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The EB-5 Gravy Train

TRD’s five-part investigation on the ‘crack cocaine’ of real estate financing — and who’s profiting from it
By Katherine Clarke and E.B. Solomont

Howard Michaels, the tough-talking finance broker, shot off an email in 2014 to his client Michael Shvo.

Michaels, who heads the Carlton Group, had just gotten off a long phone call with Nicholas Mastroianni II, the head of the U.S. Immigration Fund, New York’s biggest EB-5 regional center, and was convinced that EB-5 money from Chinese investors was the perfect financing solution for Shvo’s planned 275-unit condo at 125 Greenwich Street in Lower Manhattan. “[It] sounds like legalized crack cocaine,” he raved to Shvo, according to an email later revealed in a lawsuit between the two. “You guys would be crazy not to jump on this.”

The developer agreed, eventually securing an EB-5 loan that came in the form of $175 million in mezzanine financing.

Shvo is certainly not the first high-profile developer to milk EB-5 as a source of cheap capital.  The program, which grants foreigners a U.S. green card in exchange for a $500,000 or $1 million investment, has become wildly popular — and controversial — in the last few years.

It’s also birthed a multi-billion-dollar industry, making the many middlemen who help facilitate each step of these transactions very rich.

This month, The Real Deal took a deep look at how the program’s key stakeholders — from developers to regional centers to banks to the so-called migration agents — are riding this EB-5 gravy train.

Detractors claim it favors projects in wealthy parts of the country, that it can be used to bring dirty money into the U.S. and that naïve Chinese investors sometimes get lured into investing in financially flawed projects. Proponents say EB-5 capital helps spur economic development.

TRD also looked at several New York City EB-5 projects that are teetering on the edge. Some of these projects are examples of how EB-5 is being used, and abused.

In some cases, developers have taken advantage of the loose guidelines to make projects seem like they are in low-income neighborhoods (known in EB-5 speak as Targeted Employment Areas). This type of gerrymandering allows developers to seek minimum investments of $500,000 rather than $1 million, giving them access to a wider pool of investors.

Many EB-5 projects are also slated to launch at a time when experts are warning of a possible market slowdown, which could put EB-5 investors’ money at risk. “The next big industry in EB-5 is litigation,” said Michael Gibson, managing director at, an EB-5 advisory firm.

 1. How much longer will the love affair last?

NYC developers could start pulling back from EB-5 if the cost of capital keeps ballooning.

It’s no secret that New York City developers have over the past few years been tapping the EB-5 spigot. Giant builders like Macklowe Properties, Extell Development, the Witkoff Group and the Related Companies have all helped themselves to the relatively cheap capital they can access through the program.

But now, the relative affordability of EB-5 cash compared with traditional financing — the main draw of the program — is being compromised by strong developer demand, increased competition for Chinese investors and a rise in the fees charged by intermediaries, sources told The Real Deal.

In other words, that heavy-handed use of EB-5 is killing the goose that laid the golden (real estate) egg. And if costs keep ballooning at this rate, sources say, developers will begin to scale back their EB-5 usage.

“From the first to the last deal, the pricing has probably doubled,” said Christopher Clayton, an executive vice president at Forest City Enterprises, which has used the program to fund the construction of six buildings since 2010 as part of its massive Pacific Park project in Brooklyn.

“We’ll have to monitor the pricing because at some point it may be easier just to go the traditional route,” he said.

The simultaneous increase in the number of traditional lenders providing subordinate financing for well-located Manhattan developments at competitive rates has also changed the financial calculus for developers.

Matthew Petrula, a senior group manager in the commercial lending group at M&T Bank, said new players have been rushing into the mezzanine lending space because, with rising property values in New York, equity investments have become too expensive. All of that new competition has pushed down the price of mezzanine financing — and narrowed the cost spread between conventional and EB-5 money.

That, he said, may also begin to chisel away at EB-5’s appeal to developers.

“This added competition has driven down the cost of sub-debt borrowing, resulting in a tightening of the pricing gap relative to EB-5,” he said.

If the cost of EB-5 money further skyrockets, sources say it will become a last resort.

Source: Research by NYC professors Jeanne Calderon and Gary Friedland, TRD Research and

Source: Research by NYC professors Jeanne Calderon and Gary Friedland, TRD Research and

“If developers are willing to overpay for access to this money, they must not have been able to get money from another source,” said Mike Xenick, president and CEO of Invest America Capital Advisors, a Tampa-based EB-5 broker dealer. “You start to think about how desperate they are and why.”

A new reality

New York developers who hopped on the EB-5 train early — in the years immediately following the 2008 market crash — said the current landscape looks remarkably different than it did back then. Where they were once pioneers peddling the American dream to hungry foreign investors, they are now competing with dozens of other developers in the city with similar projects.

“In New York alone, there are easily more than 100 projects looking for EB-5,” said Michael Gibson, managing director at the Miami-based, an investment-advisory firm that specializes in EB-5. “If you look at just the top 10 projects, those alone surpass the amount of available EB-5 capital. Ninety percent of these deals aren’t going to get funded.”

This new level of competition to woo EB-5 investors not only lengthens the time it takes for a developer to market and close a deal, but it also drives up that developer’s costs.

Indeed, five to 10 years ago, developers were able to secure EB-5 money with interest rates of around 3 to 4 percent — a steal for mezzanine debt. Now that number is close to 7 percent. That’s still a significant discount when compared to the 10 percent interest often charged by traditional banks, but the differential is quickly shrinking.

“It’s not easy to raise this money,” said Forest City’s Clayton. “It’s a lot of people on the ground. There’s an effort and a time commitment to the process that’s longer than you’d face in traditional financing. And the longer a transaction takes, the more risk there is … particularly in a volatile global market.”

For developers who are new to the EB-5 game, it’s especially tough to compete with big players such as Related and Extell, who have more negotiating power and a track record with Chinese capital.

Some say those high-profile developers are hogging the limited amount of EB-5 money. (EB-5 capital pouring out of China, which accounts for the vast majority of the program’s cash, amounts to a total of around $2 billion a year.)

“They’re sucking all the air out of the room,” Gibson said. “These little guys put in so much effort, spend a lot of money, only to realize no one is interested. They need 300 or 500 investors and go home with 20 or 40.”

Compounding matters is that the attorneys and other consultants who make their livelihoods off of these deals have no incentive to warn developers of the intense competition. There’s too much money on the line for them.

And developers who are new to EB-5 may also struggle to compete with projects that have buy-ins from big Chinese firms, such as Pacific Park, where Chinese conglomerate Greenland owns a 70 percent stake, and at developer Michael Shvo’s 275-unit condo 125 Greenwich, where Chinese investment firm Cindat Capital Management is an equity partner.

“The Chinese are going to go with the Chinese, not because they trust them but because at least they know how to get a hold of them,” Gibson said. “It’s Chinese capital going directly to the Chinese.”

Cutting costs

The tightening spread between EB-5 and traditional mezzanine debt might explain why a significant number of New York developers are trying to cut as many middlemen out of their EB-5 transactions as possible. Those intermediaries include federally designated regional centers — which have sprouted up in recent years and act as clearinghouses for EB-5 capital — and the local Chinese and other foreign consultants, known as migration agents, who steer prospective investors to projects.

Hudson Yards

Hudson Yards

Rather than hiring an existing regional center to originate debt on their behalf, developers such as Silverstein Properties and Extell have in the last few years established their own centers, a move that some sources say substantially reduces their costs.

Silverstein established its regional center in 2013 to raise $250 million for 30 Park Place, the nearly $1 billion residential and hotel tower near the World Trade Center.

Meanwhile, Related opened its regional center to secure more than $600 million in financing for Hudson Yards, its massive mixed-use mega-project on Manhattan’s Far West Side. The cost of establishing a regional center typically ranges from between $100,000 and $200,000, irrespective of the size of the project it’s fundraising for.

Some developers have even established regional centers on a speculative basis to prepare for a capital raise when the right project comes along.

“It’s all about options,” said Izak Senbahar of the Alexico Group, who owns two regional centers he’s never even used.

“You never know when you’re going to get a nice piece of land,” he said. “There are a lot of moving parts to a deal and if you’re not ready with the money and you don’t have that regional center waiting, then you won’t have the option to use EB-5 unless you go rely on someone else.”

By bypassing the third-party regional centers as a middleman, developers can set more favorable terms with investors and avoid paying management fees, which typically account for at least 1 to 2 percent of the total financing raised. For a project raising $75 million in EB-5 capital, for example, that amounts to $750,000 to $1.5 million.

Reputational risk

For some developers, the thought of operating a regional center is too daunting; the SEC is clamping down on EB-5 corruption, and there is the potential for negative headlines or even legal liability.

The reputational risk of getting flagged for misusing EB-5 funds — or for using them at all given how much of a lightning rod EB-5 has become — is a big consideration.

“We thought long and hard about becoming our own regional center,” said developer Steve Witkoff, who used a third-party regional center to raise $175 million for his condo project at 111 Murray Street in Tribeca. “We struggled with the securities liability portion of it. You’re under a legal obligation as a fiduciary to report correctly, and it just brings in another layer of liability. It’s one thing to make a mistake from the real estate side; it’s another thing to make a mistake as the entity making a securities offering.”

Regional center operators, who court developers as clients, argue that hiring a third party saves developers both time and money. A center’s existing network of migration agents can effectively market a project in China, operators say, and a developer won’t suffer the headaches that come with interfacing with individual investors and their attorneys.

“We charge 6 to 7 percent on a loan, depending on the strength of the developer,” said Jacqueline Finkelstein-LeBow, a principal at New York-based regional center American Immigration Group. “Some developers will tell you that they can go into the market themselves and get it at 3 percent. That’s complete baloney. It’s just impossible because the migration agents just take too much of that.”

Finkelstein-LeBow added that many builders have learned that lesson the hard way. “They think they can do it themselves and then they realize how tedious the process is,” she told TRD. “It’s being able to have the trust and respect of these agents. If you’re just walking in for the first time, they’re not going to take you so seriously. It’s not easy to get in the door.”

A matter of trust

While developers may not be getting EB-5 cash at as the same bargain-basement price as they did a few years ago, the program is still worth it for many of them — at least for now.

One reason is that EB-5 capital is “remarkably flexible,” meaning it can be debt or equity, secured or unsecured, and can account for as little as 1 percent of a project’s cost or as much as 100 percent, according to a research paper by New York University professors Jeanne Calderon and Gary Friedland. “It can contain virtually any features, with few limitations or restrictions imposed by the EB-5 program,” the duo wrote.

Source: TRD research

It’s especially appealing to developers of large-scale projects. That’s partly because it provides capital for early infrastructure improvements — like environmental land remediation or initial foundation work.

It can be tough for projects to find financing for these early capital outlays, which often take place months, or even years, before the project generates its first cash flow. Private debt providers are generally “unwilling to provide this funding,” Calderon and Friedlander wrote. “Those who are willing demand a substantial premium.”

But there are still significant challenges to those who go the EB-5 route. Two of the biggest are the lengthening wait list for EB-5 immigration petitions and the possibility of more skepticism among senior lenders whose confidence has been increasingly eroded by negative publicity stemming from critics who have described the program as a cash-for-visas scheme.

The difficulty in finding financing is even greater in the rare instances where EB-5 is used as equity rather than debt. M&T’s Petrula said tapping EB-5 for equity is essentially going into business with hundreds of strangers, not something lenders are generally comfortable with. “[It] adds a level of complexity and uncertainty to a capital stack that many senior lenders choose to avoid,” he said.

Senior lenders are, not surprisingly, more accepting of partners with solid track records — not to mention those who they can meet and vet in person. That’s because they need confidence that their partner will step up to pour more money into a project if a deal sours. “[They have the] wherewithal to fund capital calls and protect in a bad situation,” Petrula added.

But the long processing times for EB-5 investors’ applications may be an even bigger problem for developers because it can delay their access to capital.

“The biggest risk to demand for the program is if waiting times for Chinese nationals grow further,” said Justin Gardinier, the former managing director of the recently launched EB-5 group at the financial services firm Greystone.

There’s also the risk of litigation should a project go south and investors lose their money. If investors can prove they were misled, developers could have a wave of lawsuits on their hands. “You put a 90-year-old Chinese grandma who lost all her money on the stand and it’s going to cost them millions of dollars,” Gibson said.

 2. Reining in regional centers

The EB-5 clearinghouses have emerged as a crucial-but-controversial reality in raising cheap foreign capital, but will they be reformed?

Nicholas Mastroianni II is a man in perpetual motion.

The 52-year-old CEO of the U.S. Immigration Fund, which raises money from foreign investors for real estate developments through the EB-5 program, spends a considerable chunk of his time on the road.

Last month, that meant a 10-day trip to China, Korea and Vietnam — which partly explains why, in the middle of that trip, after several attempts to connect, he emailed to suggest a phone call at 11 p.m. Korea time.

“I’m all over the world, that’s the problem,” he chuckled. “I’m in South Korea now.” Since 2010, when Mastroianni got into the EB-5 business, he’s lined up more than $1.5 billion from EB-5 investors, who chip in $500,000 each in exchange for a U.S. green card. Ninety percent of USIF’s clients are major New York real estate players, including Forest City Ratner, the Durst Organization, the Witkoff Group, HFZ Capital and Kushner Companies. Having arranged financing for mega-projects like Pacific Park (formerly known as Atlantic Yards), along with more than 20 other office and condo projects, USIF is the largest regional center in New York — if not the country.

Regional centers, otherwise known as “sponsors” of EB-5 projects, are the intermediaries between developers and investors — acting as de facto clearinghouses for immigration documents and investor capital.

But the central role regional centers have taken on has emerged as a major flash point for criticism of EB-5, which has garnered a reputation for being opaque, not to mention rife with fraud. In addition, the program has incited anger among some who say it spurs economic investment in urban areas while turning a blind eye to the rural parts of the country that truly need it.

Michael Gibson — managing director of USAdvisors, a registered investment advisory firm that does EB-5 due diligence work — called the industry “broken” and pointed the finger at U.S. Citizen and Immigration Service, the division within the Department of Homeland Security that oversees the program and regulates regional centers.

“This is a great program if it’s done right, but the biggest problem is transparency,” said Gibson, who also consults for developers and sometimes regional centers.

While Congressional efforts to reform the industry fell flat this fall, stakeholders are bracing for changes before EB-5 comes up for renewal again on Sept. 30. And many of those reforms are expected to target regional centers.

But the development and real estate finance communities have made no bones about the fact that they are staunchly behind these regional centers.

Case in point: When Howard Michaels of the financial intermediary the Carlton Group introduced Michael Shvo to USIF back in 2014, he urged the developer, who was trying to line up financing for 125 Greenwich, a 275-unit condo, to “sign them up” quickly.


Source: Research by NYC professors Jeanne Calderon and Gary Friedland, TRD and

In an email to Shvo, Michaels cited USIF’s successful fundraising on behalf of New York clients like the Witkoff Group. “According to the Witkoff Group,” Michaels wrote, “they put on an unbelievable show.”

Profit powerhouses

When Mastroianni launched USIF in 2011, EB-5 was still in its infancy, with only 28 regional centers nationwide.

Today, there are more than 800, and at least 65 of them call New York home.

And while developers and investors are not required to use these regional centers, the vast majority of EB-5 capital — some 95 percent — flows through them.

In fiscal year 2015, EB-5 accounted for $4.38 billion in direct foreign investment in the U.S. — up from $3.56 billion a year earlier and from only $320 million back in 2008, according to the Regional Center Business Journal, a quarterly trade publication.

Although some developers like the Related Companies and Silverstein Properties have in-house regional centers, most developers use a third party to avoid the expense and logistics of complying with federal requirements.

“The regional center is a point of communication between us and the investors,” said Asaf Schuster, vice president of business development for Victor Group, which, along with Lend Lease, is raising $90 million for a 55-story condo at 281 Fifth Avenue. Victor Group has tapped the Manhattan-based American Immigration Group as its regional center.

Not surprisingly, regional centers get paid generously for acting as the conduit between developers and investors.

Developers typically pay regional centers between 5 percent and 8 percent of the total capital raised. (A back-of-the-envelope calculation based on those percentages shows that Related, which raised $600 million in EB-5 cash for its giant Hudson Yards project, may have saved around $50 million by setting up its own regional center.)

In addition to that percentage haul, regional centers also charge each investor an administrative fee of $25,000 to $60,000 on top of the $500,000 minimum commitment they are making to the project. A $100 million raise, therefore, would generate fees up to $8 million from the developer and up to $12 million from investors.

Those aren’t pure profits, of course. But at $200,000, the cost of setting up a regional center is paltry, especially because developers also pay for things like marketing materials, business plans and economic studies that must be completed to ensure that every project complies with USCIS requirements. Each $500,000 investment must also create 10 jobs, and it’s up to regional centers to document that a project meets those criteria.

nick Mastroianni-usif

Nick Mastroianni

Lately, regional centers have also been shelling out big money to hire foreign “migration agents” who line up investors.

Min Chan, a co-founder of the regional center launched by the Manhattan-based brokerage City Connections, said she recently interviewed a migration agent who wanted $25,000 up front — plus up to 4 percent of the capital raise.

“The whole point of EB-5 is more affordable capital,” she said. “If you’re taking 3 to 4 percent of what we raise, and the investor gets [a standard] 1 percent, what’s the regional center going to keep?”

The snowball effect

Mastroianni has a beefy build, black-and-silver hair and the perpetual suntan of someone who spends a lot of time on golf courses.

A Long Island native, he moved to Palm Beach in the ‘90s and now splits his time between homes in Florida and Manhattan when he’s not racking up international frequent flier miles.

Rewinding a few decades, Mastroianni got into the construction business at age 19. In 1989, he started a Rhode Island-based company, Interstate Design & Construction, which soundproofed buildings near airports. Then in 2004, he launched the Florida-based Allied Capital & Development.

However, it has not all been smooth sailing. In 2014, a published report documented a series of debts and lawsuits that the young entrepreneur left in his wake over construction issues.

According to the story, Interstate went into receivership in 2000. Mastroianni filed for personal bankruptcy in 2003.

“Listen, when you’re on top, people want to knock you down,” Mastroianni said recently, when asked about the article. “It stems from people who are jealous and envious of what we do.”

Reflecting a bit more, he said life takes winding roads. “If I didn’t do all the things I’ve done in life, I wouldn’t be here today,” he said. “I might be banging nails on roof shingles, like when I was 19.”

Instead, in the mid-2000s, years before EB-5’s skyrocketing popularity — the program has actually been on the books since 1990 — Mastroianni used the little-known program to finance a mixed-used development of his own in Jupiter, Fla., a wealthy enclave near Palm Beach.

Mastroianni was trying to line up financing for a $144 million project called Harbourside Place. “There was no way to finance the project,” he recalled.

In 2010, after learning about EB-5, he formed the Florida Regional Center to raise nearly $100 million from Chinese investors.

“I said to myself, ‘If I can pull this together, I have 10 friends in New York who would love to borrow this inexpensive mezzanine capital, too,’” he said.

The following year, Mastroianni landed his first New York City project when he was hired to raise $23 million for the Charles, a 27-unit luxury condo developed by Bluerock Real Estate and Victor Homes. From there, the newly formed U.S. Immigration Fund was hired by Forest City, Durst and others. “It snowballed,” Mastroianni said of USIF’s growth. “We were successful in putting together projects. It’s not like a back office, fly-by-night operation.”

In 2014, he was doing well enough to shell out $3.8 million for a penthouse condo at 230 East 63rd Street, according to public records. Today he is currently raising $800 million for various projects, Mastroianni said.

Asked how he connected with those early, marquee clients, Mastroianni cited Wallace Stevens’ poem starting with the phrase “After the final no there comes a yes.”


Nassau Collseum rendering

He added: “It’s really about persistence and determination. I wanted to be successful. I made it my mission to find out who was in the industry and how to get to that point.”

Six years on, Mastroianni said USIF has thrived because it “institutionalized” the EB-5 business — previously thought of as second-rate financing — by employing securities and immigration attorneys, performing due diligence and maintaining strict compliance with regulatory statutes. USIF has 40 employees in the U.S., 18 in China and 10 in Mexico, India, Korea and Vietnam.

In New York circles, Mastroianni is often accompanied by Vivian Ding of GDOS — one of China’s largest migration agencies.

While Ding lines up investors, Mastroianni’s handles business development — in other words, forming and reinforcing partnerships and spreading the gospel of USIF.

A 2014 term sheet between USIF and Shvo offers a glimpse into just how much USIF’s services cost. For $300,000, USIF conducted economic studies, drew up immigration documents and produced a slick promotional video. Shvo also footed the bill for two 10-day trips to China for four members of USIF’s team along with a developer’s representative.

Regional center rivals

While USIF is the largest regional center in New York, it’s certainly not alone.

New York Regional Center, co-founded by real estate attorney George Olsen and Paul Levinsohn — who served as chief counsel to former New Jersey Gov. Jim McGreevey — is also big.

NYRC, which opened its doors in the throes of the financial crisis in 2008, has since raised more than $1.1 billion in EB-5 capital. Projects include the Brooklyn Navy Yard ($60 million), Steiner Studios ($145 million) and 215 Chrystie Street ($80 million), the 11-unit condo developed being developed by Witkoff and hotelier Ian Schrager.

Other regional centers have popped up in a remarkably short period of time.

The Manhattan-based American Regional Center for Entrepreneurs, for example, launched in 2013 and has since raised $50 million for Xin Development’s Oosten, a 216-unit condo in Williamsburg. It is currently raising another $50 million for China Vanke and RFR’s condo tower at 100 East 53rd Street.

EB-5’s popularity has created competition among regional centers, who fiercely guard the identities of their foreign contacts. Migration agents and investors, too, want to see a strong financial commitment from the developer, said Jacqueline Finkelstein, principal and COO of the American Immigration Group.

The center is raising $75 million for a condo project at 45 Broad Street and $100 million for the redevelopment of the Kingsbridge Armory in the Bronx, which is being turned into a nine-rink ice-skating complex.

“If you show less than 20 percent [developer equity], most of the good [migration agents] will run for the hills,” she said.

Where are the watchdogs?

Over the last six years, Mastroianni has demonstrated an unrivaled ability to woo developers and investors. But not everyone appreciates his sharp-elbowed style.

He was sued in 2011 and 2013 by former partners. In 2015, USIF’s former CFO, David Finkelstein, accused Mastroianni of financial improprieties. Finkelstein’s accusation came in the form of counterclaims to a 2014 lawsuit filed by Mastroianni, in which he disputed Finkelstein’s ownership stake in their Florida-based EB-5 business. Mastroianni told TRD that the case against Finkelstein is settled.

Finkelstein — Jacqueline Finkelstein’s father — is now working for the competition as president and CEO of the American Immigration Group.

Jacqueline Finkelstein (Photo by Larry Ford)

Jacqueline Finkelstein (Photo by Larry Ford)

If they are aware of Mastroianni’s past financial and legal woes, USIF’s clients have not batted an eye.

“Nick got us our money and got the job done,” said an executive at one of the city’s major development firms.

Hudson Companies’ David Kramer said he considered several regional centers before going with USIF to raise up to $110 million for the redevelopment of the Brooklyn Public Library at 280 Cadman Plaza, which will include a new library at the base of a 139-unit condo tower as well as 114 affordable units at two nearby sites

“We did our due diligence and went in with eyes wide open,” Kramer said. “You have to make judgment calls and I have absolute confidence in his ability to perform. … It was a big deal for us that he had a track record.”

Attorney Eric Orenstein of Rosenberg & Estis, who works exclusively with Mastroianni’s USIF on EB-5 deals, said the regional center is one of the few closing deals.

“There are a lot of people running around claiming, ‘I’m a regional center and I’m going to raise this money for you,’ and they’ve never raised a dollar,” he said.

But therein lies one of the most frequent critiques of EB-5 overall — that it’s an industry lacking oversight and accountability.

As far back as 2013, the Office of the Inspector General, which is charged with weeding out waste and abuse in the federal government, reported that USCIS lacked the authority to crack down on fraud.

“The only watchdog in this is the SEC,” USAdvisors’ Gibson said, “and they’re cleaning up the mess long after the house was put on fire.”

Coming into compliance

With criticism of EB-5 mounting, Congress grappled with potential changes to the industry this past fall.

U.S. Sen. Dianne Feinstein went as far as calling for an end to EB-5 altogether.

“The EB-5 regional center program sends a message that American citizenship is for sale, and [it] is characterized by frequent fraud and abuse,” the California Democrat wrote in an Op-Ed published in the Capitol Hill newspaper Roll Call.

Industry sources said there’s now widespread recognition that any reform will target regional centers.

“Regional centers will look more like compliance offices,” said Manhattan-based attorney Clem Turner of Homeier & Law, speaking at an EB-5 conference organized by financial firm NES Financial last month.

Attorney Jennifer Moseley, a partner at North Carolina-based Morris, Manning & Martin LLP who represents regional centers, told TRD she regularly gets calls from centers that want to clean up their act.

eb-5-changesWhile Moseley said she’s helped bring centers into compliance, she noted that “there are things from a securities perspective that are unfixable.” For example, some may have marketed projects in a way that inadvertently constituted a public offering, such as advertising in the U.S. to potential investors.

In 2015, the Government Accountability Office, a congressional watchdog, exposed vulnerabilities in how the EB-5 program is run, specifically the inability to vet where investors’ money is coming from. Its report found that USCIS does not consistently enter information it collects on participants, creating barriers to conducting electronic searches that “could be analyzed for potential fraud.”

But a more complete data-collection system is four years behind schedule — and $1 billion over budget.

Despite renewed calls for reform, Congress reauthorized the EB-5 program in December with no changes. But it’s likely to revisit those reforms before the next reauthorization in September.

The last round of proposed changes would have raised the minimum investment threshold (the program is among the cheapest of its kind worldwide) and instituted more stringent due diligence, among other reforms.

For his part, Mastroianni chalked up USCIS’ shortcomings to a lack of resources.

“The program has grown so much that it’s overburdened,” he said.

But he said he was “all for” improving EB-5, including additional oversight and transparency for regional centers like his. In particular, he said he supports increasing the minimum financial contribution from investors, charging additional fees for large families and setting aside a certain number of visas each year to be used in impoverished areas.

Recalling how his grandparents immigrated to New York from Italy, Mastroianni
said the bottom line is that EB-5 is both an immigration program and an economic

“We’re creating American jobs through foreign investment, without taxing you and I,” he said. “It’s a fantastic thing.”

 3. EB-5’s gatekeepers

Migration agents are operating in a unregulated gray zone, but reaping big money by connecting developers to Chinese investors.

Last July, a swarm of high-profile guests — including Revlon Chairman Ron Perelman and former Secretary of State Henry Kissinger — gathered to celebrate the launch of a summer tour to China by the National Youth Orchestra of the U.S.

Among the high-powered attendees who were invited by China’s New York Consulate General Zhang Qiyue was Linda Mei He. Dressed in a nearly floor-length black gown, Mei He, who along with Carnegie Hall was a major sponsor of the tour, later issued a news release raving about the young musicians and the importance of promoting cultural exchanges between the U.S. and China.

But her involvement in the event was clearly not just about the classical music — it was also a hugely important business-networking tool.

Mei He’s Beijing-based Wailian Overseas Consulting Group, and the hundreds of other so-called “migration agents” that woo investors on the ground in China have been among the biggest profiteers from the EB-5 immigration program. That’s thanks to the massive fees these migration agents charge developers and the regional centers hired to market projects to Chinese nationals. The consultancies can make up to $200,000 on every investor — each of whom is required to contribute a minimum of $500,000 to a project. On a $100 million capital raise, that amounts to a massive $40 million.

But there’s a reason developers and regional centers hire them: They are the gatekeepers, with access to thousands of investors looking to plunk down their cash and get a visa.

For her part, Mei He, who didn’t respond to a request for comment, has marketed investments for major New York City developers such as the Related Companies, Forest City Ratner and Silverstein Properties. And in China, where migration agencies are as common as Duane Reade drug stores are in Manhattan — there are a total of nearly 800 firms in China helping citizens through the emigration process —Wailian is a market leader.

Yet while migration agents have become a key component for getting money from China to New York development projects, sources say they’re also vulnerable to corruption and are largely responsible for EB-5’s bad rap.

That’s because unlike accredited “broker-dealers” in the U.S. — who can also raise EB-5 money but don’t have the same deep connections in China — they fall outside the jurisdiction of the U.S. Securities and Exchange Commission. As a result, the operations of these firms (which are licensed by the Chinese government) are viewed by many as EB-5’s “wild, wild west.”

Some EB-5 insiders say in their thirst for commissions, migration agents sometimes misrepresent projects, making them seem more attractive or less risky than they actually are.

“The problem is now you have agents saying whatever they want to say to try to sell the product to the investors and there are a lot of miscommunications — or what the securities industry would consider fraud,” said Kurt Reuss, an accredited Toronto-based EB-5 broker dealer who has worked with a number of regional centers.

Lost in translation

Until 2008, many migration agents were true immigration centers, simply helping Chinese emigrants get their papers in order for simple visa applications to visit the U.S. or other countries.


Linda Mei He

But as the popularity of the EB-5 program has skyrocketed, these centers became cash cows — bankrolled by U.S. developers hungry for capital. The employees at these migration firms soon began taking on the role of securities dealers, marketing U.S. real estate projects to investors in China in exchange for hefty fees from regional centers.

And some of them have connections to state-owned enterprises, meaning the Chinese government may also be benefitting from the exorbitant fees.

One concern is the question of who should be held responsible if a migration agent embellishes the financial upside of a project.

Some migration agencies, such as Beijing-based Henry Global have already come under fire for misrepresenting projects. In 2012, the agency was accused of purposefully sullying the reputation of a South Dakota-based project after it got into a fee dispute with the regional center representing it. A lawsuit against the agency was eventually dismissed.

The potential for overpromising is great as well. Reuss believes developers and regional centers will eventually be held accountable for inaccurate information — even if they deny knowing exactly how the migration agent peddled it. “If  [a migration agent is] taking on the role of marketing your offering, and you benefitted from it, how can you not be held accountable?” he said.

Given how many migration agents exist in China, however, enforcement is far from simple.

“There’s nearly an agency on every corner in China,” said Nuri Katz of Apex Capital, a migration agent based in the West Indies island of Antigua who’s dealt with EB-5 investors from all over the world, including China. “Some of them are pop-ups, and some are bigger franchises. Some of them are doing it properly [but] half of them are not.”

While these agents have to be licensed by Chinese authorities, the barrier for entry is extremely low. In addition, while the agents are free to show off the projects to potential investors at conferences and events in China, they cannot solicit investments on American soil.

Nicholas Mastroianni, president and CEO of the US Immigration Fund — the mega regional center that’s raised funds for Michael Shvo’s 125 Greenwich as well as a slew of other big projects — said the majority of migration agents, outside of a few well-qualified firms, are hiring staffers with zero experience in finance or real estate.

“If you’re at the top of the pyramid, it’s a business,” said Mastroianni, whose website boasts that it has partnerships and promotion agreements with 14 of the top 20 immigration firms in Southern China, including Wailian. “If you’re at the bottom, it’s like everyone is a real estate agent; everyone sells immigration. It’s the mother with an 18-year-old kid who wants a second job.”

Mike Xenick, president and CEO of Invest America Capital Advisors, an accredited broker-dealer based in Tampa, called some of the smaller agencies “glorified travel agents.”

And not all investors are savvy to how migration agents operate.

 For instance, investors may not even be aware that the agents they’re dealing with are being paid substantial commissions by regional centers and may instead treat them as impartial advisors. Inexperienced investors can be blinded by the pizazz of agents’ showy presentations, which are often hosted in five-star Beijing hotels.

eb-5-migration-quoteIndeed, when Wailian presented Forest City’s Barclays Center project to potential EB-5 investors in 2010, it did so in a spectacular fashion during an investor extravaganza in Beijing. The marketing materials emphasized the Nets stars, set to play at the new arena, rather than the financial breakdown of the project.

Still, it’s easy to see why investors trust the advice of agents such as Mei He, whose company has an exclusive agreement with one of the top Chinese property websites,, China’s equivalent of Zillow, that allows it to market its EB-5 projects.

With 300 employees worldwide and deep connections to U.S. institutions, Mei He is considered an expert in helping wealthy Chinese families secure visas and even in getting their kids into American Ivy League schools. Those connections in the U.S. are strengthened by charitable giving. She has made six-figure donations to nonprofit organizations, including the Eisenhower Foundation for youth development in American inner cities.

Attending an event with the likes of Kissinger and Perelman also gives her a major boost in the eyes of investors.

“Being able to say, ‘I’m friends with this person’ or ‘I know that person’ is gold in China,” said Apex Capital’s Katz. “Seeing you with a Henry Kissinger is a huge deal. To the Chinese, the more influence you have with government, the better off you are.”

The cost of exposure

As competition has ramped up, the fees charged by migration agents have increased substantially over the past couple of years.

Sources told The Real Deal that top migration agents are typically paid by the regional center (or developer), drawing an upfront fee of $50,000 to $75,000 per $500,000 investment they bring in, plus a 3 percent to 8 percent share of the interest over the term of the loan.

By the end of a five-year loan term, some of the highest-paid agents will have raked in close to $200,000 per single investor. That’s double the amount they got paid even two years ago, sources said.

The increasing costs of hiring migration agents also means it’s often financially impractical for regional centers to hire both migration agents and accredited broker-dealers, who can ensure that a project’s marketing complies with U.S. securities regulations.

Sources say the jumping costs are not justified.

“Their job is not that difficult,” said Min Chan, an immigration lawyer with Manhattan-based brokerage City Connections, which also operates a regional center. “They’re shuffling paper, and they’re getting paid a lot of money for it.”

And those fees are increasingly squeezing regional centers. “They’re greedy. They’re very greedy,” said Mastroianni.

In order to keep their costs down, and keep competitors at bay, some regional centers have been secretive about which agents have delivered for them.

Asked which agents her regional center has worked with, Jacqueline Finkelstein-LeBow of the American Immigration Group said it was “proprietary.”

She continued, “I don’t want to give a roadmap of what we’re doing in China. You don’t even want to tell the developers who you’re working with. They think they can do it themselves and they’ll run to China and talk to the same agents.”

 4. The banking bonanza

Smelling opportunity, financial institutions edge into the EB-5 game and make out big.

On a frigid day in February, more than 200 people packed into a ballroom inside the Roosevelt Hotel in Midtown Manhattan — all there to hear about the latest regulatory issues and new legislative proposals reshaping the EB-5 market.

But perhaps more telling than the day’s agenda was the event organizer: the California-based NES Financial. The financial services firm — one of the biggest, if not the biggest, player in EB-5 banking in the country — didn’t even exist until 2005.

While much has been written about the post-recession popularity of the EB-5 program — which offers foreign investors green cards and potential citizenship in exchange for cash investments in the U.S. — less has been written about how it has quietly become a profit center for banks and their various financial partners.

In the last year, a number of financial institutions have edged into the EB-5 space, finding ways to capitalize on the maze-like path that EB-5 capital takes en route to developers’ coffers.

Put simply, the collective cash raised — each investor is required to kick in a minimum of $500,000 — can add up, giving the banks more money to make loans against and generate revenue from. Banks also view it as a way to land lucrative additional work from developers and even investors.

Also, despite the high stakes (the program generates billions of dollars every year) there are few rules governing how capital must be handled in the EB-5 ecosystem.

Until recently, Congress seemed virtually unaware of the open secret that everyone in the industry knows.

“The shocking thing to me, coming from private equity, is there’s no rules around the governance of this money. Zero rules,” said Bonnie Novella, vice president of business development at NES and a former executive at JPMorgan Chase. “There’s many billions of capital that are not being governed.”

Big money, big stakes

Given the amount of capital in play, it’s no wonder that more financial firms are turning their attention to EB-5.

NES estimates that $2 billion to $3 billion in EB-5 capital is raised each year nationally, with a big chunk of that coming from development projects in New York and California.

Yonkers, N.Y.-based Sterling National Bank got into the EB-5 business about a year ago, partly because bank executives hoped it would open doors to more business with real estate developers, said David Bagatelle, president of the bank’s New York metro market.

“We love core, sticky deposits, which of course this generates,” he told The Real Deal, noting that it also fit with the firm’s business model.

Manhattan-based financial services company Greystone has also jumped into the EB-5 game — becoming the first such financial institution to offer soup-to-nuts services to developers.

Greystone’s group, which was formed last year, does everything from raise investor capital to manage EB-5 funds to issue construction loans on EB-5 projects. So far it’s lined up four projects looking for a total of $175 million in EB-5 money.

Justin Gardinier, a former managing director at Greystone and head of the EB-5 group, said the company offers investors an “institutional quality intermediary” to handle their money, since there’s no way to validate a regional center’s ability to raise money. (Developers generally rely on regional centers — the middlemen between investors and developers — as well as banks to raise and manage their EB-5 financing.)

“Very few of them actually have any kind of track record,” he said.

Attorney Gary Friedland, who teamed up with NYU professor Jeanne Calderon to write a research paper on EB-5 finance, called Greystone’s entry into the EB-5 space “significant,” since the firm can handle issues regional centers typically cannot. “For example, they can provide or arrange bridge capital, [and] provide development and construction expertise,” he said. “This can prove especially valuable if we encounter a down cycle.”

Dual channels

Broadly speaking, banks have fashioned two distinct lines of business related to EB-5: administering escrow accounts that hold investor capital and providing bridge loans to developers to tide them over until that EB-5 capital is available.

Holding funds in escrow is not technically required by U.S. Citizenship and Immigration Services, the agency that oversees the EB-5 program. But it’s emerged as a way to reduce risk for both investors and developers.

“If the USCIS doesn’t bless the project, there’s a chance that every dollar collected has to be refunded,” said NES’s Novella.

Similarly, if an immigrant’s green card petition is denied, the project’s sponsor must refund the investor’s money. “If [a developer] raised $30 million and started pouring concrete, where is that money coming from?” Novella said. “That’s a worst-case scenario.”

Servicing these escrow accounts and tracking investor funds for developers and regional centers has created an enormous business opportunity.

NES, for one, has seized on that opportunity. The San Jose-based company was founded in 2005, at first focusing on 1031 exchanges and later applying a proprietary tech platform to EB-5, which provides real-time information to stakeholders.

Between 2010 and 2015, NES said its EB-5 business grew a massive 71 percent, to include 450 projects and $20 billion worth of investor capital.

Novella said the company — which employs 60 CPAs, banking experts and USCIS experts —touches between 40 percent and 50 percent of the EB-5 funds raised nationwide. While it’s not a bank itself, NES has seven banking partners that it feeds business to, including New York-based Signature Bank, SunTrust, Citibank and BankUnited.

Legitimizing EB-5 banking

Given the amount of money at stake, NES — along with Signature Bank and others — signed a letter last year urging Congress to reauthorize the EB-5 program.

The fact that banks are vying for EB-5 business is fueled in part by the U.S. Securities and Exchange Commission’s crackdown on fraud and improper practices in the EB-5 industry.

Still, Novella said, “ineptitude is a bigger problem than corruption.”

For years, regional centers acted as de facto (and unregulated) banks, according to Michael Gibson, the managing director of USAdvisors, a registered investment advisory firm that does due diligence work in the EB-5 world and maintains web portals including and “They didn’t care what it took to raise capital,” he said.

That changed around 2013, when the SEC filed charges against a Chicago EB-5 promoter, Anshoo Sethi, who allegedly bilked 250 Chinese investors out of more than $145 million intended to finance a hotel and conference center in the Windy City.

The SEC’s subsequent surveillance didn’t just focus on the most egregious fraud cases, it thrust the entire EB-5 fundraising system under the microscope.

One (very unintended) consequence of those enforcement actions — along with the fact that it’s illegal to pay an unregistered financial agent for the sale of securities — has been the emergence of an offshore EB-5 financial system. That system has encouraged less scrupulous regional centers to pay U.S. attorneys and other unaccredited brokers for bringing them investors, even though they are not be registered agents. “These guys set up accounts in Hong Kong and the Caymans to avoid the SEC,” said Gibson.

At the NES conference, attorney Daniel Lundy, head of the compliance division at the law firm Klasko, called EB-5 a “game of ‘follow the money.’”

Novella added that EB-5 money can flow through as many as four bank accounts before reaching its intended recipient, the developer.

The SEC’s recent case against Flushing attorney Hui Feng, who was accused of pocketing $1.2 million in commissions after illegally raising EB-5 money in China, highlights how money hopscotches around the globe to get to, say, a developer in New York.

According to the SEC, Feng was not permitted to raise funds since he’s not a registered securities broker. Feng maintains he was providing legal services to EB-5 clients whose interest was investing the required amount to obtain a U.S. green card, and not necessarily profit.

Court documents allege that in 2014, Feng set up a Hong Kong entity called Atlantic Business Consulting Ltd. in order to accept payments from seven U.S. regional centers, including two in New York — Lam NYC EB-5 Regional Center and American Regional Center for Entrepreneurs.  “Under the request of the regional center, we have to give them a foreign entity or individuals for them to enter the [finder’s] agreement with and wire the funds to,” Feng told SEC investigators, according to a transcript of a December 2014 deposition.

One such agreement, with California-based American Dream Fund, named Feng’s mother-in-law as the beneficiary of a $30,000 finder’s fee for each investor referred to the regional center.

Asked during the deposition if the investors knew about the finder’s fee, Feng said, “There’s tons of information online about how the deals are done. So we just didn’t put it in writing in the contract that we are receiving these finder’s fees.”

At a February 2015 deposition, an SEC investigator asked Feng, “Did your wife’s mother know that her name had been placed on a finder’s fee agreement?”

“I couldn’t know,” he replied.

‘Bridging’ the backlog

For better or for worse, EB-5’s popularity has continued to grow since 2010, creating a backlog of investors.

With more than 17,000 pending EB-5 immigration applications, investors are now facing a roughly 16-month processing time for their immigration forms, which include the I-829 and the I-526, the latter of which needs to be approved before developers can access the capital.

This backlog has, not surprisingly, created another business opportunity.

To deal with it, banks are offering bridge loans to developers, who often need the cash injection to start or continue construction.

Citibank, for example, offers bridge loans to developers using EB-5 funds to develop in low-income communities. While Citi declined to comment, its marketing materials note that standard loans range from $20 million to $75 million.

Similarly, Signature Bank’s capital markets group has championed the use of municipal bonds to hold developers over until EB-5 investor capital comes through. The bank, which has $33.45 billion in assets, has handled $3.4 billion in EB-5 funds to date. Signature did not respond to multiple inquiries.

In Sterling’s case, the bank rolled out both escrow servicing and bridge lending as part of its EB-5 offerings. “That creates an opportunity for us as a bank,” said Ricky Fischer, who oversees the bank’s EB-5 group. He stressed that the bank provides interim financing only if the deal meets certain criteria.

“As a lender, there’s profit on the interest spread and whatever fees are generated. Functioning as an escrow agent, there’s deposit revenue generated,” said Fischer, adding that the bank evaluates projects based on a worst-case scenario in which the government does not approve the immigration petitions.

“The escrow can typically lead to crossover potential” in the form of future business with developers, he noted.

It’s not just banks getting in on the action. Mark Edward Partners, a New York- and Palm Beach-based firm, sells EB-5 insurance. For $10,000 per policy, it will repay $500,000 of investor capital if USCIS doesn’t approve the investor’s green card. “The longer [the backlog is], the better it is for our insurance product,” said company Vice President Marc DiFanti, one of the panelists at the NES conference.

The risk reality

EB-5 financing, of course, isn’t without risks to developers because there are relatively few rules on how money is raised. Still, Sterling’s Bagatelle said his bank is bound by regulations at the Federal Deposit Insurance Corp. and the Federal Reserve System. Chief among them are requirements imposed on the financial services industry in the wake of the World Trade Center attacks in 2001, which were strengthened by the Dodd-Frank Act.

“We’re required to understand not just who the [EB-5] clients are who are placing the funds but also the source of funds,” said Bagatelle, who declined to disclose the volume of Sterling’s EB-5 business.

At Sterling, money that comes into the bank undergoes a compliance review and sits in a collection account, where background checks are conducted in compliance with the Office of Foreign Assets Control and Patriot Act. If clean, the funds are put in escrow.

Overall, Sterling has $12 billion in assets, and Bagatelle projected EB-5 would be material to its bottom line. Down the line, he estimated EB-5 could account for “hundreds of millions” of dollars in business. “With that being said, we’re not putting all our eggs [in one basket]. It’s not 50 percent of our balance sheet or even 10 percent,” he said.

5. EB-5: Dead or alive?

A look at four projects facing potential problems, but still seeking EB-5 cash.

EB-5 investors by definition live outside the U.S., sometimes thousands of miles away. But it ultimately falls on them to determine which real estate development projects in NYC (or elsewhere in America) are safest to put their cash in. That can be a tough task since developers are trying to woo them and present their projects in the best possible light. 

While many EB-5 projects get successfully finished, there are plenty of exceptions.  Read on for a closer look at four New York projects that are facing problems while courting EB-5 cash.

Reinventing the wheel

The New York Wheel, a 630-foot-tall observation wheel currently under construction on Staten Island, successfully raised $150 million from EB-5 investors last year. But insiders now say that money could be in danger. That’s because the project has become embroiled in litigation and its projected costs have almost doubled to north of $500 million. In December, minority shareholder Eric Kaufman sued some of his fellow investors, including jeans mogul Joe Nakash and investor Lloyd Goldman, claiming the project had no coherent business plan and ineffective management. The wheel’s current revenue predictions — which were crucial in convincing EB-5 investors to opt in — are also wildly optimistic, critics say. In its first year of operation, it was projected to earn $15 million from admissions. But after jacking up the proposed price of a ride to $35 from $15, the developers are projecting $95.9 million in admissions fees. Wheel CEO Rich Marin attributed the cost overruns to construction. “We have been building this project in a robust New York City building environment where we compete for subcontractor and vendor services with many other large projects,” he said. “This has undoubtedly contributed to considerable cost escalation, just as it has for many other projects.”

‘Bau’ out?

Joseph Beninati of Bauhouse Group isn’t letting his bankruptcy situation stand in the way of his EB-5 capital raise. The developer says he still wants to raise $140 million for the firm’s 950-foot, 113-unit condo tower at 3 Sutton Place in Lower Manhattan later this year. In marketing documents circulated to potential crowdfunding investors for the project, the developer boasts that it has “approved ready-to-go EB-5 financing at a low 5.5% interest rate.” But Beninati defaulted on his $147.3 million loan and then, in January, filed for bankruptcy to prevent his lender, N. Richard Kalikow’s Gamma Real Estate, from foreclosing. The loan has a massively high interest rate of 30 percent. Whether Beninati’s financial woes prevent him from finding EB-5 investors for 3 Sutton remains to be seen.

On thin ice

Plans to turn the Kingsbridge Armory into a nine-rink ice skating complex may be skating on thin ice.

The $350 million Kingsbridge National Ice Center — which is relying heavily on EB-5 investment — has yet to line up the $158 million needed to complete its first phase. As a result, the city, which owns the property, put the ice center’s lease into escrow last year — a move designed to protect the taxpayers’ interests if the project falls through. The developer, Kevin Parker, had until late last month to raise the funds and keep the project moving forward. If the 750,000-square-foot complex does proceed, it will include rinks, a community center and a wellness center.

Kingsbridge Armory

Kingsbridge Armory

According to a report by the Empire State Development Corp., the state’s economic development arm, the ice center is looking for EB-5 investors to chip in $250 million for a construction loan — a whopping 71 percent of the project’s total cost. (In most projects, EB-5 comprises less than 30 percent of the capital stack.)

But financing isn’t the only issue that’s dogged the project. In addition to partner infighting — three former partners unsuccessfully sued Parker in 2014, citing a lack of experience — the project has been slammed in the local press. In February, the Riverdale Press called it “ludicrous” to build a massive ice rink when a more modest rink at nearby Van Cortlandt Park shuttered.

Library lessons

David Kramer’s Hudson Companies is looking for $110 million in EB-5 money for its Brooklyn Heights library redevelopment, but the project has become a political hot potato. Critics have slammed the city, which owns the site, for awarding the development rights to Kramer — one of Mayor Bill de Blasio’s big backers — despite getting better offers. City Hall staunchly denies that characterization, saying Hudson put forward the best bid. The developer’s plans call for a new 36-story tower at 280 Cadman Plaza West, now known as 1 Clinton Street, as well as a revamp of the library. Hudson, which bid $52 million for the site, also has plans to build 114 affordable units, but at two off-site locations. Local residents filed a complaint with the Attorney General, alleging the library falsely claimed “capital poverty” in order to land a big payday in the form of a lucrative real estate deal.

Kramer called the controversy “absurd.”

The current library is a “big disappointment,” he said, adding that library advocates “have nothing better to do and think they’re on to the next Watergate.”