Forest City Ratner seeks Chinese millionaires for capital bailout, with green cards as bait; job-creation math is dubious, but nobody's talking

...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…lo

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.

FCR's savings

Forest City Ratner was supposed to pay for the new railyard thanks to its below-appraisal purchase in 2005 of railyard development rights , a purchase accomplished with the gentle competition of only one other bid, which came after FCR was anointed the property by the Metropolitan Transportation Authority and the city and state leaders who control the MTA board.

(Contrast that with the Hudson Yards project, where multiple developers began from the same starting place.)

Then, when the real estate market went south, Forest City Ratner in June 2009 renegotiated the deal with the MTA, allowing for a smaller cash payment upfront ($20 million rather than $100 million), an opportunity to pay off the rest at a gentle 6.5% interest rate, and a smaller replacement railyard, saving perhaps $100 million.

Now the developer's simply trying to save more--likely tens of millions of dollars on the reduced cost of $249 million in financing.
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Questionable program

The overall EB-5 visa program, overseen by the USCIS, has become increasingly popular nationwide as economic development agencies seek new capital, The Washington Post reported 1/9/10 that the number of foreigners (notably those from China and South Korea) pursuing the program tripled in the last year.

But it is highly questionable.

American supporters of the program, a bipartisan group, piously promote it as a job-creation and economic development effort, which was the legislative intent. (EB stands for "employment-based.")

The investors, however, pragmatically acknowledge they’re buying green cards. As a Beijing man told the 10/10/09 South China Morning Post, “It is time for me to buy a good future for my son." (emphasis added.)

And for developers like Forest City Ratner (and parent Forest City Enterprises), the investments reduce risk and increase revenues.

Surveying some projects seeking EB-5 funding, a critic of the program, David North of the Center for Immigration Studies (CIS) wrote in January, “Nobody will notice that the moneys will really be used primarily to prop up depressed real estate markets, rather than to actually create jobs for the unemployed.” (emphasis added.)
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Ten jobs per investor?

The investors must commit a $500,000, not necessarily a big lift for the large slice of Chinese new rich, who might be parking that money in low-interest investments like bonds. (Graphic from NYCRC video.)

In exchange, each investment must create or retain ten "permanent full-time" jobs.

However, even under the generous rules of the EB-5 program, the math regarding Atlantic Yards is highly questionable.

Yes, the EB-5 program does not require that the jobs be created directly in the project that draws the investment, but can be classified as indirect and induced jobs.

Yes, the EB-5 program counts construction jobs that last two years.

However, for $249 million, the 498 investors would have to create 4980 full-time jobs.

At the same ratio, it would seem like the $1 billion arena would have to create 20,000 jobs and the entire $5 billion project would have to create 100,000 jobs.

"Last-mile" investment?

Such astronomical numbers have never been claimed by project proponents. However, there's a loophole.

Can an EB-5 investment serve as “last mile” financing and thus be credited for all the jobs associated with the project it only fractionally supports?

The response was yes. "EB-5 investment can be used to retain or create jobs," the USCIS told me. "In those cases, they would have to show evidence that at least 10 full-time jobs would be saved by that investment."

However, based on the "last-mile" logic of the EB-5 program, the project up until now has failed to create jobs, absent the foreign investment.

A December 2009 press release from Forest City Ratner stated that “Master Closing on the Project Means Barclays Center, Thousands of Jobs, Affordable Housing and the Nets Coming to Brooklyn.”

In other words, the investment and government support already in place was going to create the jobs.
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