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Immigrant Investor Program could play role in county’s economic future

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A U.S. Citizenship and Immigration Services program that trades green cards for large cash loans and job creation is expected to play an important role in growing the economy of the north country into the future, according to local developers.

The Employment-Based Immigration: Preference 5, or EB-5, program is designed to attract loans of $500,000 or more to rural areas or areas experiencing unemployment at least 1 times the national average.

“Possible development opportunities in Northern New York are significantly enhanced by this program,” said Donald C. Alexander, chief executive officer of the Jefferson County Industrial Development Agency, adding the region has historically had difficulty funding big projects.

According to Mr. Alexander and David L. Mosher of Mosher Business Advisors Corp., the consultant in charge of packaging the loans, there are at least a couple of proposed local projects taking advantage of the EB-5 program in the planning stages. They declined to disclose the projects’ details or investors’ names to protect the deals.

Under the stipulations of the program, which is managed by the Department of Homeland Security through Citizenship and Immigration Services, EB-5 investors must invest in a new commercial enterprise established after Nov. 29, 1990, that will create or preserve at least 10 full-time jobs for U.S. workers within two years.

Jefferson County received approval from the Department of Homeland Security to begin offering the program to potential investors in 2011.

As yet, there have been no successful takers, though in 2011 a Chinese businessman, James Ma, indicated he intended to use the program to start an English-as-a-second-language school and a Chinese restaurant in the Ogdensburg area.

Mr. Ma purchased the former Academy at Ivy Ridge campus for $1,550,000 but did not participate in the EB-5 program. His plans to start the ESL school there have since stalled, though he has said two Chinese universities are interested in partnering on the project.

The county, through Mr. Mosher, has contracted with EB-5 LLC, Buffalo, a company responsible for making presentations overseas to attract investors.

Mr. Mosher said to move forward with a project under that contract, a total of $5 million would have to be raised through the program, resulting in at least 100 jobs created or retained because it would be too expensive to try to deal with individual investors.

The Immigrant Investor program, as it is sometimes called, is a bit of a misnomer. According to Mr. Mosher and Mr. Alexander, green card applicants aren’t really making investments. Instead, they are making loans at a negotiated interest rate that are supposed to be paid back within five years from the project’s start.

Even though the applicants are putting their money at risk, “this is not an equity position,” Mr. Alexander said.

The projects eventually will be returned to local interests.

Mr. Mosher said proposed EB-5 projects go through an extensive vetting process to try to ensure against failure.

“Any project that passes the credit test is considered,” he said.

According to Mr. Mosher, most projects will not be funded solely by the EB-5 program. Money from the program will be used to leverage additional financing from banks and other lending institutions.

“You have to have a menu if you’re going to run a restaurant,” Mr. Alexander said. “We’ve added this to the menu and we think it will bear fruit.”

The program has been in existence since 1990 but has greatly increased in popularity since the credit crunch of 2008. Mr. Mosher said that of the $5 billion raised in EB-5 funds throughout the country since 1990, more than $3 billion has been raised since the recession began.

According to a recent New York Times story, developers in Vermont’s Northeast Kingdom are planning to raise $785 million in EB-5 funds over three rounds of financing for a series of projects in and around the Jay Peak ski resort, which is intended to become a four-season destination.

According to Mr. Mosher, the principal drawback of financing through the EB-5 program is that it can take up to a year for the government to complete investigations of green card applicants and the sources of their funds.

In areas with more than 20,000 residents and low unemployment, a minimum investment of $1 million is required to be eligible for the program.

It’s hard to attract investors at that level — $500,000 is a more feasible amount, Mr. Mosher said.

Resort projects are popular with immigrant investors, as are hospitals, nursing homes and manufacturing plants, Mr. Mosher said.

According to Mr. Alexander, there is also the potential to use EB-5 money to conduct leveraged buyouts to keep manufacturers local.

Even businesses established before Nov. 29, 1990, are eligible provided they are restructured in such a way that a new commercial enterprise results or a 40 percent increase in the net worth or number of employees occurs. The guidelines for the visa do not provide a definition for what “new commercial enterprise” means in this context.

Gary S. DeYoung, executive director of the 1,000 Islands International Tourism Council, said while he has not seen the EB-5 strategy proposed yet to promote tourism, he has noticed a lot of interest from Chinese investors on the border’s Canadian side.

Canada also offers an immigrant investor program through its Citizenship and Immigration Department, with an $800,000 (Canadian) buy-in. In 2012 the Canadian government announced it was reforming the program and issued a call for policy papers and suggestions. The reforms aim to move the investments from a low-risk model to one that will foster interest in more value-added infrastructure projects, do a better job of seeking out investors truly committed to Canada’s success and streamline the investigation process.

According to the Canadian Citizenship and Immigration website, the program was overhauled in 1999 to address “issues related to fraud and mismanagement, losses suffered by investors, and burden related to regulatory oversight.”

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