People seeking U.S. citizenship are financing Bay Area real estate projects using an obscure federal immigration program that grants green cards in exchange for capital investment.[contextly_sidebar id=”7f9f3c8394516baf0b87776e88b1e39a”]San Jose-based Barry Swenson Builder broke ground May 15 on an $80 million two-hotel complex east of the Mineta San Jose International Airport for which 40 percent of the cost is to come from equity raised from foreign investors.
At the same time, in the Mid-Market neighborhood of San Francisco, another development partnership said last week that they, too, are using the U.S. Immigrant Investor Program, also known as the EB-5 program, to partially finance the renovation of the historic Renoir Hotel.
Developers have turned to the funding source since 2008 because traditional construction financing has been nonexistent or, more recently, offered on difficult or less-profitable terms. It is less expensive by half than private-equity financing, though the EB-5 process requires developer patience, one player says.
Swenson took six years to bring the hotel project to fruition at 10 Skyport Drive. Both hotels will operate under the Marriott brand. The Marriott hotel company helped to link the hotel developer to a source of EB-5 funding.
“It’s a cheaper form of financing, but it’s not free money,” said Devin Williams, president of EB5 Global, a co-developer on the Renoir Hotel who has recently returned from China where she was raising money. Investors working through the program are mostly concerned with attaining their citizenship and the return of their capital rather than their return on capital, she and others said.
But, for any given project there can be as many as 100 foreign investors and the federal requirements to meet, with the obvious bureaucracy such work engenders. “There are a lot of complications you don’t have if you could just get a construction loan,” Williams said.
Under the program, applicants are required to invest up to $1 million in a commercial enterprise and to show that their investment has resulted in the creation or preservation of 10 full-time jobs within two years of the investment. In exchange, an investor and his or her immediate family gain a path to citizenship. If the investment is located in what the program calls a “targeted employment area” a rural area or a place where unemployment is elevated, the investment can be lowered to $500,000 for the same immigration benefit.
“There is a lot of marketing going on in China by U.S. developer types,” said Edward Litwin, a South San Francisco immigration lawyer who represents people from other countries seeking U.S. citizenship. “There is a substantial amount of money coming from China right now.”
Federal data show a nearly 400 percent increase since 2008 in the number of applications received annually through the EB-5 program. Last year, more than 6,100 people filed applications, an all-time high. In the 22 years since the program was established, it has had fewer than 1,000 applications a year in all but seven years. Five of those seven years were 2008 through 2012, during which interest skyrocketed.
Most of the investors have historically come from China; estimates range as high as 80 percent for how many do today. The federal government does not collect the information because there are no country-by-country EB-5 visa allocations and the law does not require it, said Christopher S. Bentley, press secretary for the U.S. Citizenship and Immigration Services in the Department of Homeland Security.
Most of his clients in this realm are wealthy, middle-aged people, Litwin said, who want a vehicle to leave China and to provide for their children to gain a U.S. college education and to remain in the United States if the children prefer. The law defines immediate family as a spouse and children under age 21, he said.
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