project.
Posted by eric at 10:19 AM
October 11, 2010
Green Cards for Sale? Atlantic Yards Backers Seek Chinese Investors
The Huffington Post
by Norman Oder
Atlantic Yards Report's Norman Oder brings the tale of Bruce Ratner's green cards-for-cash scam to The Huffington Post.
You don't have to favor restricting immigration to grow skeptical about a little-known federal program known as EB-5, which provides green cards to foreign millionaires if they park money here for a few years.
Not only does it look like the United States is selling visas, but the terms are easier than in other countries. The visa program was approved by Congress two decades ago as a job-creation effort (EB = "employment-based"), but today immigrant investors don't have to directly create jobs.
A look at the largest-ever EB-5 project, an attempt to raise $249 million for the uber-controversial Atlantic Yards project (arena plus skyscrapers) in Brooklyn, provokes more skepticism. After all, proponents admit that the funding won't create new jobs--and "jobs" were a justification for subsidies the project has already received.
So, if a seven-city promotional tour in China that kicks off this week is successful, here's what may happen: 498 millionaires, most of them Chinese, will each park $500,000 for five years in an investment fund, organized by the privately-owned New York City Regional Center (NYCRC) at the behest of developer Forest City Ratner (FCR).
Posted by eric at 8:48 PM
Lots of winners (but not the public interest) in effort to raise $249M for Atlantic Yards via "green cards for investors"; FCR could save $100 million
Atlantic Yards Report
When you run the numbers, there seem to be a lot of winners in the effort to market green cards for investments totaling $249 million in the Atlantic Yards project.
Those benefiting include:
- immigrant investors and their families
- the operators of the New York City Regional Center (NYCRC)
- immigration attorneys
- developer Forest City Ratner (by far the largest beneficiary)
Missing? The public interest, especially if no new jobs are created (as admitted) and this new investment does not actually retain jobs (as I've argued).
NoLandGrab: Bet you could've never guessed that Bruce Ratner would be the biggest winner in this government-sponsored scam, right?
Posted by eric at 11:48 AM
Noting One Oddity, The Times, in Another, Neglects Obvious Explanations: Ratner’s EB-5 Green Cards Sale; A Reason For the Nets To Go To China, And. . .
Noticing New York
Why are the Nets going, as the article reports, to China and Russia? Though the article pronounces it odd that they are going abroad and then spends most of its time tendering possible explanations, it passes up taking a crack at the possible explanations that would seem to be the most logical, but perhaps also the most impertinent to mention.
Norman Oder of Atlantic Yards Report specifically mentions this particular Times sports story (“The Sports section, however, is all over the Nets' trip to China.”) in writing about how the Times has avoided reporting on the scandalous sale of green cards in China by Ratner and Prokhorov to finance their nets arena.
The sports section may be “all over the Nets' trip to China” except that it isn't reporting that the likely explanation as to why the Nets owners have made it a priority for the Nets to go to China is the EB-5 green cards the owners are selling to the Chinese, something the Times apparently doesn’t want to report about. Also not mentioned is that New York state and local government officials have been expecting to tag along with Ratner to sell the U.S. issued green cards with him in China.
...We have a question for the Times: If, in their estimation, now is not the time to report on the EB-5 green card selling scandal and the dark not-so-secret back stories relating to Prokhorov’s wealth, then when will those things be discussed in the gray lady’s pages? Maybe it is just that the Times reporters, sports reporters and others, are not able to read Chinese. The answer then would be to hire a Chinese translator which is what Mr. Oder did and the reason he has consequently been able to keep breaking new gripping stories in his series about the EB-5 scandal.
What are New Yorkers left to do when the Time sidelines itself this way? Here's one thing we can tell you: If, as the Times reports, “The Nets are creating a Russian-language Web site” then New Yorkers are all going to have to hope that Mr. Oder opens his wallet up one more time for another translator, a Russian one. If he doesn’t, with the Times asleep, we will probably miss out on some major news stories that matter a great deal to our city’s local politics.
Posted by eric at 11:37 AM
October 10, 2010
For Chinese as well as English speakers, a summary of my prior reportage on EB-5 financing of the Atlantic Yards/Barclays Center Project
Atlantic Yards Report
Norman Oder recaps his coverage of Bruce Ratner's only-in-Atlantic Yards green cards-for-cash financing scheme, in the "traditional" English as well as Chinese.
For those who have not read my coverage of the EB-5 immigrant investor program run by the New York City Regional Center (NYCRC) and its pitch to prospective Chinese investors in the Atlantic Yards Project, here is a summary of issues:
1) Despite the promotional material (as in the graphic below), this EB-5 project has no direct connection to the Nets basketball or the National Basketball Association (NBA).
The developer in Brooklyn, Forest City Ratner (FCR), is seeking $249 million in additional financing principally to build a new railyard, which it must build as part of the concession granted by state and local government for FCR to build a basketball area and permitting it as well to develop adjacent lots for residential and commercial purposes.
(If FCR obtains EB-5 financing it will be saving tens of millions of dollars in interest that it would otherwise have to pay as a result of borrowing from the bond markets.)
The railyard is part of related infrastructure for the overall project, which would include 16 towers over 22 acres, along with the arena.
2) This EB-5 project has almost nothing to do with the Barclays Center, the planned arena (or stadium), which is intended to house an NBA team.
NYCRC says that the "project" for which it seeks investment consists of the arena, infrastructure, and the railyard. The costs of constructiing the arena and much of the infrastructure, however, were already funded through bonds and subsidies reserved to those purposes.
3) This EB-5 project is based on job-creation calculations justifying visas for participating Chinese investors, which are, at minimum, difficult to understand.
The project's proponents assert that the investment would create or retain 7696 jobs. It is unlikely that the proposed $249 million in financing could create or retain so many jobs, however.
Nor does it appear plausible that the cited job-creation number is based on the jobs created by adding the $249 million either to existing funding to build the arena or to future construction, which is not yet funded.
Jobs resulting from construction of the arena do not depend on FCR obtaining this new funding, only jobs resulting from construction of the railyard do. Jobs resulting from new residential or commercial development will require financing substantially above the $249 million sought through EB-5.
4) Since the "project" does not in fact appear to include the arena, the resulting share and to prospective immigrant investors would seem to be much higher than the 17% figure marketed by NYCRC. That would increase the net risk.
5) The developer likely has the means to proceed with the project without the additional low-cost financing sought from Chinese investors.
For example, FCR's parent company, Forest City Enterprises, has more than $467 million in cash and credit capacity, according to its 9/8/10 earnings release.
6) A representative of the NYCRC was unable to answer a simple, direct question from immigrant investors: why, if one of the partners in the project is the Russian billionaire Mikhail Prokhorov, is any new money needed?
FCR may not be seeking more money from Prokhorov because, like most major investors, he would do so only in exchange for an increased share of the project.
7) Even though he was supposed to attend NYCRC investment seminars in China, Brooklyn Borough President Marty Markowitz--essentially the "mayor" of one of New York City's five districts--will not be going.
He dropped out of the tour shortly after bad publicity circulated about the questionable assumptions underlying EB-5 financing of the Atlantic Yard project.
8) Websites promoting this project give incorrect figures about jobs. Consider this statement attributed to U.S. Senator Charles Schumer: "Brooklyn has already begun its renaissance, bringing a professional ball team into the district as well as 10,000 new jobs – all these are proofs of our achievements."
Schumer made that claim in 2004, when there was supposed to be space for 10,000 office jobs in four towers. Now, only one office tower is planned, and it's indefinitely postponed. And as noted above, the "project" as defined for Chinese investors does not include any of the towers.
9) Unlike some other EB-5 programs, there is no suggestion that investors would get a return on their investment. The promise is that investors would get their principal back, after paying $38,000.
10) If the principal is not returned, investors are supposed to be assured the safety of their investment because of collateral.
But despite suggestions that it consists of "land," that collateral is something more complex and much less liquid: a share of development rights in the remainder of the project.
Any group of immigrant investors would appear unlikely to develop the remainder of the Atlantic Yards project without a sophisticated local partner who has experience in development. That suggests that a partner like FCR itself would be needed; if so, it would take back some share of those development rights.
11) In the video below, Gregg D. Hayden promises that the "the Barclays Center is... the most significant project in the city and state of New York in the last 20 years" and "it generates well in excess of 10,000 jobs for years to come."
However, no government agency studying the project has claimed "it generates well in excess of 10,000 jobs for years to come." Moreover, many people believe that Ground Zero, the construction after the terrorist attacks of 9/11, is a more significant project.
12) One of the NYCRC's Managing Principals, Paul Levinsohn, was investigated (but not indicted) for a scheme in which he and a partner were able to place billboards on state land within cities that didn't want them.
Levinsohn's then-boss, New Jersey Governor James McGreevey, said "the whole thing looked atrocious."
Posted by eric at 10:29 PM
October 9, 2010
Putting It Togther: Who Should Be Selling Green Cards?
Noticing New York
This blog post takes a new perspective on the recent relevations that Bruce Ratner will be using the EB-5 program to attract Chinese investors for Atlantic Yards.
It kept gnawing at us: Why should this be something a private individual gets to do rather than its being the responsibility of the government? . . . Why should Bruce Ratner (and his partner Mikhail Prokhorov, a bloody Russian oligarch of all people!) get to go out and sell U.S. government-issued green cards to 498 Chinese millionaires and their families? . . . Why isn’t the issuance of green cards a government responsibility?
...
So what can we afford? Here is the not-so-crazy idea we came up with when we put two and two together. Maybe we could afford a lot more if the government was the one out there handing out green cards to the high bidders. Did the MTA think they had cleverly accomplished something and squared away part of their capital budget needs when, in connection with the very low price Ratner is paying to acquire the Vanderbilt railyards from them for Atlantic Yards, they contractually obligated Mr. Ratner to build the replacement (albeit smaller and less adequate) railyard they were then going to need? By going to the Chinese Ratner isn’t the one paying to close that budget gap anymore; he’s simply passing his contractual obligation along to the Chinese. Gosh, Golly and Jumping Jehosaphat: The MTA could have gone to the Chinese directly, eliminating the middle man!
Let’s unprivatize the selling of green cards and put some money back in the government’s pocket by taking this function back! It could mean really big bucks.
The post goes on to speculate why any public officials should be part of a trip to China for that benefits a private developer (maybe it has to do with receiving a free trip with luxury accommodations).
The post ends questioning why public wealth is being transferred into private hands for no public benefit in a way that begins to mirror what happened in Russia when formerly government-owned industry was transferred into private hands under shady circumstances.
Posted by steve at 9:01 AM
Brooklyn politician will not join EB-5 China trip
Exclusive Visas
Exclusive Visas is an enterprise that offers, via their red white and blue website, to guide foreign nationals through the EB-5 process. This particular item is a mention of Marty Markowitz's decision not to accompany ESDC, the tool of developer Bruce Ratner, to China to attract investors by using this program that sells green cards in return for an investment, in this case, of $500,000.
After it was indicated that he might be accompanying a businessman on a trip to China to drum up interest in the EB-5 visa program, the Brooklyn Borough President has decided to stay in New York.
Marty Markowitz has decided not to accompany developer Bruce Ratner on his EB-5 trip to China, where the businessman will try to draw investors for his ambitious Atlantic Yards project, reports the New York Post.
...
Ratner and his company, Forest City Ratner, is hoping to obtain $250 million in investments through the EB-5 visa program to help finance the $4.9 billion Atlantic Yards development, which includes a basketball arena that could be the potential home of the New Jersey Nets.
Under the EB-5 visa program, if a foreign national invests $1 million (or in some places $500,000) in an American business and that investment leads to the creation or preservation of 10 jobs, the investor becomes U.S. green card eligible.
NoLandGrab: Keep in mind that, despite the EB-5 program's purpose to create or retain jobs, the ESDC has admitted that the investment sought by Ratner will produce no new jobs.
Posted by steve at 8:40 AM
October 8, 2010
The fundamental lie at the heart of the "green cards for investors" scheme (and why the Chinese investors face a higher risk than acknowledged)
Atlantic Yards Report
There's a fundamental lie at the heart of the attempt by Forest City Ratner and its partner, the New York City Regional Center (NYCRC), to raise $249 million in no-interest (or low-interest) financing under the EB-5 visa program from Chinese millionaires seeking green cards.
They've redefined the "project" as a $1.448 billion project that includes the Barclays Center arena, related infrastructure, and a new railyard that Forest City Ratner is required to build.
And only by defining the "project" anew, and thus tacking the railyard on to already funded components, does the risk to investors seem diminished.
Rather, investors likely face a much higher risk than acknowledged. And the collateral offered would not be easily convertible into cash but would require a sophisticated development partner.
(Why is New York State's Empire State Development Corporation playing along, accepting the claim of a $1.448 billion project and sending Executive Director Peter Davidson to China next week? He is the only government official on the trip.)
Posted by eric at 11:07 AM
FCR's Gilmartin going to Beijing to meet with potential investors, but promoters erroneously claim Markowitz will be there
Atlantic Yards Report
Potential EB-5 investors, immigrants who would park $500,000 for a few years as a no-interest loan to Forest City Ratner through the New York City Regional Center (NYCRC), can attend two events next week in Beijing.
One is on Tuesday October 12, as previously reported, and one on Monday October 11.
Both promote the highly questionable figure of 7696 jobs associated with the $249 million investment sought--4980 are required, for $249 million aimed mainly at financing the railyard FCR's obligated to build--as well as the highly questionable collateral.
Below is the lineup, in the version from Google Translate.
Why is Markowitz there?
Note that Brooklyn Borough President Marty Markowitz (described as the "Brooklyn New York City Mayor") os described as a guest, but will not be there after all.
He withdrew from the trip after questions were raised about the legitimacy of the project and the role of the New York City Regional Center, which is paying his way.
Thus the only government official present will be Peter Davidson of the Empire State Development Corporation.
Note that Forest City Ratner executive MaryAnne Gilmartin will accompany CEO Bruce Ratner, along with another company executive and several representatives from the New York City Regional Center.
NoLandGrab: Or maybe Markowitz is pulling a double-reverse, and is going to sneak off to China in a Bobby Valentine-esque disguise.
Posted by eric at 10:50 AM
The phantom 69.5 acres of collateral offered to Chinese investors in the "Brooklyn Stadium and Infrastructure Project" EB-5 funding scheme
Atlantic Yards Report
According to the English translation of a chart (below) given to green card-seeking Chinese investors by marketers for the New York City Regional Center, the "first collateral is the development rights to the 3,025,654 square-feet land the project will develop."
Nearly the same phrase (3,025,654 square feet of land) appears in the machine translation version of key facts provided to attendees at an October 11 investment seminar.
That could lead innocent investors to conclude that, should their investment not be returned in cash, they'd get a piece of about 69.5 acres.
Not at all.
The "land" is vertical, not horizontal
They would get a portion of 3,025,654 square feet of vertical development rights, achievable only by building residential and office towers over 15 or so acres.
That's a far more complicated proposition. To unlock the value of the development rights, such investors likely would have to partner with a sophisticated developer, like Forest City Ratner.
And Forest City Ratner would take a fee, thus diminishing the value of the collateral. As Michael D.D. White writes in Noticing New York:
If Ratner doesn’t return the their money the booby prize for the Chinese is that Ratner gets to keep their money!
NoLandGrab: It's becoming a sad joke that, as Norman Oder dutifully peels away the layers of Bruce Ratner's increasingly rotten green cards-for-cash onion, the mainstream media and elected officials keep their heads planted firmly in the sand.
Posted by eric at 10:41 AM
October 7, 2010
Obfuscation in English, candor in Chinese: EB-5 transcript quotes NYCRC rep: "business is business, and we are in pursuit of profit maximization"
Atlantic Yards Report
Remember, as I reported October 4, how New York City Regional Center's (NYCRC) Gregg Hayden, when faced with a question about why exactly green card-seeking Chinese investors were needed for a project that included deep-pocketed Russian billionaire Mikhail Prokhorov, simply evaded the question?
Chinese investors reading the transcript were given an additional dose of candor, words not in Hayden's mouth but which elaborate on the logic and spirit of his statement:
The costs of using investment funds are relatively lower than the costs of bank loans. Although the NBA project funds are sufficient, business is business, and we are in pursuit of profit maximization.
(Emphasis added)
This blatant admission of the developer's true goals gives a lie to the official claim that the investment would create or save jobs, and provides more evidence that the plan violates the spirit, and perhaps the letter, of the EB-5 visa program.
NoLandGrab: There's no small irony in the fact that Bruce Ratner has gone seeking investors in a Communist country that has fully embraced Capitalism, while back home, his Capitalist society practices Socialism for the super-rich.
Posted by eric at 10:10 AM
Translation: Bruce Ratner Wants To Swindle 498 Chinese Millionaires?
Noticing New York
The deal Ratner (with Prokhorov) is offering the Chinese millionaires is that they put up $538,000 apiece and, after five years, if they are lucky they will get $500,000 back. That’s right; they get back less money. So overall the Chinese lose and are out-of-pocket financially: They’re down that initial $38,000 difference; they’re down the presumed inflation loss on the money, perhaps another $55-60,000, and they are down the lost investment earnings on the original $538,000. At a mere 8.9% annually (not 17%, 11.7%, 11%, or 10.3%) the foregone annual investment earnings on $538,000 compounded annually for five years come to: $285,989. (A lower return or reduced final figure should probably be used to avoid double counting the inflation loss.)
(* It is also a pretty safe guess that the Chinese will not get any tax benefits from having their money finance the arena which is sometimes a compensating factor when taking a negligible or nonexistent investment return. Our guess is that any tax benefits, such as they may be, will all be assigned to other REAL investors.)
That means that, all tallied, each of these Chinese “investors” are walking away and leaving about $324,000 to $380,000 or more in the Ratner/Prokhorov pocket. It’s obviously not an “investment” at all and the Chinese are not “investors”; they are simply, merely, and nothing more than, the purchasers of green cards and if green cards are worth about $324,000 to $380,000 per each individual and their family then perhaps Mr. Ratner hasn’t swindled these Chinese millionaires . . . yet.
Click through for the "yet" explained — Bruce Ratner's "collateral" damage.
Posted by eric at 9:54 AM
October 6, 2010
State agency says Bruce Ratner used federal program to finance Atlantic Yards project, Nets arena
NY Daily News
by Michael O'Keeffe
A state official says funds Nets minority owner Bruce Ratner raises for the Atlantic Yards through a federal program that grants green cards to foreign investors will not create any new jobs beyond those already forecast for the $4.9 billion project, which includes a $900 million arena for the Nets.
Elizabeth Mitchell, a spokeswoman for the Empire State Development Corporation, said Ratner turned to the EB-5 program because it will save money on Atlantic Yards financing.
"If this financing was not available - or if Forest City Ratner is not as successful as we hope in raising funds under this program - then Forest City Ratner will need to raise funds from other sources to facilitate build-out of the entire project," Mitchell said in an email.
..."It's ridiculous to think that Forest City Ratner can't fulfill its obligation to build a new rail yard without this money," said blogger Norman Oder, whose Atlantic Yards Report serves as a clearinghouse for information about the Brooklyn project. "It looks like an effort to save money on financing. Parent Forest City Enterprises has more than $467 million in cash and credit capacity, according to its 9/8/10 earnings release. If it had to spend the money, it would."
[Center for Immigration Studies Fellow David] North said Ratner probably isn't breaking any rules by tapping into the pay-to-stay scheme for cut-rate financing because the program's rules are vague. But he does object to granting residency to anybody who can write a $500,000 check.
"It shows the artificiality of the program, since these jobs would be there anyway, no matter where the funding comes from," North said. "I think the whole program is a terrible idea."
Related coverage...
Atlantic Yards Report, Daily News: ESDC admits "green cards for investors" program won't create any new jobs
Despite a phenomenally dull (and misleading) online headline, there's some important news in a Daily News article today headlined State agency says Bruce Ratner used federal program to finance Atlantic Yards project, Nets arena.
The headline in print is far more forceful: "Ratner plan Nets critics: Insist fund is about money grab, not jobs."
The news is not that, to finance a required new railyard, Ratner is trying to use a program that provides immigrants and their families green cards if they invest $500,000 to create or retain ten direct or indirect jobs.
The news is that the Empire State Development Corporation (ESDC) admits that the investment "will not create any new jobs beyond those already forecast."
...I'm not so sure the rules aren't being broken. They sure look like they're being stretched.
After all, the whole effort is accompanied by astounding and misleading public relations, starting with the presentation of the project as coupled with the Nets and the NBA.
And it's clear that this is violating the spirit (if not the letter) of the law, given that Congressional backers all say it's about job creation, not job retention.
...The role of the press
Credit the Daily News, in the person of Sports I-team reporter Michael O'Keeffe, for following up. It should be a big news story, but apparently no one else was interested.
The New York Post has written twice about the Marty Markowitz angle. The Wall Street Journal ran a softball story at the start, with no follow-up.
The Times has been silent. So has the Observer.
Develop Don't Destroy Brooklyn, Ratner's Attempt to Raise Cheap Atlantic Yards Cash Seems to Violate Federal Green Card Program
The Empire State Development Corporation admits that Bruce Ratner is misusing the federal EB-5 program which gives out green cards to foreign lenders in return for loans that create jobs or "retain jobs that would be lost without their money."
According to the ESDC, Ratner's attempt to use the program to raise nearly $250 million from Chinese lenders will not create any new jobs and is not needed to retain jobs.
NetsDaily, Controversy Continues to Roil Ratner Trip to China
Barclays Center, the first element in the project, is fully funded, but Ratner is seeking funds to finance the rebuilt railyard next door and pay off a loan on a piece of property outside the arena footprint. He's doing so under a controversial program that offers investors green cards in return for $500,000 in financing...and the middleman he's using to attract investors is using the Nets' visit to promote the effort.
The controversy has attracted so much attention that Brooklyn Boro President Marty Markowitz, an Atlantic Yards supporter, has decided not to accompany Ratner to Beijing.
NoLandGrab: Correction — the Barclays Center is allegedly fully funded.
Posted by eric at 9:47 AM
Markowitz Backs Out Of China Trip
Gothamist
by Jaya Saxena
Possibly due to quizzical looks over yet another all-expenses-paid trip, or possibly because the city Conflicts of Interest Board just said no, Brooklyn BP Marty Markowitz will not be joining Bruce Ratner on a trip to China to lure investors to the Atlantic Yards project through the EB-5 visa program. A spokesman told the Post that Markowitz "supports the group’s mission, wishes it great success and is confident the project will excite even more investors as it moves forward. Markowitz is apparently so bummed out about it that he couldn't even turn the situation into one of his signature puns.
Posted by eric at 9:01 AM
October 5, 2010
NYCRC third most active regional center in China; EB-5 program popularity there attributed to lack of "meaningful" requirements
Atlantic Yards Report
The New York City Regional Center (NYCRC), the firm soliciting investments (in a questionable way) in Atlantic Yards infrastructure in exchange for green cards, is the third most visible and active regional center in China, according to the blog EB-5 Blog: Regional Centers in the USA.
Popular in China
And why are EB-5 programs growing? And why are they so popular in China? According to a 3/16/10 Real Estate Channel article headlined EB-5 Visa Program Sparking Foreign Real Estate Investor Activity, it's because the program offers cheap money for real estate and few burdens for investors.
An excerpt:
The number of "regional centers" has more than doubled in the last year, often focusing on real estate projects, anything from office buildings to ski resorts in Vermont.
"It's very cheap money," said Chaim Katzap, chief executive of Lion's Property Development, which has offices in New York and China. "I think it is the best way today to raise equity."
Using the EB-5 program, Katzap helped raise $60 million from 100 foreign investors for the Brooklyn Navy Yards redevelopment in New York, which is a designated regional center.
EB-5 is particularly appealing to wealthy Chinese, who may already have family members working or living in the United States, Katzap says.
"EB-5 does not require language skills, does not require that you work here or that you live here full time," he said.
Or, to quote Gregg D. Hayden of the NYCRC, immigrant investor programs in other countries "have certain meaningful requirements that the U.S. program does not have."
Posted by eric at 11:44 AM
Markowitz pulls out of controversial China trip to benefit Nets arena
NY Post
by Rich Calder
At least he can still hop on the subway and ride to Chinatown.
Bowing to pressure fueled in part by a Post story last week, Brooklyn Borough President Marty Markowitz confirmed today that he’s pulling out of an all-expenses-paid trip to China. He had planned to take the weeklong 7,000-mile trip this month to help his longtime pal -- developer Bruce Ratner -- peddle green cards to rich foreigners in exchange for investing in Ratner's cash-poor Atlantic Yards project.
The Beep won’t be accompanying Ratner, Peter Davidson, executive director of the Empire State Development Corp., and other officials on the trip -- even though the city Conflicts of Interest Board earlier today green-lighted the trip for Markowitz by ruling it wouldn’t violate city ethics laws.
Markowitz’s trip would have been paid for by New York City Regional Center LLC. The Manhattan company locally oversees the federal "EB-5" program, which gives green cards to investors of at least $500,000 in US job-creating projects. Ratner is seeking 498 such investors as he tries to raise $250 million for the $4.9 billion Prospect Heights development, which includes an arena for the NBA’s Nets.
Markowitz through a spokesman denied caving in to heavy criticism from project critics, including postings today by the blog Atlantic Yards Report claiming Ratner and his contingent have over-hyped the projects benefits -- such as job estimates -- to sway potential Chinese investors. The blog was also the first to report about the planned trip last week.
Related coverage...
Atlantic Yards Report, Post: Feeling pressure (?), Markowitz pulls out of China trip, even though it was OK'd by the Conflicts of Interests Board
Surely the pressure was fueled in part by the Post, but I have to think Atlantic Yards Report had a larger impact. And, actually, the trip would not benefit the Nets arena--that's the hype--but rather developer Forest City Ratner's search for low-cost financing for the railyard it's obligated to build.
...According to the Post, I am "claiming Ratner and his contingent have over-hyped the projects benefits -- such as job estimates -- to sway potential Chinese investors."
Actually, I'm not claiming that they've over-hyped benefits. I'm proving it. [Emphasis added by NLG.]
Any promotion that uses a 2004 quote from Sen. Chuck Schumer about 10,000 office jobs--office jobs destined for no-longer-planned office towers--is an over-hyped promotion. There's no debate about that.
Posted by eric at 11:36 AM
Who Is This Guy and Why Is He in China Making Stuff Up About Atlantic Yards?
Here's some coverage of yesterday's Atlantic Yards Report exposé of Bruce Ratner's green cards-for-dollars scheme.
Develop Don't Destroy Brooklyn, Who Is This Guy and Why Is He in China Making Stuff Up About Atlantic Yards
Norman Oder looks at the sales job the New York City Regional Center (NYCRC) is doing in China to scare up $249 million in loans (from Chinese lenders seeking green cards) for Bruce Ratner's Atlantic Yards project—specifically building a new rail yard. Lo and behold it is as overhyped and fudged as the sales job Ratner and partners laid on New Yorkers.
Field of Schemes, Ratner's green-cards-for-arena-development-funds swap raises eyebrows
Even on a normal day, Norman Oder's Atlantic Yards Report is a cornucopia of information about the Brooklyn Nets arena project, often more than you really want to know in one sitting. Today, however, Oder was en fuego, reporting on the growing controversy over Nets owner Bruce Ratner's plans to raise money for construction by offering green cards to Chinese investors, which he first broke news of last week.
...While the whole mess mostly sheds light on the weirdness of U.S. immigration law — raise your hand if you had any idea that any foreigner with half a million dollars to throw around could buy their way out of waiting for resident alien status — it does indicate that Ratner and his partner Mikhail Prokhorov are looking for creative ways to find cheap money to finance development of the Atlantic Yards site. Whether that's because they're short of cash, or they just figure you can never have enough money, is anyone's guess.
Develop Don't Destroy Brooklyn, Atlantic Yards Con Job Being Replicated in China for Green Card Selling Scheme
Ratner, his government friends and something called the New York City Regional Center (NYCRC)—the private firm promoting the Atlantic Yards loans for green cards scam—are all over-hyping the project's benefits to the potential Chinese lenders, in precisely the same way they over-hyped (lied, fudged) the project's benefits to ram the project down Brooklyn's throat.
[Oder] sums up what he has found this way: "...project proponents have managed to rent government for private interests.
Oder's work, including professional translation of the program's promotional websites in China, should be a wake up call to the mainstream media to jump on what looks like a scandalous misuse of the EB-5 program to boost the developer.
Posted by eric at 10:21 AM
October 4, 2010
NYCRC misleads Chinese investors about project (erroneous, stale Schumer claim about jobs); also, investors would get no profit, just green cards
Atlantic Yards Report
Thanks to a professional translator, we can now understand much more how the New York City Regional Center (NYCRC) is misleadingly promoting the EB-5 investment into Atlantic Yards, overpromising the number of jobs, muddying the definition of the "project" at hand, and using (and misusing) quotes from dignitaries such as Mayor Mike Bloomberg and Senator Chuck Schumer.
The information comes from the web site set up by Kunpeng International Business Consulting, authorized agent for the NYCRC. (Here's another example of the NYCRC misleading investors.)
Also, we learn what collateral Forest City Ratner is offering: development rights to Phase 2 of the project, a highly problematic guarantee, given the complexity of development.
Misleading ties to NBA
Kunpeng International is promoting an October 12 conference for investors in Beijing as the "New York NBA Coliseum (Stadium) and Infrastructure Construction Project" and the "Brooklyn Stadium and Infrastructure Project." Nets stars Brook Lopez and Devin Harris are at the top.
But the investment sought has little or nothing to do with the arena.
Rather, the $249 million in low-cost (no-cost?) financing sought by Forest City Ratner--$500,000 from 498 millionaires, who each must create or retain ten direct or indirect jobs--would support a new railyard and perhaps help pay off a land loan, Ratner told the Wall Street Journal.
Financing and the buying of green cards
According to another Kunpeng page (translated), immigrant investors must put in $538,000 and, after five years, get the full return of the $500,000 principal and green cards for the entire family. There's no financial gain.
While investors in other EB-5 projects can get a financial return, this confirms the charge that the EB-5 program can allow the buying of a green card....
NoLandGrab: Mainstream media, consider this your wake-up call! Norman Oder has done all the groundwork — how about a little follow-up?
Posted by eric at 12:07 PM
The abdication of government: BP Markowitz and the ESDC's Davidson will flack Ratner's project in China, but won't comment on job claims
Atlantic Yards Report
For all the evidence that Atlantic Yards is more a private-public development than a public-private one, the latest twist--the effort to trade green cards for 498 Chinese investors (and their families) in exchange for $500,000 each--amps up the evidence.
The willingness of Brooklyn Borough President Marty Markowitz and Empire State Development Corporation (ESDC) Executive Director to pitch the project in China next week without saying (or knowing?) anything about the promised jobs suggests that project proponents have managed to rent government for private interests.
It's ridiculous to think that, without $249 million in low-cost financing from Chinese investors to build a new railyard, 7606 jobs would be saved.
Similarly, it's ridiculous to think that Forest City Ratner can't fulfill its obligation to build a new railyard without this money. It's simply a business proposition-a deceptive one that relies on the arena and team to raise money for another part of the project--to save money on financing.
No transparency
Markowitz's spokespeople simply wouldn't answer questions about how many jobs would be associated with this investment and why this specific investment is needed to create jobs.
ESDC spokeswoman Elizabeth Mitchell said that I should pose my questions about job creation to the NYCRC.
The NYCRC has not responded to my queries. Nor is it obligated to do so. So any public oversight of this important immigration issue gets very, very difficult.
You can do your part to fight this outrageous abuse by contacting the government to express your concerns.
Raising questions with the USCIS
U.S. Citizenship and Immigration Services (part of the Department of Homeland Security, or DHS) spokeswoman Luz Irazabal told me that regional centers face annual oversight but questions can be raised by the public:
All petitions filed by a foreign entrepreneur connected to a regional center are reviewed individually as it pertains to the regional center.
To report your concern, feel free to send an email to USCIS.ImmigrantInvestorProgram@dhs.govUSCIS.ImmigrantInvestorProgram@dhs.gov. You can also contact the DHS Office of the Inspector General at 1-800-323-8603 (phone), 202-254-2392 (fax) or DHSOIGhotline@dhs.govDHSOIGhotline@dhs.gov (email).
Posted by eric at 11:52 AM
Show the math: How would investors seeking green cards create or retain 7696 jobs by financing the railyard Forest City Ratner is obligated to build?
Atlantic Yards Report
Like everything else about Bruce Ratner's Atlantic Yards project, the numbers in his green cards-for-cash scheme just don't add up.
Here's what the press should be asking the New York City Regional Center (NYCRC) and any public or elected official supporting Forest City Ratner's effort (via the NYCRC) to raise $249 million from 498 Chinese investors:
Show us the math.
The investment would have to create or retain 4980 direct or indirect jobs--ten jobs per investor.
The NYCRC is claiming 7696 jobs would associated with this investment, as noted (right) on this website promoting an October 12 event for potential investors.
Show us the math.
Looking more closely
Extrapolate these job figures--for an investment about 5% of the entire $4.9 billion project--and Atlantic Yards should create or retain nearly 154,000 jobs.
Wow.
Yes, EB-5 investment monies can be used as "last-mile" funding and thus be credited for a project as a whole.
But let's test that against reality.
NoLandGrab: Who wants to bet on how the reality check comes out?
Posted by eric at 11:44 AM
Video: in China, NYCRC rep pitching green cards in exchange for AY investment makes astounding claims (10,000 jobs, "most significant in 20 years")
Atlantic Yards Report
Norman Oder blows the lid off Bruce Ratner's crooked green cards-for-cash financing scheme, in today's four-part package of Atlantic Yards Report exclusives.
"Members shall not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflect adversely on the Member’s professional reputation or integrity."
--Best Ethics Practices for EB-5 Regional Centers, Association to Invest in the USA (IIUSA)During a videotaped forum in China September 12 aimed at millionaires seeking green cards in exchange for an investment into the Atlantic Yards project, a representative of the New York City Regional Center (NYCRC), the private firm delegated to manage such investments, made some astounding claims.
Notably, Gregg D. Hayden on video (excerpts below) claimed that:
- "the Barclays Center is... the most significant project in the city and state of New York in the last 20 years"
- "it generates well in excess of 10,000 jobs for years to come"
- "because we involve government and government investment, we create a very significant 54% surplus in job creation"
All of those claims are very dubious, as is the prominent effort to link the investment sought--$249 million to build the railyard and possibly to pay off a land loan--to the Barclays Center arena and Nets basketball. See for example the NBA banner in the screenshot above.
And Brooklyn Borough President Marty Markowitz wants to let the NYCRC pay his way to China to promote the project.
Evading the central question
Also, when Hayden was faced with a simple but challenging question--why, if Russian billionaire Mikhail Prokhorov is involved in the project, is new investment needed?--he evaded the question with a non sequitur.
The candid answer would have been: Forest City Ratner and parent Forest City Enterprises want to lower the cost of capital.
Posted by eric at 11:14 AM
October 3, 2010
With Madoff, there were no checks and balances; same for Ratner's EB-5 visa scheme?
Atlantic Yards Report
In last Sunday's Op-Ed at 40 retrospective, the New York Times published Wall Street’s Fatal Blind Spot, by Michael Lewis and David Einhorn, originally published January 4, 2009.
A few excerpts seem relevant to the plan to raise Atlantic Yards funding from foreign investors via the EB-5 visa plan, specifically job-creation figures that are obscured and extremely questionable, and a lack of checks and balances:
Incredibly, intelligent people the world over remain willing to lend us money and even listen to our advice; they appear not to have realized the full extent of our madness. We have at least a brief chance to cure ourselves. But first we need to ask: of what?
To that end consider the strange story of Harry Markopolos. Mr. Markopolos is the former investment officer with Rampart Investment Management in Boston who, for nine years, tried to explain to the Securities and Exchange Commission that Bernard L. Madoff couldn’t be anything other than a fraud. Mr. Madoff’s investment performance, given his stated strategy, was not merely improbable but mathematically impossible. And so, Mr. Markopolos reasoned, Bernard Madoff must be doing something other than what he said he was doing.
No one else checked
The essay concludes:
What’s interesting about the Madoff scandal, in retrospect, is how little interest anyone inside the financial system had in exposing it. It wasn’t just Harry Markopolos who smelled a rat. As Mr. Markopolos explained in his letter, Goldman Sachs was refusing to do business with Mr. Madoff; many others doubted Mr. Madoff’s profits or assumed he was front-running his customers and steered clear of him.
Between the lines, Mr. Markopolos hinted that even some of Mr. Madoff’s investors may have suspected that they were the beneficiaries of a scam. After all, it wasn’t all that hard to see that the profits were too good to be true. Some of Mr. Madoff’s investors may have reasoned that the worst that could happen to them, if the authorities put a stop to the front-running, was that a good thing would come to an end.
The Madoff scandal echoes a deeper absence inside our financial system, which has been undermined not merely by bad behavior but by the lack of checks and balances to discourage it. “Greed” doesn’t cut it as a satisfying explanation for the current financial crisis. Greed was necessary but insufficient; in any case, we are as likely to eliminate greed from our national character as we are lust and envy. The fixable problem isn’t the greed of the few but the misaligned interests of the many.
The parallels are indirect, of course, but the structure of the EB-5 visa program apparently allows for promoters to make exaggerated claims, with no oversight.
Posted by steve at 9:03 AM
October 1, 2010
The math doesn't work: peak construction jobs would reach 1756, so how can 4980 new jobs be claimed (and how can they be attributed to EB-5 only)?
Atlantic Yards Report
You might not be able to believe this, but Bruce Ratner's greencards-for-cash funding scheme just doesn't seem to add up.
How can the $249 million investment into the Atlantic Yards project sought from green card-seeking Chinese investors create or retain nearly 5000 jobs, as is required under the guidelines of the EB-5 visa program?
...Even during the peak construction period between 2011 and 2012, the number of construction jobs averages 1756 per year.
Yes, direct and indirect construction jobs created under the EB-5 program can be counted, but they must last two years.
Remember, the ESDC’s 2009 economic analysis suggested that “construction of the project will generate 12,568 new direct job years and 21,976 total job years (direct, indirect, and induced).”
So, if they generate 1756 construction jobs over two years, using the same ratio to add indirect and induced jobs, there would be 3070 jobs.
Where are the other 1928 jobs? There would be few permanent jobs, given the failure to construct an office tower.
More importantly, how can the sum total jobs be attributed to just this $249 million investment, when it's part of (as pitched in China) a $1.448 billion project or, as seen here, a $4.9 billion project?
NoLandGrab: The next time Ratner does something legit will also be the first time Ratner does something legit.
Posted by eric at 9:34 AM
Marty Markowitz + China + Green Cards = Atlantic Yards Cash?
The Daily Politics
by Celeste Katz
Brooklyn Borough President Marty Markowitz could be headed to China to help developer Bruce Ratner trade green cards for cash for his Atlantic Yards project, our Erin Durkin reports:
Markowitz is waiting for the OK from the city Conflicts of Interest Board to accompany Ratner’s delegation on the trip, which kicks off Oct. 11.
The New York City Regional Center invited Markowitz on the trip and would pick up the tab, his spokeswoman said.
It’s part of the EB-5 visa program, which offers up green cards to foreigners who invest $500,000 in a project that creates or saves at least 10 jobs.
The federal government sets aside 3000 a year for such deep-pocketed investors.
...The trip was first reported by prolific Atlantic Yards blogger Norman Oder, who has questioned whether raking in Chinese cash for the project, already under construction, should really count as creating or saving jobs.
Ratner executive MaryAnne Gilmartin acknowledged at a public meeting last night that only 100 people have been put to work at the site so far (the developer promises more than 16,000 construction jobs over the life of the project, which actually means 16,000 "job-years," or 1600 a year if it gets done in 10 years, which even Ratner now acknowledges is close to impossible.) But she promised that number would grow quickly as arena construction got further underway.
Posted by eric at 9:27 AM
September 30, 2010
The question Marty Markowitz can't answer regarding the "green cards for Atlantic Yards"
Atlantic Yards Report
Brooklyn Borough President Marty Markowitz plans to join Bruce Ratner on a trip to China to help the developer gain low-cost financing in exchange for green cards: 498 of them.
...My question to Markowitz's office, yet unanswered:
How will this investment create jobs?
I don't think it can.
Posted by eric at 9:07 PM
Yes, Markowitz will go to China to flack green cards for Ratner's project (if he can get past Conflict of Interests Board)
Atlantic Yards Report
Brooklyn Borough President Marty Markowitz has often gone that extra mile for Atlantic Yards developer Bruce Ratner--who can forget Markowitz's praise of the Ellerbe Becket "hangar" arena design?--but now he's willing to fly to China.
Yes, even though Markowitz isn't talking, a spokeswoman confirmed that the Borough President plans to join the developer on a trip to China next month to sell Chinese investors on the EB-5 visa program, which offers green cards to investors who put $500,000 into a fund that creates ten direct or indirect jobs, or retains ten jobs.
(Markowitz's picture, along with that of other project principals, appears at right on a website flacking the project set up by Kunpeng International.)
COIB ruling
However, the trip is not certain, as a ruling from the city's Conflicts of Interests Board is awaited, spokeswoman Laura Sinagra told me tonight, after a meeting at Borough Hall regarding the Barclays Center arena plaza.
Who's paying Marty's way?
Would taxpayers pay Markowitz's way? Would Forest City Ratner? Would Markowitz's Best of Brooklyn charity? Sinagra couldn't offer any details.
NoLandGrab: Why is MARTY MARKOWITZ's name the only in ALL CAPS? BECAUSE HE"S ALWAYS SHOUTING?
Posted by eric at 1:18 PM
While Ratner wants to use Chinese millionaires' money for railyard and land loan, in China, program portrayed as a piece of Nets/arena
Atlantic Yards Report
There's something very, very strange about the way the New York City Regional Center, the private company authorized to sign up green card-seeking investors, is marketing the Atlantic Yards project in China.
While developer Bruce Ratner told the Wall Street Journal that the $249 million sought from perhaps 498 foreign investors would be used to build a permanent railyard and perhaps pay off the company's refinanced land loan, in China, the investment is being portrayed as strongly connected to the Nets and the Barclays Center.
Another oddity: a graphic below regarding the investment adds $249 million in EB-5 investment funding to city, state, and public/private bond funding, for a total of $1.448 billion, a project figure not previously presented.
...On the web site set up by Kunpeng International Business Consulting, authorized agent for the NYCRC, Nets stars Brook Lopez and Devin Harris are at the top.
Click through for numerous screen shots, and a bit more commentary from Norman Oder.
Posted by eric at 1:08 PM
September 23, 2010
Forest City Ratner's green-cards-for-investments scheme is part of a pattern (MTA, Beekman), but job-saving claims demand scrutiny
Atlantic Yards Report
Forest City Ratner's green-cards-for-investments scheme is still pretty baffling. How exactly can they claim that using Chinese millionaires' money to pay off their land loan counts as creating or preserving jobs?
Sure, there has to be a document that makes that claim--and Forest City Ratner and partner the New York City Regional Center should make it public.
I suspect it essentially will say that by allowing the project to go forward it preserves jobs.
But that suggests that only this infusion of capital keeps the developer from moving ahead.
That can't be true. It's a business decision.
Parent Forest City Enterprises has more than $467 million in cash and credit capacity, according to its 9/8/10 earnings release. If it had to spend the money, it would.
It would rather not. That's understandable. Corporations are supposed to maximize value to their shareholders.
But the goal of the EB-5 program is economic development, not developer bailouts. So the press and the United States Citizenship and Immigration Services (USCIS) should take a close look.
Posted by eric at 10:59 AM
September 21, 2010
Atlantic Yards to Bribe Foreign Investors With Green Cards
Curbed
Developer Bruce Ratner is flying to China next month, but he's not searching for the next Yao Ming. More like the next ch-ching! Now that the Barclays Center arena is under construction and the Nets are on their way, Ratner is onto the next phase of Brooklyn's beloved Atlantic Yards megaproject: Those 16 or so towers, the first of which is scheduled to break ground sometime in 2011. ...
With an arena built with Russian money and other parts of the project funded by the Chinese, Atlantic Yards is shaping up to be quite the international buffet!
Related coverage...
National Review Online, Green Card Sale — Half Off!
In the case of Atlantic Yards, the developers need $249 million, which means that 498 wealthy Chinese will be able to buy green cards for themselves, or for anyone else. As a Chinese businessman quoted in Oder’s story says, “It is time for me to buy a good future for my son.” Here, too, left and right should find common ground in opposing a policy that gives the rich an easy path to a green card, especially when no skills or knowledge are required and the recipient doesn’t even need to have a job or speak English.
If we’re going to sell residency permits, the honest way would be to simply auction them off to the highest bidder. But the EB-5 program is a bad idea for other reasons. First of all, when the government creates a non-economic incentive for investment, such as a green card, capital will be allocated less efficiently; and second, the calculations that show how your $500K bought ten jobs may be no more reliable than the “jobs created or saved” by the various stimulus bills. Still, real-estate developers love EB-5, and politicians love real-estate developers; so we can expect to see an ever-growing number of well-off Chinese immigrants who understand that if you have enough money, you can always advance to the front of the line.
Develop Don't Destroy Brooklyn, Get a Green Card for Less Than the Price of One Luxury Suite at Ratner's Barclays Center Arena
That's correct. Short on money for his Atlantic Yards megaproject, Bruce Ratner is, once again, questionably utilizing an obscure federal program for a bailout from (probably) Chinese investors.
How? By using the government to sell green cards. (Just like he used the government to steal people's homes and businesses.)
Gothamist, Bruce Ratner To Lure Atlantic Yards Investors With Green Cards
Used to boost investment in the Brooklyn Navy Yard, the EB-5 visa has been called an "interesting and clever way to provide financing." The program offers permanent residency to foreigners investing between $500,000 and $1 million in American businesses and projects, and now that the last holdout is gone, Atlantic Yards developer Bruce Ratner is looking to use it to his advantage.
...What about using it to get kids off the damn mall?
Brownstoner, Atlantic Yards Milking Green Card Loophole to Attract Chinese Investors?
According to Atlantic Yards Report, Ratner's going to be headed out on a dog-and-pony show to China to get a few hundred wealthy Chinese to cough up a million bucks apiece to finance Atlantic Yards. What do they get in return? A green card!
Brooklynian, Chinese to get green cards for Atlantic Yards investment?
Image: Curbed
Posted by eric at 6:52 PM
Forest City Ratner seeks Chinese millionaires for capital bailout, with green cards as bait; job-creation math is dubious, but nobody's talking
Atlantic Yards Report
"Scooped" by The Wall Street Journal last night (more about that above), Norman Oder publishes an absolute must-read exposé of Forest City Ratner's efforts to raise nearly a quarter of a billion dollars in China through a federal program that essentially trades green cards for investments in U.S. real estate projects. Want proof that it's fishy? Just about no one will respond to Oder's inquiries.
“I have no debt. The only expense I have is the operation of it and the utilities to run it. I’m going to be successful. I’ve been able to defer and, in large part, eliminate the biggest cost of development, which is capital.”--Bill Stenger, developer of the Jay Peak resort in Vermont, Burlington Press, Turning green cards into gold, 11/23/08
“At the end of the day, it’s all about the cost of the capital. And if we can do it at a reasonable, affordable cost, we’ll do so. I think the opportunity exists to bring partners into some of our development projects."--Forest City Enterprises Executive VP Bob O’Brien, 9/13/10 conference call with investment analysts
Though some think the Atlantic Yards saga is over, it's simply hit a new phase. The most audacious quest for government assistance--after direct subsidies, tax breaks, eminent domain, and the giveaway of arena naming rights--awaits.
Just as Forest City Ratner found a sports-loving Russian billionaire to buy 80% of the Nets and 45% of the arena as part of his plan to make a splash in America, now the developer has targeted another group of foreigners whose motives go beyond economics.
Thanks to a little-known provision in immigration law known as EB-5, the developer--with green cards as the carrot--seeks 498 Chinese millionaires, to supply $249 million in low-cost financing for the project.
(For what exactly? While the graphic below cites the arena, or "Nets stadium," the Wall Street Journal last night reported that it could finance the rail yard, or pay off part of a land loan.)
In exchange for creating ten direct or indirect jobs or retaining ten direct ones--a formulation that offers enormous wiggle room--the investors would get permanent residency for themselves and their families, a chance to live anywhere in America, and an opportunity to get kids educated in the American system.
Thus the New York City Regional Center (NYCRC), a government-authorized private investment vehicle, is planning an eight-city roadshow through China, beginning October 11, as noted on this blog (graphic at right) that tracks EB-5 news. And, according to the Journal, Bruce Ratner will be on the trip.
(NYCRC is the source of graphics above and below left.)
Can they get away with it?
It looks like they might get away with it, thanks to the EB-5 visa program, which, beyond its philosophical flaws--more on that below--allows regional centers to demonstrate job-creation via economic models.
Thus, the NYCRC would have to:
1) suggest the project in the next few years could generate or save at least 4980 direct or indirect jobs
2) argue that, without this new investment of $249 million, those 4980 jobs would be lost.It's likely the NYCRC, with the help of Forest City Ratner, will submit documents backing both claims.
Both, however, are ridiculous, as I'll detail below.
NoLandGrab: When it comes to dubious subsidies, turn over a rock, and it's almost certain Bruce Ratner will slither out. But it's all about Brooklyn, right?
Posted by eric at 10:55 AM
September 20, 2010
Ratner Mulls Visa Financing
The Wall Street Journal
by Eliot Brown
Not content with raising money through "traditional" means, like below-market, backroom purchases of publicly owned railyards and investments from Russian billionaire oligarchs, Bruce Ratner is going to start selling green cards through an obscure, dubious, government-backed program, proving that no subsidized financing scheme is too wacky when it comes to Atlantic Yards.
Developer Bruce Ratner is eyeing a federal program that gives green cards to investors as a way of raising new financing for his massive Atlantic Yards project in Brooklyn.
Mr. Ratner is planning to fly to China next month hoping to use the program to raise about $250 million for the $4.9 billion development, which is slated to include a basketball arena, thousands of apartments and office space. While he had enough to begin construction this spring of Atlantic Yards' centerpiece $900 million arena for the Nets, he still is seeking financing for other pieces.
Enacted in 1990, the federal program has raised more than $1 billion by granting green cards to investors who lend at least $500,000 to job-creating projects in needy areas. Last year, 4,218 green cards were issued through the program.
The funds being sought by Mr. Ratner's company, Forest City Ratner would be among the largest amount borrowed for one project through the program, called EB-5 because it represents a fifth category of employment-based visas. The program had been rarely used in New York, but this spring the Brooklyn Navy Yard sought $125 million in financing through EB-5.
NoLandGrab: Worried that the "coyotes" might shake you down or abandon you to drug lords when they're supposed to be sneaking you across the border from Tijuana? Just plunk down 500 large with Bruce Ratner, and you can stroll into the U-S-of-A like you were born here.
Posted by eric at 11:08 PM
June 10, 2010
Forest City Announces It Has Financing to Build Barclays Center
NetsDaily
Forest City Enterprises announced Tuesday that it now has all the money it needs to complete the billion dollar Barclays Center by 2012. It will be the most expensive arena ever built...anywhere.
In a statement of its quarterly earnings, FCE, Bruce Ratner's parent company, briefly noted, "All projected debt and equity needed to complete the construction has been fully funded and the Company expects the arena to open in 2012." FCE's New York subsidiary, Forest City Ratner, will build the arena, for a 5% development fee. In previous statements it reported Barclays Center should be open in time for the 2012-13 season, which will require construction to be complete by July. The NBA requires a four-month "qualification" period to test everything from security to heat and AC.
Much of the funding comes from the $511 million bond sale in December,. Mikhail Prokhorov's Onexim Group is providing several hundred million more while the state and city is funding infrastructure improvements at the site. Prokhorov will control 45% of the arena but under certain conditions, the stake can go up to 80%.
Posted by eric at 9:14 AM
May 13, 2010
Prokhorov filled arena financing gap not by buying bonds but offering a loan; he could end up owning 80% of arena operating company
Atlantic Yards Report
Well, Russian billionaire Mikhail Prokhorov, who as of yesterday owns 80% of the Nets, also filled the financing gap for arena construction, thus leading ratings agency Standard & Poor's (S&P) to affirm its investment grade (BBB-) rating on $511 million in tax-free bonds and removing them from the potential downgrade announced in March.
Prokhorov offered a $75.8 million loan rather than, as reported, buying $106 million in taxable bonds.
And Prokhorov--who put down $200 million for 80% of the Nets and 45% of the arena, and agreed to fund some $220 million in losses and debt--apparently drove a hard bargain with Forest City Ratner and Forest City Enterprises.
With relatively little additional cash, Prokhorov, according to a report issued yesterday by S&P, could end up owning 80% of Brooklyn Arena LLC (BALLC), the company operating the Barclays Center.
If so--and S&P didn't call it likely--that would mean that the government assistance and eminent domain for the Atlantic Yards arena, the first building in the project, would have benefited most directly Russia's second-richest man.
Had that been announced during the approval process, it surely would have generated much more concern.
Posted by eric at 12:03 PM
May 12, 2010
Ratings agency may downgrade tax-free arena bonds, cites uncertainty regarding taxable junk bonds; Prokhorov could still fill the gap
Atlantic Yards Report
Update: the Star-Ledger reports that Prokhorov is buying the bonds.
One day after the Atlantic Yards arena groundbreaking in March, ratings agency Standard & Poor’s (S&P), citing “uncertainty” about the plan for arena financing, withdrew its rating (of junk) for $106 million in taxable bonds needed for the arena financing structure. Because of that, S&P warned that it could lower the ratings on the tax-free bonds “in the next few months.”
Should that occur, that would push the $511 million tax-free bonds issued by the Brooklyn Arena Local Development Corporation (BALDC) into a rating below investment grade, the level that was needed to market the bonds in the first place.
However, that wouldn't scotch the deal; the bonds have already been sold to investors. And, given that Russian billionaire Mikhail Prokhorov now has bought 80% of the team and 45% of the arena, he surely has an incentive to fill the gap either with equity or by buying the taxable bonds, as he had been rumored to do months ago, thus restoring the rating.
Still, it's a curious situation--why haven't Prokhorov and Forest City Ratner resolved this?--and it was curious timing.
...Rating withdrawn
The March 12 revision by S&P drew little attention, though Reuters reported the ratings agency's statement, "At this point, there is uncertainty as to the final terms and conditions of any new funding approach."
The full report (which I got yesterday, after learning of it belatedly) is fairly cryptic, stating that the rating for the taxable bonds was withdrawn “because the sponsors decided to pursue an alternative financing strategy to that originally presented to Standard & Poor's.”
The rating on the tax-exempt bonds “was predicated on a capital structure that assumed issuance of debt at BAHC.”
“At this point, there is uncertainty as to the final terms and conditions of the new funding approach,” S&P said. “We are placing LDC's 'BBB-' rating on CreditWatch with negative implications. The negative CreditWatch indicates that we could lower the ratings in the next few months."
NoLandGrab: Might holders of Atlantic Yards bonds be wishing they'd instead invested in Greek debt?
Posted by eric at 11:31 AM
March 29, 2010
New York real estate firms set up REITs to raise cash
But badly burned banks are hesitant to make big loans
Investment News
by Theresa Agovino
Smart financing strategy or desperation move? Forest City, which recently missed a mortgage payment on one of its Metrotech buildings, looks to the Real Estate Investment Trust model to raise money.
Joining Mr. Swig in an effort to tap the stock market for cash is Forest City Ratner Cos., which hired Bank of America Corp. and Barclays PLC to explore underwriting a REIT of its retail properties. Meanwhile, American Realty Capital New York Recovery REIT Inc. is trying to raise up to $1.5 billion to purchase distressed Manhattan office properties.
...What Forest City hopes to offer investors with its proposed REIT isn't office buildings but retail properties.
Forest City didn't return calls seeking comment.
NoLandGrab: This is the second time in as many weeks that Forest City has been mentioned in an article (and in a similar context) alongside a seriously struggling developer. Is it just smoke, or might there be a fire?
Posted by eric at 11:23 AM
March 11, 2010
"We still need more" subsidy, Forest City CEO said in April 2008, and they got it
Atlantic Yards Report
Looking back, one of the most telling episodes in the Atlantic Yards saga came in a 4/2/08 earnings conference call that Forest City Enterprises (FCE) held with investment analysis.
As I wrote, in response to a question from analyst Rich Moore, FCE Chuck Ratner expressed satisfaction in the developer’s relationship with local government, and said he expects more subsidy.
Forest City Ratner, FCE's New York subsidiary, had gained $105 million in subsidy on top of the initial pledged $200 million, at the time of the call. Since then, FCR gained (beyond other stated subsidies and tax breaks):
- a speed-up in delivery of pledged state and city subsidies
- an additional $31 million for land purchase (allegedly from infrastructure funds)
- a revised deal with the Metropolitan Transportation Authority for the Vanderbilt Yard, with only $20 million down (instead of $100 million), a smaller permanent yard, and a generous 6.5% interest rate
- a Development Agreement with gentle penalties and generous deadlines (12 years for Phase 1, 25 years for Phase 2)
Upcoming--and hinted at in the call--is the developer's effort to corral scarce subsidies for affordable housing.
Posted by eric at 10:24 AM
March 5, 2010
More confirmation that the BALDC is pretty much an ESDC alter ego
Atlantic Yards Report
Those following the Atlantic Yards saga will recall that the triple-tax-free bonds to finance the arena were issued by the Brooklyn Arena Local Development Corporation (BALDC), a quasi governmental body incorporated by the Job Development Authority (JDA). This clever maneuver allowed the powerbrokers shepherding the Atlantic Yards deal to avoid going through the Empire State Development Corporation (ESDC), which would automatically trigger a requirement that the bonds be subject to approval by the Public Authorities Control Board (PACB).
However, when someone pointed out that bonds issued by the JDA are supposed to be guaranteed by the State, therefore making them automatically subject to PACB review, the powerbrokers suddently claimed that the BALDC isn't a "subsidiary" of the JDA, it's a "creation." This doesn't pass the smell test, even if it might pass legal muster.
Today, Norman Oder offers some intriguing evidence of the close ties between the BALDC and the ESDC, the agency which was sidestepped to evade PACB scrutiny.
According to documents outlining the deal for Payments in Lieu of Taxes (PILOTs):
For the ESDC and the BALDC, the contact person is the same: ESDC Senior Counsel Steve Matlin, the agency's point man on Atlantic Yards.
NoLandGrab: The point is that powerbrokers in Albany are issuing debt, without public scrutiny, using whatever quasi public corporations suits them best, in order to create new ones, primarily for the benefit of one well connected developer.
Yes, we live in a democracy, but this deal demonstrates that there is also a very creative and cagey shadow government at work. Maybe they aren't arresting dissidents or intimidating individuals to drop charges against government officials, but they are using and creating very convoluted institutions and refining and redefining laws that are running circles around the legislature and court system. And, it takes a mind-numbingly obsessive reporter to attempt to keep track of their footsteps through the shifting sands.
Aside from an unprecedented urban planning white elephant, one of the great legacies of Atlantic Yards will be the black hole created by Public Authorities run amok.
Posted by lumi at 6:12 AM
February 19, 2010
What if AY is delayed or smaller? Plausible scenario (25-year buildout, 25% smaller) means projected tax revenues would decline nearly 50%
Atlantic Yards Report
The Empire State Development Corporation's projected tax revenues (see memo, below) for Atlantic Yards could be cut nearly in half under the plausible conditions--neither of which would incur a penalty--of a 25-year buildout and a project cut 25% in size.
Reasons for doubt
Yesterday, I suggested several reasons to doubt the ESDC's calculations of new tax revenue, which rely on a ten-year buildout of the project. After all, even a supporter such as then-ESDC CEO Marisa Lago said the project would take "decades." The Development Agreement allows 25 years, plus extensions.
Also, the projections rely on a full buildout of the project, nearly 8 million square feet, opening after ten years and continuing for the 30 years. But the Development Agreement allows for a much smaller project, less than 5.2 million square feet.
...Though no alternative calculations or assumptions were provided, a helpful reader prepared a spreadsheet to suggest such alternatives. (The ESDC's assumption of a 3% real discount rate is maintained.)
What if, rather than take a decade to build, the full project took 15 years? That would mean only 90% of projected revenue after 40 years. A 25-year buildout would mean 72% of revenue.
Posted by eric at 10:41 AM
February 10, 2010
Stee-rike 3 for Mets stadium bonds
S&P downgrades to junk status the debt that financed construction of CitiField. Blame the bond insurer's performance more than Luis Castillo's.
Crain's NY Business
by Aaron Elstein
It's official, sports fans: The New York Mets are junk.
That, at least, is the new rating for the bonds used to finance the construction of the baseball team's CitiField.
Standard & Poor's on Tuesday deemed the debt, issued by the New York City Industrial Development Agency, to be less than investment grade and cut it by two notches, to BB+ from BBB. (For those keeping score at home, BBB- is the lowest investment grade rating.) Moody's downgraded the bonds to junk last week.
NoLandGrab: Wonder how the junking of the Mets' bonds will affect renewed efforts to sell subordinated debt for the planned Barclays Center.
Posted by eric at 7:44 PM
February 9, 2010
Nets subordinated bonds back on
Project Finance
The sponsors of the proposed Nets basketball arena in Brooklyn, New York are making a second attempt to launch the project's subordinate debt to market. Forest City Ratner and the Onexim Group are looking for buyers for $106 million in bonds, down from an earlier proposed $150 million.
According to a source familiar with the transaction, the reason for the relaunched issue is that Onexim would prefer not to buy the subordinated bonds. However, the source said that no sale of the subordinated debt has yet happened....
link [subscription or trial registration required]
NoLandGrab: Don't everyone jump on this wonderful issue at once. Mikhail Prokhorov isn't, apparently, and he's allegedly Russia's richest man.
Posted by eric at 10:58 PM
February 7, 2010
When Parks Must Rely on Private Money
New York Times
This article points out the challenge in funding new city parks. One solution for the Brooklyn Bridge Park was to build luxury housing in the park to generate revenue. Why is it that public parks need to pay for themselves, yet the public must subsidize a private arena at the proposed Atlantic Yards project that will be a money loser?
The struggle to pay for Brooklyn Bridge Park echoes similar problems around the country in creating urban parkland in a postindustrial age when open space must often be carved, at great cost, from derelict manufacturing zones, military installations or rail yards. Governments no longer have the fiscal or political muscle to finance the projects alone, and the involvement of private donors or commercial ventures has led to public battles.
The days of grand development in the style of Frederick Law Olmsted and Robert Moses, whose parks and playgrounds were built and maintained by the government for decades, have given way to an era of private-public partnerships and pay-as-you-go.
“There is this accelerating notion that not just parks but many aspects of the public realm have to be self-financing,” said Michael Sorkin, director of the graduate program in urban design at the City College of New York. “The paradox is that it’s always amounting to giving away some public good in order to realize some other public good.”
NoLandGrab: Meanwhile, Atlantic Yards continues to eat up precious public subsidies even as its public benefits continue to evaporate.
Posted by steve at 8:05 AM
February 5, 2010
In a second effort to market taxable junk bonds for the arena, they have an interest rate--and smaller quantities are on the block
Atlantic Yards Report
Norman Oder has an update on the state of the Atlantic Yards arena bond financing:
So, the Atlantic Yards junk bonds were back on the market this week, and the Brooklyn Arena Holding Company (BAHC) may be selling them soon, near or at a hefty 11% interest rate.
First try
In December we learned that Standard & Poor's (S&P) rated the $146.8 million in taxable arena bonds as B, which is "very speculative." S&P assigned "a recovery rating of '6' to this debt, indicating our expectation of negligible (0%-10%) recovery in the event of a payment default."
Project Finance magazine suggested, apparently without foundation, was that the taxable bonds might be bought by Mikhail Prokhorov, slated to own 80% of the Nets and 45% of the arena company.
That's not how it worked out. Ten days later, on December 21, Standard & Poor's withdrew its preliminary ratings, stating, "The notes were not sold in December 2009. The issuer's [sic] intends to market them in the new year."
Back on the market, same risks
This week a smaller sum--$106 million in bonds--were for sale, according to a February 2 ratings report issued by S&P. It's a good time to market corporate bonds, according to the Wall Street Journal, before interest rates sky.
That said, the bonds still have a preliminary 'B' rating, and the recovery rating of '6', all of which means it's still a speculative investment.
Find out more on the possible timing of the sale, details from the ratings report (inluding the contention that construction has commenced), and speculation about Mikhail Prokhorov's investment, in the full article.
Posted by lumi at 5:02 AM
January 25, 2010
Atlantic Yards Report Master Closing Mania!
Among the voluminous documents blog posts published by Norman Oder since he got his first peek at the Atlantic Yards Master Closing documents today are these three hot-off-the-internet pieces.
Gotta get paid: BALDC bond issue fee dwarfed by payments to bond counsel and underwriting counsel
Wonder why there's so much momentum for deals like the $511 million arena bond issuance?
Because all parties involved get paid. As part of the Atlantic Yards master closing documents, first made available today, there's a list of the funds paid various participants in the transaction.
Mintz Levin, the bond counsel, earned $2,726,633
Fried Frank, the counsel to Forest City Ratner, earned $626,684
Nixon Peabody, the counsel to the underwriters (Goldman Sachs), earned $2,325,000
Ratings agency Moody's earned $360,000
Ratings agency Standard & Poor's earned $388,080
Auditor Price Watershouse earned $60,000
Printer Bowne & Co. earned $76,618.63
[The document] opens up the possibility of subsidized buildings that are "100% affordable," with the majority of units aimed at households earning 165% of Area Median Income, or AMI.
...But that "fully affordable" building might be a dodge on two levels. First, most units would be unaffordable to those who most passionately advocated for subsidized housing.
Second, "affordable" units at 165% of AMI as I wrote in April and July--would easily fall into the range of current market prices.
A studio apartment for someone at 160% of AMI in 2006 would cost $1861 a month. Consider that the limit has risen to 165% and AMI has risen, even as studios at new towers in Downtown Brooklyn cost well under $1861.
Posted by eric at 10:32 PM
Is new subway entrance to arena block worth $50 million (as MTA claimed)? New mortgage doc says $28 million covers entrance plus Carlton Avenue Bridge
Atlantic Yards Report
Among the voluminous documents that were part of the Atlantic Yards master closing, first made available today, is a mortgage agreement by the Empire State Development Corporation, as mortgagor, to the city of New York, as mortgagee.
The agreement casts significant doubt on claims in court by the Metropolitan Transportation Authority (MTA) that new subway entrance connecting to the Atlantic Yards arena block is would cost $50 million to build, since it requires the Atlantic Yards developer to pay only $28 million for both the subway entrance and the reconstruction of the Carlton Avenue Bridge.
Alternatively, it suggests that, if the developer walks away, the promised new subway entrance and bridge reconstruction would cost significant additional amounts of public funds.
Posted by eric at 8:58 PM
January 6, 2010
Doing Damage by Doing What Isn't Needed
The Cleveland Leader
Columnist and watchdog Roldo Bartimole uses Bruce Ratner's subsidy-soaked Atlantic Yards megaproject as the mascot for one of the major things that has been ailing Cleveland:
Forest City Enterprises Al Ratner once bragged to me about how many federal subsidies he has been able to get for projects all over the U. S.
This Brooklyn project is soaked in subsidies, not unusual for these unnecessary projects. This one, as others, includes a new arena for a Ratner family professional sports team.
Isn’t it wonderful that all over the nation we are spending billions of dollars to provide work places for multi-millionaire owners and millionaire sports players while so many ordinary people have no access to a paying job?
NoLandGrab: To Bartimole's point, unnecessary projects like Atlantic Yards require massive public subsidies in order to make it off the drawing board.
If Atlantic Yards, the densest and largest single-source private project in the history of NYC, were such a good idea, then the free marketplace could support it. It's not, so Bruce Ratner has to get the City, State and Federal governments to chip in with direct cash subsidies, eminent domain and tax breaks.
Posted by lumi at 7:13 AM
January 1, 2010
Official Statement: Forest City Ratner to get 5% development fee, or $7 million minimum
Atlantic Yards Report
We've known since a July 2007 New York Times report that Forest City Ratner would get a 5% development fee while also owning a significant part of the Atlantic Yards project.
When Atlantic Yards was projected to cost $4 billion, that 5% fee would have represented $200 million. Now that AY is projected to cost $4.9 billion, that 5% fee would total $245 million.
But it could be a little more.
The Barclays Center Official Statement, prepared by underwriter Goldman Sachs, indicates that the annual reimbursement should not exceed the greater of $7 million or 5% of cumulative total Arena Project costs.
$7 million is 5% of $140 million. So if for some reason annual Arena Project costs are less than $140 million, Forest City Ratner could get a $7 million fee, which would represent somewhat greater than 5%.
Given that the arena is supposed to cost $1 billion and be built in less than three years, that seems not too likely, but you never know with Atlantic Yards.
So when Forest City Ratner says it plans to fully build Atlantic Yards because that's the only way to get a return on its investment, the development fee has to be part of the equation.
Posted by eric at 1:06 PM
So, where's the $324.8 million more for the arena going to come from?
Atlantic Yards Report
Eliot Brown of the New York Observer points to a major gap in funding for the Atlantic Yards arena, the need for $324.8 million, money not yet in hand but expected to be raised within a year.
The money would come from Mikhail Prokhorov (aka "New Investor"), additional financing, and new equity from Forest City Ratner or third parties.
FCR told investment analysts earlier this month it planned to invest $200 million in equity, but, as Brown writes, " it's not as if developers generally have $200 million just lying around." (Forest City hasn't yet publicly commented.)
And it's not clear to me what role the unmentioned taxable junk bonds would play in this.
Posted by eric at 10:46 AM
December 31, 2009
Can $8.1M in infrastructure contingency funds pay for repairs on damaged MTA tunnels when neither extent nor cost has been assessed?
Atlantic Yards Report
Remember that confidential December 2007 report commissioned by developer Forest City Ratner and provided to the Metropolitan Transportation Authority (MTA), which stated that portions of two subway tunnels were in critical condition and required repair "in the immediate future" and the "near future"?
The MTA, as I wrote in August, would not provide details concerning the amount of repairs completed or planned, or how such repairs would be funded.
Now we learn the repairs would be paid for via a contingency fund in the budget for the arena project, but the extent of the damage--nor, obviously, the cost of such repairs--has not been determined. And there's only $8.1 million available for Infrastructure Contingency.
That raises lingering questions about whether the contingency funds would be sufficient.
Posted by eric at 10:30 AM
Ratner’s Next Nets Arena Challenge: Raising $324 M.
NY Observer
by Eliot Brown
The footprint of the planned new Nets arena in Brooklyn looks like a construction site. Developer and Nets owner Bruce Ratner closed on tax-free financing and other approvals for the project last week, and now fencing with flashy renderings of the project runs along Flatbush Avenue; traffic has been redirected to make way for equipment. The massive $4.9 billion Atlantic Yards project, or at least the $900 million centerpiece basketball arena, is looking like a reality.
But a glance at a lengthy set of public documents linked with the $511 million in tax-free bonds that go toward the arena show that there is still more of the hill for Mr. Ratner to climb. If the developer doesn't raise $324.8 million within a year for the arena, he could be forced to refund the bondholders' money, returning the financing that makes the project possible, according to the documents.
...If the money isn't deposited by Dec. 17, 2010, the documents say, this would trigger a refund of the bonds, or "extraordinary mandatory redemption," in bond speak.
Some of this money will come from Mikhail Prokhorov, the tentative new buyer of the Nets, who has agreed to pay $200 million for 80 percent of the team and 45 percent of the arena-to-be.
Posted by eric at 10:22 AM
December 21, 2009
Ratner sells bonds to finance new arena
Park Slope Courier
by Stephen Witt
The Courier catches up with last week's Atlantic Yards developments.
Investors quickly snapped up $511 million in bonds bringing Developer Bruce Ratner one major step closer to building the $1 billion Barclays Center arena at the Flatbush/Atlantic avenues intersection.
Raising half the money to build the arena also brings the borough closer to having its first major professional sports franchise since the Dodgers left Brooklyn following the 1957 season.
...The project is expected to officially break ground before the end of the year, and Ratner said he hopes to have the arena completed by the end of the 2011-12 NBA season.
Posted by eric at 4:01 PM
Alphabet soup: if the UDC aims to offer Sports Stadium Assistance, why was the BALDC created by the JDA (which finances machinery and equipment)?
Atlantic Yards Report
The text on the web page of the Bond Program offered by the state's economic development agency compounds questions raised by state Senator Bill Perkins about the legitimacy of the bonds issued for the Atlantic Yards arena.
It states:
Empire State Development is the parent organization for New York’s two principal economic development financing entities: the Empire State Development Corporation (formerly known as the Urban Development Corporation), and the Job Development Authority. In 1995, these agencies, which had previously functioned independently, were consolidated in order to increase efficiency, reduce overhead and enhance the delivery of the State’s economic development initiatives. Reorganized as Empire State Development, the combined agencies now function as a streamlined economic development organization whose primary mission is the facilitation of business growth and job creation across New York State.As part of this economic development role, Empire State Development Corporation oversees the issuance of debt under the programs of both the Urban Development Corporation and the Job Development Authority. On the UDC side, bonding programs include Corporate Purpose, Correctional and Youth Facilities, Sports Stadium Assistance, and various educational and civic related project revenue bonds. The Job Development Authority issues both taxable and tax exempt bonds to finance its business lending programs. These programs are designed to promote job growth by providing loans to assist New York companies to build and expand facilities and acquire machinery and equipment.
(Emphases added)
The questions
If the UDC is supposed to offer Sports Stadium Assistance, then why was the Brooklyn Arena Local Development Corporation (BALDC) created instead by the Job Development Authority (JDA)?
And if the JDA aims to help companies "build and expand facilities and acquire machinery and equipment," then why is it financing an arena?
Posted by eric at 10:52 AM
DDDB PRESS RELEASE: Atlantic Yards Arena Bonds Appear to Be Illegal
Answers Sought From Paterson Administration
NEW YORK, NY — The $511 million triple tax-exempt bond issued by the Brooklyn Arena Local Development Corporation (BALDC) on December 15 appears to be structured and issued illegally.
State Senator Perkins (D- Harlem), Chair of the Senate Committee on Corporations, Authorities and Commissions, sent a letter to Governor Paterson on Friday explaining the legal concerns, which the Senator described as "raising the spectre of fraud," and rendering the bonds "effectively worthless."
Senator Perkins said at a Saturday community meeting confronting eminent domain abuse that he spoke to the governor's counsel, Peter Kiernan, who was taking the matter seriously. He asked that the Governor halt reportedly imminent closing on Atlantic Yards project agreements. He said that if the state did not respond, legal action would be considered.
In sum the letter explains that the BALDC has no legal authority to issue PILOT (Payments in Lieu of Taxes) backed bonds because they have no legal authority to lease tax-exempt land.
The letter can be found at: http://dddb.net/documents/letters/PerkinsPatersonBALDC.pdf [PDF]
Posted by eric at 9:35 AM
December 20, 2009
State senator charges Nets bonds are illegal
Field of Schemes
Neil deMause looks at the legality of bonds created for the proposed Nets arena.
Freddy's Bar, one of the buildings slated for demolition to make way for the new Nets arena in Brooklyn, is installing chains today so that patrons can attach themselves to their barstools if the bulldozers come. But as surprise last-ditch efforts to forestall the Atlantic Yards arena project go, there might be more significance in a state legislator's surprise insistence that the arena bonds sold last week are illegal:
Suggesting that bonds for the Brooklyn arena were issued improperly, state Senator Bill Perkins yesterday asked Governor David Paterson to halt the "master closing" for the project scheduled for Wednesday and to stay condemnation proceedings until "serious questions... are addressed."
Had the bonds been issued by an Empire State Development Corporation (ESDC) subsidiary, they could be repaid via for payments in lieu of taxes (PILOTs), but the issuance would have had to have been approved by the Public Authorities Control Board (PACB), Perkins wrote in a letter. However, in an apparent effort to avoid the PACB, the ESDC created the Brooklyn Arena Local Development Corporation (BALDC), and that murky entity--which issued $511 million in bonds--should not possess a property tax exemption, the letter said.
In English, that seems to mean this: In order to take advantage of the Yankees dodge and use federally subsidized tax-exempt bonds for the arena, the Nets need to claim that their bond payments are really "payments in lieu of property tax." (For reasons that I really can't bear to explain again, tax-free bonds can only be paid off with tax revenue, not private rent payments.) But of course, to be "in lieu of" property tax, the property in question needs to not be charging tax that it otherwise could be.
...
Whether this legal argument is valid, I have no idea — as the one property-tax expert I contacted today remarked, "This is way above my pay grade." That said, major development projects in this city have been scuttled by more unlikely sources, so anything is possible. It'll be very interesting to see if Gov. Paterson responds, and if not, whether Perkins (or local opponents) then throws another lawsuit on the fire.
Posted by steve at 8:44 PM
Waiting for a follow-up on the BALDC (and more evidence of Paterson inattention)
Atlantic Yards Report
We're awaiting responses to yesterday's disclosure that bonds sold for the proposed Nets arena may be illegal.
Well, I know that the daily newspapers are aware of the letter from state Senator Bill Perkins raising serious questions about the Brooklyn Arena Local Development Corporation (BALDC).
Since there's no follow-up today, I'd look for a response tomorrow. I suspect some lawyers for the state are busy doing some research and writing a memo.
...
Meanwhile, Michael D.D. White reports on Gov. David Paterson's answer to another question posed at the impromptu press conference yesterday.
White said AY would cost $2-$3 billion in public subsidies; Paterson responded that any project, at a snapshot in time, might be a loss.
The $2-3 billion figure is debatable, and Paterson didn't object to that number simply because he's not up to speed. (He should know more about AY, but, then again, he's got some major crises in front of him.)
However, what's not debatable is that no government entity, including the New York City Independent Budget Office (which looked only at the arena), has attempted a credible cost-benefit analysis for Atlantic Yards as a whole, with estimates encompassing both a ten-year buildout (as promised) and a much longer one.
And, as noted yesterday, Paterson is not up to speed either on the questions raised about the BALDC.
In a day or so, however, more clarity should emerge.
Posted by steve at 8:23 AM
Officially Worthless - Atlantic Yards JunkYard Bonds - Shady Backroom Plan Backfires
Freddy's Brooklyn Roundhouse
$511 million in worthless bonds for Atlantic Yards were sold in the last week. Only problem: To get around government regulations, the crafty Ratner had his bonds sold through the Labor Authority, instead of by an ESDC subsidiary, and the Labor Authority isn't authorized for tax exempt status for real estate bonds! Senator Bill Perkins issued a letter last week officially calling the shady bonds "effectively worthless," since they were sold as tax-free bonds, and they are clearly not tax free.
Save-the-neighborhood advocates called it early when they brought a garbage truck to the bond-rating agency (which missed a big issue with the bonds) and tossed mock bonds into it, calling the bonds, JunkYard Bonds, to associate them with junk bonds. Only these bonds are worth even less than junk bonds without true tax-exempt status.
During a week when the Governor claimed New York State was about to be insolvent, and one week after he signed a law to reign in public authority spending, the State issued bonds in a backdoor way to help its special friend, billionaire Bruce Ratner. And now this has backfired. But there is more in Ratner's stocking. The MTA is cutting 2 train lines, and free student metrocards to honor it's less than half-price deal with Ratner in its no-bid sale of the Vanderbilt Railyards.
Posted by steve at 6:54 AM
December 19, 2009
Serious Legal Questions Raised About Atlantic Yards Arena Bond
Develop Don't Destroy Brooklyn
It appears that the Brooklyn Arena Local Development Corporation, which sold $500 million worth of triple tax-exempt, PILOT backed bonds, had no legal authority to do so.
The following letter was sent December 18, 2009 from Senator Bill Perkins (Chair of the Senate Committee on Corporations, Authorities and Commissions) to Govenor Paterson.
A very brief summary of the letter:
The Empire State Development Corporation (ESDC) had the Job Development Authority (JDA) create the Brooklyn Arena Local Development Corporation (BALDC) to avoid creating a subsidiary that would have required approval from the Public Authorities Control Board (PACB) to issue bonds for the proposed Nets arena. But since the BALDC is not a subsidiary and does not have real estate tax-exemption authority, it cannot use payments-in-lieu of taxes (PILOTs) to secure the bonds, and the bonds "are effectively worthless".
[The text of the letter can be found after the jump.]
Senator Perkins' letter:
David A. Paterson, Governor State of New York State Capitol Albany, New York 12224
Dear Governor Paterson:
On Tuesday, December 15, 2009, the Brooklyn Arena Local Development Corporation (BALDC) sold $511 million of tax exempt bonds to help finance the Atlantic Yards arena. BALDC is a not-for-profit corporation and was created by the Job Development Authority under section 1411 of the Not-For-Profit Corporation Law. The Job Development Authority (JDA) is a mostly defunct public authority that exists, along with the Urban Development Corporation, as part of Empire State Development Corporation (ESDC).
It appears that ESDC chose to have the JDA create the BALDC so as to avoid creating an ESDC subsidiary, which would have required approval from the Public Authorities Control Board (PACB) and the Comptroller to issue the arena bonds. Pub. Auth. § 51. PACB approval in this case would have been disadvantageous for two reasons: (1) it would have required the PACB to undertake a substantive review of the financial merits of the bond issue, which are questionable; and (2) it would have delayed the bond issue, likely past the December 31 deadline set by the IRS for issuing tax exempt bonds (after December 31, a rule change will not permit tax exempt bonds to be issued for stadiums).
However, as a local development corporation, and not an ESDC subsidiary, the BALDC cannot legally finance the arena using the convoluted financing methods applied in this case. Of particular importance, the BALDC does not have the authority to grant a real property tax exemption for the land that it will lease to Arena Co., which is Forest City Ratner’s arena management company. The BALDC is subject to Real Property Tax Law (RPTL) § 420-a, a different section than the one that applies to public authorities and their subsidiaries, § 412. Under § 420-a, not-for-profit property is tax exempt only if the corporation is “organized or conducted exclusively for religious, charitable, hospital, educational, or moral or mental improvement of men, women or children purposes”.
In June, 2009, the Court of Appeals addressed § 420-a and its application to LDCs. The court held that land leased by an LDC to a manufacturing company, for economic development purposes, was not eligible for the property tax exemption. Lackawanna LDC v. Krakowski, 12 N.Y.3d 578 (2009). Accordingly, if economic development does not fall within § 420-a as a basis for an LDC’s tax exemption, there would seem to be little basis for the BALDC to claim tax exempt status for the Atlantic Yards arena land(1).
Additional support for the arena not having a valid tax exemption is provided by two Fourth Department cases involving stadiums. In the first, County of Erie v. Kerr, 49 A.D.2d 174 (4th Dept. 1975), the court held that the county-owned facility was tax exempt because it served the “public” purpose of providing entertainment facilities for Erie County residents. However, being a “public use” for purposes of RPTL § 406 does not automatically satisfy the more restrictive provisions of § 420-a. In Syracuse University v. Syracuse, 92 A.D.2d 46 (4th Dept. 1983), the court acknowledged as much by holding that the university was not entitled to a full tax exemption under § 420-a where the stadium was used for commercial events, in addition to events connected with the university’s educational purposes. Moreover, there are separate exemptions in the RPTL for stadium uses. In particular, subsection 10 of § 420-a exempts stadium facilities owned by educational institutions. Basic tenets of statutory construction indicate that had the legislature intended to generally exempt not-for-profit property used for stadiums from property taxes, it would have done so. Furthermore, RPTL § 429 exempts stadiums housing both: (1) a professional basketball team; and (2) a major league hockey team. Not only will the Atlantic Yards arena be too small to support a major league hockey team, there is no such contractual obligation, as required under § 429.
In light of this analysis, the BALDC property is not tax exempt if used for arena purposes. Consequently, payments-in-lieu of taxes cannot be used to secure the bonds, and they are effectively worthless. If ESDC knowingly misrepresented the legitimacy of these bonds, this raises the spectre of fraud.
ESDC could have easily avoided this result if it had created the BALDC as a formal subsidiary under section 12 of the Urban Development Corporation Act, as it would then qualify for a tax exemption under RPTL § 412. There is no reason for using the JDA to create an independent non-subsidiary local development corporation, except to create a loophole and avoid review by the PACB and the New York State Comptroller.
Although ESDC has not represented the BALDC as one of its subsidiaries, the exact corporate nature of the BALDC is unclear. It is clear that the BALDC is either a subsidiary or not a subsidiary, and in either case, the bond issuance is illegal. If it is a subsidiary, the Public Authorities Law required approval by the PACB as a precondition to the bond issuance. There was no such approval. If BALDC is not a subsidiary, it has no real property tax exemption to back the bonds.
In the Lackawanna case, the Court of Appeals “decline[d] LCDC's invitation to read the Real Property Tax Law together with the Not-for-Profit Corporation Law in such a manner as to establish a ‘tax loophole’ where one would not otherwise exist”. The same logic applies here: ESDC should not be permitted to establish a loophole to avoid PACB review where no loophole should exist.
ESDC’s murky and exotic financing methods vitiate the longstanding efforts of the Legislature to reform public authorities and make them more accountable and transparent.
On December 2, you promised “an objective and thorough review” of the Atlantic Yards project and its financing. I urge you now to keep that promise. You should also act immediately to halt the closing of the bond issuance scheduled for next Wednesday, and to stay the condemnation proceedings. The project should not be permitted to go forward until the serious questions raised in this letter are addressed.
Thank you for your attention to the very important matter. I look forward to hearing from you at your earliest convenience.
Sincerely,
Senator Bill Perkins 30th Senatorial District
cc: Andrew Cuomo, Attorney General Thomas P. DiNapoli, State Comptroller Peter Kiernan, Counsel to the Governor
(1) It should be pointed out that the BALDC’s bond issue was only for the arena block, and not for the entire Atlantic Yards project, so it does not encompass the bulk of the affordable housing planned as part of the development (which could possibly be considered “charitable”).
Posted by steve at 4:48 PM
December 18, 2009
Master closing scheduled for December 23, but ESDC won't release deal documents (penalties, incentives) for at least a week
Atlantic Yards Report
A master closing involving the Metropolitan Transportation Authority, Empire State Development Corporation (ESDC), and developer Forest City Ratner is expected to be held next Wednesday, December 23.
But the ESDC tells me that the documents won't be made publicly available until a week or two after the closing.
That's backwards, isn't it?
Fine print important
Keep in mind that contract documents, rather than the more aspirational and vague Final Environmental Impact Statement and the Modified General Project Plan, are where we get to see the real oversight of the project.
The State Funding Agreement, which was signed in September 2007 but didn't surface until March 2008, gave FCR up to a dozen years (after the delivery of property by eminent domain) to build Phase 1 of the project without penalty.
And the City Funding Agreement, which also was signed in September 2007 but wasn't revealed until April 2008, allowed the developer to build a project 44% smaller than planned.
NoLandGrab: You may have heard this from us before, but, at the risk of repeating ourselves, if the Atlantic Yards project is all it's cracked up to be, why all the secrecy?
Posted by eric at 10:52 AM
December 17, 2009
Curious omissions of the BALDC in most press coverage of the arena bond sale
Atlantic Yards Report
There was a curious omission in most of the press coverage of the sale Tuesday of bonds for the Atlantic Yards arena: the issuing agency, the Brooklyn Arena Local Development Corporation (BALDC), an entity that deserves a lot more scrutiny.
The press release didn't claim that Forest City made the sale, but rather announced "pricing" and omitted mention of the BALDC, which, as a government-created not-for-profit corporation, is able to issue tax-exempt bonds to save the developer well over $100 million.
(When the tax-exempt bonds were supposed to total $678 million--rather than $511 million, as it turned out--the New York City Independent Budget Office estimated the savings to the developer at $193.5 million.)
Some--as I delineate below--ignored the role of the LDC completely, while others omitted its name, perhaps taking a cue from the New York Times, which, in initial CityRoom coverage, declared that developer Bruce Ratner sold the bonds, later adding "and a local development corporation."
Click through to see who made the grade — and who didn't.
Posted by eric at 12:16 AM
December 16, 2009
TISH JAMES PRESS RELEASE: Save student Metrocard program, crucial service, and MTA jobs — Cancel the Atlantic Yards sweetheart deal for Forest City Ratner!
(December 15, 2009) -- The Metropolitan Transportation Authority's latest doomsday budget cuts include a proposed cut of the student Metrocard program, which provides full and half fare Metrocards to over 550,000 students who commute to school each day. Also, numerous service cuts are proposed on routes where bus and train services are over-crowded, and waiting times are long. Lastly, severe layoffs and salary cuts within the MTA are proposed.
The MTA says these cuts will help alleviate a massive budget deficit and maintains that these proposed service cuts are for underused routes already serviced by other trains and/or buses. But, riders say they will be inconvenienced, especially because of the recent fare increase and reduction in service this year already. Some students have expressed expectations of having to choose between paying the Metrocard fare, or buying a meal for themselves. It is unacceptable that riders, specifically youth, who depend on the student Metrocard program for educational needs be subjected to unsafe walks, and/or possibly not being able to travel for classes at all.
An obvious questions for residents of Downtown Brooklyn then comes up - why is Forest City Ratner, the multi-million dollar developer of the Atlantic Yards project not paying upfront for what he has purchased from the MTA? If Bruce Ratner paid upfront what he owes to the MTA for use of the MTA's Vanderbilt Yards, then the doomsday budget cuts could be significantly reduced.
"Cancel the sweetheart deal for Forest City Ratner," said Council Member James. "Forest City Ratner should pay the $100 million owed now for the purchase of the Vanderbilt Yards. I also question why Forest City Ratner is not being made to pay the millions of dollars owed for the naming-rights deal upfront? And, had the MTA accepted a higher bidder, they would have received their funds upfront and their current budgetary gap could have been cut almost in half."
The MTA's deal with Forest City Ratner simply does not make sense. Many are questioning why the MTA, who is facing a potential budgetary gap of $615 million next year, and today faces a $343 million massive budgetary gap, is able to accept a $20 million payment towards a $100 million dollar property deal. This purchase and construction of the Atlantic Yards Development by Forest City Ratner was also given the option of spreading the balance of $80 million owed in payments over a 21 year period.
Community advocates suggest that another means of closing the budget gap would be for the MTA to do a new appraisal of the railyards valued at $271.5 million, and open up bids to other developers who would pay more of the cost upfront. Severe cutbacks in service, layoffs and especially cuts to the student Metrocard program appear unconscionable in light of the MTA's business agreement with Forest City Ratner.
Critics and opponents of Atlantic Yards have continued to argue that rival developer Extell, who submitted a bid that offered $150 million in cash, was a far better plan. For unclear reasons, the MTA board negotiated solely with Forest City Ratner. Extell head Gary Barnett in a December 2007 interview with the Observer said he was shocked that he bid $150 million, and Forest City Chairman Bruce Ratner bid $50 million, yet Ratner was offered the deal.
"Something simply doesn't sit right with the community about the preferential treatment that Forest City Chairman Bruce Ratner has received from the MTA. Now it appears as though MTA customers and specifically our youth - the future of the City - may pay dearly to support the project of a multi million dollar developer that the community doesn't want to begin with," said Council Member James.
Posted by eric at 1:35 PM
More Bondage
The Architect's Newspaper Blog, The Final Slam Dunk?
There may be a few hoops left to jump through before Bruce Ratner can begin construction of his SHoP- and Ellerbe Becket-designed arena for the Brooklyn, né New Jersey, Nets, such as completing a partial sale of the team to a Russian oligarch, prevailing in some outstanding lawsuits, and going ahead with eminent domain against the area’s remaining holdouts. But the developer appears to have cleared the final major hurdle standing in his way with the successful sale of $511 billion in tax-exempt bonds today. Yes, those hoops may still present challenges, but none had the same drop-dead, end-of-the-year deadline the bonds did, and they seemed the likeliest chance for the project’s opponents to succeed. Instead, they sold briskly in a matter of hours, or, as Ratner put it in a release, “The interest in the arena bond offering was beyond our expectations,” expectations that have always been highly optimistic, though also always on the money. Perhaps this is why they are already preparing to divert traffic starting next Monday to make way for construction.
The New York Times, $500 Million in Bonds Sold in 2 Hours for Nets’ Arena
The Times updates the story it broke on City Room yesterday.
Indeed, the demand for the bonds from institutional investors far outstripped what was available and belied the project’s tortured history and court challenges.
...The developer and his partners will raise the rest of the money for the 18,282-seat arena privately. Ratner, the chief executive of Forest City Ratner, is expected to complete the master closing for Atlantic Yards with various city and state agencies next week. At the same time, Ratner plans to close on the sale of an 80 percent stake in the Nets to the Russian billionaire Mikhail D. Prokhorov, pending approval by the N.B.A.
The two partners will invest $293.4 million in the arena and use a $131 million subsidy from the Bloomberg administration.
...According to the official statement for the bond offering, the N.B.A. issued a consent letter in October offering initial approval of Ratner’s financial plan for the team and the arena, including the sale of a majority interest in the Nets to Prokhorov for $200 million.
Still, Ratner and his underwriters say the N.B.A. is not expected to formally approve the Prokhorov deal until early 2010.
NY Observer, Atlantic Yards Sells Out
It's hard to imagine the project is finally in the clear, but the undying drama might not have much more to live on.
The bond sale—which had to be completed by January 1 to guarantee Mr. Ratner could use tax free bonds—was widely seen as the last serious hurdle facing the project, with opponents hoping the economic climate and legal uncertainty might scare away investors. That didn't happen. Now, Mr. Ratner just has to sell $146 million in taxable bonds—in addition to the $200 million he's pouring in—but that's expected to be relatively easy, even before today's strong showing.
Opponents are still hoping to topple the project with a number of outstanding lawsuits, but it would take a rather serious surprise for any of them to derail the project. The other longshot is the N.B.A., which may not want an enigmatic Russian oligarch as an owner—in which case, the drama would begin all over again.
Brownstoner, Investors Eat Up Atlantic Yards Arena Bonds
Not everyone felt quite as sanguine, however. “These bonds went on the market without any oversight from any state officials,” said Daniel Goldstein, spokesman for Develop Don’t Destroy Brooklyn, the main Atlantic Yards opposition group. “The state will be on the hook if the project defaults.”
GlobeSt.com, Bond Sale Complete on Atlantic Yards Arena
However, the legal challenges to Atlantic Yards are far from over. Following an appellate court’s ruling earlier this month against the state’s use of eminent domain in the planned Columbia University expansion in Harlem, plaintiffs in the Atlantic Yards case asked the Court of Appeals to reconsider its Nov. 24 decision. Specifically, they requested that the court hold off making any final decision on their motion and appeal until the court rules on the Columbia eminent domain case, which it will hear in early 2010.
NY Daily News, Developer Bruce Ratner sells $511 million in tax-free bonds to pay for new Nets arena
Ratner had to beat the clock to sell the bonds because the IRS has barred using such tax-free financing for sports stadiums starting Jan. 1. The rest of the $904 million arena will be paid for by state and city subsidies and private investment.
NY1, Investors Grab Up Brooklyn Arena Bonds
NetsDaily, With Bond Sale, Brooklyn Move Looks More Likely
Gothamist, Ratner Sells $511 Million In Atlantic Yards Bonds
Posted by eric at 9:21 AM