Adopting A Proven Method ForAttracting
Foreign Investment In Cleveland Through The Cleveland Foundation
Proposal
This is to recommend the Cleveland Foundation establish a RegionalCenter in Cleveland to attract foreign capitol through the Federal Government’s EB-5 Investment Program which has generated more than a billion dollars of investments creating tens of thousands of jobs in states and communities across the country.
The funds raised would be invested through an arm of the Foundation to be called the Cleveland Investment Fund (CIF) whose mission is to start sustainable businesses that will employee inner city residents. The program will substantially enhance the Foundation’s ability to support economic development.
Based on the experience of the seventy two existing Centers using Philadelphia as a “best practice” model, it is projected more than a $100 million can be raised and 2000 jobs created in the next five years (1/3 of Philadelphia’s record). The out of pocket cost to the Foundation would consist ofconsulting, staff and operational expenses of an estimated $400,000 per year or $2.0 million in that time frame.
Background
Congress created an employment-based preference (EB-5) immigrant visa category in 1990 for qualified foreigners seeking to invest in a business that will benefit the U.S. economy and create or save at least 10 full-time jobs. The basic amount required to invest is $1 million, although that amount is reduced to $500,000 if the investment is made in a rural or high unemployment area such as Cleveland. Of the approximately 10,000 EB-5 green cards available each year, 3,000 are reserved for foreign nationals who invest through a RegionalCenter.
The EB-5 RegionalCenter Investment Program
A RegionalCenter is a private enterprise or corporation or a regional governmental agency with a targeted investment program within a defined geographic region. The RegionalCenter program in many ways mirrors long active and successful investment-employment based programs in the United Kingdom, Canada, Australia, and other foreign nations.
EB-5 applicants first receive a conditional green card valid for two years. At the end of that time they file another application showing that their money was "at risk" during the two-year period and that the jobs have been created. Once that has been approved, they become regular green card holders.
Components Of The Process And How They Work Together
- Cleveland Foundation establishes an affiliate called “The Cleveland Investment Fund (CIF) and appoints an Executive Director to run it.
- CIF contracts with an international investment search firm (IISF)
- CIF & IISF apply to U.S. Citizenship and Immigration Services (USCIS) to establish an EB-5 Regional Center.
- Once approved, CIF develops a loan project and IISF prepares a prospectus.
- IISF identifies and attracts the number of immigrant investors needed to fund the loan project through the formation of an investment partnership.
- Once fully funded, the CIF gains USCIS approval of the loan project.
- At settlement, the USCIS grants temporary visas to the investors.
- CIF hires an outsource firm to service the loan that pays interest to investors and to verify the requisite number of jobs have been created.
- After two years CIF conducts an audit indicating the requisite jobs are still in place following which the USCIS grants investors a permanent visa.
- At the end of five years, the loan is refinanced by the owners of the business and the loan principal is repaid to investors.
- Visualization of How The Process Will Work In Cleveland -
Example Is Based On Raising $5M To Fund
A Business That Will Create 50 Jobs
The Philadelphia Model
Five years ago the PhiladelphiaIndustrial Development Corporation (PIDC) established a RegionalCenter and started the “Welcome Fund,” which settled 23 loans totaling $160 million in its first four years. Borrowers ranged from a variety of smaller companies to Comcast, Aker shipbuilding, Agusta Aviation, andTemple University Health System, each of whom borrowed more than $10 million.
Background
PIDC is a private, not-for-profit Pennsylvania corporation, founded in 1958 by the City of Philadelphia and the Greater Philadelphia Chamber of Commerce to promote economic development throughout the city.
PIDC's central strategy is to leverage financing and real estate resources to retain and to grow employment in Philadelphia. In its fifty year history, PIDC has closed a total of5350 individual transactions with combined project costs of $15 billion, which have contributed to retaining and creating over 442,000 jobs in Philadelphia.
Establishing The “Welcome Fund”
In late 1980s, Canada/Australia instituted a model program whereby prospective immigrants invest in designated economic development activities to qualify for temporary and eventually permanent citizenship.Following their lead, the US Congress approved similar legislation and in February, 2002, USCIS authorized the first RegionalCenter to operate in Central California.
In late 2002 PIDC filedits application to establish a RegionalCenter in Philadelphia which was approved in 2003. To identify and attract immigrant investors, PIDC hired CanAm Enterprises, a New York-based financial intermediary owned by Tom Rosenfeld with a successful track record in the Canada program. Their first transaction closed in December, 2004.
Loan Project:
•Uses: Property Acquisition, Construction, Machinery
& Equipment, Working Capital.
•Amount: Unlimited amounts in increments of $500,000.
One job must be created for every $50,000
funded, within two years of final disbursement. Some indirect jobs may be counted in
calculating permitted amounts.
•Term: 5 years
•Interest Rate: 2.75%, interest only.
•Collateral: Includes fixed assets, corporate and personal
guarantees, to be negotiated on a case basis.
•Fees:
•Application: $500, payable at application.
•Initiation: 1.5% of loan amount, due upon settlement.
Process:
•PIDC identifies, underwrites and recommends a qualifying loan transaction.
•CanAm prepares a prospectus for the subject loan and identifies interested immigrant investors through its network of international representatives.
•Immigrant investors and the INS approve the loan transaction.
•CanAm assists individual investors in INS review and approval of their participation in the program.
•Immigrant investors fund their investments of $500,000 each into a private partnership which lends the total amount to the borrower
•At loan settlement, the immigrant investors receive temporary immigration visas.
•PIDC services the loans and verifies job creation by the borrowers.
•Two years after loan settlement, a job creation audit is presented to the INS which determines if goals have been met. If so, the investors’ immigration visas become permanent.
•At the end of five years, the loan principal is repaid to the lender partnership which disburses to the investors.
Track Record:
•4 years in operation.
•Settled 23 loans, totaling $159.1 million.
•Minimum Size: $2 million, 4 investors, 40 jobs.
•Borrowers: Range from a variety of smaller companies to Comcast ($26 million), Aker ($20 million), Agusta Aviation ($15 million), Temple University Health System ($13 million).
•Program Capacity: $200-300 million/year.