This last part is what has come under fire because some contend that “regional center” projects can be jiggered around with, allowing developers to build swank new projects in wealthy areas, using EB-5 money. New York City’s Hudson Yards, being developed by Related Cos., and San Francisco’s Hunters Point Shipyard, developed by Miami-based Lennar, are examples cited by critics. Related and Lennar did not immediately respond to requests for comment.
“Some of the new projects, for example, in New York are in areas that look like they’re super rich, wealthy areas that couldn’t possibly have high unemployment, and it’s the case that those areas are defined within a bigger area of high unemployment and so they qualify,” said Audrey Singer, a senior fellow at Brookings who studies immigration. “Other places that are in rural areas or in localities that don’t have the resources and the cache that a New York project would are not going to be able to see as many investors coming to those areas.”
EB-5, which caps the number of foreign visas at 10,000 per year, was barely a blip on the radar, until the financial crisis hit and commercial lending dried up. The program hit its visa limit in 2013 for the first time; compare that to just 700 visas issued in 2007, according to the U.S. Citizenship and Immigration Service. The USCIS estimates the program has brought in more than $10 billion and created more than 77,000 jobs, but others have estimated far less.
The vast majority of foreign investors using EB-5 are Chinese, more than 85 percent in 2014. They largely go through the regional centers to pool money for larger development projects. Not only are the visas issued to the investor, but also to two family members. They are included in the 10,000 cap.
The concern is that there is fraud on both sides of the equation. This week the U.S. Securities and Exchange Commission announced a series of enforcement actions against lawyers nationwide, charging them with defrauding investors. A developer in Redlands, California, was also charged by the SEC with using $6 million from Chinese investors to convert a building two years ago — a project that has still never happened, according to the Los Angeles Times.
U.S. Sen. Diane Feinstein, D-Calif., has called for an end to the regional center program. In an open letter to Roll Call, Feinstein wrote, “I believe the program is deeply unfair, sends the wrong message about this country’s values, and is prone to fraud and abuse.”
On the other side of the tracks, literally, behind Washington, D.C.’s Union Station, bulldozers and cranes have descended upon what used to be the Uline Arena. In the 1950s it was a sports arena and even hosted the Beatles back in 1964. By 1994 it was a trash transfer station, covered in graffiti and a blight in an already struggling neighborhood. With the help of EB-5 money, it is now being converted into a center housing offices and retail, part of the rehabilitation of the entire area.
“This is a transitioning neighborhood. If you look across the tracks, you see a Class A office that’s like K Street, but if you look on this side of the tracks, you don’t see it. It’s not here,” said Angelique Brunner, president of EB5 Capital, a regional center the works with investors on projects across the District of Columbia. “It’s $18 million that’s going into this project, and really what that is — it’s really gap financing. It’s the financing that a developer Is looking for that might be what’s needed to make them make the decision to start the development.”
Seven years after the crisis in U.S. financial markets, banks today are still highly risk averse when it comes to investing in real estate. While capital markets are starting to ease slightly, cash is far harder to get for major projects.
“Banks look at a project like this, and their first answer is, ‘No.’ Their second answer is, ‘maybe,’ and their last answer is, ‘OK, we’ll give you some of the money,'” Brunner said.