It’s been called dark, disturbing and anti-American. Yet it’s beloved by real estate developers and commands near-unanimous support from Congress. And it may soon be financing a shiny new sports stadium near you.
Sports owners, developers and regional politicians are increasingly keen to use so-called EB-5 financing to fund a portion of stadium and arena construction projects across the U.S. And the lawyers and financiers who work with EB-5 investors say the rapid growth of the program — and a crescendoing public outcry against financing stadium construction with new taxes — makes its near-term entrance into the sports world inevitable.
Even die-hard pro sports fans are tired of the seemingly endless parade of new stadiums funded by bilking the citizenry.
“It’s a great source of capital,” said Gregory Steinhauer, president of real estate developer American Life. “It’s one of the few programs that doesn’t cost the U.S. government one penny, and it serves as a huge catalyst of investments for projects that otherwise wouldn’t happen.”
Even die-hard pro sports fans are tired of the seemingly endless parade of new stadiums, ballparks and arenas funded by bilking the citizenry. Many new complexes for American pro sports franchises are partially financed by taxes on local municipalities or counties, an unpopular practice that some refer to as sports welfare.
EB-5 financing provides a palatable alternative for projects that need a shot of capital to get off the ground. Created as part of the Immigration Act of 1990, the program incentivizes foreign nationals to invest in U.S. construction projects in exchange for an accelerated immigration process. Commit $1 million — or $500,000 in rural or high-unemployment areas — to a development that creates at least 10 U.S. jobs, and you, your spouse and your children under 21 get conditional green cards. If the jobs are still there after two years, the green cards become permanent.
The program was more or less a dud until the financial crisis of 2008, which dried up traditional sources of capital and left developers scrambling for cheap investments. From 2008 to 2013, EB-5 conditional visa grants grew by nearly 500 percent, from 1,442 to 8,567, according to State Department figures. This year, for the first time, the program is on track to hit its yearly quota of 10,000 green cards.
The added incentive of coming to America makes EB-5 investors willing to accept less agreeable financing terms. The typical interest rate for senior loans made through the program is between 3 and 5 percent, well below the double-digit rates needed to secure mezzanine financing. The investors themselves see even less return — Gregory White, a partner with Seyfarth Shaw who co-leads the law firm’s EB-5 practice, said they usually get 1 percent or 2 percent interest, unless the capital is for a high-risk project.
That’s a trade-off wealthy foreign nationals — especially those who live in one rival superpower — are willing to make. Most EB-5 investors are Chinese entrepreneurs who have operated a successful business or own a valuable home in China, giving them the capital to make a high-risk, low-return investments. The U.S. issued 6,895 EB-5 visas in 2013 to immigrants from China, more than 80 percent of the total for the year.
Like many immigrants, the former Chinese citizens prefer relative anonymity once they reach the U.S. and are looking to provide their family with a better life.
“Many [EB-5 investors] are coming primarily to make sure their children have a high-quality U.S. education,” said Stephen Yale-Loehr, an attorney in Miller Mayer’s immigration practice.
EB-5 financing was used to fund a portion of the massive Atlantic Yards project in Brooklyn, which included the $1 billion construction of the Barclays Center, home of the NBA’s Brooklyn Nets. American Life recently finished a 400-room hotel development in Los Angeles across from the Staples Center that included $168 million in EB-5 equity, according to Steinhauer.
The natural next step is for the program to help fund standalone stadium projects in the U.S., and some local politicians are already on board. Richard Cochran, a candidate for the Hillsborough County Board of County Commissioners in the Tampa Bay metro area, said his platform includes using EB-5 financing to help fund a new stadium for the MLB’s Tampa Bay Rays, an issue that has been hotly debated by the county board.
Developers have the rarest of Washington commodities: broad bipartisan support.
“We don’t want the Rays to leave our region, but our county does not have an appetite for new taxes, especially for something like a stadium,” Cochran said.
EB-5 financing has also been touted by New York financier Jason Ader as part of his $350 million plan to bring a Major League Soccer franchise to Las Vegas. Ader has proposed a multifaceted financing package that includes EB-5 capital to fund the centerpiece of his plan: a $200 million soccer stadium in Sin City.
The program is not without its detractors, some of whom paint a dark picture of corruption and visas for sale. A recent Fortune story focused on the “dark, disturbing world” of EB-5 and explored the potential for corruption in the system, which was effectively shut down from 1998 to 2003 to address rampant mismanagement.
Other critics point out that the 10 jobs required under the program can be created indirectly, as long as the developer can produce a report showing economic growth in the area and linking it to job creation. That makes the connection between an EB-5 investment and the creation of U.S. jobs — the impetus behind the program in the first place — harder to verify.
“It used to be that someone would go out two years later and say: ‘Let me see the 10 people,’” said John Vogel, an adjunct professor at Dartmouth’s Tuck School of Business. “You can’t see the 10 people anymore.”
Vogel, an outspoken critic of the program, also takes issue with the visas-for-sale element of EB-5. Immigrants who pursue citizenship through more traditional channels can wait decades to receive green cards because of massive backlogs. But there has never been a backlog for green cards issued through EB-5, and the wait time is usually measured in months, not years.
“By definition [EB-5 investors] are moving to the front of the immigration line,” Vogel said. “I don’t think our citizenship should be for sale.”
But Vogel knows he’s in the minority, and even he expects the program to gain in popularity. Developers are pushing the U.S government to increase the yearly quota of EB-5 visas, and they have the rarest of Washington commodities: broad bipartisan support. In 2012, Congress reauthorized the program through 2015 with a 412-3 vote in the House of Representatives and unanimous support in the Senate.
So when your favorite team threatens to pack up and leave town because its stadium doesn’t have enough luxury boxes or a gargantuan video board, take heart: There are thousands of rich foreigners eager to come to America with the money to give fans, owners and developers exactly what they want.
Why you should care
Immigrants are often called upon to do the jobs that Americans don’t want to do. And that now includes funding sports arenas.