Her story sounds typical of Charlotte’s apartment boom: Developer Jane Wu wants to build a new, high-end complex adjacent to the Lynx Blue Line extension.
What’s more unusual is her source of funding: Chinese investors hoping to secure a green card in exchange for $500,000.
The little-known federal program that provides visas to wealthy foreign investors is perfectly legal, and experts say interest in such visas is surging. The government issues foreigners 10,000 such visas a year, in return for their investments in U.S. projects.
The visas secure permanent residency for the foreign investors and a path to citizenship for them, their spouses and minor children.
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But opponents say the program amounts to selling U.S. citizenship, allowing the well-to-do to jump to the head of the line in exchange for a fee. And a federal watchdog found the program, known as EB-5, is poorly monitored, and that it’s hard to tell whether it generates the economic benefits supporters claim.
Congress created the program in 1990 to stimulate the U.S. economy with more foreign investment. Supporters say it creates jobs for American workers, while offering developers access to a cheaper source of capital than traditional financing.
The program grew sharply after the last recession, when traditional loans were harder to come by, and has now hit record levels.
“It boosts the economy and creates jobs,” Wu said.
At a time when disputes over immigration policy have convulsed Washington and paralyzed Congress, the investor visa program has operated with little scrutiny. Critics say that’s because of the relatively small number of visas involved compared with the millions of immigrants in the country illegally and hundreds of thousands more on waiting lists.
“What EB-5 amounts to is selling green cards,” said Mark Krikorian, executive director of the Center for Immigration Studies, a think tank that calls for stricter immigration limits. “I just don’t think that in the list of criteria that we might use to pick foreigners we should include people who have half a million dollars to spare.”
There also have been well-publicized boondoggles. In the biggest EB-5 bust, Anshoo Sethi, the promoter of a hotel and convention center project in Chicago, was indicted last year following a federal investigation. Sethi was charged with fraud after taking $160 million worth of Chinese investors’ money for the complex, which was never built. The government returned $147 million to the investors but alleged Sethi misappropriated much of the rest.
And on Thursday, a commission created by Congress to monitor U.S.-China economic interactions reported that exploding demand for EB-5 visas has overwhelmed the program and outpaced regulators’ ability to oversee it.
Record number of applications
The number of immigrants applying for EB-5 visas has soared to record levels. In the first eight months of last year, 85 percent of EB-5 visas issued were to Chinese citizens, the U.S.-China Economic and Security Review Commission found – up from 14 percent in 2007.
Immigration attorneys and developers said Chinese investors are drawn by the chance to gain residency for their children, who can then go to American schools and colleges. And China’s pollution problems and anti-corruption crackdowns have nudged some elites toward the door, according to the commission’s report.
While the immigrants get access to the U.S., developers get a cheaper source of funds. That’s because the immigrant investors don’t demand a high interest rate.
“They’re not looking for these high rates of return,” Jennifer Moseley, an Atlanta-based corporate securities attorney attorney who represents businesses and regional centers seeking EB-5 funding. “They’re looking for something that is much more stable and will ultimately allow them to get their green card.”
Another indicator of soaring interest in the program is the growth of “regional centers.” Most developers seeking to raise funds from foreigners don’t do so directly. They go through regional centers, entities U.S. Citizenship and Immigration Services approves to pool funds from immigrants seeking EB-5 visas.
“When I started in March of 2008 working in the EB-5 world, there were 23 approved regional centers,” Moseley said. “Now, there are about 600. That tells you the interest in it.”
Joining transit-oriented trend
On a site nestled along the Lynx Blue Line extension in the University City area, Wu plans to build an apartment complex with more than 300 upscale units. She plans a second phase on an adjacent site and said details will be available soon.
The site is up for a rezoning hearing in April in front of the Charlotte City Council. Wu said she has a dozen foreign investors in the approval process and 45 more prospects lined up. She is working through Carolina States Regional Center, which was approved by the federal government last February.
Wu anticipates breaking ground in August or September and finishing in two years. The project would create more than 700 jobs, according to her projections, including construction workers and those who will run the complex once it’s open.
Her project has an estimated cost of about $50 million, Wu said, comparable to similar-sized, high-end projects in South End and near uptown. Money from foreign investors could make up about 65 percent of the financing. She will use traditional financing for the rest.
“We want to build a good project that sets a tone for the area,” Wu said.
City Council member Greg Phipps, whose district includes the area Wu aims to develop, said Wu’s project is the first time he’s seen EB-5 money used in the city.
“It is sort of a unique funding arrangement,” said Phipps, who has met with Wu’s group. “It has the potential to be a really good project, the kind of project we’d like to see near that station.”
Wu first got to know the University City area in 2007 while getting a master’s of science in mathematical finance from UNC Charlotte. She went on to work at Wachovia and then got into real estate. She is also a strategic adviser for Dixon Hughes Goodman’s Chinese investment group and a principal in Panos Hotel group, which develops apartments in the Charlotte area.
Wu said access to EB-5 money makes such projects cheaper. She has maintained family ties to Chengdu, the city in southwest China where she grew up, and said her family’s background in development has helped line up investors.
Wu contended that it’s false to say EB-5 investors are jumping to the head of the immigration line and noted that each visa category has its own total so that EB-5 visas don’t displace other immigrants.
Since EB-5 funds are cheaper than traditional financing, why don’t more developers use them? Wu and other experts said EB-5 funding is often slower than traditional methods.
A trade group for regional centers says U.S. Citizenship and Immigration Services’ processing time for immigrant investors was averaging more than 14 months by the end of fiscal year 2014.
Difficult to track money
Finding out where EB-5 projects are located can be difficult. U.S. Citizenship and Immigration Services doesn’t track EB-5 projects by state or county, a spokeswoman said. The N.C. Department of Commerce – which helps EB-5 regional centers prepare their applications to the federal government – doesn’t track the projects, either.
All that’s publicly available from U.S. Citizenship and Immigration Services is a list of the approved regional centers, which pool investor money to fund projects. A spokeswoman said detailed records about the regional centers, such as their annual reports, job creation estimates and investor information, are not available to the public. The Observer has filed a Freedom of Information Act request to obtain access to more detailed information on the regional centers operating in North Carolina.
Many regional centers voluntarily provide detailed information about the projects they’re backing. But others do not or require investors to register and be approved before disclosing what they’re doing. And some developers are wary of discussing projects.
Wu declined to name an EB-5-funded Atlanta apartment project she said she invested in, saying the information was confidential. And Sid Bhatt, who runs a regional center in Charlotte and raises money for EB-5 projects, said he knows of a prominent multifamily developer in Charlotte who has used EB-5 money. He declined to name the developer.
Although the federal immigration service says 57,300 jobs have been created since 1990 and $8.6 billion has been invested, the lack of detailed tracking of projects can make it difficult to assess EB-5 investments’ impact.
“USCIS is unable to demonstrate the benefits of foreign investment into the U.S. economy,” the Department of Homeland Security’s Inspector General Office wrote in a December 2013 report. The report said auditors were unable to verify the program’s investment and job creation claims.
Even though foreign money usually comprises just part of a project’s financing, the government counts all jobs created by a project as if they were created by the EB-5 investors.
That situation, the DHS Inspector General Officewrote, “allows foreign investors to take credit for jobs created with U.S. funds, making it impossible for USCIS to determine whether the foreign funds actually created U.S. jobs.”
Despite the criticism, the EB-5 program has gained powerful supporters. The U.S. Conference of Mayors has endorsed the program, and U.S. Sen. Patrick Leahy, D-Vermont, has called it “a powerful job and economic engine.” And the Wall Street Journal reported that a subsidiary of Warren Buffett’s Berkshire Hathaway is using EB-5 money to help fund a $66 million renovation of an Illinois hotel, while the Related Cos. is using $600 million from Chinese EB-5 investors to help fund its massive Hudson Yards skyscrapers project in Manhattan.
Those supporters say the key is avoiding unscrupulous actors.
Bhatt, also a managing director of investment bank NMS Capital, has been working to raise money for EB-5 projects since 2013, when his Carolina Global Regional Center was approved by the government. He said he and his partner Shashin Patel have helped finance a sawmill in eastern North Carolina and are raising capital for a hotel in Myrtle Beach.
He said regional centers need to carefully vet developers to avoid people who see EB-5 money as a way to chase pipe dreams that a traditional bank wouldn’t finance.
“We don’t want people from the street,” Bhatt said. “We want well-known people who can finish projects.”
How the EB-5 visa program works
Started in 1990, the EB-5 visa program offers 10,000 wealthy foreigners a year the chance to get permanent residency in the U.S. by investing at least $500,000 in an approved project. Here’s how it works:
1. Most projects are funded through “regional centers,” which are special-purpose entities created to pool money from immigrant investors. To start a regional center, an applicant – which can be a person, corporation or government entity – files paperwork with U.S. Citizenship and Immigration Services. The application requires the prospective regional center to disclose the principals, ownership, the geographic area it will operate within, what industries the center plans to facilitate investment in, and a business plan.
2. Once a regional center gains federal approval, it can solicit funds from prospective immigrant investors. They agree to put $500,000 into a U.S. project. If the project isn’t in a designated high unemployment area or rural area, they must put in $1 million – but most projects are in such areas, including developer Jane Wu’s project in Charlotte.
3. The immigrant investors apply to U.S. Citizenship and Immigration Services, which vets them to determine whether their money is from legitimate sources, whether they have a criminal record and whether they’re eligible for entry.
4. Once an initial application is approved,each investor gets a temporary, two-year visa to live and work in the U.S., along with his or her spouse and unmarried children under 21.
5. After two years, immigrant investors can apply for permanent residency. They must disclose whether their investment generated a required minimum of 10 jobs, how much money the project generated and whether the project filed for bankruptcy or ceased operations.
6. If the projects have met their jobs goal, U.S. Citizenship and Immigration Services grants immigrant investors – along with their spouses and children – permanent residency. Ely Portillo
Other EB-5 projects in the Carolinas
Although neither the state nor federal government tracks EB-5-funded projects by state, U.S. Citizenship and Immigration Services does keep a list of regional centers approved to pool funds for a project. Here are some of the other EB-5 regional centers in the Carolinas and projects they say they’re working on:
▪ The Atlantic Center for Regional Investment is raising funds for a Wilmington cold storage facility and riverfront marina and hotel.
▪ The Carolina Center for Foreign Investment raised funds for Greenville, S.C.-based electric bus manufacturer Proterra and is raising funds for PDQ restaurants.
▪ Birch North Carolina Regional Center is raising money for a convention center hotel in Wilmington.
▪ Carolina EB-5 RTP Regional Center is working on funding three restaurants in Greensboro.
▪ Carolina Growth Regional Center shares a Charlotte address with overseas shipper Central Oceans. But its website says it is under construction and offers no information, the phone number said it was not set up to receive messages and an email wasn’t returned.
▪ Appalachian EB-5 Regional Center, based in Asheville, is helping finance a 300,000-square-foot medical campus outside Winston-Salem, CEO Dale Carroll said.
▪ Encore Raleigh/Durham Regional Center is part of a network of 15 regional centers stretching from California to Boston, affiliated with privately-owned real estate company Encore Enterprises. The website says the company uses EB-5 for “funding commercial real estate projects related to retail, hospitality, multi-family, and office facilities.” A company executive said they have new projects in the pipeline, but aren’t ready to announce them.
▪ North Carolina – East Coast RC is a subsidiary of Fort Worth-based Progressive Funding Solutions. In October 2013, the Charlotte Chamber said KenCord BioTherapeutics, a pharmaceutical company, was expanding in Charlotte, with $7 million in financing from Progressive Funding Solutions. President Yuseff Howard said he is raising money for other EB-5 projects in Charlotte, including a grocery store but said he wouldn’t provide details. Ely Portillo
Record numbers of applicants
In fiscal year 2014, the government received 10,928 applications for EB-5 visas from foreign investors, more than the total available in a year. That’s almost 10 times as many as in 2008, when 1,258 foreign investors applied to the program.
In 2005, just 332 foreign investors applied for visas under the program.