When Kaleida Health was preparing to open Gates Vascular Institute, a federal program that encourages foreign investment played a supporting role.
“We raised capital in order that Kaleida Health would have cash to purchase the equipment they needed to open the hospital,” said William P. Gresser, president and CEO of the EB-5 New York State Regional Center.
EB-5 isn’t a household term. The federal program has been around for 25 years, but saw a surge in activity after the Great Recession struck and credit was tougher to come by. It offers qualified foreign investors and their families a pathway to U.S. green cards, while promoting investment and job creation in the United States.
A forum held in Niagara Falls on Tuesday spotlighted the program, which is up for renewal by Congress in December. Advocates call the program a vital source of economic development fuel, filling financing gaps in big-ticket projects ranging from hotels to highways.
Companies designated “regional centers” by the U.S. government act as matchmakers, connecting investors with projects seeking additional funds. “We find projects that need capital that create a lot of jobs,” Gresser said. A regional center pulls together investors’ funds, lends the money to a project, and manages the process.
Investors who participate in EB-5 are not guaranteed green cards, which is another term for permanent residency. Participants must invest $500 million or $1 million, depending on where a project is located, and they need to prove the project created at least 10 U.S. jobs. “They could lose both their investment and they could lose the green card if the company doesn’t create the jobs,” Gresser said. “It actually has a tremendous amount of risk.”
Prospective investors must be vetted by the U.S. government and prove their funds are from legitimate sources, Gresser said. If that works out, an investor receives a conditional green card. Two years later, if the expected new jobs materialize, the investor receives a permanent green card.
Gresser said the EB-5 New York State Regional Center has supported the Health Sciences Charter School, a hotel in Amherst, and projects in Rochester and other upstate locations. The program works alongside banks, instead of supplanting them, in financing projects. “(Projects) have most of what they need in the capital, and we come in and fill some kind of hole,” Gresser said. From a developer’s perspective, he said, having a major bank involved in a transaction reduces the developer’s risk, by not relying solely on EB-5 funding.
Michael Anthony, vice president of commercial real estate for M&T Bank, said the EB-5 program “does not make bankable deals bankable.” But if EB-5 funding is a piece of the financing puzzle on a particular project, he said, it can reduce the bank’s exposure. “What’s important to the lender is affiliating with a good borrower and a good regional center, and a good legal team.”
Nationwide, more than 80 percent of the investors in the EB-5 program are from China. Gresser said about 20 percent of the investors in local projects are from China; the rest are from places such as Europe, Canada and Mexico.
U.S. Citizenship and Immigration Services oversees the EB-5 program. The Buffalo-based EB-5 New York State Regional Center was approved by the U.S. government in 2009, two years after it was founded. “There were 20 or so companies like ours when we started,” Gresser said. “There are now over 700.”
The EB-5 program’s critics claim it is susceptible to manipulation and doesn’t deliver enough of a payoff in investment. EB-5’s supporters say the program brings a lot of value to the U.S. economy, but welcome changes.
“We do think that as anything grows, it needs some reform,” Gresser said. Among the expected changes are higher investment thresholds for investors.
The government sets a cap of 10,000 visas per year connected to EB-5; that includes spouses and children, so not all 10,000 visas go to investors. Gresser doesn’t expect the cap to be raised, but he wouldn’t mind seeing that happen: “If it were raised, we could raise a lot more capital.”
The forum was presented by the Federal Reserve Bank of New York, Empire State Development, the city of Niagara Falls, and NAIOP Upstate New York, which is a commercial real estate association.