EB-5 Numbers Do Not Compute on Big Hotel Project in L.A.

By David North on March 29, 2012

Marriott is building a 492-room hotel in downtown Los Angeles with the help of the EB-5 immigrant investor program. The job-creation numbers for it simply do not add up.

According to a story in yesterday's Los Angeles Times, it will be a $172 million, 23-story structure; it will be "financed through the federal EB-5 program, which provides green cards to immigrant investors"; and "the hotel is expected to create about 800 construction jobs and 200 permanent jobs after it is completed."

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One can safely conclude that the reporter, Roger Vincent, got all those numbers from the hotel's developers, so they accurately reflect the point of view of the people putting together the proposal.

I do not know the micro-economics of various parts of Los Angeles, but the EB-5 investments are said by the L.A. Times to be at the half-million dollar level, which means that the center city must be regarded as a depressed area by U.S. Citizenship and Immigration Services (USCIS). If an area is not regarded as a low-income one, the minimum investment under EB-5 is a full million dollars.

The New York Times ran a opinion piece a few months ago about how a Wall Street neighborhood building was being constructed with these half-a-million investments, and that to define the building site as being in a depressed area, the State of New York had gerrymandered the economic district to include the Wall Street area and a somewhat distant poverty-stricken Brooklyn housing projects into a single entity.

Maybe the same legerdemain is being practiced in L.A.

More important, however, are the job-creation "numbers".

To qualify for an immigrant investor visa at the half-million dollar level, the investment not only has to be in a low-income area, but according to the USCIS website it has to "Create or preserve at least 10 full-time jobs for qualifying U.S. workers within two years (or under certain circumstances, within a reasonable time after the two-year period) of the immigrant investor's admission to the United States as a Conditional Permanent Resident".

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Let's do the numbers. If the project is to be wholly funded by these half-a-million tranches (which is unlikely), the $172 million would mean there would be visas for the families of 344 investors, probably at least 1,000 people in all. Now 344 times 10 equals 3,440 jobs.

The developers are telling an apparently non-hostile reporter that it will create 200 full-time continuing jobs, and 800 temporary ones.

If only half the funding comes from EB-5, then there would be 172 families getting green cards, and half the project would need to produce 1,720 jobs. But half the developers' job estimate would be only 100 continuing jobs.

It looks like the project — ignoring the real, but passing utility of the construction jobs — will be creating one seventeenth the jobs needed to meet the legal requirements. What's going on here?

The government has created a giant loophole to help along these questionable visa issuances. The 10 jobs may include "indirectly" created ones, and the promoters and the middlemen (always present in these situations) may use "any reasonable methodology" (not further defined) to estimate the job creation effects of these investments.

But can even a really talented, highly creative economist with no scruples at all run up the alleged "creation" of 3,440 jobs, when only 200 actually will be created, long-term? Given the zeal with which USCIS wants to sell visas for half-a-million a pop (about the price of a house in the suburbs) I am sure that it will allow this travesty to take place.

Here is another numerical observation: As a matter of policy, should we add 1,000 people to our over-stretched population every time we build a hotel with 492 rooms in it? Sounds like a losing trade-off to me.

Incidentally, people arriving under the EB-5 program are, by definition, otherwise not admissible as immigrants. If they could qualify some other way — and there are scores of categories for would-be immigrants — they presumably would do so and save the half million.

For more on this sad and squalid little program, see the recent CIS Backgrounder "The Immigrant Investor (EB-5) Visa: A Program that is, and Deserves to be, Failing".