Los Angeles Business Journal

Developer Money Crosses the Lines?

Real Estate: Projects draw ‘low-income’ maps to tap EB-5. By Alfred Lee Monday, November 4, 2013

“These projects were certified under a previous administration. It is not our intention whatsoever to pull the rug out from underneath them,” he said. “Going forward, we want to make sure the program is streamlined and more consistent with the spirit of the program.”

A spokesman for Citizenship and Immigration Services, which oversees the EB-5 program, said the agency only checks to see that submitted project areas do in fact have an unemployment rate 50 percent higher than the national average, and leaves it to states to judge what boundaries are acceptable. He cited the agency’s lack of individual expertise on a state-by-state basis.

Nationally, several EB-5 projects have been singled out by critics as examples of gerrymandering, most notably those in wealthier parts of New York. However, none of those appears to span as wide a geographic area as the projects in Los Angeles.

In order to streamline the process, California began limiting new applicants to 12 census tracts as of May. But even that can lead to stretching the rules. World Financial, developer of a Cerritos office building, connected 12 tracts spanning six miles and three cities. The census tract farthest from the project has an unemployment rate of 33 percent, nearly five times higher than that of the development site. Company officials did not return calls for comment.

Though these projects get perks for being in high-unemployment areas, they tout themselves as anything but to investors.

The $21 million Gateway Temple City development qualified after including 10 cities and one unincorporated area stretching to Compton nearly 20 miles away. But when Peter Choi of the Temple City Chamber of Commerce accompanied the project’s developer, Randy Wang, to investor presentations in China last year, he said the city’s relative affluence was a selling point.

“Temple City is known for very high property values and a very strong school system, which is why it’s attractive to Chinese investors and families,” Choi said.

Wang, who did not return repeated requests for comment, last year announced that he had secured $11.5 million in EB-5 investments, but Temple City officials told the Business Journal the project had turned to private financing. It is unclear what that means for the previously secured $11.5 million.

Critics say such allowances do little to help needy communities targeted by the program.

“It does seem to me a problem to provide a special benefit to a developer that is meant to go for encouraging investment and creating good jobs in low-income communities and have that actually be for projects in relatively prosperous communities like Marina del Rey or Pasadena,” said James Elmendorf, deputy director of the Los Angeles Alliance for a New Economy, “where in fact there is no prospect of providing decent wages or health care or anything that would ensure jobs would actually help lift people out of poverty.”

North, the EB-5 critic, said the practice actually draws investment away from the very communities they are supposed to help.

“I don’t see a whole lot of investments going to clearly chronically high-unemployment sort of areas,” he said. “It’s building myriad hotels is what it’s doing.”

North said the flexibility granted to EB-5 projects made it far too easy to qualify.

“This program is essentially designed to meet the needs of these developers as opposed to public needs,” he said.

Taylor, of the Office of Business and Economic Development, countered that the investments help the larger region.

“The bottom line is these projects are in fact going to be creating jobs,” he said, “spurring investment and contributing to the overall economy in these regions.”

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