Visa program offers promise to the poor — then breaks it

It was the type of celebration that’s become commonplace in the Seaport District.

Investors, developers, and other real estate types mingled earlier this summer at a groundbreaking ceremony for Echelon Seaport — $900 million worth of luxury condos and apartments set to rise from a parking lot on Seaport Boulevard.

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Under a big white tent, guests sipped cocktails and listened as Governor Charlie Baker and Boston Mayor Martin J. Walsh touted the glassy, gleaming business district sprouting around them.Away from the festivities, Alex Shing of Los Angeles-based Cottonwood Management — the project’s developer — spoke about the strong interest from investors all over the globe who wanted to buy into Boston’s booming Seaport. Get Talking Points in your inbox: An afternoon recap of the day’s most important business news, delivered weekdays. “This is probably the most valuable piece of dirt in the world,” Shing said. Yet to help finance the project, Cottonwood and its partners capitalized on the high jobless rate of Boston’s poorest neighborhoods to qualify the project for a controversial funding program. It allowed them to raise about $225 million in bargain-rate loans from foreign investors who want to live and work in the United States. The move — blessed by state and federal regulators — probably saved Echelon Seaport’s developer tens of millions of dollars in financing costs.Advertisement The idea behind the program is to create jobs and boost investments in depressed areas, but the rules are so loose as to make that promise a hollow one. It’s not clear what, if anything, the project will do for the run-down parts of Roxbury, Dorchester, and Mattapan that Cottonwood’s consultants used to make the Seaport and its surroundings look downtrodden enough on paper to qualify for the program’s cheap financing.Cottonwood is one of a growing number of companies using the federal government’s EB-5 visa program, which grants a green card to foreigners who invest at least $500,000 in a US business that creates at least 10 jobs. Started in 1990, the program has in recent years become increasingly popular with real estate developers, who use it to attract low-cost money, often from Chinese investors eager to move cash and — eventually — themselves, to the United States. EB-5 has been in the spotlight lately, thanks in part to President Trump’s son-in-law Jared Kushner, who used it to finance luxury condo towers in Jersey City. The program has helped to pay for New York City’s massive Hudson Yards, a Las Vegas casino, and even the Waldorf-Astoria hotel in Beverly Hills, Calif. It has also gained headlines because of a few high-profile fraud cases, including a scandal involving Vermont’s Jay Peak ski resort, where federal officials last year charged a former executive and his business partner with fleecing foreign investors out of $200 million. In Boston, EB-5 has been used to finance a few small projects, but until Echelon Seaport just one major development — Samuels Co.’s Pierce condo tower in the Fenway — had tapped the program, raising $50 million. Developers of the massive One Dalton tower under construction in the Back Bay hope to raise about $150 million to fund a Four Seasons Hotel — which will occupy 23 of the building’s 61 stories — but haven’t yet closed a deal.To qualify for the most investor-friendly form of EB-5 financing, a project must be sited in an area with an unemployment rate that’s 1½ times the national average: 7.4 percent in 2016 when Seaport Echelon received permits. That allows a foreigner to obtain a green card by making a $500,000 investment, instead of $1 million. Rules for how big those areas can be are left up to individual states. Like many states, Massachusetts allows developers to string together an unlimited numbers of census tracts — mini-neighborhoods measured by the Census Bureau — until the collective jobless rate is high enough to qualify for EB-5. This cobbling together of census tracts by developers is common. A Government Accountability Office report last year found that 97 percent of EB-5 projects were in high-unemployment areas, and that nearly 40 percent combined 11 or more census tracts to create one. Critics compare it with politicians’ gerrymandering of congressional districts to favor a particular party. Echelon Seaport at the project’s groundbreaking in June." src="https://c.o0bg.com/rf/image_r/Boston/2011-2020/2017/06/14/BostonGlobe.com/Metro/Images/lee_seaport1_biz.r.jpg" /> Matthew J. Lee/Globe staff/File Attendees lingered near a model of the project at the June groundbreaking. “Basically, every projects qualifies. There’s really no standard,” said Gary Friedland, a business professor at New York University who studies EB-5 financing. “The whole incentive that was created by the government has been turned upside down.”For Echelon Seaport, Cottonwood and its consultants filed a map with the state that links 17 census tracts, extending from the Seaport to Mattapan Square, 6 miles away. The map starts in the Seaport before swinging out to capture the edges of South Boston and even the Harbor Islands. It then dodges the affluent residential parts of Southie, but includes the Mary Ellen McCormack public housing complex, the Bowdoin-Geneva neighborhood of Dorchester, Grove Hall, and other lower-income sections of Roxbury. From there, the map crosses Franklin Park to Mattapan. Altogether, the average unemployment rate for tracts on the map was precisely 7.4 percent. The project site is within walking distance of the city’s prosperous downtown and Beacon Hill, but the map was drawn to omit them.State officials in May signed off on the map, giving Cottonwood the green light to tap into roughly $225 million it had raised from individual investors in China and elsewhere outside the United States. Citing confidentiality agreements with lenders, Cottonwood’s Shing wouldn’t say exactly how much Echelon Seaport raised through EB-5, only that it amounted to “one-quarter or less” of the $900 million project’s funding. An ad for the project on a Chinese visa website indicated that Cottonwood aimed to raise as much as $225 million.Whatever the total, EB-5 saved Cottonwood a bundle. The annual interest rate on a loan funded through the visa program typically runs about 5 percent, say EB-5 financing experts, about half the rate charged by more traditional investment firms. On a five-year, $225 million loan, the difference could easily top $50 million.“It’s the cheapest source of capital they can find,” Friedland said. “The reason it’s cheaper is because the immigrant investors are making the loan strictly to qualify for a visa. They’re willing to accept a negligible return.”Attracting low-cost capital is often a challenge for developers actually building in lower-income neighborhoods, said Joe Kriesberg, executive director of the Massachusetts Association of Community Development Corporations. He said pumping the money into the Seaport, instead of areas that need more jobs, seems like a missed opportunity.“We’d like to see these dollars be a little better targeted,” Kriesberg said. “This program provides a chance to invest in lower- and middle-income neighborhoods, and we should be looking at how we can do a better job of that.”Shing acknowledged he probably could have launched Echelon Seaport without EB-5, but, he said, the financing would have been more complicated. Using the visa program “certainly makes the job a little bit easier,” he said. When Echelon Seaport is completed, it’s expected to create several hundred jobs, mostly in stores on the lower two floors. It will also employ about 1,500 workers for three years of construction. Like many developers of major projects in Boston, Cottonwood agreed to a requirement that half of its construction workers live in the city and that a quarter of them be black, Latino, or Asian —though those targets are rarely hit.

Echelon Seaport site last month." src="https://c.o0bg.com/rf/image_r/Boston/2011-2020/2017/07/26/BostonGlobe.com/Business/Images/ryan_145seaport1_biz.r.jpg" />

David L. Ryan/Globe Staff

Work continued at the Echelon Seaport site last month.

As of July, 30 percent of construction hours on the project had been worked by Boston residents, and 30 percent by members of minority groups, city officials said.

While the EB-5 program requires a project to create 10 jobs per investor, including construction positions, there is no language requiring that any of those jobs go to residents of high-unemployment areas that help a project qualify. In the case of Echelon Seaport, that means the developer isn’t required to hire residents of Roxbury or Mattapan.

John Barros, Walsh’s head of economic development, said the city wants more EB-5 investment in lower-income neighborhoods.

But, he noted, building activity in the Seaport indirectly boosts those areas by increasing the city’s overall tax base and job opportunities.

“In general, we’ve been talking about upward mobility for Boston residents and trying to make sure that opportunities being created anywhere in Boston are serving all Boston residents,” Barros said. “Particularly residents of neighborhoods and backgrounds that have not been included as much.”

Stricter federal requirements could ease concerns about the program, said Elliot Winer, a former Massachusetts state labor economist who today crafts maps to help developers qualify projects for EB-5 funding.

“Nobody would care about the gerrymandering if you had to hire, say, 50 percent of the people from the district,” he said.

With the program set to expire at the end of September, lawmakers in Washington are considering changes, including bumping up investment requirements and tightening the definition of high-unemployment areas.

One proposal would require that the project itself be in a census tract with a high jobless rate, or immediately adjacent to one.

But the Echelon project already is certified, and construction crews are busily digging the foundation. Cottonwood plans to open its three towers — with 733 condominiums and apartments — in 2020 and will start marketing the condos later this fall.

“I’m confident in Boston, and especially in the Seaport,” Shing said at that swanky groundbreaking earlier this summer. “I mean, just look around.”

Tim Logan can be reached at tim.logan@globe.com. Follow him on Twitter @bytimlogan.