Artist's rendering of the Northern Riverfront Marina, Wilmington, NCIf a recent Greater Wilmington Business Journal report is any indication, it looks like the EB-5 program is making some headway on the North Carolina coast.
Working with investors in China, developer Chuck Schoninger has said he is nearly ready to begin construction on what will be the Northern Riverfront Marina and Hotel. Schoninger is the CEO of USA InvestCo, which owns 35 acres of riverfront property in Wilmington.
If he's successful in acquiring enough investment, Schoninger's company will begin building what he calls "one of the sexiest hotels out there," an add-on to the 11.75 acre marina that is already under construction.
Expanding outreach
Thus far, most of Schoninger's success with this project has come from his opening an office in Guangzhou, China last year. He is also looking into the possibility of adding new offices, one in Shanghai and one in Beijing. Establishing these offices comes, of course, in response to increased interest from investors looking into EB-5 visa projects.
Schoninger also has an office in the Republic of Kazakhstan where his company continues its efforts to raise funds for the marina effort.
The current project
Schoninger anticipates having all of the funding that he needs, an additional $17 million, to finish the project by the second quarter of 2012. According to the USA InvestCo Website, the marina will accommodate "up to 204 slips ranging in size from 40 to 100 feet."
The project site sits near the Wilmington Convention Center. Facilities will include a hotel from a yet-unnamed but, according to Schoninger, highly-respected brand, two restaurants, and the marina. Going forward, Schoninger's plans will largely be based on the ability to raise the needed funds from immigrant investor capital, but he seems confident that everything is on track:
'We’ve been extremely successful in raising capital for this project,' Schoninger said. 'Our investors see the potential, and are ready to invest.'
According to Schoninger, further construction of a city riverwalk area complete with commercial development is in the cards as well. There has also been discussion of a new minor league baseball stadium nearby, although that project would depend on local government funding.
image credit: USA InvestCo
Posted by
Adam Green on Thu, Feb 02, 2012 @ 10:00 AM
Whittenton Mills in Taunton, MA, site of an EB-5-funded redevelopmentThey may not be ski resorts, luxury hotels, or professional sports stadiums, but two EB-5 visa projects are turning heads in New England – at least at the local level.
In both Massachusetts and Vermont, local news sources are covering progress at two relatively new EB-5-funded efforts. One involves redeveloping a piece of troubled real estate while the other, according to the community's NBC affiliate, is already helping one company introduce new products and enjoy renewed growth.
New life for an old industrial site?
According to the Taunton Daily Gazette in Taunton, Massachusetts, at least 50 Chinese EB-5 investors are set to fund the redevelopment of Whittenton Mills, a long neglected industrial area.
The site consists of 42 acres that, in recent years, have been home to a number of flea market tenants. Other operations – most notably a mixed martial arts school and leather shop – have been caught renting space illegally, and the property is apparently becoming "a real thorn in the side" of the local fire department due to a high number of false alarms.
In January, multiple sprinkler pipes burst, destroying several flea market vendors' merchandise. To say the property is in poor condition would be a bit of an understatement.
Now the Shanghai-based investment firm Harmonia Capital is set to use $25 million in EB-5 visa financing to construct "market-rate apartments, an assisted living facility and make repairs and improvements to existing structures for light-industrial tenants." It was from Kao Li, the chief business advisor to at least one of Harmonia Captial's U.S. operations that the Taunton Daily Gazette learned the following details:
Li says the 350,000-square-foot Whittenton Mills project will consist of a modern assisted-living facility, an apartment complex with 150 market-rate, two-bedroom units and so-called mixed-use office and light-industrial usage.
He also says the jobs-creation aspect of the project should easily exceed the EB-5 requirement for 50 new jobs. Li foresees the eventual creation of at least 1,000 'direct and indirect' permanent jobs stemming from associated new business growth.
If Li's predictions come true, it would be an ambitious turn-around. It seems that the current owner of Whittenton Mills, David Murphy, has become a source of enormous frustration for the Taunton City Council.
After paying $1.7 million for the property in 2005, a sour economy dashed Murphy's hopes for new housing and business development at the site, and his firm now owes the city back taxes and utility fees in excess of $200,000. If the EB-5 program arrived to save the day, it couldn't have come at a better time for Murphy.
If the project ultimately succeeds, that is.
Power tools and job preservation
Less than a day's drive to the northwest, the town of Winooski, Vermont is celebrating what that state's governor, Peter Shumlin, calls "bringing innovation to products that are going to lead in markets around the world."
According to local NBC affiliate WPTZ, local manufacturer Country Home Products is using EB-5 capital to retain its 200 employees. While the company hasn't actually used the new investment to add positions, CEO Joe Perrotto told the press that "the capital we've attracted" would not have been possible without EB-5 immigrant investor financing.
In January, Senator Patrick Leahy (D-VT) visited the Country Home facility to show his support for the business and advocate for the EB-5 program. As WPTZ explains it:
Sen. Leahy tried out a new high-speed log splitter the company developed with the money. He described it as incredibly smooth and efficient; just the kind of quality manufacturing customers should expect from American businesses, and especially Vermont businesses, Leahy said.
The company makes wood chippers, stump grinders, mowers, chainsaws, and a whole host of other products for the DR Power Equipment line.
In Vermont, the state reviews all proposed EB-5 projects before any promoters push a private placement offering. This makes it "unlike most other regional center programs," according to Governor Shumlin.
image credit: Mike Gay & the Office of Senator Patrick Leahy
Posted by
Adam Green on Mon, Jan 30, 2012 @ 10:00 AM
If the city of Oakland gets its way, the New York City Regional Center won't be the only organization seeking EB-5 money for a professional sports stadium.
According to Mercury News, Oakland, California Mayor Jean Quan is already "wooing Chinese investors" with talk of financing a new waterfront ballpark for the Oakland A's. The so-called Victory Court Ballpark and Coliseum City project would include "hotels, a convention center, shops and new facilities for the Raiders and Warriors, as well as a ballpark alternative."
Oakland, CA Mayor Jean QuanEB-5 visa investors wouldn't be the only source of financing for such an ambitious project but would serve as "a significant funding source."
A recent ruling by the California Supreme Court allowed the state to gain control of funds that the city otherwise would have used to re-develop the stadium and surrounding area. It was when Oakland learned it wouldn't get the money that city officials decided to go the EB-5 route.
Not without precedent
This wouldn't be the first time EB-5 project promoters solicited investments in a massive undertaking that involved construction of a professional athletics facility. The controversial Atlantic Yards project in New York City – an effort that has been about seven years in the making – is doing the same thing.
As part of a huge Brooklyn redevelopment initiative that includes a new arena for the New Jersey Nets as well as new skyscrapers, developer Forest City Ratner has sought $249 million from Chinese EB-5 green card investors.
Of course, Oakland's project isn't Brooklyn's project. Instead of inciting local opposition, the push to develop the Victory Court ballpark and surrounding area has received positive press, and many A's fans are delighting in the possibility of the team staying in Oakland. An earlier push by the team's majority owner would have moved the A's to San Jose.
But the EB-5 element is new to the project. Very little commentary is available about efforts to fund the new ballpark and surrounding area via EB-5 visa investments, although one news source is skeptical.
Riding the trend
Artist's rendering of A's Victory Court ballpark, skyscraperpage.comThe Mercury News article also mentioned other recent EB-5 projects in the San Francisco Bay Area. One of those was the Tribune Tower project, an $8 million endeavor that involved the San Francisco Bay Area Regional Center.
All of these projects, of course, are simply riding the larger trend of turning to foreign investors to finance development projects. According to immigration attorney Ron Klasko, who was interviewed by Mercury News, EB-5 is "quite the rage within the development community" and the supply of qualified investors appears to be "unending."
If the Oakland project manages to use the sports connection to its advantage – something Atlantic Yards has done with great success – it could very well find the EB-5 visa program most advantageous.
But in the end, it's all about job creation. As Mercury News reminds us, "If the jobs don't materialize within two years, [investors] don't get their green cards."
image credit: The Infamous & Meeno Peluce
Since a number of ski resorts receive funding through EB-5 visa investments, it should be of great interest to EB-5 stakeholders whenever unforeseen circumstances threaten job growth at these operations.
Unfortunately, this winter has not been a good one for the ski resort business. Unseasonably warm weather and a lack of snow across the United States has ski resorts from California to Vermont scrambling to make snow. Nearly all are experiencing a decline in the number of skiers, and many resorts are forecasting a dismal year due to the high cost of making more snow for fewer visitors.
The following headline appeared in the Huffington Post earlier this month:
And then there's this one from the Mother Earth News network:
Another news source explained the issue like this:
Getting some skiing in this season may not be as easy as booking a flight to the slopes. With less than stellar bases, ski resorts all over the country say they are seeing fewer visitors due to a lack of snow. And that deficit is leading them to keep runs closed longer or write off the entire winter as not worth the money to even open.
Today Show viewers heard this report about the unusual dearth of snow in places where skiers usually hit the slopes in droves:
Resort operators' hopes for strong growth in revenue were dashed late last year as many would-be skiers canceled their ski trips over the Christmas and New Years holidays, traditionally one of the most lucrative periods for ski resorts, and opted to stay closer to home, visit the beach, or pursue other warm weather activities. This has threatened many seasonal ski resort employees whose jobs depend on the influx of vacationers.
According to the New York Times, "unusually balmy" weather in New England has "[wrought] havoc on snowmaking" at resorts that usually have no problem making and maintaining plenty of snow for skiers before Christmastime:
Many ski areas opened late this year, and the slow start is threatening the fragile economy of towns that rely heavily on the ski traffic that usually starts in earnest over the holidays. Hundreds of seasonal workers have been unable to start their jobs, while some innkeepers report far more empty rooms than is customary during the holidays.
The warm weather has been a boon for other industries whose revenues are impacted by large amounts of snowfall, in particular intermodal and logistics operations like FedEx and UPS.
There are a few ski resorts that rely on EB-5 visa investors to fund their projects, but none are more well-known to the EB-5 visa stakeholder community than Jay Peak Resort in Jay, Vermont. Bill Stenger, co-owner of Jay Peak, appeared on CNBC on December 30 to describe the problem:
Jay Peak, being much further north than most ski resorts, has a better ability than its southern competitors to produce snow when temperatures drop.
But doing that comes at a cost. At $2 to $5 per cubic meter, snowmaking can become expensive. Covering an entire mountain with manufactured snow can actually be very costly, running into the hundreds of thousands of dollars per year. This is also a very risky operation as the snow can melt when temperatures rise above 32 degrees, forcing the resort to re-manufacture its base and trails.
And let's not forget that unseasonably warm temperatures don't just affect life in ski resort communities. In Cleveland, Ohio, a Fox affilliate recently reported how warmer weather is impacting revenue for local businesses:
And here's their report:
The trend toward warmer temparatures and climate not only in the U.S. but around the world may not be a short-term phenomenon. EB-5 visa investors should consider the financial implications of rising temperatures and weather-related circumstances as they evaluate whether an operation can generate sufficient revenue and create jobs.
image credit: swillems & KBlack
One World Trade Center will reach 105 floors and 1776 feet upon its completion. Photo Credit: Mark Lennihan, AP
From the Associated Press comes this story about building construction that developers may have to end after only 7 of the planned 80 floors are complete. The news from New York is that unless Silverstein Properties can line up more tenants, they will have to cease construction at the podium level of Three World Trade Center.
Silverstein needs tenants for the first 10 floors says the Port Authority of New York and New Jersey. Otherwise, the only option is to quit now and resume construction at a later date. Without the leases, the Port Authority will not guarantee the financing that Silverstein Properties is counting on.
Patrick Foye speaking at a meeting of the New York Building Congress. Foye is the Executive Director of the Port Authority of New York and New Jersey. Photo Credit: Mark Lennihan, AP
According to the AP:
Many companies in New York are reluctant to invest in new offices because of the poor economy, and dozens are negotiating lower rents as five-year leases signed before the housing crash begin to expire. But both Silverstein and the Port Authority said they are confident the developer can get enough tenants lined up. 'We are currently speaking with a number of potential tenants and remain fully optimistic that we will sign a lease in time to complete the tower as scheduled in 2015,' Larry Silverstein, the company’s chief executive, said in a written statement.
Mayor Michael Bloomberg said that he would be disappointed if Three World Trade did not go higher, but that the city would not extend any aid to keep it going. The most important part of the project, he said, is laying the infrastructure for future construction. “If you did that and you couldn’t keep building up, I think that’s a shame,” Bloomberg told reporters. “But there are things that should depend on the marketplace and investors. That should be up to them.”
The 10-story “pre-lease” requirement is included in a 2010 agreement between Silverstein and the Port Authority. The difficulty in finding tenants comes amid other problems that have dogged the project.
This illustrates a problem for many large city developers that are claiming both job creation and a return of principal to investors based on speculative building without first obtaining pre-leases. It also demonstrates why EB-5 visa investors should exercise caution before investing in large-scale projects that may not be economically feasible or able to support the underlying EB5 job creation projections as outlined in the I-924 or I-526 business plans submitted to USCIS.
Additional issues include the reliance on public sector funding, which may not be available if certain conditions – a percentage of the property being leased before public funds can be released is just one example – are not met by the developer.
Village at Paseo, a planned retail development in Riverside County, California, is one step closer to becoming reality thanks to the recent acquisition of a large parcel of property.
The next step in this process will be securing the necessary financing necessary to begin the development phase. The development phase will begin once the funding necessary for construction has been secured, at which time the developer can begin working on tenants for the property.
When asked about how this project would be funded, the owner, Arthur Pearlman, proudly announced the support of several investors. Pearlman has been working with both Chinese and Vietnamese investors who are interested in the EB-5 program. And since this project is located in a high unemployment area of Banning, California, it is said that investors will qualify for the $500,000 investment threshold.
Issues involving TEAs, of course, have been the subject of much debate lately. The New York Times and others have weighed in on the issue, calling into question whether many of the areas came into being as a result of gerrymandering.
The Village at Paseo is currently estimated to create as many as 400 jobs, and the tax and fees should benefit the town of Banning as well.
The original plans for this project are promising, according to the developer. Current plans include a two-story facility with retail stores on one level and office space on the second level. Future plans include a second building that will house either additional office space or hotel rooms. While leases have yet to be signed, some significant anchors have expressed an interest in the project, including Chili's and Hampton Inn. Developers have approached several other prominent U.S. chain establishments as well.
The American Redevelopment Regional Center will handle fundraising for this project. It will need to raise a total of $20.5 million through the EB-5 visa program to meet its funding goals.
Prominent journalist James McGregor, author of One Billion Customers: Lessons from the Front Lines of Doing Buisness in China and the 2010 report China's Drive for "Indigenous Innovation" - A Web of Industrial Policies has been touring China discussing the U.S. economy and promoting EB-5 investments by the Midland Investment Group, a California based investment management company which is developing projects for a regional center based in Oregon.
During his tour promoted by Chinese Immigration migration broker CanAchieve, he mentiones his experience:
I am a former president of the Sino-American Chamber of Commerce in the USA, I have good experience in China, known many people in China and I am very positive for EB-5 investment. I think that to the majority of Chinese investors, the United States is an opportunity not only for the U.S. government, the American people, but also for the investors, the EB-5 investment is a win-win opportunity.
We can say that now the risk is relatively small, because the U.S. economy is recovering, has come back from the bottom, the bubble economy in 2008, there have been many problems, now gradually has been restored. It can be said that now is a good chance to invest, because in the past 22 months, American jobs have increased by 3.2 million, so current investments will have good future returns."
There are many ways to consider EB-5 investment, but the most important thing we consider is what kind of company to deal with: are they law-abiding? Are they complying with government regulations and so on? For the addition of projects recommended by Midland, I have more confidence because I am familiar with their investment in Oregon, I believe they can do this project well.
One thing the Chinese agency fails to mention is whether Midland is associated with the Oregon Regional Center or Portland Regional Center. It also does not tell us which Oregon EB-5 projects Midland is promoting.
And since USCIS does not release contact information on these EB-5 regional centers any more for reasons we do not understand, we were not able to contact the centers to verify the Chinese reports for accuracy and cannot verify the accuracy of the above statements.
James McGregor's bio: James McGregor is an American author, journalist and businessman who has lived in China for more than 20 years. He is a senior counselor for APCO Worldwide and a member of the firm’s international advisory council. A professional speaker and CNBC commentator who specializes in China’s business, politics and society, he regularly appears in the media to discuss China-related topics.
Mamtek's sucralose project in Moberly, Mo. (photo by Ty Cacek Bloomberg Businessweek)
In the recent article from Bloomberg Businessweek's Susan Berfield, A Missouri Town's Sweet Dreams Turn Sour, the author describes in great detail how the hopes of one small midwestern town collapsed under the weight of lofty promises and false promotion involving a project partially funded by EB-5 visa investors. This follows our reporting of the story in September.
Her investigation reveals that, in the rush to create desperately needed jobs in a small town without many options, city planners and economic development officials did not ask many questions about promoter/developer Bruce Cole and his plans to create a large manufacturing plant despite having little experience or financial resources:
Although Cole would not comment, interviews with former Mamtek executives, consultants, and city officials, as well as a review of the bond offering, legal filings, and other records made public, tell the story of Mamtek’s collapse. It’s a tale of economic desperation, the lure of Chinese wealth, and, most of all, people’s need to believe. “We all thought this was going to be awesome. We thought everything had been checked out,” says Lindsey. “Shame on us.
Berfield writes that Cole did try to shop his dream to other states, but they were not receptive to his claims without evidence to support his assertions:
They really didn’t show up with a lot of material,” says Russell Staiger, president of the Bismarck-Mandan Development Assn. “We never saw any information about their financials. It was all just talk. They didn’t even bring any sucralose. We have an expression up here: a rancher who’s all hat and no cattle.
The following saga of development and mismanagement is well chronicled in the article, including the injection of equity from private investors and the bond offering made by the City of Moberly. Throughout this stage, developer Cole was constantly short of cash, a problem for which he was counting on EB-5 visa funding to help make payments:
Although Cole didn’t mention it in his official pitch, he was counting on raising millions through the U.S. EB-5 visa program...Mamtek intended to set up its own center to attract Chinese investors for the sucralose plant and other Moberly projects. Mamtek applied for expedited approval in January, which Cole hoped would come in April. The government denied the request. Cole told Lindsey and other Mamtek employees that the company’s EB-5 application would be approved later through the regular process. In the meantime, he said, he was close to raising a great deal of money from other investors. No one had any reason not to believe him.
In the meantime, other Mamtek personnel and investors, unaware of the financial difficulties, continued to pour money into the operation and hire job seekers, receiving over 5,000 applications for the 120 jobs scheduled for the sucralose plant. To compound the difficulties, the market price for sucralose dropped substantially as Indian and Chinese manufacturers came on line, depressing the price from $250/kilo to as little as $90/kilo. Mamtek's plan to sell at $170/kilo had to be revised in light of current market conditions to as little as $120/kilo, just above operating margin.
In the meantime, Cole was busy shuttling back and forth to China, where he hired well-known Chinese migration agent Well Trend to promote his project offering to unsuspecting wealthy Chinese investors:
Cole hoped to get those millions from an EB-5 project in Philadelphia that had stalled. (Mamtek’s own EB-5 approval came in mid-August, though before then the company did attract a total of $2 million from four Chinese investors.)
The President of Well Trend, a Mr. Wang, has said that the company makes field trips and does in depth, comprehensive EB-5 research to get the most realistic data and objective information that they then pass on to their clients:
It is a rigorous, robust business concept which has produced impressive achievements and reputation, winning customers, peers and praise
Well Trend's goal is selective U.S. investment, cognitive and rational selection of EB-5 projects, experience immigration track record, stable operation and low risk projects
Fortunately, Well Trend's lack of due diligence on Mamtek or Cole resulted in only four investors placing their funds in the sucralose project despite the fact that the agency gave it a five star ranking and placed it second on their list of preferred EB-5 visa investments, behind only CMB and ahead of Pennsylvania's SETA and the Kimpton Hotel offerings.
Well Trend was not the only promoter of the project. Former Missouri Governor Bob Holden formed the company MidWest US-China Association to promote ventures like Mamtek to the Chinese. The Association promotes itself as a "hub to form meaningful partnerships that make full use of the opportunities that collaboration between the Midwest U.S. and China provides, bringing long-term growth to each region."
Our members benefit from MWCA's intentional networking approach that offers more intimate delegation settings with a high value for dialogue and one-to-one interaction. New partnerships are forged as ideas are exchanged. Meaningful information is shared. Real business results are evident.
When asked for comments after the project’s failure, Holden downplayed his role, saying that he was only there to solicit investments and that "the association did not check to see whether the company was legitimate or had the funds necessary to sustain a major project."
"I don’t have the staff to go in and do all the due diligence," Holden said. "That would take a considerable amount of money with not a good rate of return."
The Fallout
Bloomberg reports that the SEC is now investigating as well the Missouri Attorney General's office and state lawmakers. The trustee for the bond issued by Moberly, UMB Bank, is suing Mamtek in federal court and trying to force what is left of the company into bankruptcy.
The immigration agency in Beijing that pitched Mamtek to its clients, each out $500,000 and an EB-5 visa, says it may sue Cole.
The report by Berfield finishes with this thought:
Officials in Missouri, quick to welcome Mamtek, are now loath to take responsibility for its demise. Moberly trusted the expertise of Mamtek’s own counsel as well as the appraisal firm and the bond underwriters, Morgan Keegan (which settled a fraud case this past summer related to subprime mortgage securities and is now up for sale).
Morgan Keegan said its due diligence focused on the city’s finances and that it relied on Moberly and the state’s Economic Development Dept. to verify Mamtek’s financial condition. Economic Development was wary of placing too many demands on companies interested in doing business in the state. That sends the message that they are “obviously not welcome in Missouri,” said David Kerr, the now-retired director of the department, during hearings held by the Missouri House of Representatives in November.
Alejandro Mayorkas, Director, U.S. Citizenship and Immigration Services
In response to last month's request for comments from EB-5 stakeholders on its most recent draft policy memorandum, USCIS has released a revised version. The following are Director Mayorkas's remarks that precede the modified document:
U.S. Citizenship and Immigration Services (USCIS) thanks stakeholders for providing comments to the draft policy memorandum we posted to address certain foundational issues in the EB-5 Program. In anticipation of tomorrow’s “Conversation With The Director” regarding the EB-5 Program, we have attached the revised draft policy memorandum that incorporates some of your comments. In tomorrow’s Conversation, we will discuss the revised draft policy memorandum and seek to focus on certain important policy issues that we wish to further explore with you, including the issue of material change and how to most fairly and effectively address it in our EB-5 adjudications.
As we stated previously, the formulation of the guiding EB-5 policy memorandum is an iterative process, one in which we seek your input. The revised policy memorandum is a further step in the iterative process. Tomorrow’s Conversation will be important in guiding our determination of how to most effectively address some of the more difficult issues in the policy memorandum development process. We can continue tomorrow’s discussion in the broader EB-5 quarterly engagement scheduled for later this month.
We are working hard to enhance the EB-5 Program, including the issuance of policies that address developments in the use of the Program and carefully adhere to the governing statutes and regulations. Tomorrow, we will discuss our efforts to date, issues of importance to you, and the path ahead. We are dedicated to realizing the EB-5 Program’s potential to create jobs for U.S. workers and to vigilantly protecting the Program’s integrity.
Thank you.
Alejandro N. Mayorkas
Director
U.S. Citizenship and Immigration Services
Click here to see the revised draft policy memorandum.
Following the publication of the New York Times article on the EB-5 visa program, Rules Stretched as Green Cards Go to Investors, and the follow-up editorial in the Times, EB5Info asked for and received comments from a number of economists and professionals whose job it is to interpret census tract data and submit requests to State officials for TEA designations to qualify their EB-5 visa projects for Regional Center designation by USCIS. The following is a compilation of opinions and thoughts from that request.
One of the first responses we received was by economist Scott Barnhart, whose complete commentary can be found here. He writes:
Like any large government program the legislation is loosely written and leaves much to be filled in by practitioners. Will there be pushing of the envelope or even abuse of the regulations? As with most government programs, more than likely the answer is yes, but should the program be axed because of this or should it be changed for the better? I would challenge anyone to find even one government program where abuse is absent. Given these circumstances, what issues raised in the article are valid and how can they be resolved?
To be clear, there is much ambiguity in the law and little guidance given by USCIS in applying it. Is this the result of another bureaucratic government agency run amok? Perhaps, but my limited experience through a number of RFE’s is they seem to be applying the code as best they can, but are no doubt over run with work and sorely underfunded. If USCIS is like most state and federal government agencies these days, their funding has likely been cut to the bone in recent years and they are forced to do much more with much less.
Then what about the 150% unemployment and gerrymandering the census tracts? Simply put, one must demonstrate that the unemployment rate is at least 150% of the national average. The relevant code indicates what must be presented:
Evidence that the metropolitan statistical area … in which the new commercial enterprise is principally doing business has experienced an average unemployment rate of 150 percent of the national average rate.
In addition, a state may designate the area as one of high unemployment:
The state government of any state of the United States may designate a particular geographic or political subdivision located within a metropolitan statistical area or within a city or town having a population of 20,000 or more within such state as an area of high unemployment (at least 150 percent of the national average rate).
So much of the detail is left to the individual developer, regional center owner or consultant, and to the state. For example, which national average:
- The previous calendar year?
- The preceding 12 months from the current date?
- Seasonally or not-seasonally adjusted data?
In addition, considering local area unemployment has not been measured at the census tract level since the 2000 census, how does one measure census tract unemployment rates until the Census Bureau’s American Community Survey is reported, probably in 2015? Census sharing methods are currently used in which 2000 census tract level employment ratios are applied to 2011 county level employment data. The approach obviously has its drawbacks. Finally, there is little guidance concerning how to collect census tracts surrounding the tract in which the project is located to use for unemployment calculations, hence the claim of gerrymandering.
If USCIS would level the playing field for all states, any perception of whether one state is “unfairly” getting more projects than is justified would be eliminated. This could be accomplished either by allowing states to claim any type of geographic region (or shape) as long as the resulting unemployment rate reaches the 150% rate or it can be done by setting very strict guidelines that all states must follow. Either of the methods will work because all regional centers and state agencies will be on equal footing. However, even the casual observer will recognize that although leveling the playing field would eliminate the perception that some states/projects have an unfair advantage, these two methods can have quite different outcomes; the former approach would foster regional center and job growth, while the second could inhibit regional center and job growth if the guidelines are too restrictive, which is clearly not the intent of the legislation. The second approach also could be very difficult to implement, e.g., concentric areas surrounding the project tract, etc., considering census tracts are designed to be homogenous regarding population and economic status, but geographically are very diverse.
So what do the regulations say?
Joe Whalen, a former adjudicator with USCIS and someone who is intimately familiar with the program and process, references the statutes here:
The regulation at issue is found within 8 CFR § 204.6, specifically:
(i) State designation of a high unemployment area. The state government of any state of the United States may designate a particular geographic or political subdivision located within a metropolitan statistical area or within a city or town having a population of 20,000 or more within such state as an area of high unemployment (at least 150 percent of the national average rate). Evidence of such designation, including a description of the boundaries of the geographic or political subdivision and the method or methods by which the unemployment statistics were obtained, may be provided to a prospective alien entrepreneur for submission with Form I–526. Before any such designation is made, an official of the state must notify [USCIS] of the agency, board, or other appropriate governmental body of the state which shall be delegated the authority to certify that the geographic or political subdivision is a high unemployment area.
The States (including DC and territories) have been given specific authority within the EB-5 program within specific limits. The State has the authority to designate a geographic or political subdivision within that State as a high unemployment area (HUA) for EB-5 purposes. That State must provide a description of it methods in making that determination. However, no State is required to participate in the EB-5 program or to make any such determination. Elsewhere in the regulations at 8 CFR 204.6(j)(6)(ii)(B) discussing “evidence”, there exits an option for a State to make the determination and issue a letter to the EB-5 alien investor for use in supporting his/her USCIS form I-526 petition. In the alternative, the EB-5 petitioner can do all the statistical analysis him/herself rather than ask the State to do it.
In footnote #1 within the AAO non-precedent of September 21, 2010, (excerpt follows) which ultimately upheld the Service Center Director’s Denial of an I-526 filed by a Regional Center-affiliated EB-5 immigrant investor, USCIS’s Appellate Body-the Administrative Appeals Office (AAO)- found itself, as an arm of USCIS bound by the agency’s own regulations. In that the regulation in question, which the CSC director and AAO determined had been used to support an untenable outcome had, in fact, been properly promulgated pursuant to APA comment-and-notice rulemaking AAO lacked the authority to overrule it.
This is so because it was not a rule set by its own precedent but rather by the comment-and-notice process. After years of increased experience and developments in various key issues, AAO has expressed on behalf of USCIS and in hindsight that 8 C.F.R. § 204.6 (j) (6) (ii) (B) has been used to support an outcome that now appears to be in contravention to clear Congressional Intent. A Federal Court has the power to quash such a regulation as ultra vires, even through its broad interpretive authority, the agency does not have that power. If an agency’s Appellate Body attempted to declare as ultra vires, a longstanding rule that had been duly promulgated, then that action would itself be ultra vires. See 5 USC § 553(esp. (b)-(d)) and § 558 (b) “A sanction may not be imposed or a substantive rule or order issued except within jurisdiction delegated to the agency and as authorized by law.” At first glance, it looks like it may be time for a regulatory change. Or is it? As AAO has already stated:
1 The proposed investment will be wholly and entirely within Ward 2, a ward that is not itself suffering high unemployment in relation to the national unemployment rate. The director's conclusion that the investment will be within a targeted employment area is based on a designation by [REDACTED INFORMATION] for Planning and Economic Development, Washington, D.C. pursuant to 8 C.F.R. § 204.6(j)(6)(ii)(B). [REDACTED’s] designation includes Ward 2, but, of necessity, includes other wards and census tracts within D.C. to reach the necessary average unemployment rate. The director's conclusion that we must accept the designation is a reasonable interpretation of 8 C.F.R. § 204.6(j)(6)(ii)(B). That said, it is clear that the petitioner's investment of only $500,000 wholly within a ward that is not itself suffering high unemployment completely undermines the congressional intent underlying section 203(b)(5)(C)(ii) of the Act. Specifically, Congress intended that the reduced investment amount would encourage investment in areas that are truly suffering high unemployment. While we are bound by 8 C.F.R. § 204.6(j)(6)(ii)(B), it would appear that this regulation has produced unintended consequences that are clearly contrary to congressional intent.
Congressional intent and interpretation
This comes from an economist who is frequently consulted by regional centers regarding Requests for Evidence (RFEs) or denials from USCIS regarding their petitions and works with them to find workable solutions that would be accepted:
While gerrymandering can sometimes be a concern, there is nothing wrong with configuring an irregular geographical area if there is reasonable expectation that potential hiring opportunities will be available for residents of these high unemployment areas.
Often times, especially in inner city areas, there will be commercial areas with low unemployment where relatively few people live, but nearby will be economically distressed areas where residents can benefit by the employment opportunities created in easy to get to nearby locations.
I have found that in cities like Boston, New York, and Chicago, developers want to build in commercial zones where few people live and/or unemployment may be low, but they need to draw their workforce from these surrounding, more populous high unemployment areas.
Often times we have a skills mismatch. For example, if a hotel is being built in an affluent area of downtown Manhattan, can we expect that the service workers will be drawn from that affluent census tract? No, the potential labor pool will most likely come from the not too distant higher unemployment areas. The same type of example holds with a manufacturing plant that may be built in a rather affluent town but needs to draw workers from the neighboring blue collar town.
It is not the wealth of the businesses in an area that is important, but the economic status of the people who reside in that and nearby areas. Usually when unemployment in a census tract is zero or very low there is a very small labor force in the area due to the fact that the area may be mostly commercial, a largely undeveloped parcel of land, or a waterfront area.
The reference to the tract that had zero unemployment for 5 years is misleading. As the numbers are based on a 2000 census share methodology, it will always be estimated as zero until a new data source is used.
It’s ridiculous to consider any two tract combination as gerrymandering. In the mid-town Manhattan reference, each census tract is probably one square block. If the first tract had zero unemployment and had the same labor force size as the second, than unemployment in the second tract would need to be at least 28.8% just to reach a combined qualifying rate of 14.4%.
If the second tract was smaller, it would need to have even a higher rate than 28.8%. In the most likely scenario where the labor force in the first tract is probably smaller, the second tract would still need a rate in excess of 14.4%. For example, tract one (LF 100 and unemployment 0) and tract two (LF 900 and unemployment 150 or 16.7%). The combined numbers would be (LF 1,000 and unemployment 150 or 15.0%). I can’t imagine anyone questioning any of these scenarios as gerrymandering and implying that the people who live one block away would not benefit from the new employment opportunities.
How do states interpret the regulations?
From one economist:
There are differences between the states, but for the most part the TEA certifications need to follow the calculation guidelines for the Census Share Method that is provided by the US DOL and has been consistently been updated (about every 3-5 years). That being said, there are some states that are more permissive than others in terms of geographic composition (the positive interpretation is that it is “flexibility”). There are some cases where it can involve “gerrymandering,” but NY is really not one of the “bad guys.
Another economist familiar with program writes:
I think some states do a better job of monitoring (not limiting) how TEAs are set up. They may approve a large geographic area that could wrongly be seen as gerrymandering but fits into a logical jurisdiction, while at the same time they may reject a smaller configuration because it doesn’t show any reasonable economic linkage. The ones who keep the TEA designations as outlined and in line with the law are actually the ones that can be questioned for gerrymandering.
Most states, like New York and Florida, will allow anything within the rules and regulations, i.e. contiguous geographic or political subdivisions using approved BLS methodologies. Some of the states that have deviated from the TEA regulations have been influenced by USCIS in their attempts to eliminate what they consider to be gerrymandering. Some other states have just taken it upon themselves to simplify their own workload by arbitrarily deciding for instance to just allow any two tract combination or in one case, only individual tracts (this state actually uses outdated data from about three years ago and feels no obligation to update).
One such state influenced by USCIS is California. On the one hand they are to be complemented for thoroughly reviewing each request in terms of the information they require, the potential economic impact, and the legitimacy of the area being requested (i.e. no odd configurations or gerrymandering). They do their due diligence. On the other hand, while they adhere to the regulations that specify contiguous geographic or political subdivisions, they have incorrectly interpreted that census tracts are not geographic subdivisions (the Census Bureau specifically defines census tracts as geographic subdivisions).
As a result, they will not designate any individual or even small groups of contiguous tracts, even if for example they all had unemployment rates of over 30%. Yet, you can carve out a city council district in a large city that meets the definition of a political subdivision, put together the 50-60 census tracts that make up the area, and if the rate happens to qualify, you may be able to get your wealthy census tract in a TEA. This may seem to make no sense, but then again, it makes just as much sense as a city or MSA that automatically qualifies. Why is it OK to put a TEA project in a wealthy town in a large qualifying MSA or a wealthy census tract in a qualifying city but not OK to put a TEA in a wealthy census tract in NYC with high unemployment areas not far away?
Texas operates in a world of their own. It is the only state where authorization was not given to a state agency but to each individual Mayor. It is supposed to be given to a state agency but apparently USCIS has decided to let them continue in this manner (I really think USCIS should address this inconsistency before anything else). Just as each state can establish their own TEA procedures, each Texas city can do likewise. Compounding matters is when a TEA crosses multiple jurisdictions.
In about half the states, the Agency authorized by the Governor to do the designations, is not the labor market agency that compiles the data and does the calculations. For example, in NY, the agency that prepares the letters is Empire State Development but that person, Leonard Gaines, is not the Agency spokesperson quoted in the article. The NY Department of Labor is the one that does the calculations but you have to go through Empire State Development. In what may seem to you as odd after reading the article, I have probably had more difficulty in getting areas to qualify as TEAs in NY than in any other state. They have been cooperative but I have worked mainly with upstate areas where there are many pockets of high unemployment but the numbers are just not high enough to work into TEAs.
California also has a different agency that does the designations from the ones that produce the data but I believe there is a group effort in setting their policy decisions.
Joe Whalen makes this note about California:
I have made no secret that I admire the way that California has addressed its role for that limited part of the EB-5 program within its purview. The following is found on its website here.
The Secretary of the Business, Transportation and Housing Agency, or the Secretary’s designee, may provide certifications for applicants that a proposed new business falls into an area (MSA, county, CDP, or city) that qualifies as a High Unemployment Area (HUA). In order to be classified as a High Unemployment Area, the MSA, county, CDP, or city must have experienced an unemployment rate that was equal to or exceeded 150% of the 2010 national employment rate. In 2010, 150% of the 9.6% average national unemployment rate was equal to 14.40%. (Requesting such a certification letter may not be necessary as the web site publishing this information contains a self certification option.
There is, of course, much more available there. Any State that chooses not to follow California’s example could easily do worse, but I doubt any could do better.
Scott Barnhart summarizes the question with the following comments:
Will jobs be lost in Nevada, California or other states because a 34 floor glass tower is built in New York? Perhaps, but currently there is great demand for US citizenship and over 200 regional centers from which to choose. Moreover, given the current state of the US economy, the economic benefits of projects rejected based on the 150% unemployment target may simply be lost forever as locations in other area or other states are not close substitutes.
For example, if the 34 floor tower typically used for retail, office space and/or residential purposes did not qualify in New York, one can be assured that states with the highest unemployment levels are not likely close substitutes for a Manhattan address for either the developer or prospective investors, so this project would likely be shelved. Similarly, a large condominium in Florida will not sell if located in a high unemployment area away from the coast instead of a lower unemployment area on the coast, yet the labor will be imported to the site.
Both projects though will provide large economic benefits to their regions. So given the current robust demand for citizenship in the US, this is likely not an issue at the present, but this may change in the future. Again, leveling the playing field would come a long way in resolving any perceived or real issue.
Solutions?
Several economists offered solutions, one noted the following:
I certainly can see how projects can be manipulated to approve destinations that may otherwise not qualify but I don’t see this as fraud as it is within the TEA rules and regulations. The fraud comes into play with the false promises to potential investors. Sure, there could be abuse with TEAs but that would have to do with having no intention of offering employment opportunities to people in these areas."
I think a better way of controlling abuse would be to monitor the residencies of the people hired. In other words, if 20 people were hired, did they all come from the project location with very low unemployment or did at least some come from high unemployment areas within the TEA geography? Is it OK to include an Indian reservation just as any other high unemployment area so maybe there should be an expectation to hire people from these areas? At least this way they will have some employment opportunities whereas if you don’t allow the high area to be included, no opportunities at all will exist.
In our final article on this subject, we will profile a response from the State of Florida, which has the second largest concentration of EB-5 Regional Centers in the country and has many projects that are being promoted as located in targeted employment areas.