Foreign dollars fill funding gap in Pittsburgh region

| Friday, March 9, 2012

Encouraged by a federal program, Chinese and other foreign nationals are investing heavily in projects in the Pittsburgh region, including $71 million toward construction of UPMC East in Monroeville and $30 million toward the city's Bakery Square development in East Liberty.

The Immigrant Investor Program, known as EB-5, created by the Immigration Act of 1990, enables foreigners to invest private money in American projects in return for permission to live here and possible, but not guaranteed, interest on their investments.

UPMC's latest hospital, opening this summer, and the $110 million Bakery Square retail and office complex are among at least four developments that received or will receive millions in foreign dollars, said Lily Liqi Pietryka, managing director of Pittsburgh Regional Investment Center in Oakland, which finds foreigners interested in the program.

"Most investors only recapture their investment," said Pietryka, whose job is to recruit people willing to put forth at least $500,000. In April, Pietryka plans to return to China to meet with investors lined up by agents the Chinese government licensed.

Not all investors or their families return to China. Some became U.S. citizens, she said.

Pietryka's office funded two projects, and a similar office in Harrisburg funded two more. Those offices, along with one in Philadelphia, are among 179 nationwide that have generated about $2.1 billion in investment in the United States since 2001, said Anita Moore, a spokeswoman for the Citizenship & Immigration Services. China, South Korea and Great Britain provided the most investors.

The program initially generated limited response, according to the Department of Homeland Security. To create interest, Citizenship & Immigration Services enacted a five-year pilot program to encourage investors to apply.

In 2008, the last year for which complete figures are available, the government issued 1,360 EB-5 visas that it said generated $680 million in investment. An early report on activity in 2009 showed 1,525 visas and investment of $762.5 million.

'Lifelong green cards'

Critics of the program, such as David North, a fellow at the Center for Immigration Studies in Washington, contend it often benefits riskier developments, for which developers can't obtain financing from traditional sources.

North said the government may have inflated investment totals for the program. An example, he said, are 2006 figures showing that 749 visas generated $374.5 million, because each investor must invest $500,000. A better measure would be to use the 106 green cards approved for that year, after a two-year wait by investors, he said. Using that method, total investment that year would be $53 million.

The EB-5 program gives "lifelong green cards to aliens, who otherwise would have no right to migrate to the United States, in exchange for relatively short-term cash investments," North said. Despite Homeland Security's efforts to sell the program, the government awards only a small fraction of its limit for green cards annually, he said.

Great resource

In the Pittsburgh region, Pietryka's office is providing $15 million toward the $30 million Schenley Place project in Oakland that Elmhurst Group is developing, and $17 million toward the $37 million Village of Cranberry Woods office/hotel project that Don Rodgers' Creative Realty Co. in Cranberry is developing.

The Harrisburg-based Center for Private Finance provided the Bakery Square and UPMC East money, as well as $60 million toward production costs for a movie that Lionsgate shot in the Pittsburgh area in 2009-10, said Steve Drizos, executive director.

"This is a great program. It was a great resource to tap into when it became difficult to obtain financing from local lenders," said Gregg Perelman, managing partner of Walnut Capital Partners, developer of Bakery Square. "I recommend it as a source for other developers."

UPMC spokeswoman Wendy Zellner said UPMC obtained its EB-5 loan through the state Department of Community and Economic Development in 2010.

"It is a $71 million loan with a fixed interest rate of 2.5 percent for five years, a very attractive cost of capital that helps us to create new jobs while providing state-of-the-art facilities in this region," she said, emphasizing that "the foreign investors who provided the capital for this federal program have no ownership in the projects that are funded."

Job opportunities

Dennis Yablonsky, CEO of the Allegheny Conference on Community Development, champions the program and said the conference and Pittsburgh Regional Alliance "plan to work closely with the local center to identify projects which will benefit from the program."

Drizos said the Harrisburg office, which covers 40 counties, provided money for Pittsburgh projects before Pietryka's office opened. The Pittsburgh center covers 10 counties. The Philadelphia Industrial Development Corp. operates the eastern center, he said.

"This is a good program that provides an opportunity to create jobs, maintain jobs," Drizos said.

Pietryka's office pools foreign investment money, acts as a fund manager and invests in projects. Her office is housed with the Idea Foundry in Oakland, which invests in more than 75 Western Pennsylvania companies. The Foundry's CEO, Michael Matesic, and Pietryka opened the office in November 2010; Pietryka is managing director. A native of China, she has lived in Pittsburgh for 20 years, she said.

Until now, Pietryka has recruited only Chinese investors but said that may change.

"We have been approached by prospective investors from Italy, India, Iran and Britain," she said. "Many investors bring their families to the U.S. to allow their children to attend schools here."

It can take the government six to eight months to approve an investor's application, Pietryka said. The program requires them to commit to a five-year, interest-only loan with a competitive interest rate. Loan closing can take four to eight months after approval.

Additional Information:

How it works

The Immigrant Investor Program is called EB-5 because it is employment-based and one of five the Immigration Act of 1990 created.

Of 10,000 'green cards' available each year, the government reserves 3,000 for foreign nationals who invest through its 179 EB-5 centers. An investor gets a 24-month green card enabling him and his family to live in the United States for that period. Because EB-5 investments create five-year loans, an investor can apply for an unlimited green card, subject to Department of Homeland Security approval.

In 2009, Chinese investors obtained half of the EB-5 green cards the government issued.

The EB-5 program does not require a foreigner to obtain employment with a U.S. employer, as do other categories in the law, or a labor certificate.

A developer can use EB-5 investments for up to 30 percent of a project's cost and can use the money during construction or for speculative developments without signed tenants. Investors must put forth a minimum $500,000. An EB-5 project must create at least 10 jobs for each $500,000 invested; the program allows up to 30 months for job creation.

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