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The Letter of the Law

Of the many issues trumpeted by the Occupy movement, one of the most heated topics is the relationship between private (“corporate”) interests and public policy. Certainly, regardless of where you stand on the issue, it’s hard to deny that our government and private sector are closely linked. While I don’t intend a long-winded diatribe on the subject, I’d like to explore how public policy affects CRE investment and development.

Yesterday, the New York Times reported that government officials and CRE developers have been relying on an usual strategy to attract foreign capital: offer visas to foreign investors who bring large amounts of money (upwards of either $500k or $1M, depending on the area) to commercial projects. The EB-5 visa, enacted in 1990, is intended to reward foreigners who create 10 or more American jobs through their investments. 

Encouraging job creation through citizenship is a creative strategy, but it’s not without its controversies (one of which is the preferential treatment this creates in the naturalizaton process). Another kind of political stickiness concerns the economic vitality of the neighborhood in which money is invested. According to the stipulations of EB-5, the minimum foreign investment in an area with high unemployment  is half that of other areas. Thus, foreign investors are rewarded for investing in economically depressed areas. By law, these areas get an advantage.

Thanks to creative redistricting and selective data use, however, prosperous areas are being classified as high-unemployment, economically weak neighborhoods. As the NYT article explains:

One of the more prominent projects is a 34-story glass tower in Manhattan that is to cost $750 million, one-fifth of which is to come from foreign investors seeking green cards. Called the International Gem Tower, it is rising near Fifth Avenue in the diamond district of Manhattan, one of the wealthiest areas in the country.

Thanks to creative gerrymandering and data “interpretation” on the part of city officials, a huge amount of EB-5 cashflow is being diverted from the neighborhoods for which they were intended to fund construction in wealthy neighborhoods.

This isn’t the first time officials have attempted to bend the rules of a program. The Comcast Center, Philadelphia’s largest and newest high rise, was mired in controversy when city and state officials attempted to acquire tax breaks for its owners by designating the area as “blighted,” despite its ideal Center City location.

Commercial real estate, like any business, is rooted in practicality. Developers and officials will exploit any government incentive available if it’s in their interests. But companies are not immune to public backlash–just ask Bank of America (BAC). If the public perceives a company is cheating a struggling neighborhood out of opportunities, legally or not, it could create a P.R. nightmare that simply isn’t worth the few dollars that were saved.


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