My Kingdom for a Visa

How immigrant investors are reshaping Portland’s skyline

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It was 2010, and the Portland Development Commission was still paying penance for a culturally inept art installation from several years earlier: a sculpture featuring a dragon — a traditional Chinese symbol of strength, power and luck — that was installed in the city’s historic Chinatown without consulting Chinese-American community leaders. Local business owners complained that a cherished icon had been subjugated with the addition of a collar.

So PDC had the unpopular dragon removed, and the agency, headquartered in Portland’s historic Old Town, just a few blocks away, was trying to strengthen ties with Portland’s Chinatown community.

From a warren of glass meeting rooms and open-air cubicles housed inside the brick frame of a refurbished 1908 warehouse, the PDC’s Peter Englander had meeting after meeting with Chinese-American community members. Increasingly, they wanted him to look into the same strange combination of letters and numbers: EB-5. “They would say to us, ‘We know people in China who would like to use this program. We want them to invest in Oregon. You need to look into this,” recalls Englander, a longtime PDC employee who, at the time, was charged with central Portland outreach.

Stephen Ying was hearing those numbers and letters too. Ying, who left Hong Kong — then a British Crown colony — four decades earlier to enroll at Rex Putnam High School, had recently retired from Intel and was emerging as a leader of Portland’s Chinese community. He served as chairman of the Oregon Commission on Asian and Pacific Islander Affairs, and as president of Oregon’s Chinese Consolidated Benevolent Association; in these positions, he developed deep ties with others from Oregon’s Asian diaspora. Now members of the Chinese-American community were telling Ying that Oregon was missing a multimillion-dollar investment opportunity because the state was not up to speed on EB-5, an “immigrant investor” program that sets aside visas for qualified foreigners who invest $500,000 into a business endeavor that creates at least 10 permanent U.S. jobs.

“I want to bring people to Oregon to invest, to bring up our economy, and I went to the PDC to testify, to tell them we need to pay attention to EB-5,” says Ying, who at the time was acting as an unpaid advocate and is now employed by a Lake Oswego firm that recruits Chinese investors to put money toward EB-5-backed developments.

As Ying added his prominent voice to the chorus of EB-5 advocates seeking the PDC’s support, the agency took note. “We were working closely with people who care about this neighborhood, and we knew we had to look into the program,” Englander says.

In the five years since, EB-5 investors have contributed more than $70 million to the state’s economy — and those investors are virtually all Chinese, industry insiders say. These EB-5 funds are bundled into multimillion-dollar loans that have backed three Portland hotels, an Albany retirement community and a Hood River inn.

As cranes pepper Portland’s changing skyline, Chinese EB-5 investors continue to help finance the city’s transformation. Increasingly, however, critics say the program may not be the panacea that local developers and other EB-5 boosters had hoped for. Though it has been dubbed an economic renewal opportunity for high-unemployment areas, the guidelines are so broad as to be virtually meaningless — nearly the entire state of Oregon qualifies as “high unemployment,” including tony neighborhoods like Portland’s booming Pearl District.

An explosion in interest from China’s growing elite has also created a shady world of middlemen trying to profit from naïve investors, which makes it increasingly hard for developers of legitimate projects to connect with visa seekers. Several prominent EB-5 projects have failed elsewhere in the country, leaving investors without their money or the visas they sought.

And then there’s the issue of fairness: At a time when presidential candidates advocate for a U.S.-Mexico wall, and argue that this country should turn away refugees fleeing war-torn nations of the Middle East, many critics of the EB-5 cash-for-citizenship scheme see it as a distasteful contributor to the widening gap between haves and have-nots. “Have we no self-respect as a nation?” Texas congressman John Bryant asked in 1990, when the EB-5 program was created, in a plea that still resonates today. “Are we so broke we have to sell our birthright?”

With the backing of billionaires Warren Buffett and Sheldon Adelson — who are more often political rivals than allies — Congress has repeatedly authorized short-term renewals, which leave the longevity of the EB-5 program uncertain without tightening oversight or reforming the program. In December Congress agreed to keep it as is through late 2016.

U.S. Senator Chuck Grassley, who unsuccessfully pushed for an overhaul when the EB-5 program was reauthorized last year, says it’s time for an overhaul. “This failure to heed calls for reform proves that some would rather side with special-interest groups, land developers and those with deep pockets,” Grassley said in December, speaking from the Senate floor.

For nearly two decades, those deep-pocketed interests largely ignored the EB-5 program. Though the law allowed up to 10,000 visas annually, only a few hundred people applied each year.

In 2009, as China surpassed Japan as the world’s second-largest economy, EB-5 visas began to emerge as an opportunity for the elite. That same year, bank failures and a bursting real estate bubble left American developers struggling to finance and complete major projects. A new and growing class of affluent investors was poised and ready to buy in to the American dream — just as U.S. developers were most desperate to take their money.

Since demand for EB-5 visas began to climb in 2010, the program has attracted $2.5 billion in investment across the U.S. In 2009 the State Department issued 4,218 EB-5 visas, up from 793 in 2007. And as credit markets improved, the program kept growing. In 2014, for the first time, the State Department issued 10,000 EB-5 visas — the most allowed in a year — and more than 90% of those visas went to people from China.

Experts in the EB-5 program repeatedly emphasize that most visa seekers do not expect much financial gain from their investments. They see unfettered access to the United States as its own reward. “They want to get back the money they put in, but they’re not interested, necessarily, in getting a high rate of return,” Englander says. “The return is the visa.”

When EB-5 investments are approved, investors, their spouses and their children under age 21 all qualify for U.S. residence. “The majority of investors may not want to live in the U.S. They do this for their children,” Ying says. “Here, their children can get a better education. There’s better environment, better air, better water. Money cannot buy air quality. This is an investment for the next generation.”

Oregon was late to discover EB-5. In 2012 EB-5 visa seekers invested $1.8 billion in U.S. projects, according to industry trade group IIUSA. None of the investments were made in Oregon.

When Canadian firm American United Development Group established a Portland satellite location in 2011, the company bragged it would attract $100 million in foreign EB-5 investments to Oregon within a year. Over five years, it has not yet brought even a quarter of that amount into the state.

In 2011, when the PDC and American United announced that Oregon was looking for EB-5 opportunities, HM3 Energy Inc. suggested its proposed Prineville biomass plant could seek investors through the program — but the company instead sought grants and other funding sources. Proponents who dreamed of financing ambitious public infrastructure through EB-5 soon learned that investors wanted real estate.

And while wealthy Chinese — who comprise more than 90% of recent EB-5 visa applicants — spent an estimated $28.6 billion on residential real estate in the U.S. in 2014, those homes don’t create the jobs required by the visa program.

Hotel development appeared to offer a solution: real-estate-based developments that also created jobs. Although business parks, ski resorts and senior housing have all drawn occasional EB-5 backing, hotels have been among the most popular projects for immigrant-visa investors over the past six years, both nationally and in Oregon.

The Pearl District Marriott Hotel
The Pearl District Marriott Hotel
The Hampton Inn & Suites, under construction in Hood River
The Hampton Inn & Suites, under construction in Hood River

Consider the following developments: The state’s first EB-5-backed project — a $45 million Marriott Residence Inn — broke ground in 2013 in Portland’s Pearl District, the first major hotel to rise in the city since 2009. EB5 Global, a business established by Portland development powerhouse Homer Williams, recruited EB-5 visa seekers to fund nearly the entire project, which would transform a vacant lot near Union Station’s rail tracks into a six- story blocky modernist mix of geometric browns, yellows and white boxy shapes.

America United, the company that said it would attract $100 million in annual EB-5 investments to Oregon, is five years later nearing completion on its first project in the state: the $13 million Hampton Inn & Suites rising now in Hood River, expected to open this spring. Meanwhile EB5 Global is behind the state’s other major EB-5-backed hotel in progress, a Hyatt destined for Portland’s South Waterfront with a $45.7 million price tag.

Marvin Kau, head of Oregon operations for America United, declined to disclose money details about America United’s projects but spoke in hypothetical terms about financing a hotel through the program.

“Coming out of the recession, you couldn’t build a hotel with bank funding,” Kau says. “Capital was too hard to get. EB-5 filled that gap.” Today conventional lenders have come back, “but at lower percentages than before,” he says. Banks may lend 50% of a project’s value, and often expect developers to themselves have a stake by contributing to the project’s cost. “You don’t want equity at 50%; even 35% is expensive,” Kau says. “So there is a funding gap. You could go to venture capital, but EB-5 is priced more competitively. That’s why people will deal with the complexity and constraints of using it.”

Bashar Wali, president of Portland-based Provenance Hotels, plans to use EB-5 funds to convert a building it already owns into a four-star, 150-room central Portland hotel. The forthcoming hotel is actively soliciting investors in China, though it has not yet been unveiled in the U.S., Wali says, and he declined to discuss where the hotel would sit or when renovations might start.

“We’re using EB-5 like a financing mechanism. We are going to put up a meaningful amount of our own money. We’re going to borrow traditional senior financing,” he says. “The EB-5 is attractive financing, it’s well priced and comes with few strings.”

EB-5’s continued popularity seems driven by these aims: cheap loans for developers who would have other options without the program, quick cash for middlemen, and U.S. residency for wealthy foreigners and their dependents. But one of the biggest criticisms of EB-5 today is that it may be failing at its founding mission: job creation.

A Brookings Institution review in 2014 found that the number of jobs created per EB-5 visa may be far below 10, because family members of investors receive two-thirds of the visas the program issues. An easier qualification process for visa seekers investing in “targeted employment zones” has led to widespread gerrymandering, according to a 2015 Government Accountability Office review. Statewide economic development agency Business Oregon has worked with the PDC to place nearly all of Oregon into these targeted zones: rural areas, central Portland, the city’s outer east side and industrial areas.

Most developers declined to say how many EB-5 investments are involved in their projects, or how many jobs are created. EB5 Global says the majority of the $45 million raised for the Pearl District Marriott Residence Inn came from these visa seekers. A back-of-envelope calculation suggests if EB-5 funded just half the cost of the hotel, that would involve 45 visa-seeking investors claiming creation of 450 permanent U.S. jobs.

Just as Oregon’s first EB-5 projects started to break ground, regions that were early to embrace the visa program started to see cracks in its veneer. In 2013, a Vermont ski resort hotel deal collapsed, when, according to its developer, some of its investors asked for their money back. That left 35 EB-5 participants with the news they would not be earning visas they’d hoped for — and that they’d have to wait years longer than expected to see any return on their investments.

More scandalously, Chicago resident Anshoo Sethi is awaiting trial on charges he defrauded 290 Chinese investors of $190 million while pretending to represent major hotel chains and government agencies. In June the Securities and Exchange Commission charged a Florida company with unregistered broker activities for its efforts to raise $79 million from EB-5 investors. Stories proliferate of visa seekers defrauded by Chinese middlemen who, instead of bundling their investments for American businesses in search of capital, vanished with the cash.

“There are so many scams going on in China because of EB-5. They will take your money and nothing comes of it,” says Ying. Even some investors are dishonest — borrowing cash to apply for EB-5 visas, in violation of program rules that require participants to only put up their own money, he says.

Often, legitimate EB-5 visa seekers seek to maintain low profiles, Ying says. “They still have to do business in China. They may not want to let the Chinese authorities know that they are looking to invest and move into the U.S.”

Despite these qualms, Ying is pushing ahead. In January he went to work as a consultant for Salem-based EB5 West, which hired him to sell Oregon projects to Chinese investors. (He declines to identify potential clients.) He wants to stay away from hotels while keeping a heavy focus on the real estate that Chinese investors demand for collateral. That’s partly because he sees the hotel market as overheated. “I think we’re done with new hotels in Portland. There are too many. Hillsboro might be a good place for a hotel to serve the high-tech sector, the occupancy rate there is still high,” he says. “But I still want to bring investments to Oregon.”

Provenance’s Wali agrees today’s hotel market is too crowded. “We are long-term holders, we know we are going to hold this hotel still 10 years from now, 20 years from now, so our project makes sense,” says Wali, referring to his hotel in development. “But the market in Portland has been so hot, that’s a problem.” Investing with EB-5 today is only a good fit for a handful of projects, he says.

The bureaucratic requirements of the EB-5 program — seeking federal preapproval, soliciting investments, and then filing the right forms and completing the correct paperwork — can also slow things to a drag, Wali says. Provenance is in no rush with its Portland hotel project, he says, but if he were negotiating to purchase property, or trying to close a deal in a hurry, the bureaucracy could be a deal killer.

In a 2012 analysis for Portland State University’s Center for Real Estate, Portland immigration attorney Bradley Maier of Schwabe, Williamson & Wyatt saw the program as a good funding source for savvy developers, but he also warned that as more and more developers sought to work with EB-5 investors, these U.S. businesses could find less funding available than they hoped.

Three and a half years later, Maier says he’s grown more skeptical about the program. “As immigration counsel, EB-5 is not the program I recommend first and foremost,” he says. “It’s still a viable option, but it’s not necessarily the preferred option for developers to raise funds or investors to seek a return.”

So what does this mean for the future of the program in Oregon? The recession fueled a surge in EB-5 visas. Now bank financing is back, and developers seem to view the immigrant investor program as attractive for fewer, and more targeted, projects.

But some in Portland hope EB-5 could bring key investments as urban-renewal funding dries up. Tom Kelly, the chair of PDC, says a citizens’ task-force committee working on the future financial sustainability of PDC has completed several meetings and the staff is working on a new business plan. “EB-5 is on the list of alternative funding sources, but it did not make it to the top of the list,” Kelly says. “My guess is that it will be one of many solutions we look to as urban renewal funding declines.”

The PDC has been seeking opportunities to partner with EB-5 developers for five years, but hasn’t found a project yet that fits with its mission and competencies, notes Englander. “Replacing tax increment financing is pretty tough, because you can give that money away. This is not something that you can give away.” EB-5 is a tool that could be used to help finance projects that promote the kind of economic development that is part of PDC’s strategic direction, Englander says. “We have to find the right fit. That’s been the challenge. We haven’t given up yet.”

As for Ying, he wants his latest professional endeavor to align with his lifelong efforts to build bridges between Oregon and China. The first project on his agenda is also one of the most striking, if controversial, new arrivals on Portland’s skyline: a 21-story monolith rising at the east end of the Burnside Bridge, officially named “Yard” and informally dubbed “the Death Star” and the “Borg Cube” by locals, because of its stark angles and dark silhouette. The building will have 284 units, 492 parking spaces for bikes and 198 spots for cars — a lot of real estate, but it is the Yard’s 20,000 square feet of commercial space that make it a candidate for EB-5 investment.

The Yard building in Portland, OR
The Yard: The 284-unit building will be one of the tallest structures in Portland’s Eastside.

EB-5 rules allow visa seekers to count both direct jobs (workers employed at the building because it was built) and indirect jobs — say, a sandwich shop employee hired down the street because the EB-5 building’s residents and workers keep the deli much busier now. The Yard is expected to create at least 320 of these permanent jobs, enough for EB5 West to recruit up to 32 visa-seeking investors. “But they asked for 30, they want to play it safe.”

The Yard is already largely funded, with a $71.8 million construction loan, but large multimillion-dollar projects are often dependent on multiple financial tiers. EB-5 investors are being sought to provide $15 million in lower-cost financing to the Yard.

This math hints at the likely future of EB-5 investments in the region: While early projects like the Marriott Residence Inn were majority-funded by visa seekers, new projects are less dependent on EB-5. The immigration visa program has become just a lower-cost, higher-bureaucracy slice of the funding pie.

The Yard — which will offer high-end, high-rise living — also illustrates the growing gap between the haves and have-nots that is both reshaping Portland and is reflected in U.S. immigration policy. Though EB-5 was launched with a mission of job creation and has been touted as an economic development tool, its greatest beneficiaries are wealthy would-be immigrants and deep-pocketed developers. The national immigration dialogue centers around a different, poorer set of would-be Americans — economic migrants from Mexico and refugees of Middle Eastern wars — as wealthy investors quietly secure visas for their families.

In the nine years since Portland’s Chinatown community protested a collar-choked dragon statue, much of the city’s Chinese-American population has migrated away from the district. A century ago, poor Chinese immigrants shaped this corner of the city as they sought a better life. Now trendy boutiques are slowly starting to fill empty storefronts, their hip employees nervously eyeing the neighborhood’s longtime homeless residents. A short walk to the north, guests sip wine at the bar of a crisply modern brown-and-yellow hotel that represents a new stage of Chinese influence in Oregon and the advantages of wealth for a select generation of American immigrants.