The Washington Diplomat / March 2007
By Larry Luxner
At least 500 as many as 1,000 wealthy foreigners and their immediate families could be granted permanent U.S. residency every year in exchange for helping to bankroll the rebuilding of New Orleans.
The prized green cards come courtesy of the little-known EB-5 visa program a scheme in which non-Americans are normally required to invest at least $1 million in a commercial enterprise and create at least 10 direct U.S. jobs in the process.
But if the investment is being made in a specially designated "targeted employment area" (TEA) suffering from high unemployment or economic crisis, then the immigrant investor is required to invest only $500,000 and create 10 direct or indirect jobs.
That's where William B. Hungerford Jr. and Timothy O. Milbrath come in.
Last October, their Maryland-based company, NobleOutreach LLC, was awarded an exclusive 30-year contract with the City of New Orleans to perform all the operational and financial aspects of the city's EB-5 investment activities.
"Our objective is to market internationally and get the word out. Then, once those investors have been identified, we would bring them into an LLC," Hungerford told us in a lengthy interview last month.
"Our focus is unique in that they would come into a venture fund. It's a typical mutual fund where investors pool their dollars. Normally, they'd invest directly in a project, and if it's successful, that's great. We've set up the venture fund to allow investment to be pooled with U.S. investment, and the businesses that are created from within that fund produce the jobs."
NobleOutreach LLC, with offices in Gaithersburg, Md., Washington's Watergate building and the New Orleans suburb of Metairie, was incorporated in April 2005 with the intention of helping foreign nationals invest in the United States, in return for the chance to gain permanent residency in this country.
After Hurricane Katrina, the worst natural disaster in U.S. history, struck the region on Aug. 29 flooding 80% of the city, dispersing the city's 450,000 inhabitants and causing over $14 billion in damages to residential property in Orleans Parish alone the two men shifted their focus to New Orleans and the U.S. Gulf Coast.
According to a company fact sheet, "today, as a result of the massive devastation, New Orleans is a greenfield of ground-floor investment opportunities. NobleRecoveryFund is poised to invest in opportunities at currently depressed values, purchase real-estate at very low market prices, and reap the significant rise in favlues and the excellent benefits of early investing as these opportunities unfold and flourish."
"We're giving these people an option," explains Milbrath, a retired Air Force colonel who was chief of staff of the White House Military Office during three presidential administration, and worked in the United Arab Emirates before joining NobleOutReach.
"You can live in Moscow, for example, and still invest in the New Orleans recovery effort. The city was totally devastated, so this is a good time to get in there and share in the profits. This is not a charity. We're going in with private equity."
He added: "When a person makes that $500,000 investment, he has no recourse to that money. It's not guaranteed. That investment is at full risk, but it doesn't affect the green-card process. He and his immediate family still get green cards, regardless of the outcome of the investment."
According to a company fact sheet, "NobleFunds, a NobleOutReach venture fund, was created in December 2006 as a limited liability partnership. This fund pools investment units and allows the partners to diversify investment risk, collectively share excellent financial rewards, and where required for EB-5 immigrant investors, to benefit from the significant job creation and economic benefits of the entire project portfolio of investments."
Known as EB-5 because it's the fifth category in the "employment-based" visa program, the program was created by Congress in 1990 but ran into problems early on.
"People were not investing their full $1 million, just part of it, and saying they would pay later. But there were no guarantees. So in 1998, the INS cracked down and imposed new, tighter restrictions on the program," said Stephen Yale-Loehr, a prominent attorney who teaches immigration and asylum law at Cornell Law School.
"Now they believe investors are doing this properly, and that's why the program is starting to pick up again. But there is still careful scrutiny by the immigration agency to make sure that the investors comply with all the requirements. You have outsiders like NobleOutreach doing the initial vetting to make sure the investors are legitimate. Then the petition gets filed, and the immigration agency does its own due diligence."
Yale-Loehr, a member of the EB-5 Investors Committee of the American Immigration Lawyers Association, said these days, the U.S. Citizenship and Immigration Service (USCIS) a division of the Department of Homeland Security requires that the investment funds be put up ahead of time.
"The money has to be there, at least in escrow, sitting in the bank, before they file their petition with USCIS. They also require five years of tax returns from that individual to make sure the money to be invested was obtained legally."
In addition to New Orleans, according to Yale-Loehr, designated "regional centers" exist in Philadelphia, Seattle, California's Imperial Valley, eastern Washington state, Las Vegas, parts of Iowa and South Dakota, and the entire states of Hawaii and Vermont. Applications are currently pending for Milwaukee, Houston, northern Texas and southwestern Kansas.
"Others were approved in the 1990s, but for whatever reason, so few people were applying, they abandoned their applications," he said, adding that "most any city would be glad to get some new infusion of capital to help it grow. New Orleans previously had a regional center, but they never did anything with it."
Hungerford said the U.S. government believes total investment through the EB-5 program into these "regional centers" has been running about $300 million to $400 million annually, but that by the end of 2008, it could jump to $1 billion a year.
A maximum of 10,000 green cards may be issued annually under the EB-5 program, of which 3,000 are set aside for these designated regional centers. Yet last year, only 1,000 people even applied under the program, of which just 10% were approved by USCIS.
"Only a few hundred people a year have gotten green cards in this way," said Yale-Loehr. "A lot of them are from Europe, Canada, Korea and China. For whatever reason, I haven't seen many investors from Latin America or the Middle East."
Hungerford and Milbrath would like to change that.
Milbrath says he's targeting the oil-rich Persian Gulf region particularly Saudi Arabia and the United Arab Emirates as well as countries like China, Russia, Malaysia, Indonesia and Venezuela, which have produced many millionaires but also suffer from frequent political instability.
"This program has to produce 10 jobs, but that includes indirect jobs," he explained. "The focus of this program is to create American jobs, not necessarily to bring the immigrant here. But it gives that immigrant the ability to travel especially if, for example, you're in Venezuela, and there's a coup or the government takes over your business."
Hungerford said he expects the EB-5 program will have more success in New Orleans than it has with other TEAs because this is the first time immigrant investors will have the opportunity to pool their money in a venture-capital fund with other investors.
Asked if anyone's raised objections over the idea of handing out green cards to wealthy foreigners who invest in this country, Milbrath responded: "There is no opposition to this program. Every senator wants this economic development for his region. We expect that through our investment, we will create on the order of 5,000 to 6,000 jobs."
Hungerford and Milbrath could also make a sizeable amount of money for themselves, too.
"When the immigrant makes his $500,000 investment, there's a service fee of 12% which we collect to cover our marketing and travel costs," Milbrath explains. "We don't pay New Orleans, and they city doesn't pay us. We collect it directly from the investor, because the city cannot be in a conflict of interest with the investor. That's why they need a private company like us."
Immigration lawyers will also benefit, even though the government does not require prospective EB-5 applicants to hire a lawyer.
"Given the complexity of this process, you'd be a fool to try this on your own," said Yale-Loehr, adding that only a few lawyers specialize in EB-5 visas, and that they charge anywhere between $10,000 and $20,000 to guide an applicant through the visa process.
Hungerford, who was born and raised in Laytonsville, Md., has an MBA from the University of Rochester in New York. He operates rental properties in Montgomery County and has a background in finance and accounting. He also supervised four European offices for an international consulting firm based in Reston, Va., which he declined to identify.
He says his specialty is "managing large projects and understanding the complexities of working with government agencies."
"The real focus of this is that the ventures have to be for-profit enterprises. Its desigend to be economically prosperous for the United States," he said. "What's really interesting about this program is that it's a great example of a public-private partnership."
Hungerford said the NobleRecoveryFund and the NobleRealEstateFund will be capitalized at between $50 million and $100 million each. Under SEC law, each fund may have a maximum of 99 investors.
"The funds can't promise a specific return, but we think the returns will be between 100% and 200% over a five-year period," he said, adding that "85% to 90% of our funds will be invested in underlying real-estate."
Added Milbrath: "The government takes great pains to make sure this program works. Each state has specific securities laws that have to be complied with. The fund is a Delaware limited partnership. All of those filings have to be done by legal counsel."
Despite the devastation wrought by Katrina, New Orleans has made tremendous strides since the disaster. According to the city's Office of Economic Development, New of the 22,000 businesses that operated in New Orleans before the hurricane, over 17,700 of them (90%) have reopened.
In addition, sales-tax collections are at 78% of pre-storm levels, the city has granted 358 new business licenses, and 90% of Class A office space is currently occupied.
Nearly 1,250 of the 1,800 restaurants that operated before Katrina are back in business, and between 230,000 and 240,000 of the city's 450,000 pre-Katrina residents have returned home.
One of NobleOutReach's chief targets for investment is an 18-acre downtown movie studio that will employ 3,500 people when completed, and help New Orleans regain its pre-Katrina prominence as the "Hollywood of the South."
The company will also invest in extended-stay hotels, cold-storage facilities, neighborhood medical clinics and possibly casinos.
"They seem very legitimate, and they want to do the right thing to help New Orleans recover from the hurricane," said Yale-Loehr, adding that the project could have a huge impact on the city's recovery efforts. "It depends on a lot of factors, including how good their marketing is. These are large projects, and the foreign investors' money is combined with that of U.S. investors and banks. It's a leveraged opportunity that allows large projects to go forward."