The giant trucks pumping concrete in Hudson Yards, New
York’s biggest real-estate project in a generation, are being financed by an
unlikely source: about 1,200 Chinese families in search of U.S. visas. Developer
Related Cos. says it has raised roughly $600 million from the families to build
the foundation for three skyscrapers at the West Side project, a
17-million-square-foot colossus of office, retail and residential space set to
open over the next decade.
To finance the concrete-steel platform, Related tapped a
little-known and at times controversial federal visa program known as EB-5,
which offers green cards to foreign families who invest at least $500,000 in
U.S. projects that create at least 10 jobs per investor.
The amount brought in so far, which privately held Related
hasn’t previously disclosed, is a record for the cash-for-visa program. Related’s
success shows how the once-obscure federal program has grown in popularity
among developers and foreign investors since the recession.
In all, 10,928 foreign investors applied to invest through
the program in the fiscal year ended Sept. 30, up from 6,346 a year earlier and
486 in 2006, according to U.S. Citizenship and Immigration Services, the
program’s administrator. Most projects have been real-estate developments.
More than four-fifths of applicants typically win approval
and become eligible for a temporary visa, the data show, suggesting the
investors who applied this year would fund nearly $4 billion in investment if
all of the projects go forward. If the project is found to have produced the
pledged 10 jobs per investor, the investors and their immediate families become
eligible for green cards.
The growing popularity has made for lengthy processing times
for investors and developers. But Related successfully urged the federal
government to declare the development a project of such national importance
that it deserved expedited approval.
Raising the money through traditional means would have been
difficult because of the years long gap between when the platform over the
13-acre train yard is started and when the buildings are completed and income
starts rolling in. In all, the project’s tab is expected to top $20 billion.
Related plans to fund much of that through traditional debt and equity
investments and the developer has invested equity in the platform alongside the
EB-5 money. But he expects the $40 million to $50 million the firm is raising
each month in EB-5 money to continue to play a major role. The company recently
won broker-dealer status in the U.S., helping it to maintain this pace.
Chinese nationals are the biggest source of EB-5 funds,
making up more than 85% of visas approved in the 12 months ended in September.
Many are investing for their children rather than for themselves, said Kenneth
Li, a Houston real-estate broker who has offered advice to Chinese investing in
EB-5 projects.
Congress created the EB-5 program in 1990 to spur job
creation through foreign investment. It was used infrequently for years.
Administrators in 2009 clarified a rule to allow temporary construction jobs to
be counted toward the 10-job-per-investor requirement, sparking more activity.
The recession, meanwhile, led banks to pull back
dramatically from funding new projects, leaving developers to scour for
nontraditional sources of financing. The EB-5 program caps the number of visas
allowed per year at 10,000; within that total, the number from individual
countries is also capped.
Developers are embracing the program largely because it
provides low-cost capital. Money borrowed through the EB-5 program carries much
lower interest rates, sometimes half of what companies typically pay,
executives said. That is because investors are primarily seeking green cards,
not a profit, and generally are willing to accept low returns, EB-5 advisers
said.
The Durst Organization, a family-owned Manhattan developer,
used the EB-5 program to raise $260 million in 2013 and 2014 for two apartment
towers, about 15% of the buildings’ total construction cost. Durst lawyer Gary
Rosenberg said the EB-5 loans generally carried an annual interest rate of 5%
to 8% paid by the developer to the investors. Such loans are considered
mezzanine, a riskier form of debt; traditional mezzanine financing would have
had an interest rate seven or eight percentage points higher.
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