by Kim Zeuli & EB5Investors.com Staff
Policymakers, economic development professionals and EB-5 experts convened in July of this year at Harvard Kennedy School to mark the release of the report Increasing Economic Opportunity in Distressed Urban Communities with EB-5. The report, written by Kim Zeuli and Brian Hull, was sponsored by the Garfield Foundation, Boston Foundation and Surdna Foundation. Zeuli is the head of The Initiative for a Competitive Inner City, a Boston-based nonprofit research and strategy organization. Simultaneously ambitious and targeted in its approach, the research surveys a wide variety of EB-5 projects around the country and narrows in on five case studies to contemplate how EB-5 funding can benefit U.S. inner cities. EB5 Investors Magazine spoke with Zeuli about the origins of the report, their findings, and the future of EB-5.
EB5Investors Staff: When did you first hear about the EB-5 program?
Kim Zeuli: I heard about EB-5 about five years ago and ICIC really started to get involved with it about two years ago because we were engaged by some foundations to explore its applications for the inner city.
Staff: When you first started exploring EB-5 as an organization, was the point to eventually publish a research report?
Zeuli: When we first started to look at it as an organization, we were interested in how it might be utilized in the inner city. Then when we were engaged by the foundations, it was to produce a white paper or research report that would also serve as a framing document for a convening.
Staff: What were your goals in this report? What did you hope to accomplish?
Zeuli: We wanted to know how EB-5 was being utilized in the inner city. One hypothesis we were testing was that, anecdotally we were hearing that EB-5 was under-utilized, so we wanted to explore that question. We also wanted just to learn more about the mechanics of it and any barriers to its adoption.
Staff: In your report you mention the lack of available data, and that is something that our publication has confronted as well. What sort of sources did you use in your research?
Zeuli: We used all publicly available data on EB-5, which is not much, and then we contacted regional centers. We reviewed their online resources and interviewed many of them. We also interviewed other EB-5 professionals who gave us additional information about specific EB-5 projects.
Staff: I understand that you gathered quite a group of EB-5 projects, so how did you go about identifying these projects? Was it just a matter of calling the regional centers, or did you work with any immigration attorneys, attend conferences, etc.?
Zeuli: Through the regional centers and some of the developers for the project; once we started to learn about some projects, that led us to more lawyers and developers and just others in the field. They all helped us to discover information on different projects. We used a triangulation process that ultimately led us to the five case studies that we chose for the report.
Staff: Could you explain your methodology a bit more and the timeline of the project? Once you got in touch with these projects, what questions were you asking, what were you looking for, and for how long did that research go on?
Zeuli: The research took about eight months total to complete. We surfaced the list of projects and then we looked for those that were in the inner cities. We mapped them all and we wanted to look for those that could potentially be replicated and seemed like they had a positive impact in the inner city. It was a little bit of an art and science approach. Since there is no hard data on the projects, we couldn’t quantify them that way. We used all of our experts to help surface that type of information and then we developed the case studies.
Staff: What qualifies an area as inner city? I think it is a term that we hear about a lot, but many people might not know exactly what it means.
Zeuli: At ICIC, I believe that we are the only organization that defines the inner city. It is a set of contiguous census tracts with high poverty and high unemployment rates.
Staff: So seemingly very in line with the targeted employment area of the EB-5 program?
Zeuli: That’s right, very much aligned. Except that we’re only focused on urban areas and the TEA includes rural areas.
Staff: I know that in the report you discuss mapping the regional centers and looking at the geography of them. It also mentions that many are near inner cities, yet there’s a perception that EB-5 has largely been overlooked as a funding resource in these locations. Why do you think that is? Or did you find that that wasn’t actually the case?
Zeuli: Many people have heard of EB-5, but don’t really understand it and don’t really know how they might use it, so there seems to be a barrier of entry in terms of understanding the program. It’s complex and people may have heard negative news about it. There is a lot of training for economic development professionals about federal community development and economic development programs, but EB-5—being housed in a different part of the government—is not included in those trainings. It’s not part of the new market tax credits or those different types of programs. The one exception is the training that is provided by the Council of Development Finance Agencies (CDFA).
Staff: Do you think there are more barriers to entry in terms of inner city development than there would be in other non-inner city development areas, or do you think this is something that affects EB-5 and the development world as a whole?
Zeuli: These are barriers that affect the utilization of EB-5 in general and are not specific to the inner city. We did not uncover any inner city barriers specifically.
Staff: You also discuss public private partnerships, which is something that we’ve covered in the magazine in the past, and they seem to be growing. Do you think that such partnerships have a particularly important role in inner city investments?
Zeuli: Yes, we think they’re very important and it’s because often the public sector can’t do it alone, and neither can the private sector. There can be significant public barriers, such as zoning or regulation, and then the private sector obviously has more access to capital and, I think, more access to innovative development ideas and projects. Yet, the public sector also can have a more robust pipeline of projects that they could consider funding with EB-5.
Staff: So getting into the specifics of the report, why did you choose these particular projects? What qualities were you looking for when you chose the case studies?
Zeuli: When we were engaged to write this report, we said we would write a maximum of three case studies, and we honestly couldn’t limit ourselves to doing three. So we wound up doing five and we could have done more. Our research uncovered a wide variety of really interesting case studies, but we chose these because of their location, their potential for replication, and their positive impact on their community. They also seem to have provided significant local job opportunities.
Then two of them seemed to be really unique to us: E3 Cargo Trucking and the Education Fund of America. E3 Cargo Trucking involves the direct funding of a business. And charter schools are an interesting trend in the inner city because of all the education challenges, so we thought that would really be interesting for our demographic.
Staff: What are some impacts of inner city investment for the community, for developers, or even for investors?
Zeuli: Most inner cities are characterized by underinvestment. So they need more investment just to create more thriving infrastructure, robust commercial districts, housing – you name it. That’s the impact for the community: it’s badly needed.
For the investors, it’s the opportunity to invest in an area where you can have a significant impact beyond just the return on your investment. When they get it right, they’re able to invest in projects that, but for EB-5, would not make it.
In addition, again with the public private partnership, the investors and the developers can find that alignment and then they have the support of the public agencies. They can leverage public funding and other resources. Oftentimes inner cities offer a cheaper place to do business and you can leverage more resources, and other funding opportunities.
When the investments are part of a broader economic plan, their risk is generally diminished.
Staff: As you mentioned in the report and as we’ve mentioned in our conversation, investors, a lot of times, especially from China, will favor real estate projects or large projects. How can the industry deal with that or remedy that to get people to invest in smaller inner city projects?
Zeuli: This is a tough one because investors may have a bias and there is also a bias on the EB-5 approval process, where it’s very easy to get real estate projects approved because they understand those models and they’re used to it. The other issue is that the fixed costs associated with any project mean that the smaller projects may not be profitable. I think the industry as a whole needs to study the viable smaller projects, like E3 Cargo Trucking and the charter schools. The more that they can learn from them as a smaller model and start to replicate that and put it out there as a viable option will help. There also needs to be something done in the government in terms of how they’re processing approvals and what they’re counting for jobs. It’s not just an investor bias.
And I have to say that the cargo trucking and the charter school case studies are the ones that everyone continues to ask us about. I think there’s a real demand for smaller projects. The more smaller projects get funded, I think the more they can be replicated.
Staff: What did you learn from your research? I know that’s a big question, so breaking it down a bit—how many projects do you see operating in inner cities? What are some of the challenges and advantages of developing in an inner city? What are some of the transferrable insights or trends across your case studies that you noticed?
Zeuli: We found about 180 EB-5 projects. We know there’s a lot more happening in EB-5 than we anticipated and that the economic development field understands. So that’s one thing. It is still a relatively hidden tool that has a lot of potential. At the other end of this we really came out thinking, “Wow! It really does have a lot of potential for the inner city.” There are challenges with it, like any special government program. In inner city investment nothing is easy. For us, EB-5 didn’t seem to have any more challenges than any other tool. It did seem to scare people away because of the lengthy approval process and because of immigration. Since it has been used mostly for big real estate projects, not everyone thinks about utilizing it for other types of projects.
Then there’s obviously all of the uncertainty around the approval process. I think for some people it is so difficult just getting all the right players together, and then it ultimately could not be approved for funding. That seems like a scary prospect.
The other thing we found is that it is a pretty small field and there aren’t that many people that have the knowledge of EB-5. Not everyone will have access to the right experts or know how to find them, so there is that barrier as well.
Staff: Can you discuss your recommendations that you came to at the end the report, and who you see as having a role in helping enact them?
Zeuli: We have three main recommendations. The first one was to develop an educational campaign about using EB-5 as a tool for impact investing in inner cities. We really think the economic development profession, potentially in partnership with organizations like yours, other trade associations, the public sector, and foundations, should help educate people about EB-5 and how it can be used in the inner city. Data is part of that, making sure that somebody is tracking these projects. Our total report is about 40 pages, but what most people have requested is the table at the back with the list of projects. We need somebody to collect more of that data. That’s obviously something that ICIC is interested in. If the public sector can’t do that, it means having a non-profit or somebody who’s really unbiased start to track these projects, start to learn from them, and start to track what kind of jobs are being created.
The second recommendation was building this nexus of EB-5 experts, just getting to that point of “Okay, we want to do something with EB-5, now what?” Whether it’s some type of roster, or just different people that we could point people to in different inner cities and make sure they’re connected to some reliable EB-5 professionals.
The third recommendation was—and this was geared towards the foundations and the public sector and some of the economic development coporations—that they should be out there identifying and investing in the projects and maybe supporting regional centers or partnering with regional centers. But I think, after the event, I would reframe the third item as really helping to develop a robust pipeline of projects.
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