Cleveland International Fund navigates uncertain future

A Cleveland private equity fund that has raised $240 million to support local building projects is retooling.

The federal government is having second thoughts about its EB-5 visa program, which rewarded wealthy international investors seeking to emigrate to the United States. As a result, the Cleveland International Fund (CIF), which has used the EB-5 program to raise money that was invested in projects including the redevelopment of Cleveland's Flats East Bank and in University Hospitals Health System's expansion, has seen the flow of interested investors slow down. It also has CEO Steven Strnisha looking for new strategies that will allow CIF to continue to support itself — and Northeast Ohio's growth.

CIF is registered as a regional center with the U.S. Citizenship and Immigration Services (USCIS) and is allowed to pool capital from multiple foreign investors for investment in economic development projects in Northeast Ohio. In return, the investors are eligible for what are called EB-5 Investor, or employment-based, visas that entitle investors and their families to entry and permanent residency status in the United States.

Through the EB-5 program foreign nationals, their spouses, and unmarried children under 21 years old become eligible for green cards if they invest at least $500,000 in developments that create or keep 10 permanent full-time jobs for U.S. workers.

Since EB-5 investors' top objective is the visa, they are generally willing to accept a low return on their money, making them a cheap source of financing. Because of program requirements, the investments are typically five-year loans.

CIF has raised $240 million in investments from hundreds of investors attracted to the EB-5 visas.

"The immigration landscape right now is, obviously, not pro-immigration," Strnisha said. "That's the general view in the administration and that's the general view in Congress. It obviously is demonstrated in a lot of ways, including (demands for increased border protection). In our case, that means they're not about to provide more visas to the (EB-5) program."

Congressional authorization for the 20-year-old program is set to expire on Sept. 30.

Beyond the general hostility toward immigrants in the nation's capital, Congress has focused on some EB-5 programs, though not CIF, that have been guilty of fraud and abuse.

At a hearing on oversight of the program in June, U.S. Sen. Chuck Grassley, R-Iowa, chairman of the judiciary committee, said that regional centers have used the program for personal financial gain, and some visa applicants were discovered to be promoting terrorism. Others in the Senate have argued against the program saying it is a way for rich people to buy legal status in the United States by investing in safe, luxury investments.

For those reasons, Grassley and a group of senators had come up with legislation to improve the program and tighten security. The legislation would have extended the visa program through to 2023, targeted visas to neglected rural areas and raised the minimum investment to $925,000.

But so far, legislators are not acting, and USCIS director Lee Cissna has given Congress mixed signals on the Trump administration's plans for the program.

"I have seen cases where people have undermined this program and have committed fraud," Cissna told Grassley's committee, while he suggested that Congress should let the program lapse in September. But, he added, "I am committed to working with Congress to finding a legislative solution."

This is not the first time the program's future has been in doubt, said Erin Brown, an immigration attorney in Cleveland with the Robert Brown Ltd. law firm.

"That's happened many times before," she said. "(The) Immigration (service) has talked about changing the minimum investment several times and so people are hurrying up and filing or they are uncertain if they want to make the investment because they are worried that when they file, the minimum investment required will be a million, not the half-million that is required now."

But even if it remains viable, without an increase in the number of visas allowed, CIF's EB-5 program will stay on life support. USCIS only issues 10,000 new EB-5 visas a year and has quotas on the number of visas that can be awarded to individual countries.

"The backlog is a huge reason that, particularly Chinese nationals, are not very interested in the EB-5 program currently," Brown said. "A lot of them applied back in 2014 and it looked like they would get their EB-5s in a year, and they're still not getting them."

Strnisha said many of his investors are from China and Vietnam and they face years-long waiting lists to get visas.

"With those countries out of the picture in the near-term, because there are not more visas to handle the backlog of demand, our capacity to do more with EB-5 in the future is limited," he said."

Since its founding in 2010, CIF has invested in many projects, often investing between $25 million to $30 million in each Ohio project. In addition to the Flats redevelopment and the University Hospitals expansion, CIF's investors have helped finance the Crocker Park shopping center, the Westin Cleveland Downtown hotel, the redevelopment of the Ameritrust complex at East Ninth Street and Euclid Avenue and the One University Circle apartment complex.

With the EB-5 program in flux, Strnisha seeks other ways to attract investors, as he's looking to have capital to invest in the next phase of the Flats development. Developer Scott Wolstein has submitted plans to the Cleveland Planning Department for Kenect Cleveland, a mixed-use complex on a parking lot on the east bank of the Flats.

He believes he can use CIF's track record to woo investors who have invested to get visas and now have been repaid. The projects CIF invested in have already repaid 209 EB-5 investors $104.5 million.

"We're going to those individuals who have been repaid and we're talking to them about taking the money we repaid to them, or with other funds, and invest in another project in Cleveland, on a market rate basis," he said. "This could be a new source for us and for Cleveland — use the good results we've had with these investors to build an interesting group of people who want to use their funds invested in the United States, specifically in Cleveland."

http://www.crainscleveland.com/article/20180805/news/170811/cleveland-international-fund-navigates-uncertain-future

Mentions

• Cleveland International Fund, Ltd
• U.S. Citizenship and Immigration Services
• Chuck Grassley
• Flats East Bank - Phase I
• University Hospitals Health System Expansion Project
• Stephen Strnisha

States

• Ohio