According to the below news story, CanAm has signed up 150 Chinese seeking EB-5 visas to invest in a company that would loan money to the Philadelphia Convention Center. The investors already deposited their money–$500,000 each–in escrow, apparently as long as a year ago. The only problem is that the Convention Center doesn’t want to borrow the investors’ money. Now, the investors need to start over and identify new investment opportunities.
Clients often ask our firm what are the risks associated with a particular EB-5 investment. Here, as CanAm admits, there was a risk in raising the money before the Convention Center approved the deal. I wonder how many of the investors understood that risk.
July 22, 2008
Chinese millionaires turned away: The Convention Center board says the money presents too many issues.
By Jennifer Lin and Marcia Gelbart
Close to 150 Chinese millionaires want to help Philadelphia expand its Convention Center, but the center’s board wants no part of their cash.
That has left the potential investors more than a little frustrated.
For the Chinese, the money represents a legal way to expedite access to U.S. “green cards” for permanent residency. Adhering to the requirements of a nearly 20-year-old federal immigration program, they have each plunked down $500,000 in an escrow account at a U.S. bank.
For the state, that money – $73.5 million – could be a cheap way for the Convention Center to borrow funds to cover some of the expansion’s construction costs, which are projected to surge over the $700 million budgeted. (Under the loan program, the money would be repaid, over five years, at a remarkably low interest rate of 2.5 percent.)
But for now the Convention Center, as cash-starved as it is, has no interest in the foreign funds.
“We considered it. We looked at it. But it was kind of a bridge too far . . . too complex for us to consider,” Buck Riley, chairman of the 15-member Convention Center Authority, said last week. “Right now, it is a dead issue.”
Another board member said the board was hesitant to get involved with what seemed like “immigration policy.”
Known in Philadelphia as the “Welcome Fund,” the little-known loan program has been administered jointly since 2003 by the Philadelphia Industrial Development Corp. (PIDC), a city-related nonprofit economic-development agency, and CanAm Enterprises, a New York firm that has structured immigrant investor deals since 1987, mostly in Canada.
PIDC identifies potential borrowers; CanAm seeks out investors. Approved investors receive conditional green cards.
Within two years, they become eligible for permanent green cards, if, among other things, their money spurred jobs. Under the Philadelphia program, 10 new jobs must be created for every $500,000 invested.
To date, the foreign funds have helped pay for 21 projects in Philadelphia totaling $148 million. Among those receiving investment dollars are Comcast Corp. ($26 million), Temple University Health System ($13 million), August Aerospace Corp. ($15 million), the law firm of Duane Morris ($6 million), and Stephen Starr’s Continental Mid-Town restaurant ($3 million).
“We owe $33 billion of debt on our balance sheet, so if we have an opportunity to borrow some money at 1 or 2 percent, yes, we’re going to do it,” said Comcast executive David L. Cohen.
With $73.5 million sitting in a bank account, the Convention Center project would have been the largest, by far.
“Investors like the Convention Center project. I feel very sad about this. Everybody is getting angry,” Dennis Chou said in an interview last week in Shanghai. Based in an office in a high-rise on Beijing Road, Chou works for CanAm, marketing the fund to would-be investors in the Asia-Pacific region.
Chou said he was told last February to begin marketing the Convention Center to investors, and he did – holding informational sessions about the center and Philadelphia throughout China.
Quickly, 147 investors were lined up, but with no movement since then, he said the fund’s credibility was under fire. “When people come in, I have to say, sorry, sorry. I don’t know how to explain to our customers.”
Indeed, CanAm’s president, Tom Rosenfeld, said that if the Convention Center deal collapsed, “it would hurt the whole program.”
In an interview from his New York office, Rosenfeld acknowledged there was a risk in raising the money before the Convention Center approved the deal.
But he said he did so after discussions with officials from the Rendell administration and PIDC. “The state is financing the construction. Clearly they have a say in it.”
Although the authority was not involved in those early conversations, Rosenfeld said, “the assumption was once they understood the program and the benefits, and that it was not harmful, they would vote for this thing.”
Michael Masch, Pennsylvania budget secretary until a few weeks ago, did not return calls last week.
But he voiced support for the loan program as recently as June 3 in a letter to the authority. By his estimates, he wrote, the low-cost loan could save the authority $6 million to $8 million on interest payments.
Peter Longstreth, president of PIDC, said, “Some of the investors may have gotten a little bit ahead of the deal. . . . The fact there are funds in an escrow for a period of time is quite typical.”
The Convention Center has taken no formal vote on the program and has more or less shelved it for the foreseeable future.
“It did not go over well. It seemed something outside our realm,” said board member David Woods, chief of staff to Senate Majority Leader Domenic Pileggi (R., Delaware).
“People were concerned they were dealing with immigration policy while they should really be focused on financing for the Convention Center.”
Still, Rosenfeld maintains hope that the investors’ efforts will not be futile, particularly since final construction costs remain unknown. “I’m not taking this to be a dead issue,” he said. “This is a great program that doesn’t cost the city or state any money, so shouldn’t Philadelphia benefit from it in a way that can complete construction of the Convention