Investors from India help fund construction of Third Ward hotel
As tens of millions of people climb its economic ladder, India has developed into the latest example of an impoverished nation whose newly wealthy now possess the financial firepower to buy American factories, technology companies and real estate. And among the destinations for those investments is a gaping construction site that will become the first hotel among the art galleries, restaurants and loft-style offices in Milwaukee's Third Ward. The nine-story luxury hotel with a rooftop lounge will cost in the tens of millions of dollars, more than half paid for by investors from India.
Other India-bankrolled projects in Wisconsin are on the way, predicts Bob Kraft, a Milwaukee entrepreneur who for years has used U.S. immigration law to channel Chinese funding into the metro region in return for providing U.S. residency visas to qualified foreign investors.
Kraft brokered the Third Ward hotel investment as his firm's first significant inflow of capital from India, the world's second-most populous nation behind only China.
India, like China, has become a strategic focus for the firm, FirstPathway Partners LLC. To meet with prospective financiers, Kraft's partner, Dan Wycklendt, leaves Wednesday on his eighth extended trip to India in two years.
When it comes to investment funding from the developing world, "China is No. 1," said Kraft, echoing data on capital flows. "But India is growing rapidly."
The hotel will be managed by San Francisco-based Kimpton Hotels & Restaurants, known nationwide for its chain of high-end boutique hotels.
It also serves as a tiny symbol of a much larger role-reversing phenomenon of the global age: Emerging economies such as Brazil, Mexico, China and India are creating a new source of investment funding for the rest of the world.
"It has been less than a decade since India's companies have jumped into the global mergers and acquisitions arena," according to the BBVA international banking group.
China's role as global financier already is familiar to many. It is the biggest foreign lender to the American economy, buying the U.S. Treasury securities that Washington issues on a daily basis. There are numerous instances of major Chinese investments in the United States, from China's Anbang Insurance Group, which just paid $2 billion for the landmark Waldorf Astoria Hotel in Manhattan, to the private Chinese investors who helped finance Milwaukee's $22 million Global Water Center, a technology and research incubator.
But India is tracking China's ascendancy, creating wealth that is staggering and recent.
India vs. China
Despite their dissimilarities, economists often lump China and India together. Each has more than 1 billion people, and together they are home to a third of the global population. Both leverage inexpensive labor and both invest heavily in research universities, engineering schools and tech colleges.
Both also have newfound wealth that coexists alongside widespread poverty and illiteracy. According to the World Bank, India today is home to a third of the world's extremely impoverished (400 million people). Because poverty rates have fallen faster in other parts of the world, that's an increase from 22% in 1981. Right after India comes China, contributing 13% of the world's extreme poverty, down from 43% in 1981.
But India-China comparisons end there. China, by virtue of an autocratic one-party system, makes efficient infrastructure and transportation improvements. But Chinese authorities also censor the Internet and crack down on dissidents. India, by contrast, has the world's biggest democracy and loves the web, but it is slow to improve its infrastructure, water and local corruption problems.
And yet, India's outward direct investment has grown 35-fold to $241 billion in the last 10 years, according to an analysis by BBVA.
Significantly, the bulk of that investment — nearly 70% — has occurred since the 2008 Wall Street financial crisis, which opened the way for nations like India to help fill the vacuum in conventional financing, BBVA's analysis found.
It used to be that the world mainly knew India's established global entities like the 147-year-old Tata Group, which has tentacles in everything from automobiles and information technology to chemicals and steel.
Then last year, Motherson Sumi Systems Ltd. acquired an automotive parts division of Ohio-based Stoneridge Inc. for $66 million. Mumbai-based biotech group Piramal Healthcare Ltd. paid $635 million for Decision Resources Group, a Massachusetts-based health care technology company.
India's entrepreneurs are making acquisitions from Brazil and Bangladesh to France and Germany. In the next 15 years, more than 2,200 Indian firms are expected to invest in markets overseas, predicts the India Brand Equity Foundation, an arm of India's federal government.
Investment in Milwaukee
Most big-ticket investments and acquisitions are carried out by India's companies.
But Kraft built his business around high net worth individuals, starting in China. He deals exclusively with EB-5 visas, which offer permanent residency to qualified foreign investors, provided their investments create American jobs. Candidates for immigrant investor status are vetted by the U.S. Department of Homeland Security, not least to make sure their funds can be traced to legal sources.
Congress created the EB-5 program in 1990, but the program was dormant and obscure for years. Recognizing that the wealth amassing in mainland China was bound to flow back into the global economy, Kraft lobbied the federal government to designate the seven-county metro Milwaukee economy as a special zone for EB-5 investments.
That designation was granted in 2007. And since then, the region has received $250 million in EB-5 capital infusions, according to the Metropolitan Milwaukee Association of Commerce, which helped Kraft lobby to win the designation. The total volume of related development is several multiples higher because EB-5 funds often amount to only a portion of a project's financing.
Investors do it for kids
Nationally, the EB-5 program has attracted more than $6.5 billion in foreign direct investment in the years from 2005 to 2013, supporting more than 131,000 U.S. jobs in the process, according to the Association to Invest In the USA, a 10-year-old trade group for EB-5 investment brokers like Kraft's FirstPathway.
"The No. 1 driver for this program is education for their kids," said Wycklendt, explaining the allure of U.S. residency for immigrant investors and their families. Another strong appeal is the entrepreneurial opportunity in the U.S. that is easier to seize once one has a green card, he said.
According to the latest annual Forbes list of the world's billionaires, nine of the world's top 200 billionaires are from India. "In China and India, what we really sell is the conservative nature of the Midwest, the conservative nature of Milwaukee," Wycklendt said. "That's attractive."
For FirstPathway, the Third Ward hotel is a particular trophy.
Not only will be it be upscale, but the construction site at the northeast corner of E. Chicago St. and N. Broadway is across the street from Kraft's office. Kraft says he routinely brings visitors from around the world to the Third Ward and looks forward to putting them up in a hotel he helped finance with funds from Mumbai, Hyderabad and New Delhi.
"We are vibrating with the construction right now, which is the greatest pounding I've ever heard," Kraft said. "It's like music."
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