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Development projects as large as Hudson Yards need to find their capital somewhere, but nobody expected the $20 billion superblock to skim $1.2 billion in public funds from impoverished areas through a legal loophole. On Friday, Citylab reported that the affluent neighborhood acquired this money through the EB-5 visa program, which is designed to help alleviate urban poverty.
Originally intended to bolster distressed rural and urban areas, the American government provides EB-5 visas to wealthy immigrants who invest anywhere between $500,000 to $1 million in American real estate projects. According to Citylab’s Kriston Capps, it’s a popular avenue for Chinese nationals who want to secure visas for family members. Those who buy EB-5 visas at the lower rate must put their money behind projects in areas with high unemployment.
And despite Hudson Yards’s status as the most expensive real estate project in American history, it qualified as what public officials call a targeted employment area (TEA) eligible for financing due to a certain unemployment threshold 150 percent of national unemployment.
Empire State Development, the economic development agency for the New York state government, determines the boundaries for qualifying TEAs. (The state agency also worked on the bungled Amazon HQ2 project in Queens, which would have benefited from an estimated $3 billion in public investments.) Producing what Capps describes as “creative financial gerrymandering,” Empire State Development drew a string of census tracts connecting distressed areas of Harlem with Hudson Yards.
The TEA bends across Midtown and runs through Central Park toward Harlem. The Hudson Yards district casts a wide enough net to include public housing projects that give its overall unemployment statistics a boost. There are some obvious problems with this map, including how officials could categorize Central Park as economically distressed when nobody actually lives there. Critics have also noted that the project funnels funds away from low-income communities in Harlem nearly 100 blocks downtown to Hudson Yards.
Not that every aspect of the deal manipulated the EB-5 visa protocol. Gary Friedland, a scholar-in-residence at New York University’s Stern Center for Real Estate Finance Research, told Citylab over email that “the first capital raise — for the platform that serves as the base for the buildings in the first phase of [Hudson Yards] over the eastern railyard — was an excellent use of EB-5 capital.” He continued: “This funding of horizontal infrastructure at the beginning of a multiphase, long-term real-estate development project requires patient capital, since the project will not generate cash flow to support debt service payments on the mortgage until after the vertical buildings are completed and occupied. This type of capital is not readily available from many conventional sources.”
But Friedland points out that inexpensive EB-5 capital for the funding of skyscrapers on the suberblock merely enhanced the returns of Related Companies, the developer behind Hudson Yards, which would have been available from other streams of capital.
Critically, the government caps EB-5 visas at 10,000; Related solicited investments from nearly 3,200 foreign visa-seekers. That’s a significant portion of capital meant for distribution across economically distressed areas.
As New York reckons with its new neighborhood for the mega-rich, the public will likely have to grapple with more unsavory anecdotes about how Hudson Yards found its financial footing. Use of EB-5 visa program for gains at the cost of the city’s needy populations demonstrates how developers and government officials were willing to take from the poor and give to the rich.