What do Elmwood Crossing, the Michigan-Goodrich Garage and the Health Sciences Charter School have in common?
All are significant redevelopment projects in Buffalo, with roots in the medical world.
And all three – and several others locally – got millions of dollars in foreign investment in exchange for special immigrant visas, under a little-known 30-year-old federal program that has pumped more than $100 million in funding into projects across Western New York.
That program, however, is in limbo. It expired at the end of June, leaving its fate in the hand of Congress, which has not agreed to an extension.
And while it’s not the biggest or most often-used source of funding for projects in Western New York, its loss could eliminate a key option that has proven critical in certain situations – including as recently as a few weeks ago.
“Everything is on hold. It came to a screeching halt on June 30,” said William Gresser, the Buffalo-based executive and native whose firm has shepherded the program’s investments across the region. “There are negotiations going on now, but every day is a wasted day.”
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“With the recent economic collapse caused by the pandemic, there’s a tremendous need for more capital,” said Gresser, founder and president of EB5 New York State LLC, a company founded in 2007 as an intermediary for the program in upstate New York.
“We are trying to be a source for job creation in the city right now,” said Gresser, who works from a small office on the Buffalo Niagara Medical Campus.
As companies and developers pursue growth opportunities and new projects, the quest for capital to fund such ventures is one of the most important but challenging elements, especially in a city like Buffalo that historically has not been an investment destination.
That’s why businesses find it critical to cultivate new sources of money and pursue creative alternatives. And it’s often why deals get delayed.
Developers and attorneys locally have become adept at using an array of government tax credits, tax breaks, tax-exempt bonds, grants and low-interest loans, as well as private-sector funding from banks, nonprofits and even utilities. And they’ve found a host of institutional investors – like banks and insurance companies – to buy into their projects.
The EB-5 program is one of the lesser-known funding sources, despite its track record and potential.
“It’s a nice tool in the toolbox, particularly when you’re dealing with a somewhat nonconventional project,” said Amy Nagy, director of development for Sinatra & Co. Real Estate, one of the two partners in Elmwood Crossing that raised $2 million from foreign investors recently for the purchase of the Gallagher Ramp from the city.
EB-5 has also been used in Buffalo for Oishei Children’s Hospital and Gates Vascular Institute, as well as Iskalo Development Co.’s Lord Amherst campus, including the Hyatt Place Buffalo/Amherst and the Jazzboline Restaurant & Bar.
Now it’s at risk, after an objection by one U.S. senator prevented passage of legislation to renew the program prior to its June 30 expiration. Lawmakers and program supporters are working to get a new program authorized, with reforms that were already agreed upon.
Qualified foreign investors
EB-5 is a visa program that allows qualified foreign investors – together with their spouses and unmarried children under age 21 – to apply for a green card for permanent residency, in exchange for a sizable investment in a commercial business or project in the United States that creates or preserves at least 10 permanent full-time jobs.
First created by Congress in 1990 to stimulate the economy, it’s named for the fifth type of visa that participants receive, which is employment-based. It’s administered by U.S. Citizenship and Immigration Services within the Department of Homeland Security, and was modified in 1992 to create organizations like EB5 New York to work with the federal agency and filter project proposals.
Participants are scrutinized, not only on their own merits but also for their business and the source of their funds.
“That can take a year or longer. It’s probably the most stringent vetting of any of the immigration methods,” Gresser said.
The minimum investment to qualify is usually $1.8 million, but it’s lowered to $900,000 in areas with higher unemployment – including Buffalo.
The project not only must be capable of creating real jobs, but must demonstrate at the end that the jobs actually were created. Housing or multifamily projects can qualify because the program will count a percentage of construction jobs toward the requirement.
“If a project doesn’t create the jobs, that investor is actually required to leave the U.S.,” Gresser said.
Across the country, many of the investors have been from China, but EB5 New York has had a large number participating from South Korea and India. Some are already in the United States on temporary visas – such as students, doctors or H1B workers – but want a more permanent status afforded by a green card.
“We’ve raised capital from a very, very diverse group, probably 50 countries around the world,” Gresser said.
In Western New York, EB5 New York has brought in more than $100 million for various projects, while creating many construction and other jobs.
The original focus of Gresser’s efforts was the Medical Campus, so half of that tally went to the Oishei Children’s Hospital, but GVI was the first project here, in 2010. The MiGo Garage and Health Sciences Charter School followed, as did the Iskalo projects in Amherst. There have also been projects in Rochester.
“We’ve been very pleased with the work we’ve done in Buffalo,” Gresser said. “We don’t make a lot of noise, but we do try to do good work in Buffalo.”
With Elmwood Crossing – the redevelopment of the former Women & Children’s Hospital of Buffalo campus – Sinatra and Ellicott Development Co. used EB5 New York to bring in $2 million from two investors for the purchase of Gallagher.
That’s the parking garage across the street from the main hospital complex, and it’s a key element of the overall reuse project. But with the hospital vacant, Gallagher is not being used much right now, and activity won’t ramp up for several years, until the rest of Elmwood Crossing is completed. So Sinatra and Ellicott couldn’t easily get traditional bank loans.
“For a project like this, where it doesn’t conform perfectly, this went much smoother than if we were trying to explain and walk through all of these details with a traditional bank lender,” Nagy said. “It provided us with the capital to keep these steps moving forward during a complicated time.”
The developers and EB5 New York are talking about raising as much as $8 million more for the other components of Elmwood, including renovation of the core hospital buildings, assuming the program is extended.
Gresser said he’s in “almost daily conversations with additional projects that we can raise capital for in Buffalo,” including as recently as late June.
Over the past 31 years, the EB-5 program has raised $40 billion nationwide for economic development projects, and created more than 800,000 new jobs.
“The EB5 program is an immigration program, but at its heart, it’s an economic development program,” Gresser said.
But it’s also been the subject of criticism, and the level of investment has slowed down in the past few years. Part of that is due to a federal regulation that changed the investment minimum from $500,000 to $900,000 in struggling areas like Buffalo, and from $900,000 to $1.8 million in other parts of the country.
The other problem is a lack of enough visas to meet the ongoing demand. The EB-5 program nationally receives an allocation of 10,000 visas each year for investors and their families, but once it’s used up, applicants have to wait until the next year’s supply.
That was more than sufficient for each of the first 18 years, but the program took off after the 2008 recession, when other sources of capital dried up. EB-5 became critical for developers, and applications soared. Now there’s a backlog that will take years to clear.
“Today’s visas are actually going to support people who were earlier investors,” Gresser explained.
The program also was created with a “sunset” provision so it’s been reauthorized every few years, usually as part of the overall budget. But Congress separated it this year, and lawmakers adjourned for the July 4 recess without approving an extension.
Lawmakers from both parties introduced the EB5 Integrity and Reform Act to renew the program for five years while creating more oversight – to ensure that EB-5 companies are U.S.-owned and operated, to check for criminal backgrounds and to track the money through the process.
The bipartisan legislation was strongly backed – including by Sen. Majority Leader Charles E. Schumer, D-N.Y., and by New York Reps. Chris Jacobs and Brian Higgins – and was poised for passage by unanimous consent last month.
But Sen. Lindsey Graham, R-S.C., blocked it at the last minute, citing a need for more changes.
“We obviously need to address whatever it was that Sen. Graham had an issue with,” said Aaron Grau, executive director of Invest in the USA, the trade group for the EB-5 companies.