There has been a flurry of recent coverage, led by The New York Times and Washington Post, regarding the Kushner Companies' One Journal Square luxury housing project in Jersey City, New Jersey, which is seeking $150 million from 300 Chinese immigrant investors under the controversial EB-5 investor visa program.
The effort by Jared Kushner's relatives to capitalize on his role as White House adviser and son-in-law to President Donald Trump reeks of nepotism and crony capitalism. And the decision by investment promoters to eject reporters from marketing sessions in China and force them to delete photos confirmed they fear scrutiny.
After all, the EB-5 program has faced several scandals and has been criticized as selling visas to immigrants willing to put $500,000 into a "job-creating investment," thus gaining green cards for themselves and their families.
But this fairly common marketing effort should raise even more red flags about a program – one frequently used by major real estate developers – that awaits congressional reform, since EB-5 does far more for those developers than for the public.
The typical description of EB-5 often says it involves investments in U.S. projects that create jobs. That's not necessarily true. In the gold rush world of EB-5, originally conceived to assist needy areas but now embraced by developers to lower their costs, the immigrant investors need not prove job creation. Some magical math will do.
On paper, each $500,000 investment must create 10 jobs, so, for One Journal Square that equals 3,000 jobs. (Actually, federal law requires a $1 million investment, but permits half that if the project is in a rural or needy area. Rampant gerrymandering allows luxury housing projects to be positioned within high-unemployment districts, thus qualifying for the discount.)
One Journal Square, according to marketing materials, will create 6,616 jobs, leaving a generous cushion. Could construction of a 1,730-apartment project really lead to that many jobs? No way. Even Kushner Companies, in a statement released on Monday, claimed it would create "more than 4,000 union construction jobs," surely in job-years.
See, EB-5 rules regarding job creation are quite generous. With investments placed through a middleman called a "regional center," no head count of workers is required; indirect and induced jobs are permitted. A hired-gun economist calculates the job numbers. The reports aren't made public. Such numbers, federal watchdogs have suggested, greatly exaggerate job creation.
Do immigrant investors – whose funds make up just 15.4 percent of the $976.4 million Jersey City project – deserve credit for all the jobs created, as EB-5 rules permit? For job creation calculations, the economist applies a "multiplier" to the entire pot of project funds, not just the slice from EB-5 investors.
That might be justified if immigrant investor loans represented crucial seed money. However, experts agree, most EB-5 investments aren't necessary; the money helps real estate developers profit by avoiding expensive bridge loans. The immigrant investors accept a low rate of return because they want those green cards.
Given such potential profits, it’s no wonder that EB-5 promoters have long suggested proximity to official power, a key selling point to audiences in China, and the main source of immigrant investors.
Back in 2010, when I got a stringer to cover an EB-5 marketing session for Atlantic Yards in Beijing, the brief video he filmed, before he was asked to stop, showed the private pitchman leaving the impression he spoke for the city and state of New York, which were not formally involved in the EB-5 project.
In 2014, after I exposed the effort of Atlantic Yards EB-5 promoters to suggest that a U.S. State Department official had endorsed the project, the State Department complained and got the mention removed.
The press coverage of One Journal Square has understandably focused on the Kushners, but let's not ignore the role of Nicholas Mastroianni II, who heads the U.S. Immigration Fund, perhaps the country's busiest regional center. He appears in project marketing materials and his company's logo was prominent in the slideshow shown at the investor event. His firm claims Jersey City is "Known as Manhattan's Back Garden." (That must sound better translated to Chinese.)
In 2014, Fortune memorably described Mastroianni as having "a long history of legal problems, failed ventures, and unpaid debts – which have continued even as his professional fortunes have turned sharply upward." Well, as long as he delivers to developers, and to keep doing so, Mastroianni's son gave $100,000 to Trump's inaugural committee.
However, Mastroianni devastatingly undermined the justification for his projects – including, presumably, One Journal Square – at a little-noticed panel in Shanghai last November for EB-5 insiders.
"Projects that don't typically need the capital are the projects that we look to lend money on," he said, on video. "If a project can't be developed without the EB-5 capital, it's not a project that you should be looking to invest in, because you've got a desperate situation."
But if One Journal Square doesn't need that EB-5 capital, the immigrant investor funds don't create jobs at all. So the debate over reforming EB-5 should not be limited to fixing gerrymandering, increased fraud protection or a higher investment threshold, currently the big issues before Congress.
Rather, the fundamental justification for EB-5 deserves reassessment. If EB-5 is just "free money, basically," as one EB-5 player put it or "legalized crack cocaine," as a finance broker reported after talking with Mastroianni, the program doesn't pass the smell test. The pageantry that promoters in China try to conceal doesn't further the public interest but rather protects private profit.
Brooklyn journalist Norman Oder, who writes the Atlantic Yards/Pacific Park Report, has covered EB-5 issues since 2010.
Correction: An earlier version of this article incorrectly stated that Nicholas Mastroianni's son gave $1 million to Donald Trump's inaugural committee. Mastroianni's son actually gave $100,000.