Back in October last year, I was commissioned for the first time to do some work for a blog – The Atlantic Yards Report in New York.
The site is run by Brooklyn journalist Norman Oder, who is critiquing a huge real estate scheme to build a new basketball arena and housing in Brooklyn.
He says the developers have ridden roughshod over public consultation requirements and are abusing laws covering compulsory purchases and investment structures with the connivance of public authorities.
Dodgy dealings between developers and the authorities – sounds just like China! And there is a Chinese angle – under what’s known as an “EB-5” programme, foreigners invest $500,000 into America at almost zero interest rates, theoretically in return for Green Cards, for themselves and their families.
In credit-crunched times, a cheap cash for visas scheme appeals to developers. And it appeals to the Chinese too, who typically want Green Cards so their kids can go to university in the US, which they consider to have a superior education system.
I was really pleased to be contacted by Norman because it’s refreshing to work with someone who believes passionately in what he/she is doing and is using publishing as a platform to campaign – and do so effectively.
Norman’s blog is known as the ultimate information clearing house for this project. By running it, he has made a bit of a name for himself along the way, a great illustration of how a blog can also be a launchpad. His posts are long and detailed and are often cited in news reports. He has also written about Atlantic Yards for the NY Times, Huffington Post etc.
I was asked to go along to an EB-5 roadshow in Beijing at which officials from the New York City Regional Center – one of many companies across the US dedicated to encouraging rich foreigners to invest in US projects – presented the Atlantic Yards scheme to rich Chinese.
The project wants to raise $249 million from EB-5 investors and is therefore looking for 498 rich Chinese who want a Green Card enough to cough up $500,000 for two years at zero interest. The project’s NBA element has extra appeal in China, where basketball has a high profile thanks to Yao Ming’s NBA success.
Norman has two basic points regarding the use of the EB-5 scheme.
He says it’s just cheap credit for the private developer, Forest City, who would otherwise have to raise the money at market rates of interest, costing millions of dollars or accept more investment from its partners (including Russian gazillionaire Mikhail Prokhorov) which would change the balance of power between the project partners. Why, he asks, is the US government getting involved in saving money for a private developer?
And, he says, the EB-5 officials may be misleading the Chinese because their investment won’t create any new jobs. Each investor’s $500,000 has to create 10 jobs that would not otherwise have existed to qualify for the Green Card. This is a confusing part of the argument – Norman says that the Chinese are being told that their money will be used to fund part of the project that is already underway and has already been funded. Personally, I imagine job creation can be demonstrated pretty easily through secondary economic activity, for example in shops and cafes in a shopping mall etc (but obviously I don’t know how this sits with the spirit and letter of the EB-5 arrangement. The EB-5 programme regulations allow all jobs to be estimated via an economist’s report).
I went along to the roadshow, at a hotel in west Beijing, one of many events across China.
During the presentation, Gregg Hayden, general manager of the New York City Regional Center and a man with a Wall Street look, said again and again that anyone investing in the project would be 100% guaranteed to get the Green Card.
To ram home the message, Hayden was accompanied in Beijing by Peter Davidson of New York State’s Empire State Development Corporation, a public body. During the event, Hayden showed a video with clips from New York Mayor Michael Bloomberg and Brooklyn Borough President Marty Markowitz extolling the scheme’s virtues.
In response to Norman’s points, Hayden said (to me, in an interview), that the NY authorities were involved because the Atlantic Yards scheme would give a big boost the city’s economy and that the Chinese money would displace already existing funding for some of the work underway, thus directly creating jobs (for example in construction), while the displaced cash would be spent on a later project phase.
“The investor on this particular project, to simplify the process, is not getting paid any interest,” said Hayden. “We have put them in such a safe, secure position that they’re not earning any interest. If you look at the spectrum of EB-5 projects, interest rates are paid according to risk.”
This simply isn’t true, according to a detailed Reuters investigation (an absolute must read). Overall, just over half of the EB-5 investors who have qualified for the unconditional Green Card since the programme began have actually obtained it. Reuters found:
“widespread problems in the way the program is promoted. Some marketers, for instance, imply or claim outright that the investments they’re selling are insured or government backed and that the EB-5 immigrants who invest in them are guaranteed permanent green cards. Neither is ever true.”
China’s ministry of public security issued two warnings in 2010 about EB-5 and imposed new restrictions on the promoters, Reuters reported.
Chinese investors are mainly interested in getting access to the US education system for their children, according to Hayden.
“The Chinese family wants its children to excel,” said Hayden. “There are certain ceilings along the way, whether it be in junior high school or high school and even college here locally, that make it difficult for them to succeed, because there’s a barrier of entry of some sort, whether it’s intellectual competition, test scores, or financial. Most of the investors are interested in emigrating to the United States for education purposes.”
Norman wanted video (above) of the event, but Hayden spotted me filming pretty quickly and asked me to stop. Luckily I also had a voice recorder and so got audio of the whole event. Afterwards I chatted with a few of the potential investors. Hayden didn’t like this so he intervened and asked me to have a word with him outside. I protested that I was simply asking them what they thought of the presentation. Perhaps he thought I was badmouthing the project to would-be investors, I don’t know, but his discomfort was obvious.
I left at the same time as one old guy and asked his opinion.
“It’s a very interesting project,” he said. “I will have to talk it over with my relatives.
“The main reason is for my son to get a good education for his future. And he can grow up freely there.”
When asked if he considered his son to be free in China, he replied with a smile: “I don’t want to talk about this picture.” (these comments were published in a story in The National).
A couple of reports of the event showed up on the website of KunPeng, one of several Chinese companies that have sprung up advertising sure fire schemes for getting Green Cards. There were lots of photos, but all the faces of the attendees were blurred out. I was very struck by this and I don’t really understand it, although I appreciate that people like privacy. It’s hardly a secret that a lot of Chinese would like their kids to study abroad, on the other hand perhaps if it was public knowledge that certain individuals were about to emigrate then it might somehow affect their businesses. But as I say, I don’t really know.
Anyway, the roadshow – which ran for a gruelling 6 months – was due to end last month. According to a Wall Street Journal article, Hayden and his colleagues got the commitments they were looking for. The investors also include a small number of South Koreans.
That means 498 Chinese (and Koreans) have signed up to hand over half a million dollars each, having had assurances from Hayden and others that they are “100% sure” to get their Green Cards. It would be interesting to know what kind of background these investors have and how sanguine they are about the risk involved. From what I can see, China is a high-risk business environment where little can be taken for granted, so people here may be more familiar with risk than many westerners. The rich are spectacularly rich – for them, chucking half a million at the chance of a Green Card may not be a big deal – but some investors may have raised the money from family members and friends. In the past, some EB-5 investors have not only not got the Green Cards but have actually lost their investment. The current crop might do well not to take Hayden’s assurances too literally.
*** For further reading see “Anatomy of a shady deal“, Norman’s in-depth look at this project’s use of the EB-5 scheme ***