Pay-to-stay pro­gram sees highs, lows

From sky­scrapers to ski re­sorts to scam restau­rants, the United States’ EB-5 visa pro­gram has seen it all, WIL­LIAM HENNELLY re­ports from New York.

China Daily (Canada) - - FRONT PAGE -

On Brick­ell Av­enue in Miami, the tallest build­ing not only in the city but on the en­tire Eastern Seaboard south of New York City is un­der con­struc­tion. The 83-story Panorama Tower will have 821 res­i­dences and 128 cor­po­rate suites.

The de­vel­oper, Florida East Coast Re­alty, has se­cured a $340 mil­lion con­struc­tion loan from Wells Fargo for the project, which is ex­pected to be com­pleted by mid-2017, and ex­pects about 20 per­cent of the $800 mil­lion project’s fund­ing to come from the EB-5 visa pro­gram, the South Florida Busi­ness Jour­nal re­ported.

Since it was au­tho­rized by the US Congress in 1990, the EB-5 pro­gram that gives for­eign­ers a green card in ex­change for in­vest­ing in the coun­try has been an eco­nomic bo­nanza, cre­at­ing 57,300 jobs and in­ject­ing $8.6 bil­lion into the econ­omy.

And next to the US econ­omy, the big­gest bene­fac­tors have been the largest par­tic­i­pants — the Chi­nese. But they’ve also been caught up in some of the pro­gram’s fail­ures. And now the pro­gram that is up for re­newal in Septem­ber is un­der re­view by the US Gov­ern­ment Ac­count­abil­ity Of­fice (GAO).

“Ini­tially en­vi­sioned as a pro­gram to at­tract in­vestors from around the world, the EB-5 pro­gram has re­cently been flooded by wealthy Chi­nese na­tion­als,” said a crit­i­cal Feb 26 re­port by the US-China Eco­nomic and Se­cu­rity Re­view Com­mis­sion (USCC). “In­stances of fraud and lax reg­u­la­tion have cast doubt on the abil­ity of lo­cal au­thor­i­ties to screen Chi­nese EB-5 in­vestors prop­erly.” The re­port calls for the EB-5 sys­tem to be scaled back or for the ap­proval process to be im­proved.

EB-5 in­vestors are is­sued con­di­tional green cards valid for two years. To gain per­ma­nent res­i­dency, they must sub­mit proof be­fore the green card ex­pires that they have es­tab­lished a “com­mer­cial en­ter­prise”; in­vested the re­quired amount of money and cre­ated jobs. In­vest­ment rules

In­di­vid­u­als must in­vest $1 mil­lion or at least $500,000 in a “tar­geted em­ploy­ment area” — a high un­em­ploy­ment or ru­ral area — and cre­ate or pre­serve at least 10 jobs for US work­ers, ex­clud­ing the in­vestor and his or her im­me­di­ate fam­ily.

The US is­sues 10,000 EB-5 visas an­nu­ally. Each coun­try is en­ti­tled to 7 per­cent, or 700 visas, but the US State Depart­ment has let China over­ride the lim­its be­cause other coun­tries weren’t us­ing all their slots.

Chi­nese cit­i­zens got 6,985 EB-5 visas in 2013, up from around 2,500 in 2011, ac­cord­ing to a re­cent re­port by the US-China Eco­nomic and Se­cu­rity Re­view Com­mis­sion (USCC). But last Au­gust, with China’s share ac­count­ing for 85 per­cent of 2014 EB-5 visas, the State Depart­ment an­nounced that the pro­gram would be closed to Chi­nese ap­pli­cants un­til fis­cal year 2015, which be­gan in Oc­to­ber 2014.

The USCC was cre­ated by Congress in Oc­to­ber 2000 to pro­duce an an­nual re­port on the na­tional se­cu­rity im­pli­ca­tions of the bi­lat­eral trade and eco­nomic re­la­tion­ship be­tween the US and China, and to make rec­om­men­da­tions for leg­isla­tive and ad­min­is­tra­tive ac­tion.

On Jan 28, Con­gress­men Jared Po­lis, a Demo­crat from Colorado, and Mark Amodei, a Repub­li­can from Ne­vada, in­tro­duced the Amer­i­can En­trepreneur­ship and In­vest­ment Act of 2015 to per­ma­nently au­tho­rize EB-5, which is sched­uled to ex­pire on Sept 30.

The leg­is­la­tion would elim­i­nate the per coun­try quo­tas, which would ben­e­fit Chi­nese in­vestors. The bill also seeks to fine-tune the def­i­ni­tion of tar­geted em­ploy­ment ar­eas, and de­ter fraud and abuse in se­cu­ri­ties com­pli­ance.

Se­na­tor Charles Grass­ley of Iowa, now chair­man of the Se­nate Ju­di­ciary Com­mit­tee, has fre­quently crit­i­cized the EB-5 pro­gram on grounds rang­ing from fraud to na­tional se­cu­rity.

In De­cem­ber, the GAO be­gan its re­view of the pro­gram at the be­hest of Repub­li­can sen­a­tors Grass­ley, Bob Corker of Ten­nessee and Tom Coburn of Ok­la­homa.

Per­haps the great­est ar­gu­ment for the pro­gram’s re­newal is that it doesn’t cost tax­pay­ers any money.

One way that EB-5 visa-seek­ers are in­tro­duced to prospec­tive in­vest­ment projects in the US is through Im­mi­grant In­vestor Re­gional Cen­ters.

The re­gional cen­ters, over­seen by the United States Cit­i­zen­ship and Im­mi­gra­tion Ser­vices (USCIS), un­der the Depart­ment of Home­land Se­cu­rity, are mostly pri­vate busi­nesses lo­cated through­out the coun­try. In a few in­stances, they are city- and state-run op­er­a­tions, such as those by Miami, Florida, and Ver­mont.

The USCIS web­site states that “USCIS ap­proval of an EB-5 re­gional cen­ter ap­pli­ca­tion does not in any way: con­sti­tute USCIS en­dorse­ment of the ac­tiv­i­ties of that re­gional cen­ter; guar­an­tee com­pli­ance with US se­cu­ri­ties laws; or min­i­mize or elim­i­nate risk to the in­vestor.”

As of Feb 2, the USCIS had ap­proved ap­prox­i­mately 630 re­gional cen­ters, which are al­lowed to op­er­ate in mul­ti­ple states. More than 150 of the cen­ters were lo­cated in Cal­i­for­nia.

The USCIS also main­tains a list of “ter­mi­nated” re­gional cen­ters. As of March 2, USCIS had shut down 18 re­gional cen­ters in 12 states. Florida and Texas each had three cen­ters closed; two were shut in Cal­i­for­nia; and Ge­or­gia, Illi­nois, Kansas, Ken­tucky, Michi­gan, Mis­souri, New York, North Carolina, Wis­con­sin and Wy­oming each saw one closed.

“For­eign in­vestors are prone to mis­tak­ing the pri­vately op­er­ated re­gional cen­ters for gov­ern­ment-spon­sored ar­eas vet­ted for devel­op­ment, the USCC re­port said. “Li­censed re­gional cen­ters, of­ten for-profit op­er­a­tions in­de­pen­dent of state gov­ern­ments, are zoned strate­gi­cally to make max­i­mum use of po­ten­tial in­vest­ment and to cater to the needs of visa seek­ers. A host of less than trust­wor­thy com­pa­nies and con­sul­tan­cies, ex­ploit­ing a lack of reg­u­la­tory over­sight, have claimed ex­pe­ri­ence in the EB-5 realm where none ex­ists.” Sun­shine State beck­ons

The Panorama Tower in Miami be­ing de­vel­oped by Florida East Coast Re­alty, led by Tibor Hollo, also will have med­i­cal of­fices, a ho­tel, restau­rant and re­tail stores. The con­struc­tion loan for the project is the largest in Dade County his­tory, ac­cord­ing to the Daily Busi­ness Re­view of South Florida. The tower is Miami’s first EB-5 project, and won the des­ig­na­tion be­cause it’s ex­pected to bring 1,900 con­struc­tion jobs, al­most 200 man­age­ment em­ploy­ees, 800 ten­ant em­ploy­ees and 220 vis­it­ing stu­dents.

Mikki Can­ton is the man­ag­ing direc­tor of the Of­fice of In­ter­na­tional Devel­op­ment and the City of Miami EB-5 Re­gional Cen­ter, which re­ceived USCIS ap­proval in May 2014, thanks to Panorama Tower plans.

Can­ton sug­gested the idea of a re­gional cen­ter to Miami Mayor To­mas Regalado af­ter see­ing how much over­seas in­vest­ment there was in Miami as a gate­way to Latin Amer­ica. Un­re­lated to the EB-5 pro­gram, Can­ton is also a driv­ing force be­hind an ef­fort to bring a Chi­na­town to Miami.

“To their credit, Chi­nese in­vestors have be­come very savvy,” Can­ton told China Daily. “Whereas in the past, Chi­nese in­vestors would put their money into al­most any­thing that was ad­vanced to them … nowa­days there is such com­pe­ti­tion in the in­dus­try as well as such savvy and good pro­fes­sion­als in China, that their (re­gional cen­ters’) homework has to be done a lot bet­ter, and there­fore re­gional cen­ters have got to re­ally be on their toes when they deal with the Chi­nese.

“This re­gional cen­ter is not go­ing to fo­cus pri­mar­ily on China, as oth­ers have done, but there is al­ways go­ing to be more money and more in­ter­est from China.

“I think the Chi­nese will be ex­tremely happy to in­vest in South Florida ... be­cause it’s their gate­way to Latin Amer­ica, and the Chi­nese just love new op­por­tu­ni­ties,” she said. “We ex­pect to see a growth in Chi­nese de­mo­graph­ics in South Florida.”

David Sch­lamm’s City Con­nec­tions Re­alty in New York has ap­plied to be­come a re­gional cen­ter.

Sch­lamm part­nered with Min Chan, an im­mi­gra­tion lawyer who joined his firm last year and pro­posed the idea of be­com­ing a re­gional cen­ter to him, The Real Deal re­ported.

“The EB-5 pro­gram has been heav­ily lever­aged in New York City, but not nec­es­sar­ily by the small de­vel­op­ers,” said Chan, who also main­tains a law prac­tice that han­dles EB-5 cases. “It’s a good al­ter­na­tive fi­nanc­ing ve­hi­cle for them. In terms of Chi­nese in­vestors, I’m not kid­ding if I say it’s un­lim­ited.”

There are also fam­ily benefits for EB-5 in­vestors.

“If you have an EB-5 visa, you’re pay­ing in-state tu­ition,” Chan told China Daily. “You spend your $500,000 … plus your kids can ac­tu­ally work here af­ter they grad­u­ate” com­pared with other tem­po­rary visas.

She said her prospec­tive cen­ter’s fo­cus will be on as­sisted-living fa­cil­i­ties, com­mu­nity cen­ters and not-for­profit or­ga­ni­za­tions. For in­stance, such clients “may have a site but not fund­ing”, Chan said.

“A lot of phi­lan­thropists in China want to do some good in the project they’re in­vest­ing in,” Chan added.

In New York, Re­lated Cos has raised about $600 mil­lion to fi­nance part of the Hud­son Yards project, while For­est City Rat­ner has raised more than $475 mil­lion for projects near the Bar­clays Cen­ter. Both projects have re­ceived EB-5 in­vest­ments, and Re­lated has its own re­gional cen­ter.

Open­ing an EB-5 re­gional cen­ter can cost around $200,000, The Real Deal re­ported. Chan said re­gional cen­ters typ­i­cally col­lect $50,000 to $60,000 per in­vestor to man­age the in­vest­ment and help iden­tify projects. Cen­ters also can charge de­vel­op­ers a fee.

In North Carolina, Jane Wu, an in­vestor orig­i­nally from Chengdu, Sichuan prov­ince, wants to build a 300-unit up­scale apart­ment com­plex in Char­lotte. The site is up for a re­zon­ing hear­ing in April be­fore the City Coun­cil.

Wu said she has a dozen for­eign in­vestors in the ap­proval process and 45 more prospects lined up. She is work­ing through the Carolina States Re­gional Cen­ter, which was ap­proved by the fed­eral gov­ern­ment last Fe­bru­ary.

Wu an­tic­i­pates break­ing ground in late sum­mer. She said the project would cre­ate more than 700 jobs and has an es­ti­mated cost of about $50 mil­lion; money from for­eign in­vestors could make up about 65 per­cent of the fi­nanc­ing. She will use tra­di­tional fi­nanc­ing for the rest.

“We want to build a good project that sets a tone for the area,” Wu told the Char­lotte Ob­server.

Wu first got to know the Uni­ver­sity City area in 2007 while pur­su­ing a mas­ter’s de­gree at the Uni­ver­sity of North Carolina-Char­lotte. Wu has main­tained fam­ily ties to Chengdu and said her fam­ily’s back­ground in devel­op­ment has helped line up in­vestors.

Ver­mont has seen EB-5 money go to­ward leisure projects, such as ski re­sorts. Mount Snow got a 20-mil­lion­gal­lon wa­ter stor­age pond for snow­mak­ing and a new 36,000-square-foot base lodge for skier ser­vices.

“We are ex­cited about the fu­ture growth and re­de­vel­op­ment at Mount Snow,” said Richard Deutsch, vi­cepres­i­dent of Peak Re­sorts. “The EB-5 pro­gram has proven it’s a suc­cess­ful way to raise cap­i­tal and cre­ate jobs.”

Mount Snow worked with the state of Ver­mont EB-5 Re­gional Cen­ter, the only USCIS-des­ig­nated re­gional cen­ter owned, con­trolled and su­per­vised di­rectly by a state gov­ern­ment. Ver­mont has had suc­cess­ful EB-5 projects, in­clud­ing the Jay Peak and Su­gar­bush re­sorts.

EB-5 also has helped fund a $100 mil­lion in­vest­ment in Philadel­phia’s Com­cast Tower. In Rock­ford, Illi­nois, 92 EB-5 in­vestors, mostly from China, teamed with bil­lion­aire in­vestor War­ren Buf­fett to remodel a sky­scraper to­gether with a lo­cal ur­ban re­newal pro­gram. In Las Ve­gas, EB-5 money from Chi­nese in­vestors has been used to fi­nance sev­eral new casi­nos. Prob­lems with fraud

But the pro­gram has seen some spec­tac­u­lar fail­ures.

In per­haps the most-noted scam, An­shoo Sethi, the pro­moter of a ho­tel and con­ven­tion cen­ter near Chicago’s O’Hare Air­port, was in­dicted on fraud charges in the pro­cure­ment of $160 mil­lion from 290 Chi­nese in­vestors for the com­plex, which was never built. The gov­ern­ment re­turned $147 mil­lion to the in­vestors, but al­leged Sethi mis­ap­pro­pri­ated much of the rest.

In South Dakota, a state of­fi­cial com­mit­ted sui­cide in 2013 af­ter he was in­ves­ti­gated for al­leged mis­man­age­ment of Chi­nese and South Korean EB-5 funds con­nected to a failed beef-pack­ing plant.

In Cal­i­for­nia, Jian­wei Li and two other wealthy Chi­nese busi­ness­men wired $1 mil­lion each to a firm that had promised to build a Chi­nese restau­rant in San Bruno, ac­cord­ing to an April 2013 Los An­ge­les Times re­port.

The project had an al­lur­ing bud­get with mul­ti­ple lucky 8s — $5,888,888 — and the three in­vestors were as­sured it would cre­ate enough jobs to get them green cards.

Af­ter the pas­sage of months and no ac­tiv­ity on the project, Li’s friends con­fronted the de­vel­oper at a karaoke bar. The man, iden­ti­fied in court pa­pers as Sammy Lee, plot­ted his es­cape, the Times re­ported.

“He went to the bath­room, fell to the ground and said he was hav­ing a heart attack,” said Ed­ward C.Y. Lau, of the Lau & Lau Law Group in San Fran­cisco, who won a de­fault judg­ment this year against Lee and his two as­so­ciates. “The am­bu­lance came and took him to the hos­pi­tal. But [the hos­pi­tal] said he was never ad­mit­ted. He kind of woke up and left the scene.”

“We can’t find him,” Lau replied when asked re­cently by China Daily of Lee’s where­abouts.

Lau, whose prac­tice is fo­cused on the EB-5 pro­gram, finds the re­gional cen­ters bet­ter equipped to han­dle in­vestor doc­u­men­ta­tion than groups of pri­vate in­di­vid­u­als are.

“The most un­pre­dic­tive types are the pri­vate in­vest­ments,” as was the case with the Chi­nese restau­rants. Lau ex­plained why.

“They’re pri­vate in­di­vid­u­als like a real es­tate bro­ker who may say let’s go buy some land … and we’re go­ing to put a build­ing on it; we’re go­ing to do con­struc­tion that will cre­ate em­ploy­ment,” Lau said. “It de­pends on where they’re go­ing to do this. If you’re in an area like San Fran­cisco or New York City, it may take a cou­ple of years just to get your per­mits and do en­vi­ron­men­tal im­pact re­ports … be­fore you can even get the con­struc­tion per­mits.

“Th­ese re­gional cen­ters need to be preap­proved by (US) im­mi­gra­tion first,” he said. “Af­ter a while, the peo­ple who are in early, they have the ben­e­fit of know­ing what prob­lems there were the first time, and they get good at it … there doesn’t seem to be much of prob­lem.

“The con­ser­va­tive to very good re­gional cen­ters we find are eas­ier to deal with sim­ply be­cause they know the ropes and how to doc­u­ment,” Lau said. “There are peo­ple (in­vestors) that have got­ten their money back af­ter five or six years.

One is­sue that Lau sees, par­tic­u­larly with China, is that not all EB-5 par­ties are familiar with the Chi­nese gov­ern­ment’s rules. For­eign ex­change

“China has for­eign-ex­change re­quire­ments,” he said. “You can’t just sim­ply go to the bank and give them the equiv­a­lent of $500,000 in Chi­nese yuan and have them wire the money over here, be­cause they limit the amount of for­eign ex­change you can send out.

“Some peo­ple, as they’re mar­ket­ing this par­tic­u­lar project, they may not know some of the re­quire­ments that are needed to qual­ify for a green card,” said Lau, such as queries as to how the ap­pli­cants’ wealth was ob­tained. “We find peo­ple that are be­ing sold dif­fer­ent projects …they may not qual­ify to even get a green card be­cause no­body knows about th­ese spe­cial­ized re­quire­ments that are re­quired of Chi­nese in­vestors that are dif­fer­ent from most other coun­tries.”

A re­gional cen­ter in El Monte, Cal­i­for­nia, pro­moted a “Tran­sit Vil­lage” near the city’s bus sta­tion with the goal of re­vi­tal­iz­ing its down­town, ac­cord­ing to a story in March 2012.

De­vel­op­ers John Le­ung and Jean Lang pitched it as a ticket to a US green card. The pair so­licited $500,000 from a South Korean cit­i­zen ea­ger to win a res­i­dent visa. The de­vel­op­ers’ com­pany went bust, the in­vestor didn’t get a green card and Tran­sit Vil­lage didn’t pro­duce any jobs in the city of 120,000 east of Los An­ge­les.

“Lit­tle El Monte stepped up to ex­pose th­ese peo­ple,” said Rene Bobadilla, the city manager. “Where the heck is the fed­eral gov­ern­ment?”

The USCIS closed the El Monte Re­gional Cen­ter in Septem­ber 2011.

In Septem­ber, the US Se­cu­ri­ties and Ex­change Com­mis­sion charged a Los An­ge­les-based im­mi­gra­tion at­tor­ney, his wife, and law part­ner with run­ning a scheme to de­fraud for­eign in­vestors through EB-5.

The SEC al­leged that Justin Moongyu Lee along with Re­becca Tae­won Lee and Thomas Ed­ward Kent raised nearly $11.5 mil­lion from two dozen in­vestors, ac­cord­ing to the com­mis­sion’s press re­lease. The Lees and Kent in­formed the in­vestors, mostly from China and South Korea, that they would be EB-5 el­i­gi­ble if they in­vested in an ethanol pro­duc­tion plant in Ulysses, Kansas.

How­ever, the SEC said the money was mis­ap­pro­pri­ated for other uses. The plant was never built and the jobs never cre­ated, yet the Lees and Kent main­tained that the project was on­go­ing.

“Th­ese im­mi­gra­tion lawyers ex­ploited a de­sire by for­eign in­vestors to par­tic­i­pate in a pro­gram that would not only gen­er­ate them a pos­i­tive in­vest­ment re­turn, but also pro­vide them a path to legal res­i­dency in the United States,” said Michele Wein Layne, re­gional direc­tor of the SEC’s Los An­ge­les of­fice. Con­tact the writer at williamhen­nelly@


A ren­der­ing of the planned Pa­naroma Tower in Miami, Florida. Florida East Coast Re­alty is de­vel­op­ing the 83-story build­ing, which is ex­pected to be the tallest build­ing on the Eastern Seaboard south of New York City. About 20 per­cent of its $800 mil­lion cost is es­ti­mated to be com­ing from for­eign in­vestors in the US EB-5 visa pro­gram.

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