Oakland focuses on EB-5 program to replace redevelopment funding
We now know how Oakland will replace all of those lost redevelopment dollars: Foreigners! At least that’s the program according to today’s Trib report by Angela Woodall.
Before I go further, I have to give credit to Oakland Mayor Jean Quan for going this route. It has some potential, and it’s something that we’ve discussed on the blog previously as it pertains to a foreign investment in a new Sacramento Kings arena. While it’s unfortunate that neither she nor the City Council have had the “adult conversation” I argued for in the post, at least Oakland’s been resourceful enough to identify a path forward.
It makes sense for Oakland to look for creative, out-of-the-box methods to attract investment to the City, and the federal government’s EB-5 program is one of them. Quan has gone to China to look for investors, and may be onto something with EB-5. The program allows immigrants a green card if they put $1 million or more into a new or “troubled” American businesses. Investors also have to create 10 full-time jobs with each application. That money requirement goes down to $500,000 in the case of rural or high unemployment areas, Oakland being one of the latter. Pool enough of these together and a company may have enough capital to move forward.
The Bay Area Regional Center is a government-certified investment firm whose charter is to bring in foreign investment under the EB-5 program. Its service area is most of the Bay Area and Sacramento. Yet the projects it identifies as most ready for investment are three in Oakland. That’s not surprising because BARC is based in Jack London Square, with one of its principals being Oakland developer Jim Falaschi. In fact, BARC is trying to bring in nearly $70 million for Signature’s stalled Oak-to-9th project. (Signature is also trying to get Lawrence Berkeley Laboratory to build its next campus there too.) The Trib article notes that BARC was involved in the $8 million Tribune Tower deal, though records of actual foreign investment in the project are murky. An admission that BARC “is still looking” for a project 2 1/2 years after opening, while honest, is not encouraging.
That’s not to say that EB-5 programs don’t attract investment. Chinese investors put $249 million into the Atlantic Yards project in Brooklyn, though that money didn’t go directly into the Barclays Center arena. According to Bloomberg Businessweek, $1.5 billion has come into the U.S. from foreign investors through EB-5. Like any government program, it’s rife with bureaucratic delay. Applications have often taken months to process. One report this week indicates there are some kinks to work out as the program grows. It can be difficult for foreign investors to separate the good investments from the poor ones based on sales pitches from needy businesses who could easily inflate their projects’ potential.
As cities start to look for alternate avenues for investment, the market for foreign investment will start to get competitive. For Oakland, the biggest issue may be, well, Oakland. Foreigners can understand investing in New York, Los Angeles, or San Francisco. They also get things like ski resorts or wineries. Oakland, for obvious reasons, is a tougher sell. It’s possible that Oakland will need to claim multiple success stories before they can attract enough investors for a major project like Coliseum City. There’s still the problem of getting team owners and leagues to buy in. They’re the head while the foreign investors are the tail. Every application is an investment, not just $500k for a green card. It’s going to take a lot of selling – and even more believing – for Oakland to pull off major funding with EB-5. Or as economist Scott Barnhart, writing for EB5info, wrote in response to a NY Times editorial:
For example, if the 34 floor tower typically used for retail, office space and/or residential purposes did not qualify in New York, one can be assured that states with the highest unemployment levels are not likely close substitutes for a Manhattan address for either the developer or prospective investors, so this project would likely be shelved. Similarly, a large condominium in Florida will not sell if located in a high unemployment area away from the coast instead of a lower unemployment area on the coast, yet the labor will be imported to the site.
There’s a reason why O29 isn’t taking off. And it’s the same reason why Victory Court and Coliseum City probably won’t take off either. It’s still worth a shot, at least from the City’s perspective.
Finally, the EB-5 program is limited to 10,000 approved visas per year, potentially limiting investment. Compared to going the regular (and now shuttered) redevelopment route with its self-contained process, EB-5, with all of its marketing, multiple stakeholders, and delay, may be tantamount to climbing Mt. Everest.