Got some money to invest? Are you a foreign national? Are you interested in obtaining permanent resident status in the USA? If so, have we got a deal for you.
Just dump a pile of cash into an upscale real estate development which has been carefully tailored to include just a bit of “low income” housing. Then boom! Just sit back and wait for the paperwork to show up in the mail from the State Department. It is a DEAL! If of course you have a million bucks to put into condos.
On the whole there are worse examples of cronyism. The folks investing are investing their money here and not in say, Shanghai. (Probably not the best move these days anyway though.) However the federal parameters around the EB-5 program are very sketchy and it appears that it is being openly abused. The idea was that this money was to be invested in blighted neighborhoods. That was the deal. But that does not appear to be the case. Most of the money is going to shiny towers of glass and steel for wealthy urbanites.
Such is the way with these sorts of federal programs. It is par for the crony course. The bigger the program the bigger the jack. (In one way or another for those outside of the crony system.)
(From The New York Times)
Lenders have since returned to real estate, but developers are attracted by another aspect of EB-5 financing: low cost. Because the foreign investors are after a green card, they have been willing to accept very low interest rates on money they lend, typically for four or five years. Developers save even though they face other costs to use the program.
At 701 Seventh Avenue in Manhattan, a retail and hotel tower going up in Times Square, developers raised about $200 million through EB-5 at an annual interest cost that came to 6% after the middleman fees, said Michael Ashner, chief executive of Winthrop Realty Trust, a partner in the project. That compares with 11% or 12% they would have faced for junior loans through other financing, he said.
“It’s lower-cost capital with favorable terms. That’s why people do it,” Mr. Ashner said.
Many of such projects could easily have been financed on the private market, according to Gary Friedland, who wrote the NYU paper with fellow professor Jeanne Calderon. “It’s a profit enhancement,” he said. “The original argument was more of a ‘but for’ argument,” in which EB-5 was meant to spur projects that wouldn’t otherwise have happened. “That focus has been lost.”