Thursday, April 30, 2015

What's a "building"? Appeals court hears challenge to DOB's approval of Forest City's modular plan

Today at a session that begins at 2 pm, a state appeals court will hear an effort to overturn a judge’s December 2013 decision upholding the New York City Department of Buildings’ (DOB) conclusion that modular construction could proceed in a factory using cross-trained workers without the presence of licensed plumbers and fire suppression contractors.

While the case was brought in response to Forest City Ratner’s B2 modular tower, should the courts rule in favor of the appellants, two industry groups representing plumbers and mechanical contractors, it could have significant ripple effects regarding the growing modular industry in New York.

At issue is whether the modules built in the Navy Yards for the tower qualify as "buildings" under the law. They clearly are not standalone structures--and at least two modules are needed for an apartment--but as nearly-finished apartments they also differ from the pre-fabricated materials or equipment which otherwise can be built offsite.

One great irony surrounds the case. While Forest City pursued modular to save money, and city officials gave it their blessing at least in part to foster money-saving innovation, B2—the first modular tower—is delayed and faces huge cost overruns. But the legal papers, which rely on an outdated record, must assume that it is money-saving.

Even a successful argument by the petitioners—the Plumbing Foundation and the Mechanical Contractors Association—is not likely to affect the in-progress B2 tower.

But it could hamper Forest City’s professed desire to build more modular towers. And it could set up enormous—and seemingly contradictory complications, given that other companies are building modular components outside New York and thus the jurisdiction of the Department of Buildings.

The petitioners’ case

The petitioners argue:
The Code requires that all plumbing and fire suppression work done in connection with the construction of any structure in New York City, must be performed under the direct and continuing supervision of licensed master plumbers and fire suppression contractors. These licensing requirements are fundamental to the Construction Code, and essential to ensuring the safety and stability of the City's residential, commercial, and industrial construction projects.
According to the appellants, the Code makes no distinction between on-site and off-site work, so factory work shouldn’t be exempt.

Nor are the custom-built modules roughly equivalent to standardized items like Jacuzzis that are exempt from the Code's licensing requirements, because they are built to uniform national standard, say the appellants, though the judge in the lower court said it was OK to manufacture such “systems.”

The appellants warn that upholding this result could lead to unsupervised prefabrication of fuel gas piping in residential buildings and waste disposal piping for industrial uses.

A bulletin at issue

At issue in the case is an April 2011 Buildings Bulletin from the DOB's Office of Technical Certification and Research (OTCR), which established "temporary guidelines” for modular fabricators but did not require licensed plumbers and and fire suppression contractors.

After the industry groups contacted DOB, then Commissioner Robert LiMandri called it a drafting oversight ; a revised draft of the Bulletin was circulated January 2012, requiring such licensed contractors. But it was never issued, and the DOB in December 2012 issued a permit for B2.

In response, DOB says it never finalized the draft because it later analyzed the issue in more depth, and concluded that the codes’ licensing provisions do not apply to off-site modular assembly work.

After the City Council held an oversight hearing in January 2013, DOB General Counsel Mona Sehgal said DOB concluded that the modules constructed in Brooklyn should be treated as “materials" and thus the plumbing and fire suppression work was not subject to the Construction Code.

(At the hearing, industry representatives charged intervention by Atlantic Yards developer Forest City Ratner.)

Is it a building?

The relevant inquiry, according to the appellants, is whether work done on the modules means work done "in any building in the City,” with building defined "a structure used or intended for supporting or sheltering any use or occupancy" (emphasis added in brief).

The DOB, however, said a building or structure be immediately "viable for use and occupancy"or that it must "stand and function properly on its own”—language that the petitioners say is not found in the Code.

The petitioners point out that Forest City has frequently called the work on the modules "plumbing."
Plumbing is defined as work done "in connection with sanitary draining or storm drainage facilities, venting systems; and public or private water supply systems."

Does "in connection with" mean physically "connected to,” as the city says, or does it simply mean “related to”? The petitioners point out that, in traditional construction, the “plumbing system must be designed, built, and installed before the entire system is connected to the City's water, gas, waste and drainage systems,” but the work must be supervised.

And while the DOB can approve alternative "materials, design, methods of construction, or equipment,” according to the Administrative Code, that doesn’t mean they can suspend licensing requirements. The petitioners note that the City Council in 2008 could have but did not provide exemptions when revising the Code.

DOB response

In response, DOB notes that offsite materials must either be preapproved or separately found to meet technical requirements. It has approved approved numerous other site specific applications for modular construction, and a number of others are under review, the DOB said.

Given the standardization involved in modular factory work, the “rote nature” does not require the expertise of licensed plumbers or fire suppression contractors, DOB said, noting the steps it took to monitor the process. Forest City—in the form of its affiliate, B2 Owner—had to hire an independent licensed engineer to oversee the work.

Structures, to DOB, are defined as completed structures.

DOB also distanced itself from some positions taken by Forest City, such as that plumbing is defined as “currently” connected or that modular construction projects are not governed by the Code until ready for occupancy, the appellants pointed out.

Forest City response

Forest City’s attorney accuses the petitioners of being “[g]uided only by narrow economic protectionism.”

“As a result of the ability to use modular construction, which should cost considerably less to build than traditional construction buildings, B2 will offer half of its apartments as affordable housing,” Forest City says, in a claim no longer backed by facts.

Similarly, Forest City says that the modules “are being assembled at a factory located at the Brooklyn Navy Yard, which is owned and operated by FC+Skanska.” While that may be in the record, that’s no longer true, as the partnership has been split.

“The factory-based assembly of pipes into modules is not the installation of plumbing ‘in any building.’” Forest City says, saying modules are not buildings but rather components, as no module could stand alone.

Also, says Forest City, “pipes put into a module are not installed ‘within or adjacent to any structure’ for the same reasons that they are not installed ‘in any building.’” Beyond that, Forest City says, case law treats modular construction as a good, not a service.

Forest City points to a potential absurdity: “If licensed master plumbers must assemble all fabricated items except those carved out by the non-existent definition of ‘listed items,’ then a module built in Kentucky that gets trucked into New York City would have to be assembled by New York City licensed master plumbers in Kentucky,” the lawyers say. But DOB cannot force such a result.

The response

The appellants take aim at DOB’s effort to see a distinction between on-site and off-site plumbing and fire suppression work, saying it includes work in a “building,” which encompasses “any structure intended to support occupancy.”

They note that “DOB argues for the first time… that the phrase ‘in any building’ is a ‘term of art’” and DOB’s interpretation of that term is thus entitled to deference.” Does “in any building” mean “on-site work”?

The law states:
BUILDING. Any structure used or intended for supporting or sheltering any use or occupancy. The term shall be construed as if followed by the phrase "structure, premises, lot or part thereof" unless otherwise indicated by the text.
“It cannot be disputed that the modular units are ‘intended . . . for occupancy,’” the appellants say, and also “part” of a building, since the latter term is to be construed “as if followed by the phrase ‘structure, premises, lot or part thereof.’"

“Finally, DOB argues that compliance with the Code can be waived by approving an alternative supervisory scheme,” the appellants state. “But nothing in the Code permits DOB to ignore the Code’s black-letter requirement that all plumbing and fire suppression work be done by and under the supervision of licensed plumbing and fire suppression firms.”

They do not, however, address the potential impact of that result on out-of-state modular construction.

Wednesday, April 29, 2015

From “China’s Greenland” to the “World’s Greenland”: the vigorous (and potentially precarious) ambitions of the new Atlantic Yards majority owner

We got a good glimpse of the Greenland Group, the Shanghai government-owned company buying 70% of the remaining Atlantic Yards project, in a 3/31/14 Bloomberg News article that described its deals in Los Angeles and Brooklyn.

“In China, you climb a ladder where everything is floating and moving so fast,” Ifei Chang, CEO of Greenland U.S. Holding, told Bloomberg. “We come from a country of 1.4 billion people and a lot of economic growth.. We should all move very fast. We should catch the moment.”

As I wrote, it also suggested that Greenland, even more than Forest City, may feel no qualms about--as Chang described practices in China--stepping "on somebody else's feet."

From Greenland Overseas web page
The new 70% majority owner of Atlantic Yards/Pacific Park (excepting the arena and the B2 modular tower) is an enormous, growing company that is ever more ambitious in its worldwide expansion into key urban markets, as indicated in the map above.

It's part of an effort to diversify from China's overheated economy and more sluggish residential market, and to work in more stable markets, sometimes while joining with significant local partners.

Reasons for wariness

At the same time, Greenland along with other Chinese property developers is being challenged by growth. One major developer failed just last week. Some financial analysts see Greenland, which has bonds rated at the lowest rung of investment grade, as on the path to stability, while others suggest caution.

In other words, though Greenland's debt-funded development suggests deep pockets, it does not ensure safety. Greenland is vulnerable to major forces in China, as well as currency fluctuations and interest rate increases in the United States.

The bottom line for Greenland could change. It could be ever more desirous to drive a hard bargain both with public agencies in New York and even its junior partner, Forest City Ratner.

So it's worth recalling a warning at a 3/28/14 board meeting of Empire State Development, the gubernatorial-directed authority that oversees and shepherds Atlantic Yards.

Gib Veconi of the Prospect Heights Neighborhood Development Council focused on the state’s failure to consider the option of bringing in other developers. The pending Greenland transaction would not represent a multiple-developer strategy, Veconi observed, but rather a single-source development project, one "under the control of a partner exposed to one of the world’s most volatile economies.”

Veconi is not so critical today, now that Greenland and Forest City agreed to a new timetable he and others in BrooklynSpeaks pushed for the affordable housing. But he warned at the time that ESD was "further enshrin[ing] the unprecedented, failed franchise... to a single source developer."

Growing world ranking

As shown in the graphic at right, Fortune ranked Greenland at 268 in the 2014 Fortune Global 500, with $60.7 billion in assets, $41 billion in revenue, a 29.2% rise in revenues and a 11.2% increase in profits.

That was a significant rise from 359 in 2013 and 483 in 2012. The 2015 ranking should be even higher. (It likely will come in July.)

Greenland dwarfs Forest City Enterprises (parent of Forest City Ratner), its joint venture partner, which has nearly $9 billion in assets.

World expansion

According to the "About Us" page on Greenland's English-language web site, Greenland is not only expanding in real estate--"ultra-high rise buildings, large urban complex projects, high speed rail station business districts and industrial park development."

It is also developing "secondary pillar industries including finance, business, hotel operation, subway investment and energy resource." Yes, it is even building subways domestically.

The page on Greenland's world activities, excerpted below, describes a stunning expected rise in overseas business income, growing fivefold from 2013 to 2014, then doubling this year.

Its goal is to rank among the world's top 100 companies in five years, by 2020, while "build[ing] itself into a respectable transnational company featuring sustainable development, outstanding benefit, global operation, pluralistic development and continuous innovation."

The company will then transform from “China’s Greenland” to the “World’s Greenland”.

Lofty rhetoric, savvy operations

The language is notably grandiloquent:
Sticking to the idea of “never stand still with complacency and work hard with an innovative spirit to race to the top”, we firmly believe that an enterprise which dares to have a dream and works hard to realize its dream can definitely create greater miracles. We are fully aware of our grand responsibilities and historical missions to become a global comprehensive operating enterprise of real estate development with a world-class scale and competitive power. In the future development, Greenlanders will keep passion with a pioneering spirit, creating dreams, realizing dreams and going beyond dreams, and aim to turn all the impossibilities possible and write a brand new splendid chapter for the future.
But Greenland is not shy about pursuing advantage.

Consider Greenland's use of EB-5 funding for Atlantic Yards (and other projects), and the way the marketers of such funding quickly used a photo (right) of Mayor Bill de Blasio and Chairman Zhang Yuliang to convey New York City government backing both for the project and for Greenland.

The Los Angeles Times reported 3/27/15 how Greenland, with cooperative local politicians, seeks state legislation to exempt signage and giant electronic billboards in a portion of downtown Los Angeles near its Metropolis project from state limits on their number and location.

Critics call it blight. Assemblyman Miguel Santiago said it would spur construction and provide jobs--i.e., deliver the profit Greenland thinks it needs. (Note that Greenland is one of multiple Chinese developers investing in Downtown L.A.)

New opportunities

Greenland, reported Bloomberg last November, had already found buyers for 60% of the Metropolis condo project, with one-third of the buyers from abroad. (It's unclear how many were from China.)

Greenland, however, was having trouble finding new projects in Los Angeles, Chicago, and other cities, because of high prices.

 Greenland's focus, as Reuters put it, is "on the first-tier cities in developed countries, including Chicago and San Francisco--both cities, I'd note, where Forest City is active.

The "dirtiest" industry

In a Fortune profile last July China's baddest billionaire builder, Yan Jiehe, founder of Pacific Construction Group, China’s largest privately owned builder, offered an interesting quote:
“The industry we’re in is the dirtiest one,” he says. “But what we do is very transparent, very pure. What really happens is that if some people bribe officials, they get imprisoned.” Yan says he’s friends with top officials now in jail. And because Pacific walks away from deals if officials ask for bribes, he’s not concerned about the government’s current crackdown.
That doesn't implicate Greenland, of course, but surely they know that world.

Greenland's growth

Since 2012, Greenland has expended to 13 cities in nine countries on four continents. Among the locations are LondonMalaysiaTorontoSouth Korea, and Australia, among other places.

The Australian, on 9/19/14, published a revealing interview, Greenland Holding’s Zhang Yuliang and the Chinese property investment push, which described Greenland's whirlwind entry into Australia.

Greenland and other Chinese firms have often paid a premium to win sites from domestic firms, but that may not be fiscal foolishness but rather a focus on the long-term.

From the article:
Born in Shanghai in 1958, Zhang was the director of the residential department of the Shanghai government’s agri­cultural committee before setting up Greenland Development in 1992 with funds from the city government, which still owns 51 per cent of the company. He has been at the helm through the company’s 22-year rise....Shaoqun Tan, the chairman of Fuxing Huiyu Real Estate, says the Chinese government has actively encouraged big real estate companies to expand overseas so that they can keep growing without overheating the local market.
A questionable outlook

The Real Deal reported 4/23/15 on the default of Shenzhen-based megadeveloper Kaisa, suggesting it presaged other defaults among developers that have borrowed too much. 

Kaisa defaulted on a bond denominated in dollars; since the dollar has risen in relation to the Chinese Yuan--the currency in which most developer income is denominated--that can stretch them.

At least among the Real Deal's list, Greenland Holdings appears to be the developer working in New York with the largest amount of recent dollar bonds, issuing $2.7 billion in 2014.

Though Greenland has high debt levels, it is rated investment grade. Its debt level is relatively high: 70 percent of capitalization, but Moody's, reported the Real Deal, expects Greenland “to manage its debt leverage down from the current level through contracted sales growth.”

Will there be more defaults? Bloomberg cited Standard & Poor’s as warning “more defaults cannot be ruled out,” though of course that doesn't mean Greenland. (Moody's, on the other hand, is more optimistic about Chinese developers.)

Greenland's fluctuating rating, and signs of concern

Bloomberg reported last November that Greenland's corporate stability was under some question, as ratings company Standard & Poor’s had in September downgraded the company's outlook to negative from stable.

“Greenland Group’s aggressive growth appetite and debt-funded expansion will constrain its financial risk profile in 2014 and 2015,” S&P said, according to Bloomberg. The developer “will continue to make significant land acquisitions and incur substantial construction costs over the next 12-18 months to support its growth plans, including in overseas markets.” Zhang told Bloomberg that the company's growth was healthy.

On 10/9/14, Moody's rated Greenland's proposed dollar bonds Baa3, the lowest investment grade, noting that debt had increased because of slow cash collections. However, increased equity meant the debt level had fallen to about 70% from 75%

Moody's said Greenland's 70-75% debt leverage and near-term earnings/interest ratio of about 2.0-2.5x "weakly position Greenland Holding at its Baa3 rating level and any deviation from such expectations would result in negative rating pressure." (Earnings are expressed as EBITDA, or earnings before interest, taxes, depreciation, and amortization.)

Reduced debt leverage, increased earnings, increased liquidity, and access to offshore funding could upgrade Greenland's rating, Moody's said. On the other hand, declines in profit, weak sales, an increase and debt, as well as increased risk in Greenland's non-property businesses (like energy)  could downgrade the rating.

Moody's stated:
The key credit metrics that Moody's would consider for a rating downgrade are adjusted debt/total capitalization above 70%--75%, and EBITDA/interest below 2.5-3.0x on a sustained basis.
A reduction in the Shanghai government's ownership level in Greenland would also be negative for the rating.
(Emphases added)

Moody's offered its first-ever rating 10/7/13 to Greenland, just four days before it and Forest City signed a tentative Atlantic Yards deal. Moody's stated:
"Greenland's Baa3 issuer rating reflects its large scale, good track record in delivering strong growth in the property development business and leading positions in its key markets, such as Shanghai," says Franco Leung, a Moody's Assistant Vice President and Analyst.
Greenland's rapid expansion of its property business has predominantly been debt funded. Moody's expects its debt leverage -- as measured by debt/total capitalization -- will remain at a high level of around 70% in the next two years. EBITDA/interest coverage will remain around 3.5x.
Note that 3.5x figure is well above the current near-term earnings/interest ratio of about 2.0-2.5x. Indeed, Moody's stated:
The key credit metrics that Moody's would consider for a rating downgrade are adjusted debt/total capitalization above 70%--75%, and EBITDA/interest below 3.5x in the next 1 -- 2 years.
(Emphasis added)

In other words, if things don't get better, Greenland could get downgraded.

The Shanghai connection

In another release, Moody's stated:
Founded in 1992, Greenland Holding Group Company Limited is a China-based company. It was the country's second-largest property developer by contracted sales in 2013. The Shanghai State-Owned Assets Supervision and Administration Commission (SASAC) has an effective shareholding of about 60.7% in Greenland.
Why is that connection valuable? As Moody's explained in a 5/26/14 release:
Greenland's announcement of the proposed [domestic bond] issuance comes at a time of tightness in onshore liquidity, demonstrating that the company has the strong ability to access funding due to its status as a local state-owned enterprise.
New diversification

Greenland's Hong Kong subsidiary, Reuters described 3/27/14, is seeking for banking and e-commerce partners for its finance division, an effort to diversify beyond real estate. Reuters reported 1/30/15 that Greenland sought to "buy an insurer or private bank in Europe in a push to diversify its financial services portfolio." That could take advantage of the low Euro.

By 2020, Greenland expects one-third of its profit to come from financial services, an executive said.

Greenland in North America (see separate post regarding Atlantic Yards/Atlantic Plaza)

Greenland in Europe (from the web site)

 Greenland in Asia

Greenland in Australia

Making a splash

I wrote last June about how Greenland in December 2013 bought advertising signage at Times Square, stating "Here We Come," with Greenland being described as "A Skyscraper Specialist from China." (See bottom right in screenshot below.)

Greenland wants to come in big. The Toronto Star reported 9/18/14 that a property seller in Toronto said Greenland "wanted a trophy project here."

No wonder the company's web site highlights photos of Zhang with world leaders--and, as you can see below, New York Times publisher Arthur Sulzberger.

As the New York Post recently reported, Greenland chairman Zhang Yuliang would not sign the Atlantic Yards deal without meeting then-Mayor Michael Bloomberg.

That explains the photo at right taken in October 2013, posted on Greenland's web page for news releases but not by the mayor's office, as I wrote last June.

The Chinese expansion

Bloomberg reported 12/9/13, China Greenland Sells $250 Million Sydney Apartments at Open, noting that "the expansion of Chinese companies abroad follows an 'explosion' in Chinese individual purchases of luxury western products, overseas holidays and homes."

Greenland is by no means the first outside developer in Australia, where competitors from Singapore, Hong Kong, Malaysia, and Japan already do business.

Similarly, Greenland and fellow Chinese developers are hardly the first international developers in New York, with firms from Canada, Japan, Germany, and other countries long established.

Six major Chinese investors in NYC, and more coming

Last August, The Real Deal reported, These 6 Chinese real estate titans are snapping up NYC property, noting that they are looking abroad for stability. They include:
  • China Vanke, the largest residential developer in China
  • Greenland Holding Group, a Shanghai city enterprise specializing in "ultra high-rise towers" (and, of course, the new Atlantic Yards/Pacific Park investor)
  • Fosun International, China’s largest closely held conglomerate
  • Zhang Xin and Pan Shiyi, a wife-and-husband team who head SOHO China, the country’s largest developer of high-end office space
  • Wang Jianlin, the Wanda Group chairman and China’s richest man
  • XIN Development, the U.S. arm of the Beijing-based homebuilder Xinyuan Real Estate 
Surely more are coming. Consider this 4/21/15 Bloomberg article Vornado, Related Seeking Chinese Partners for Development:
“We do have aspirations to do some things which would involve Chinese capital and Chinese investors,” Steven Roth, chairman and chief executive officer of Vornado, said at a forum Tuesday hosted by the China General Chamber of Commerce at Bloomberg LP’s New York headquarters. “It’s likely that Vornado would do something important with Chinese investors over the next year or two.”

Chinese institutions are becoming a formidable force in New York City real estate as they seek to invest stockpiles of cash. Beijing-based Anbang Insurance Group Co. bought the landmark Waldorf Astoria hotel in February for $1.95 billion, the largest deal ever for a U.S. hotel.
...Skyrocketing prices for New York’s best buildings are the biggest impediment for foreign buyers seeking commercial-property deals in the city, said Extell’s [Gary] Barnett. The Chinese are wary of repeating the mistakes Japanese investors made in the 1980s when they bought at the top of the market and took huge losses in the following decade, he said. 

Coming clean? Greenland claims Atlantic Yards/Pacific Park would include "middle and upscale apartments"

So, what does the Greenland Group really think of Atlantic Yards/Pacific Park?

Well, a partial clue on the company's English-language website emerges, despite the awkward translation into English.

It's not the errors regarding "New York Atlantic Plaza."

(Surely this was penned before the name change to Pacific Park, and not updated.)

Nor is it errors in the text, which claims the project is in the "southeastern corner of Brooklyn NY" and that it enjoys "Brooklyn’s largest central park in its southern part."

(Rather, the project is in the center-west of Brooklyn, and Brooklyn's largest central park--Prospect Park--is to the south.)

How affordable?

But this was striking: "the project aims to construct a comprehensive community with middle and upscale apartments."

Even given the translation, "middle" apartments are a rather skewed approximation of "affordable," with no acknowledgment of low-income households or the poor. Perhaps they're trying to paint a rosy picture for their Chinese audience. 

Or perhaps, having negotiated two "100% affordable" buildings skewed to middle-income households, maybe they consider that a fundamental shift in the project.

Tuesday, April 28, 2015

From latest Construction Alert: 5-6 nights of noisy overnight work planned at Atlantic/6th; B2 work nudged back

Well, by planting the news that the planned green roof on the Barclays Center will be installed soon, developer Greenland Forest City Partners also distracted from a significantly disruptive series of work on the Atlantic Yards/Pacific Park project.

According to the latest two-week Atlantic Yards/Pacific Park Construction Update, dated April 27 and circulated yesterday by Empire State Development after preparation by Greenland Forest City, there should be be five to six nights of noisy, disruptive overnight work at the intersection of Atlantic Avenue and Sixth Avenue.

(The document is at bottom; it was released yesterday at 6:14 pm, well after the Wall Street Journal reported on the green roof.)

No date was provided for the work, but a supplemental alert should be issued. Note that this is different from the planned one night of overnight work on Thursday, April 16 that was announced but did not come to fruition.

Though "temporary barriers with sound blankets will be installed around the work area to dampen the sound," the equipment includes noisy hoe rams, which are "powerful percussion hammer[s] fitted to an excavator for demolishing concrete structures or rocks."

Note that a 2012 report by a consultant to Atlantic Yards Watch suggested that the noise mitigation plan for Atlantic Yards go beyond the city Noise Code and consider measures taken by other major construction projects such as the Boston Central Artery and Tunnel Project, which banned the use of impact devices like hoe rams at night. That hasn't happened.

Crane timelines

Also, as noted in the Wall Street Journal, the crane planned for Flatbush Avenue to install steel on the roof will be assembled during the weekend of May 16-17.

As shown in the timeline at right, the original plan was to install that crane in January, well after the Atlantic Avenue crane was removed. Instead, they will both block traffic.

B2 work nudged back

Also note that plans for the B-2 modular tower have been nudged back slightly. The document states:
  • Preparatory work for the erection of the modules on site will be completed during this reporting period, and work related to the erection of modules for floors 11, 12, and 13 is expected to commence in May.
Though a delay is not indicated in the new document the previous document similarly stated:
  • Work related to the erection of modules for floors 11, 12, and 13 will commence during this reporting period.
Regarding the green roof, from the document:
  • Large steel truss deliveries to the B3 crane position will continue during this reporting period. Deliveries will be made to the B3 during overnight hours. The Atlantic Avenue crane will not be used for any more truss deliveries. Sedum delivery is expected to commence in this reporting period and will be lifted to the roof utilizing the Atlantic Avenue crane.
  • Subject to weather and receipt of necessary approvals, the B3 crane will be disassembled the weekend of May 8-10 and the Flatbush Avenue crane will be assembled the weekend of May 16-17.
Regarding LIRR Yard Activities - Block 1120 & 1121, from the document:
  • Foundation footing and pier as well as retaining wall installations will be ongoing.
  • Demolition of Atlantic Avenue retaining wall in Block 1120 will begin during this reporting period.
Note that the previous document stated that demolition would begin in that reporting period.

LIRR Yard Activities – Night/Weekend Work, Atlantic & Sixth Avenues, from the document:

During the overnight hours in this reporting period:
  • The contractor will be installing mini piles, tie down anchors and trenching across the 6th Avenue intersection of Atlantic Avenue.
  • The trench will be covered with road plates after the shoring and conduits have been installed.
  • While this work is underway, the crosswalk along the south side of Atlantic Ave and the sidewalk along the east side of 6th Avenue will remain open; the northbound travel lane between Pacific Street and Atlantic will be closed. Individuals looking to cross to the north side of Atlantic Avenue will be directed to do so at the intersection of Ft Greene Place and Atlantic Avenue.
  • Flagmen will be posted at the intersections of Pacific Street/6th Avenue and Atlantic Avenue/6th Avenue to direct traffic and pedestrians.
  • Given the need to close the intersection at Atlantic Avenue and 6th Avenue, this work is being performed at night pursuant to the DOT work permit. Work will commence after 9:30 pm and is expected to take 8 hours. While the work is underway, the contractor will have directional lighting in the work area and will be using various equipment, including excavators, tieback/minipile drilling rig, hoe rams with a mounted jackhammer and a boom truck. This work will require 5-6 nights of overnight work, and the exact dates will be determined after the issuance of necessary permits. Temporary barriers with sound blankets will be installed around the work area to dampen the sound. A supplemental update will be issued when the permits for this work are issued.
Atlantic Yards/Pacific Park Brooklyn Construction Alert April 27 2015

Nets make back page of tabs after they tie playoff series with favored Hawks

The Brooklyn Nets, inconsistent but dangerous, last night tied their playoff series with the Eastern Conference top-seeded Atlanta Hawks at 2-2, having won both their games at home. That sets up the possibility of an upset.

The news was enough to make the back page of the tabloids, but only as a secondary mention.

Monday, April 27, 2015

Forest City plants green roof article in WSJ; despite promises, Flatbush crane to be installed before Atlantic crane removed

I think we now have a clue why the Atlantic Yards Community Update Meeting planned for April 22 was recently rescheduled to May 12: developer Greenland Forest City Partners wanted to plant articles about the progress of the Barclays Center's new green roof.

(They don't pitch articles about, say, their deceptive EB-5 tactics.)

The first comes today in the Wall Street Journal, a mostly positive portrayal headlined Barclays Center Prepares to Go Green, with the subtitle "Thousands of plants will form the largest green roof on a U.S. sports arena."

The gist:
Hundreds of thousands of plants will be moved to the top of Barclays Center starting this week, the final stage in a plan to complete the largest green roof ever put on a sports arena in the U.S.
Three acres of sedum, a flowering plant that is drought-tolerant and requires little maintenance, will be brought to the arena from Connecticut. The plants will cut down on noise from Barclays events and improve views for residents of apartment buildings that developer Forest City Ratner Cos. is planning for the area.
The article does note noise complaints, a worker death, and an unspecified price tag.

Timing and traffic

Note that, according to the original project timeline, as shown in the graphic at right, the cranes on Atlantic Avenue crane and at the B3 site were supposed to arrive in August and be removed by October and January, respectively.

Instead, they both arrived in August, and both remain, as work slowed through a cold winter.

The Flatbush Avenue crane was supposed to be erected in January, only after the Atlantic Avenue crane was gone. After that, there were to be two winter months with no action. Instead, because of delays, they worked through the winter.

So that means the roof installation is proceeding (barely) on schedule, beginning in April, but only because of that winter work.

From the article:
According to Forest City Ratner, the cranes will occupy Atlantic and Flatbush avenues, both major traffic arteries, at the same time during a stage of the installation. Forest City Ratner expects to assemble the Flatbush Avenue crane on the weekend of May 16; the Atlantic Avenue crane is already there.
Norman Oder, author of Atlantic Yards Report, a blog that follows the project, expressed concern over possible traffic problems.
“In the original timeline presented to the community, construction was not supposed to close pieces of Atlantic and Flatbush avenues at the same time,” said Mr. Oder. “It’s a burden to the surrounding area.”
Forest City should have been asked why they couldn't stick to the original plan.

My statement was hardly alarmist; after all, Kenneth Adams, then CEO of Empire State Development, the state agency overseeing and promoting Atlantic Yards, last November called traffic on Atlantic "a mess" around the crane.
An ominous prediction

The close of the article:
As for the disappearing Barclays logo, Mr. Sanna said: “We are thinking up creative ways to keep the logo…We just haven’t decided where.”

MetroTech metastasizes: BID expanding to "Brooklyn Cultural District," Ratner's malls (but not Barclays Center)

The current boundaries, before expansion, end at Fulton St.
Would you believe that Forest City Ratner's Atlantic Center mall might be considered part of MetroTech?

Well, once the planned expansion of the MetroTech Business Improvement District (BID) is enacted, it will be.

Instead of starting a new Business Improvement District (BID) from scratch to encompass the Barclays Center/Atlantic Yards, Forest City Ratner's malls, and cultural institutions nearby--as was proposed but ran aground in mid-2013--a different solution has emerged.

The MetroTech BID, run by the Downtown Brooklyn Partnership (DBP), which is heavily influenced and led by Forest City, is expanding--in a rather jagged form to the southeast--to "create a maintenance entity covering areas of the newly-established Brooklyn Cultural District."

That includes the Atlantic Center and Atlantic Terminal malls, the Brooklyn Academy of Music (BAM), BRIC, Theatre for a New Audience, and other cultural institutions. The expanded BID would also support programming at two plazas near BAM.

The extended boundaries are in jagged red outline; note
that only part of the MetroTech BID is pictured; also,
this map reflects an expected FAB Alliance expansion
The boundary does not include the Barclays Center or any other part of Atlantic Yards/Pacific Park, though the expansion sets up the possibility that the BID could expand further.

In essence, while adding services that may well be welcomed by visitors and the entities involved, the extension of the BID also helps concentrate power in a private entity run by property owners, not public agencies.

Forest City Ratner's Ashley Cotton chairs the MetroTech BID, which has several other Forest City representatives.

Public hearing May 5

As disclosed in a recent announcement from Community Board 2, a public hearing on the BID expansion will be held at 6 pm, Wednesday May 5.

That's prior to the next regularly scheduled meeting of the CB 2 Economic Development and Employment Committee, at Jonas Board Room, Metcalfe Hall, Long Island University, Flatbush and DeKalb avenues.

The Committee may make a recommendation to Community Board 2, which would be considered at CB 2's May 13, 2015 general meeting. The expansion ultimately must be approved by the City Planning Commission and the City Council.

A new extended shape

Nudge the inset (red) one block to the east, and see how
 the BID continues (jagged red outline) to extend to the SE
The expansion would extend the MetroTech BID, which is currently an irregular square centered around MetroTech plus a wedge to the southeast, further to the southeast in a very jagged form.

The oddly shaped growth--I'd call it a metastasization--would squeeze the BID between not only two BIDs run by the Downtown Brooklyn Partnership, the Fulton Mall Improvement Association and the Court-Livingston-Schermerhorn BID, but also BIDs that might plausibly have expanded to encompass parts of the expansion area.

Those other entities are the FAB Alliance, the Atlantic Avenue BID, and the North Flatbush BID.

The BID extension includes a small segment to the east along DeKalb Avenue that vaguely suggests an reversed Florida and one to the southeast that looks like a more rectilinear Central America.

Because this is a BID expansion, rather than a launch from scratch, a quieter public process ensues. A public hearing was apparently held in November 19, according to the Downtown Brooklyn Partnership, but it was hardly publicized, as far as I can tell.

According to the New York City Department of Small Business Services' (SBS) management guide for BIDs, the steps for increasing BID boundaries are mostly parallel to the 11 steps necessary to create a BID and obtain legislative approval.

The statement of need

The Downtown Brooklyn Partnership, which did not respond to my queries, has issued a statement on its web site:
The Downtown Brooklyn Partnership, which oversees operations for the MetroTech BID, is working with local stakeholders to create a maintenance entity covering areas of the newly-established Brooklyn Cultural District. A steering committee of MetroTech BID Board Members and stakeholders from the Brooklyn Cultural District was established, and after lengthy discussions and community engagement, it was decided to expand the MetroTech BID by creating a “sub-district” encompassing the area from DeKalb Avenue to South Portland Place along Flatbush and Atlantic Avenues. This area includes several destinations including BAM, Theatre for a New Audience, Mark Morris, BRIC, and the Atlantic Terminal, Mall, and Center. In addition to these attractions the Brooklyn Cultural District will also see several new marquis [sic] public spaces come online in the next few years, including a completely renovated Fox Square and a new 16,000 sq ft plaza as part of the BAM South Site on the corner of Lafayette and Flatbush.
In order to maintain these areas, this “sub-district” will have its own budget and assessment roll but will become part of the MetroTech BID. The MetroTech Board of Directors approved to amend the MetroTech BID District Plan to allow for this proposed expansion. The steering committee which led the expansion effort will host a public hearing on November 19 from 5-6pm at the Learning Library Center at LIU Brooklyn, Room 124 (enter on DeKalb Avenue between Flatbush and Hudson).
Note that the "preliminary boundaries of expanded BID," as noted in the graphic above left, more precisely represent the preliminary expansion zone of the BID.

Actually, that map isn't big enough to show the full BID's western section. Above right, I've attempted a mash-up to show the future shape of the BID.

Expansion budget

The proposed budget of $771,533, according to a document shared by Community Board 2 District Manager Robert Perris after my inquiry, includes:
  • $165,873 for sanitation
  • $58,500 for landscaping
  • $47,550 for maintenance
  • $46,550 for the Arts Plaza (next to Theatre for a New Audience on Ashland Place)
  • $161,800 for the South Site Plaza
  • $50,000 for programming
Most of the remaining sums would go to administration and reserve.

According to the document, the four cultural organizations represented on the Steering Committee (BAM, BRIC, Mark Morris Dance Group and Theatre for a New Audience) have discussed offering contributions of $2,500 each to serve as a seed fund for cultural programming in public spaces, to work on such programming, and have suggested discounts for residents of buildings located in the BID, and potential community use of cultural spaces for meeting and programming.

Perris told me, that according to the feedback he's heard, most property owners favor the BID because it will give them more services. Some residential property owners within the boundaries have expressed concern about the assessment, but they're a fraction in the sub-district. 

Sunday, April 26, 2015

The mysterious case of China City of America, now Thompson Education Center, an EB-5 project upstate

I'm catching up on a lot of news related to the EB-5 program, which has helped the developers of Atlantic Yards/Pacific Park raise $477 million in cheap capital, with another $100 million to go. Perhaps the clearest summary of the lure and sketchiness of the program came in a February 2012 quote from an EB-5 fundraiser to The Daily:“It’s just a way of being able to get free money, basically, to build all sorts of projects.”

Why might Long Island businesswoman Sherry Li put $55,000 into Gov. Andrew Cuomo's re-election campaign?

I can only speculate that it's because she's trying to build a controversial, maybe fantastical project upstate called "China City of America," using EB-5 funds from immigrant investors.

Surfacing in 2013

The outline of Li's ambitious, extravagant idea first got wide play in the 12/4/13 New York Post, which, in Mysterious plans to build upstate NY ‘China City of America’, reported:
A Long Island businesswoman wants to build a massive “Chinese Disneyland” in the Catskills — which would include an amusement park, huge mansions and a “Forbidden City” laid out according to the principles of Feng Shui.
The China City of America scheme could bring thousands of wealthy Chinese immigrants to the tiny Sullivan County town of Thompson, under a federal program that lets foreigners get visas by investing $500,000 in the US.
The mastermind behind the plan, Sherry Li, says the development would eventually draw $6 billion in foreign investment.
From previous China City website
Li's lawyer, Larry Behar, in a 3/2/12 news release, described attending an EB-5 Convention in Shanghai. He reported: "China City of America began its first soft marketing to a huge audience where Mr. Behar was guest speaker along with President Sherry Li."

A critical report

The Post reported how the project generated opposition, and quoted analyst David North of the Center for Immigration Studies (CIS), who had dissected the proposal.

In his report, China City: A perfect storm EB-5 proposal in upstate New York, North noted that, beyond "the usual critical comments about the shaky financial prospects and dubious job-creation claims of the promoters," this project had a "budget bordering on the bizarre," a potential major ecological impact, the controversial record of local allies, and even a charge from "within the Chinese community"--actually Falun Gong--"that China City is a stalking horse for the Chinese communist government in Beijing."

North noted how the promoters published a "Notice of Action," which could give an impression of official approvals but merely meant the federal government had received an application from China City Regional Center LLC, to gain authorization to collect investments. The form, North noted, had been already redesigned to look less misleading.

China City’s local allies, North noted, were a fracking enthusiast, Thomas J. Shepstone, and Simon Gelb, who currently owns the 2,000-plus acres allegedly destined for China City and previously built the Hasidic village Kiryas Joel in adjacent Orange County

A response

In response, Li issued a press release 12/12/13 on the China City of America web site, headlined "China City of America Becoming Reality in Catskills":
Monticello, NY, December 12, 2013 --- China City of America, a conceptual plan that encompasses multi-use commercial, residential, business, education, amusement and entertainment components, will be built in Sullivan County, NY over multiple years, according to Sherry Li, CCOA's Chief Executive Officer. We appreciate the public's interest in this project, Li said.
...Larry Behar of the Behar Law Group, who serves as CCOA's EB-5 immigration attorney, said that CCOA has complied with USCIS regulations and timely responded to two USCIS RFE (Request for Evidence) of the regional center designation originally filed on December 13th, 2011. The CCOA professional team also consists of top EB-5 economists, business plan writers, SEC attorneys, EB-5 immigration attorneys and feasibility study evaluators. 
The press release quoted Behar as charging North with slander for suggesting that the project is a stalking horse for the Chinese government. (There's been no further indication of Chinese government involvement.)

Behar also pointed to the Center's "long history of anti-immigrant positions."

(CIS says it has a "low-immigration, pro-immigrant" vision of an America that admits fewer immigrants but affords a warmer welcome for those who are admitted." The Southern Poverty Law Center and others call it nativist and anti-immigrant. Without evaluating the rest of their work, I'd say North's work on EB-5 is a generally incisive counterweight to the enormous propaganda in favor of the program.)

Li and Lianbo Wang, also associated with China City of America, each gave $2000 in 2013 to the re-election campaign of EB-5 supporter Rep. Robert Goodlatte (R-VA), as I learned.

An AP follow-up

The Associated Press followed up with an article published 1/19/14 in the Washington Post, Skepticism surrounds China City plan for upstate New York:
The people behind China City have since dialed back the pace of their plans, now proposing to start with a college, dorms and faculty housing on 575 acres solely in Thompson after strong opposition surfaced in Mamakating. And the original Web site touting the project appears to have been taken down.... Li said the school, known as the Thompson Education Center, would be a tax-paying, for-profit college enrolling 900 students at first, with a curriculum concentrated on business, art and entertainment majors..
The article quoted North: “It doesn’t matter to me if this is all Chinese or all Swedish. This is a bad project." Li said there was no Chinese government money in the project.

A project in limbo

Only later last year did a follow-up emerge. The Commercial Observer did some tough reporting--anomalous for the local press regarding EB-5--on 9/8/14, EB-5: Ambitious China City Project Sits in Limbo:
The original plan was submitted to U.S. Citizenship and Immigration Services in December of 2011, with 39 percent of the capital stack for its first of three phases of construction set to come from foreign investors through EB-5.
Alas, the application is still pending and the scope of the project seems to continuously, and mysteriously, shrink. The notorious project has come to represent the pitfalls of using EB-5 in the New York development world, sources told Mortgage Observer.
The project, now cut to 570 acres, omits the amusement park and focuses on the Thompson Learning Center.

The Observer pointed out that "the $65,000 non-refundable deposit each investor must contribute has raised some eyebrows." Neither Li, Behar, nor the project's local counsel would answer questions.

Since then, the project has issued numerous feel-good press releases, such as China City of America Can Assist the Struggling Upstate New York Economy and Thompson Education Center Hosts a Project Information & Job Opportunity Event in Sullivan County.

But there's little evidence the project has made concrete progress. A 1/24/15 op-ed in the Times Herald-Record, Paula Medley wrote My View: Thompson group's credibility, plausibility must be questioned:
A flawed paid advertisement (Dec. 26, 2014) by Thompson Education Center (TEC), formerly Thompson Learning Center and China City of America, compels this response by the Basha Kill Area Association (BKAA), a Sullivan County-based environmental group whose mission since 1972 "has been to protect the Basha Kill wetlands and surrounding area from ecological degradation, to promote education and respect for the environment in general and to promote the area's beauty."
...Significantly, this ad not only ignores the Basha Kill connection, but omits referencing the Harlen Swamp Wetland Complex, a unique ecosystem encompassing 148 acres of TEC's 573 acre property and listed as a conservation priority in the 2009 Plan for providing important habitat for varied wetland species.
...Further eroding TEC's credibility is the sponsor's determination to seemingly build on every available square inch of land that is not wetland or a wetland buffer, yielding a proposed development totaling 4.5 million square feet in the Town of Thompson's most restrictive zoning district - rural residential - where such high density construction is prohibited.
Medley noted that "TEC currently has not been approved as an EB-5 Regional Center" and argued that it manipulated local employment statistics.

A CUNY panel next Wednesday night: I'm talking Greenland and EB-5

Saturday, April 25, 2015

As NHL Commissioner questions Nassau Coliseum likelihood for Islanders stint, transcript shows Yormark misleadingly said question would be resolved last year

National Hockey League Commissioner Gary Bettman, apparently spooked by previous plans to revamp/replace the Nassau Coliseum that ran aground, yesterday said "I'm not sure it's fair to give the fans -- even the people who live in Nassau County -- any hope that something's coming next,"
according to Newsday's Jim Baumbach.

"I'm not going to engage with Nassau politicians on any of that," Bettman said. "They, at least to this point, they've had their time to do what has to be done. If something else materializes, you know, we can all deal with it at the time. But I'm not focused on anything going on because the track record is terrible."

Nassau County Executive Ed Mangano, noting the planned renovations led by Barclays Center developer Bruce Ratner, countered,: "I believe that if Mr. Bettman likes the Barclays Center, he will similarly like the renovated Nassau Veterans Memorial Coliseum."

I think it's certain that the Nassau Coliseum will be renovated. More in question is whether Ratner's promise that the Islanders will play two exhibition games and four regular-season games there each year. 

As Bettman noted, it's too early to ask for or grant permission, nor would he speculate on whether it would be approved.

The 2013 discussion, and a misleading promise

Barclays Center CEO Brett Yormark expressed near-certainty about the six-game stint at a 9/23/13 Nassau Legislature hearing, as shown in the transcript at right.

Legislator Delia DeRiggi-Whitton stated: "There's a letter that I have a copy of from [then Islanders owner] Mr. [Charles] Wang which is dated June 6th which just states that he is ready to commit to the six Islander games annually at the Coliseum subject to the NHL approval. Do you know if we were able to obtain that approval?"

Ratner responded that it had not yet been proposed, and Yormark seconded that.

"We feel very confident that the Dolans [Rangers owners] are going to want hockey back here," Yormark said. "They're good citizens from Long Island and we've got to give them more credit than thinking that they won't allow it to happen. So between the NHL and the Dolans, we think we'll get that done for sure."

"But as of right now we don't have a firm commitment on the six games yet?" DeRiggi-Whitton asked.

"We don't and we didn't expect to have it now," Yormark responded. "We expected it to be an ongoing process over the next couple of months." That meant by early 2014.

Actually, as we now know, that process could not launch until the Coliseum gets renovated.

As Newsday reported, if the Islanders don't play in Nassau, the contract would require Ratner to pay Nassau County $1 million more each year in rent--apparently the expected revenue.

Friday, April 24, 2015

As EB-5 regional center program faces renewal vote, questions of reform (or should it just be killed)

I'm catching up on a lot of news related to the EB-5 program, which has helped the developers of Atlantic Yards/Pacific Park raise $477 million in cheap capital, with another $100 million to go. Perhaps the clearest summary of the lure and sketchiness of the program came in a February 2012 quote from an EB-5 fundraiser to The Daily:“It’s just a way of being able to get free money, basically, to build all sorts of projects.”

Source: Brookings Institution, February 2013.
The number is now 646!
Numerous real estate developers and other entrepreneurs have figured out that the path to cheap capital is the EB-5 program, particularly via regional centers, private (in almost all cases) investment pools federally authorized to raise funds overseas.

They compete especially in China, where millionaires eager to get their children into American schools or to get a stable foothold in the United States prize getting the green card and are willing to accept low interest rates. 

Meanwhile, regional centers can count temporary construction jobs as part of the required ten jobs per $500,000 investment, and can calculate the jobs based not merely on the immigrants' funds but the entire project budget.

No wonder the number of regional centers has boomed, from a mere handful as of 2007 up to more than 200 by February 2013 and now an astonishing 646. They're competing for only 10,000 visas under EB-5, so many of them are dormant--or waiting for an expansion of the program.

Given the enormous profit potential--the regional centers can charge fees to the investors and keep a portion of the interest rate spread--backers are keen to maintain the advantage.

Renewal pending

The enormously popular regional center component of EB-5 is technically a pilot, having been renewed every three years. It expires on September 30, 2015, and it faces questions over its renewal and the terms thereof, such as raising the minimum investment from $500,000 to $800,000--which still may be too low.

Defenders of the program say that the problems with EB-5 are the result of a few bad apples. But some federal reports criticize the fundamental design of the program, including the inability to truly count jobs--which can be credited to an economist's estimate--and the abuse of Targeted Employment Areas (TEAs), which are supposed to define an area of high unemployment but are often gerrymandered.

As I've written, some of that is in the hands of EB-5 skeptic Sen. Charles Grassley (R-IA), who seems most concerned about national security issues.

To some degree the legislation should be shaped by upcoming reports by the Government Accountability Office, the Securities and Exchange Commission, and the Department of Commerce.

Three that didn't pass

On 8/13/14, EB Investors Magazine reported on four bills affecting EB-5, none of which passed last year.

The Border Security, Economic Opportunity, and Immigration Modernization Act (S. 744), the Senate immigration bill, passed the Senate but not the House. An amendment from Sen. Patrick Leahy (D-VT), a huge supporter of EB-5, proposed "a myriad of reforms meant to streamline the program, but also protect against fraud and security concerns," according to the publication. It would have gently adjusted the minimum investment by the consumer price index.

Another immigration bill—the SKILLS Visa Act—didn't pass the House. It would have created a new category, EB-8, with 10,000 green cards (as described)  for "entrepreneurs who raise $500,000 (inflation-indexed) capital investment and create 5 U.S. jobs within 2 years." It would have tightened the definition of a TEA, not letting states gerrymander.

The very simple EB-5 Regional Center Extension Act didn't pass either, but it would have made the program permanent, with no reforms. Fun fact: the main sponsor was Rep. Aaron Schock (R-IL), who has since stepped down in a bit of a scandal.

The main bill pending

The American Entrepreneurship and Investment Act of 2014, introduced by Rep. Jared Polis (D-CO), didn't pass, but has been replaced by The American Entrepreneurship and Investment Act of 2015.

Yes, it would improve compliance with securities laws, and bar individuals convicted of certain crimes, including fraud, being part of regional centers, but it's mostly an industry wish list, since it would:
  • make the EB-5 regional center program permanent
  • let states designate TEAs (the 2014 version was more stringent)
  • set aside 5,000 visas for investors who invest in TEAs
  • speed processing and approval
  • require deference for all prior-approved documents
  • eliminating the per-country cap for visas, notably helping Chinese immigrants
  • allow the Department of Homeland Security to delegate evaluation of employment creation to the Department of Commerce
The 2015 version, unlike the 2014 version, does not require the investment to be adjusted upward for inflation, nor does it request allow up to four years (rather than two) to calculate job creation.

But presumably there will be more adjustments, and perhaps more bills.

Rep. Polis and the patriotic spirit

Polis wrote a sunnily unskeptical 8/11/4 op-ed in EB5 Investors magazine:
The individuals who come to the United States through EB-5 exemplify the American Dream.
By providing capital at a time when American financial institutions have been hesitant to lend, EB-5 investors are filling a crucial hole, helping to accelerate our economic recovery, creating jobs and spurring development. They are rebuilding Main Streets and refining our most advanced technologies. The individuals who come to the United States through EB-5 exemplify the American Dream. They have the option to go anywhere in the world, but they choose to come here. They want to be American. They want their children to be American. And they want to invest right here in America.
They choose to come here because we're selling residency cheap!

In January, Polis and Rep. Mark Amodei (R-NV) introduced the 2015 version of the bill. “This bi-partisan, pro-investment, pro-growth and pro-jobs bill is one piece of the legislative solution to reform legal immigration,” Amodei declared.

Last May, a group of more than 30 U.S. commercial, residential, hospitality, retail and other real estate organizations wrote a letter supporting the Polis/Amodei bill.

A contrary view

As I wrote in January 2014, Grassley released an internal memo from Homeland Security Investigations (HSI), the investigative arm of U.S. Immigration and Customs Enforcement, an agency within the Department of Homeland Security, which also houses USCIS.

HSI proposed major policy changes, including doubling the minimum investment amount from $500,00 to $1,000,000, and recommended that the program be limited to only active investors involved in managing and directing a business--again, a huge change, given that the program allows investors to live anywhere in the country.

It also recommended that "induced jobs"--resulting from workers' spending in the local economy--be eliminated from the job creation calculations. And it recommended that "the Regional Center Model be allowed to sunset, as HSI maintains there are no safeguards that can be put in place that will ensure the integrity of the RC model.”

HSI concluded, based on its own research, that it has has "reason to believe that the RCs [regional centers] are greatly exaggerating their indirect and induced job creation figures. By not having to provide evidence of jobs directly created, the RC inherently creates an opportunity for fraud, where the business goal can be initiating projects that give the appearance of creating job growth, with the sole intent to meet USCIS criteria rather than produce jobs."

New framing

EB-5 attorney Mona Shah, quoting Polis at a January 2015 conference, noted that the messaging around EB-5 is that it's about business, not immigration, and supports job creation. Thus, Shah wrote, "To support EB-5 is 'pro-business' and to support job creation. The notion of 'pro-business' will make some politicians in both parties more comfortable than saying 'pro-immigration.'

Polis wrote a 3/23/15 op-ed for Roll Call, headlined Bipartisan Immigration Program We Need to Pass Now:
Luckily, we have a program in place to help meet the needs of visionary entrepreneurs and developers: the EB-5 visa program. It’s one of the best ways we can attract foreign investments to support and grow our economy and create jobs for Americans. This innovative program was first created by Congress in 1990 to spur investments in the United States and it has been a critical tool since then to supplement our capital markets during the economic downturn.
Note the critical comment from Mohammed Shaikh, who recruits investors for EB-5 direct investment projects, thus a competitor with regional centers:
I'm a Certified Fraud Examiner and have an MBA in Accounting, and can state with 100% confidence that this bill needs to be blocked as regional centers not only violate securities laws to illegally market and sell their securities in China without first obtaining CSRC [China Securities Regulatory Commission] approval, but also go ahead and commit securities fraud by failing to disclose material facts to investors. They knowingly receive illegally laundered funds and actually engage in massive conflict of interest.
This bill does not do anything meaningful to protect EB-5 visa investors and ICE-HSI actually recommended that regional centers be shut down, while this bill is trying to permanently authorize the regional center program in the EB-5 visa category even though ICE has strongly recommended shutting down regional centers. See ICE memo at http://www.smartbusinessbroker...
Another industry perspective

On 9/18/13, Michael J. Petrucelli, a former acting director of USCIS, wrote an essay for Roll Call, EB-5 Investor Visa Program Needs Better Oversight, Regulation, supporting Leahy's bill,  which would "require stronger oversight and reporting, strengthen anti-fraud efforts and establish more flexible job creation methodologies."

Petrucelli also said "Congress should raise the qualification bar for EB-5 regional center applicants," "establish expedited processing for regional centers" with big projects, speed processing time, and "require that all existing and future EB-5 regional centers be fully compliant with applicable U.S. securities law and U.S. Securities and Exchange Commission regulation."

Those are reforms, but Petrucelli also agreed that Congress should defer to states on TEAs. "State and local governments need to be a part of this process, and they are better-positioned to know the situation on the ground than a federal level agency," he writes. (Alternatively, they are more likely to be captured by local interests.)

Should we be surprised that Petrucelli works in the EB-5 business?

Campaign contributions

I did a little checking, and it's unsurprising: Polis and other Congressional sponsors of EB-5 legislation like Rep. Bob Goodlatte (R-VA), have gotten regular contributions from EB-5 practitioners, notably regional center principals and attorneys.

Perhaps the largest contributor is Nicholas Mastroianni, subject of a critical Fortune profile, who just happens to be the guy behind the last two rounds of Atlantic Yards fundraising, as well as current Nassau Coliseum fundraising.

Here's another major contributor:

Thursday, April 23, 2015

After report charging favoritism in EB-5, industry advocates nervous of reforms; why shouldn't immigrant investment do more for the public?

I'm catching up on a lot of news related to the EB-5 program, which has helped the developers of Atlantic Yards/Pacific Park raise $477 million in cheap capital, with another $100 million to go. Perhaps the clearest summary of the lure and sketchiness of the program came in a February 2012 quote from an EB-5 fundraiser to The Daily:“It’s just a way of being able to get free money, basically, to build all sorts of projects.”

The political configuration regarding EB-5 is notable: there are numerous organized advocates, who get low-cost loans and earn profits, bringing investment to their locality, which understandably reels in local elected officials. Regular campaign contributions bolster such support.

Despite reasons to opposed EB-5 on fundamental levels--buying your way into the company doesn't sit right with many--or on instrumental ones--is our Rube Goldberg system effective, or should the money instead go to the government--there's little or no organized opposition.

However, the Department of Homeland Security Inspector General's report I described about political intervention in EB-5 has changed the equation, as Politico reported 4/15/15: Watchdog report spooks investor visa advocates.

The alternative headline could be "Watchdog report spooks investor visa profiteers."

You see, because Sen. Charles Grassley (R-IA) now heads the Senate Judiciary Committee, he could stall, kill, or put conditions on the reauthorization of the regional center component of the investor visa program. 

While immigrant investors can get green cards for themselves and their families by investing $500,000 directly in a job-creating enterprise, a huge majority instead choose to do so via regional centers, federally approved private (in nearly all cases) investment pools that can produce the required ten jobs per investor via an economist's report that also counts indirect jobs and is based on the entire pool of money in the project, not merely the immigrant investor funding.

It's a sweet deal.

"Political fodder"

Reported Politico:
"You’re hearing a lot about it and you’re going to hear a lot more, whether you like it or not," former USCIS [United States Citizenship and Immigration Services, which oversees EB-5] acting director Robert Divine said about the IG report Tuesday. "This thing is not going away. It is political fodder and it's unavoidable. It's too tempting for Republicans not to take advantage of the implications, the appearances in that document and suggest that a whole bunch of people on the other side are into giving each other political favors....The reality is there are Republicans who have gotten involved in EB-5 and sometimes those things didn't go all that well, and there'll be allegations back the other way.....And we'll be in the middle."
Divine addressed the issue as he spoke to hundreds of lawyers, investor recruiters, real estate developers and state and local government officials who play roles in the EB-5 program, which allows foreign investors to win green cards for themselves and their families by investing as little as $500,000 in a U.S. business or development project.
He's right that EB-5 is not a partisan issue. While the report focused on three projects connected to Democrats, numerous Republicans have sought political blessing if not favor for their EB-5 projects.

At the International Invest in the USA conference, Divine suggested that the reports of favoritism would close down access to the USCIS: "What really needs to happen is that everybody ought to get better access." Really?

As I commented on Politico, Divine is no mere ex-federal agency head. He's deeply embedded in the world of EB-5, representing them as a lawyer and as VP of the national trade group for regional centers.

Grassley's concerns

A spokesman for Grassley indicated concerns:
"Chairman Grassley is considering whether the EB-5 program should be extended," spokesman Taylor Foy said in a statement emailed to POLITICO, "If the program continues, it must have safeguards that ensure national security is not compromised and the job creating benefits of the program are realized. Any EB-5 reauthorization must include more stringent guidelines and reporting requirements that prevent abuse, address security concerns and provide a better understanding of how the program benefits our economy."
Politico, ever conscious of horse-race journalism, notes that, despite the IG's report and the fallout, "the EB-5 program has a strong base of support on Capitol Hill" and state and local officials. (The article noted two Republican and one Democratic representative who spoke at the conference.)

Exactly. Which is why journalism is needed to right the balance. The scandal is--as Michael Kinsley might put it--what's legal.

Potential changes

Politico notes that changes in the EB-5 program are expected, such as raising the minimum investment to $800,000--less than in other countries and surely not a deterrent to the fierce demand from China. 

A more interesting suggestion comes from former Pennsylvania Gov. Ed Rendell, a consultant to EB-5 firms, who denied he was seeking favors (as noted in the IG's report) and told the Washington Post:
"I think the EB-5 program should be changed where aliens are still able to get to the top of the green card list by investing in America, but those funds should be the ones to seed the infrastructure bank,” he said.
He would also like to see the program shifted from Homeland Security to the Commerce Department.
“It is an economic development program,” he said. “They [Homeland Security officials] have no understanding of economic development projects.”
Huge demand

Clearly, there's huge demand for EB-5 visas, which suggests they are priced way too low. Not only that, there are no age limits or language requirements.

CNN reported 4/15/15, U.S. runs out of investor visas again as Chinese flood program:
The United States has depleted its annual supply of EB-5 immigrant investor visas for the second year in a row after a huge wave of applications from rich Chinese.
The State Department has announced that starting in May, no more spots will be available to Chinese for the rest of the U.S. government's fiscal year, which ends Sept. 30.
Known as EB-5, the immigration program hands out green cards to foreigners who invest at least $500,000 and create 10 jobs in the U.S. The program, which caps the number of visas issued annually at 10,000, hit its annual limit for the first time last August.
This year, the program has reached the quota even earlier, reflecting the massive jump in demand among wealthy Chinese to move to the U.S., especially after Canada ended a similar program in 2014.
There are 13,000 pending applications, and the delay means that those with children approaching 21 face a risk when applications have delays. One main reason for leaving--along with going to a more stable society--is to get an American education for their children.

While in 2004, Chinese nationals accounted for 13% of EB-5 visas issued, last year the figure was 90%, according to CNN's analysis.

In March, the South China Morning Post reported, in More wealthy Chinese set to flood US investor visa scheme: think tank report, that the growth spurt was even more recent:
Mainland Chinese received 9,128 EB-5 investor immigrant visas last year, 46 per cent more than in 2013. Among the 10,692 investor visas the US issued last year, mainlanders received 85 per cent of them.
Attorney Mona Shah also pointed to the elimination of competitors' programs:
On January 15, 2015 the Hong Kong government announced its immigrant investor program was indefinitely suspended. After Canada terminated its federal immigrant investor program in early 2014, US eliminated another fierce competitor. Experts predict that about 40,000 potential investors from HK will transfer to the EB-5 Program. 
Raising the price

Slate's Jordan Weissman last year observed that because the investors mainly want a green card, "there’s a good chance they won’t be particularly careful with their investments." An alternative phrasing: there's a good chance they'll be vulnerable to deception. 

His suggestion:
So here’s a potential solution: Since so many foreigners—too many, in fact—are willing to pay good money for the right to live here, Washington should up the charge and use some of the extra profit to fund better oversight. Right now, applicants have to invest $500,000 in a high-unemployment area, or $1 million elsewhere, to qualify for the program. By the standards of today’s global rich, that’s nothing. Why not double it, or even triple it? Let supply-and-demand work its magic.
It's not just oversight that's needed. It's actually getting a public return.

More for the public

On 3/7/14, analyst David North, who works for an organization that would like less immigration--criticized as nativist but one of the few that seriously critiques EB-5--wrote The Economist Has a Good Idea that Could Net US $4 Billion-Plus a Year.

Modifying a UK proposal for raising the price of visas, he suggested the U.S. could charge eight times more. North's proposal: 
To modify this proposal for the American scene, where there is a ceiling of 10,000 visas (for both investors and family members, combined), I would suggest the following: The INA should be changed to allow no more than 1,000 immigrant investors (and families) thus producing about 3,000-3,500 admissions, a potential reduction of 6,500 or 7,000 a year, an important gain in itself. (At maximum, the current system brings $1.5 billion a year to the United States.)
The 1,000 immigrant visas would then be auctioned off with a reserve price of $4 million but with the winner paying a not-to-be-disclosed bonus above that....My suggestion is that the recipient should be the Social Security or Medicare trust funds, on the grounds that both need additional income and the politics of such a decision would be more attractive than simply putting the money in the Treasury.
Putting aside the issue of limiting the numbers, and recognizing the cost could vary, North's proposal makes sense because would eliminate all the middlemen--lawyers, regional center operators, migration agents--who make big money off the deal, and make it more likely the funds would serve the public interest.

A federal recommendation

As I wrote in January 2014, Grassley released an internal memo from Homeland Security Investigations (HSI), the investigative arm of U.S. Immigration and Customs Enforcement, an agency within the Department of Homeland Security, which also houses USCIS.

HSI proposed major policy changes, including doubling the minimum investment amount from $500,00 to $1,000,000, and recommended that the program be limited to only active investors involved in managing and directing a business--again, a huge change, given that the program allows investors to live anywhere in the country.

It also recommended that "induced jobs"--resulting from workers' spending in the local economy--be eliminated from the job creation calculations. And it recommended that  "the Regional Center Model be allowed to sunset, as HSI maintains there are no safeguards that can be put in place that will ensure the integrity of the RC model.”

HSI concluded, based on its own research, that it has has "reason to believe that the RCs [regional centers] are greatly exaggerating their indirect and induced job creation figures. By not having to provide evidence of jobs directly created, the RC inherently creates an opportunity for fraud, where the business goal can be initiating projects that give the appearance of creating job growth, with the sole intent to meet USCIS criteria rather than produce jobs."

The Brookings recommendation

A February 2014 research report from the centrist Brookings Institution noted the "complicated network of intermediaries with little regulatory oversight," the lack of coordination "between regional centers and local economic development agencies (EDAs), even though these entities often share similar goals and could develop mutually beneficial partnerships," and the lack of good data to evaluate EB-5.

I'd suggest that regional centers and local EDAs do not share similar goals in most cases.

Brooklyn suggested reforms to "help federal policymakers strengthen the utility of this tool and better accomplish the central goal of the program, which is to aid regional economic development, especially in distressed areas."

However, that goal is hardly firm, given the willingness to defer to gerrymandered Targeted Employment Areas, which give a break to projects--like Atlantic Yards--in relatively prosperous areas.

The reforms:
Designate an oversight role for the Department of Commerce to supervise the adjudication of regional centers, standardize data and methodology, and better monitor program impact.

Create incentives for partnerships between regional centers and EDAs, thus aligning similar goals in mutually beneficial arrangements. Regional centers and EDAs often possess complementary resources and can leverage more funding and reduce risk for investors.

Generate high-quality, multi-variable public data on regional centers to facilitate better evaluation of the program.
Brookings did not, however, suggest raising the entry fee.

Another centrist organization raises questions

The nonpartisan Migration Policy Institute issued a report 10/1/14, headlining its news release As New Countries Embrace Immigrant Investor Programs, Others Question Their Economic Benefits, MPI Report Finds:
The report, Selling Visas and Citizenship: Policy Questions from the Global Boom in Investor Immigration, examines the increasing mix of players and types of immigrant investor programs, their policy design, benefits and other considerations. During the past decade, the number of countries with immigrant investor programs has increased dramatically, and about half of all European Union member states now have dedicated routes. Demand has increased as well, with the U.S. EB-5 program, for example, nearing its annual cap of 10,000 visas this year for the first time, after two decades of relatively low uptake.
“Cash-for citizenship” policies have not been without controversy, however, as Malta experienced in 2013. Its plan to sell passports for 650,000 euros (later upped to 1.15 million euros in cash and investments) sparked an outcry in the country—as well as in Brussels, since a Malta passport grants immediate access to EU citizenship.
...The report explores the two primary models: (1) investment in private-sector assets, such as the business investment programs used in the United States, Singapore and the Netherlands, or the purchase of private property, as seen in Greece, Latvia, Portugal and Spain, and (2) providing funds to the government via non-refundable fees, low-interest loans or bonds, as occurs in the Caribbean as well as Australia, Malta and the United Kingdom.
The report argues that the clearest economic benefits come from programs that encourage cash payments to the government or national development funds, though it notes that these are the most controversial as they accentuate public concerns about whether it is appropriate to sell citizenship. Programs requiring private-sector investment—such as the U.S. EB-5 program—are promising in theory but raise some thorny compliance issues. In particular, the government may have little control over where and how the money is invested, as well as whether investments actually create the expected number of jobs.
(Emphasis added)

In other words, they're saying EB-5 is sketchy.

The MPI summarized some concerns:
Citing concerns over economic benefits, Canada earlier this year scrapped its federal program. And the United Kingdom’s Migration Advisory Committee has argued that the country is giving away residence rights in return for a government bond investment with no economic value. Australia, meanwhile, has adjusted its program to target investors who will make clearer economic contributions.