The Morning Call: Immigration financing fuels part of Allentown’s revitalization.
by Raymond G. Lahoud, Esquire
The EB-5 Program – For the Investor Immigrant.
Allentown developer City Center Investment Corp. has been credited with resurrecting the city’s struggling downtown business district. Several hundred thousand dollars of publicly subsidized office, retail and apartment construction situated around PPL Center, the city’s signature arena, has created new jobs, an invigorated restaurant scene and even a demand for luxury urban living. To that list, add one more thing: It’s helping 40 wealthy foreign families become permanent U.S. residents.
Like the Pennsylvania Turnpike, Comcast Corp. and SEPTA, City Center has tapped a program administered by U.S. Citizenship and Immigration Services that allows foreign investors to secure green cards for themselves and family members by investing in job-creating development projects.
“It is new incremental financing; it’s $20 million of capital we are able to bring in to increase the level of investment in downtown,” City Center CEO J.B. Reilly said. “In effect, it is allowing us to now get into Five City Center and several other new projects.”
“Without this program, we will do $20 million less investment downtown. That’s a fact.”
Five City Center is the next phase in City Center’s development plan, a $225 million complex that will bring an office tower, high-rise apartments, parking complex and terraced public park to the block bordered by Hamilton, Walnut, Seventh and Eighth streets.
The Immigrant Investor Program, known as EB-5, has been lauded by supporters for encouraging private foreign investment in projects that would otherwise require government subsidies, but criticized by opponents for allowing wealthy foreigners to buy their way to the front of the immigration line.
City Center’s five-year, $20 million loan is backed by equity in its Renaissance Hotel and Three City Center office building, and personally guaranteed by Reilly and his City Center partner Joe Topper, according to Reilly and property records filed in Lehigh County.
The regional center’s lending partner, CanAm Enterprises, based in New York City, lists the $20 million City Center investment on the “track record” page of its website, listing 40 investors in the loan at the minimum $500,000 a person.
Reilly said CanAm, which has a “sterling record,” acts essentially as his lender and that he does not know anything about the 40 investors.
“The whole intent of the program is to attract foreign capital that makes job-creating investments, investments that create significant jobs,” Reilly said. “By doing that, issuing visas to those people is appropriate, because for every 10 permanent jobs, they issue one visa.”
“If job creation is important, which I think it is, then I think the program is appropriate,” Reilly said.
10 jobs for a green card
For an investment of at least $500,000 in a project that will create or preserve 10 U.S. jobs, foreign investors can earn green cards for themselves and family members that lead to permanent resident status if the development succeeds.
The federal program was created in 1990 to promote foreign investment, but was underutilized until around 2008, when the recession made business financing difficult to come by. In recent years, a growing number of the 10,000 annual slots in the program have been taken by foreign investors, a majority of them Chinese citizens.
Citizenship and Immigration does not issue figures on how many people have gained citizenship or green cards through the program, but a report by Congress’ Government Accountability Office said 3,000 visas were issued under the program in 2013, and 9,000 in 2014.
For foreign nationals with the means, the program is seen as the easiest and quickest way to obtain permanent legal residence, especially for families, wrote Audrey Singer and Camille Galdes in a February 2014 Brookings Institution-Rockefeller Foundation study of the program.
“Immigrants who use the EB-5 investor visa program are unlikely to have faster alternative ways to enter the United States for legal permanent residence,” according to the study. “Many potential immigrant investors have families with minor children; one incentive provided by the EB-5 visa is the opportunity for children who migrate with their parents to attend U.S. schools, and ultimately U.S. universities.”
Between 1990 and 2012, about two-thirds of visas issued under the program were issued to family members, the authors found. Citizenship and Immigration says EB-5 investors have invested $11 billion since the program’s inception, creating 73,000 jobs.
Investors apply to Citizenship and Immigration, usually with the help of a company such as CanAm, for approval of their investment, said Stephen W. Yale-Loehr, an Ithaca, N.Y., attorney who teaches immigration law at Cornell Law School.
Once their investment is approved, they have a visa interview, and if deemed acceptable, can enter the U.S. with a temporary green card. Two years later, the investor files a second report detailing the results of the investment, including job creation figures. If the project produces the requisite new jobs, their residence is made permanent and they can apply for citizenship.
In the case of City Center’s loan, the 40 investors would collectively have to show the projects they helped fund produced a total of at least 400 direct or indirect jobs, including construction jobs and spinoff jobs related to the new development.
In its 2014 application to the Pennsylvania Department of Community and Economic Development, City Center and CanAm said the two projects are projected to create or preserve 658 direct and indirect jobs. Officials at CanAm Enterprises did not return phone calls seeking comment.
“This $20 million will drive additional development which will drive additional jobs,” Reilly said. “It’s part of our hotel stack and we have 150 people working in the hotel that wouldn’t have the jobs without the EB-5 financing. It absolutely drives employment and construction jobs.” It is the first project in the Lehigh Valley known to have tapped into the immigrant financing program.
Developers are attracted to EB-5 financing by its low borrowing costs and uninvolved investors. Loans issued through the program carry low interest rates because investors’ priority is achieving citizenship rather than earning a handsome return. City Center’s loan is at a rate of 2 percent, Reilly said.
“If it is done correctly it is a four-way win,” said Yale-Loehr, who founded Invest In the USA, a trade association that promotes the EB-5 program. “We get new jobs for U.S. workers; No. 2, those jobs are at no expense to U.S. taxpayers; three, the U.S developer gets capital maybe they wouldn’t otherwise be able to get, and fourth, the foreign investor gets a green card.”
Lack of transparency
Invest In the USA says the program provided $22 million in capital investment in Pennsylvania in fiscal 2013, supporting 205 jobs. But some see problems with the loan program, in particular its lack of transparency.
Citizenship and Immigration doesn’t provide details of the financing deals, leaving that up to the lenders and 745 approved regional centers — public or private organizations that facilitate foreign investment in economic development projects by pooling capital raised through the program.
City Center used a regional center sponsored by the Pennsylvania Department of Community and Economic Development for its financing.
“I think it’s a great program when it works, but there is lack of transparency and an undercurrent of fraud and unfortunately the [federal] agency that is administering this program isn’t capable of administering it properly,” said Michael Gibson, a Naples, Fla., investment adviser who specializes in evaluating EB-5 deals for foreign investors. Even in the successful projects, foreign investors earn a minuscule return, often 1 percent, paying high fees to middlemen who round up participants in their home countries, Gibson said. If an investment tanks, foreign investors can lose their money and their green card.
The Government Accountability Office, an independent research agency that reports to Congress, found in August that the financing program is susceptible to fraud and that Citizenship and Immigration is not set up to effectively monitor actual job creation. Verifying that immigrant investors’ funds come from lawful activities is difficult, given U.S. officials’ limited access to foreign bank records, the report said. Stateside, unscrupulous developers and intermediaries have in the past taken advantage of foreign investors.
In one case, several entities associated with the Chicago Convention Center were found liable for the fraudulent sale of $145 million of securities to Chinese investors, collecting $11 million in administrative fees that were spent “despite knowledge the project would not be completed,” according to the report.
The Department of Homeland Security’s Inspector General found in 2013 that the agency “could not demonstrate that the program was benefiting the U.S. economy and creating full-time employment as required by law.”
Some, such as the More American Jobs Alliance, also complain that the program often supports big city projects that could get financing elsewhere, serving as an avenue to cut developers’ costs, rather than serve projects in poorer rural areas that really need its help. A project like City Center isn’t a major offender in that way, said Ron Rohde, a spokesman for the group. But while it’s n a city with a high poverty rate, the development already benefits from the tax-supported financing provided by the city’s Neighborhood Improvement Zone.
With the EB-5 program limited to 10,000 visas a year, policy-makers should be looking at reserving it for projects that won’t happen without it. “This is a development that is stacking benefits on benefits on benefits,” he said.
Reilly disputed that, saying many projects that receive EB-5 funding also receive a variety of government incentives.
“I don’t think there is any problem using it as part of a capital stack, whether there is NIZ financing or not,” Reilly said.
The EB-5 program is set to expire in December, but efforts are underway to extend it. Sen. Chuck Grassley, R-Iowa and Sen. Patrick Leahy, D-Vermont, introduced reform legislation aimed at extending the program for five years while increasing oversight, auditing and disclosure.
Both of Pennsylvania’s U.S. senators support the program, but neither has taken a position on the Grassley-Leahy extension bill. The program isn’t perfect, said Yale-Loehr, but it works most of the time. Many countries offer citizenship incentives to promote foreign investment. “Is it appropriate for the U.S. to let in rich people this way by allegedly buying their way into the U.S. as some people say? They are contributing to job creation and the U.S. economy,” he said. “Maybe the project would not get built without EB-5 money.”
EB-5 Immigrant Investor Program
Pros: Encourages foreign investment in the U.S. Promotes development in struggling urban and rural communities. Provides employment for U.S. workers.
Cons: Susceptible to abuse. Loans used by developers who don’t really need them, for projects not located in impoverished areas. Poor job creation tracking. Allows foreigners to buy citizenship.
How it Works: A developer with a project decides to seek EB-5 financing. Foreign investors are solicited, usually by a third party company, to each pledge at least $500,000 in financing. Each investor must create at least 10 permanent full-time jobs for U.S. workers. The investors apply to U.S. Citizenship and Immigration Services for approval of their investment. If initial approval is granted, they are screened by the State Department and admitted to the U.S. with a temporary green card. Two years later they must report the results of their investment, including job creation figures for the project. If it is approved, they receive a permanent green card.