Local projects need cash, says Ginny Fang, CEO of the San Francisco Bay Area Regional center
Projects court foreign bucks
Chinese investment is landing in the Bay Area, on the wings of an American visa program promising green cards in return for financing job-producing projects. But plenty of controversy is along for the ride.
Foreign investors and American entrepreneurs are both increasingly tapping the pay-to-play federal EB-5 program, according to insiders and government statistics. That is particularly true in California and the Bay Area, where real estate redevelopment like the Hunters Point shipyard and a sort of incubator of EB-5-funded businesses at downtown Oakland’s Tribune Tower are able to trade U.S. green cards for as little as a half-million dollars.
Just last fall, former San Francisco Mayor Willie Brown and his partners won U.S. Citizenship and Immigration Services approval to operate a so-called “regional center” that serves as a middleman linking Lennar Urban’s Hunters Point redevelopment with potential foreign investors. Regional centers can aggregate EB-5 investment from many investors, handle paperwork and immigration questions, and apportion jobs created to ensure as many as possible receive permanent U.S. residency rights.
In all, the San Francisco Bay Area Regional Center, operated by an entity called Golden State Renaissance Ventures LLC, hopes to raise five funds over six years totaling $300 million for the Hunters Point project, said Ginny Fang, the center’s CEO.
“At the end of the day, it’s about the U.S. needing capital and (investors) getting something in return,” said Fang, who was hired in October from her post as director of ChinaSF, the public-private effort to boost investment between the city and China.
Critics of the EB-5 program, named for the official title of the temporary visa that investors first receive, argue that its job-creation figures are nebulous. Plus, some worry, the thirst to replace traditional sources of American capital in today’s economic climate is pushing the tired, poor, huddled masses to the back of the immigration line in favor of effectively selling visas to well connected, rich, financially diversified foreign investors and their families.
But the program’s popularity is on the rise. For the first time in its 22-year history, it is on track to issue its fiscal-year limit of 10,000 visas.
What’s more, said Tom Henderson, an import-export business owner who operates an Oakland-based EB-5 program out of Tribune Tower, foreign investment is translating into American jobs.
“The jobs are being created in the community,” Henderson said. “They’re not buying their way in; they’re risking their way in.”
This is how the EB-5 program typically works: A proposed regional center selects an area and the industry sectors it will cover, and it applies for U.S. Citizenship and Immigration Services approval. The centers line up specific projects — a hotel or restaurant or housing development, for example — and commit to raising a certain amount of money through the EB-5 program.
Individual foreign investors pony up as little as $500,000 for projects in depressed neighborhoods or $1 million elsewhere. The money is placed in escrow and the investor and his family members, if they pass muster by immigration officials, receive a conditional green card.
Within two years, the investor must apply for a permanent green card, showing that his investment created 10 jobs.
This is no rubber stamp, backers of the program say. Of 18,817 applications for conditional green cards received from the beginning of the EB-5 program through the end of 2011, 27 percent have been denied; another 16 percent were turned down when those investors went back for the full green card.
“It’s an area that, if you don’t want government control, you don’t want to play in this game,” said Martin Lawler, a San Francisco immigration attorney who has filed more than 100 EB-5 applications and advised many regional centers.
Meanwhile, the number of regional centers has increased nearly eightfold over the past four years, according to U.S. Citizenship and Immigration Services statistics.
“It’s an overbuilt superstructure of regional centers,” said David North, a fellow with the Center for Immigration Studies, a nonprofit research group in Washington, D.C. “People hope it will make money for them — it’s new and interesting — so there are more people applying, and (Immigration) is encouraging it.”
Nowhere is the growth in regional centers more pronounced than in California, where 44 regional centers tops the nation. One is focused on clean energy projects and another on wineries and vineyards. Several zero in on real estate development.
However, it can be tricky and complicated. Many of the 14 regional centers claiming to raise money for projects in the Bay Area — and several of the 218 nationally — appear fallow. Telephone calls go unanswered. Websites don’t exist. Project details are scant.
“A lot of people who do not know EB-5 look at it as a pot of gold at the end of the rainbow. They don’t realize there is lots of competition,” said Michael Penbera, executive director of the California Energy Investment Center, a regional center in Cupertino. “The market has become saturated.”
Penbera’s center — the brainchild of his father, a former business school dean at Fresno State University — is aimed at using the EB-5 program to diversify the economic base of the Central Valley.
Foreigners can invest directly into a project, but they must prove that their money created 10 new, direct and sustainable jobs at the end of two years. By investing through a regional center, the standard is lower and fuzzier: the job count can rely on an economic model to claim at least 10 indirect jobs. So a real estate development, for example, theoretically could lead to jobs at taxi companies, building supply firms and other businesses to hire 10 people.
Because of a backlog of applications, U.S. immigration officials have floated the idea of charging a premium fee to expedite processing of individual investor applications.
In large part that backlog is occurring because of Chinese investors seeking better education for their children, cleaner air or a hedge as China transitions political power this fall.
Regardless, immigration attorney Lawler said, the economic footprint of EB-5 investors goes beyond the program alone.
“When they come to San Francisco, the first thing they do is buy a house, a car or two, furniture to go in that house,” Lawler said. “They go out to restaurants and, eventually, they get bored playing golf and they start new businesses.”
Over its life, the EB-5 program has funneled $2.2 billion toward projects employing 43,280 people, according to Citizenship and Immigration Services.
Funds and fees
Indeed, there have been notable successes — and just as notable failures.
Henry Liebman, CEO of Seattle-based American Life Inc. who Lawler calls the “Bill Gates of EB-5s,” now has dozens of projects from Southern California to Buffalo, N.Y.
Then there was the regional center seeking to raise money for a $1 billion “transit village” in El Monte, Calif. Immigration authorities shut down the center last fall amid accusations of fraud and embezzlement.
Bay Area regional centers, many of them in their infancy, still have a ways to go before showing results. In the meantime, they can showcase their projects and collect fees.
Fang’s regional center, for example, will charge a flat rate of $40,000 to $65,000 per investor, which she said was in the low- to mid-range of fees. That includes legal, immigration office and escrow account fees as well as the center’s own operational costs.
“Chinese people want to be told how much it all costs,” Fang said. “They do shop, because I think there are more and more projects out there. They’re more knowledgeable — and that’s good. It raises the bar.”
The first fund, which also will be marketed to potential investors in India and Russia, will seek $27 million from 54 investors for the Hunters Point project’s infrastructure, Fang said. The next fund will support the residential phase of the project.
Fang’s center also could get involved with the Treasure Island redevelopment project and a life sciences incubator, but those plans aren’t yet solid, she said.
After five years, investors’ principal is returned, plus interest, Fang said.
Calling all jobs
How much of a return on investment each project pays out and when is one of the points of increasing competition.
“I played basketball at Cal and I’m competitive,” said Henderson, who late last year bought the iconic Tribune Tower in downtown Oakland for $8 million as a home for several EB-5-funded businesses.
The Tribune Tower transaction itself was not an EB-5-funded project.
Henderson’s first EB-5 project is CallSocket, a new call center business that he said will employ 300 people at the building. The company will take another 30,000 square feet in Twitter Inc.’s new building on Market Street in San Francisco, Henderson said.
Henderson would not disclose how much has been raised for CallSocket, but he said his center is ahead of others in terms of fundraising.
“Everyone else has not raised a dime,” he said.
An 8,000-square-foot, EB-5-funded restaurant — one of at least six ventures Henderson expects to fund through his regional center — is planned for the ground floor at 13th and Franklin streets.
The regional center’s projects ultimately will be responsible for 2,000 jobs in Oakland and 500 in San Francisco, Henderson boasted.
Henderson won approval in December for his San Francisco Regional Center — not to be confused with Oakland developer James Falaschi’s Bay Area Regional Center LLC or the Fang group’s San Francisco Bay Area Regional Center — deliberately setting up shop in sparse offices on the eighth floor of the 21-floor building.
The word for “eight” in China sounds similar to “wealth” — so the main phone line for Henderson’s center also uses an “888” prefix.
The EB-5 program is scheduled for its regular three-year renewal by Congress by the end of September. It has a big supporter in Henderson.
“America is still the American Dream. Bad times in the United States are better than good times in a lot of other countries,” Henderson said. “You’re selling (America), but it’s not a sale. (Foreign investors) are interested in it, and it’s creating Americ
- Ginny Fang
- Tom Henderson
- Golden Gate Global EB-5 Investment Fund
- Hunters Point Shipyard
- Golden State Renaissance Ventures, Inc
- American Life, Inc.
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