The Rise and Fall of the New York Wheel

But even with the regional centers in place, EB-5 didn’t prove to be a major draw for foreign investors, and what interest it did attract was checkered. The program’s early years were marred by shady foreign actors and widespread malfeasance. Investigations turned up numerous instances of tax and wire fraud throughout the 1990s, with firms providing falsified documents to cover for investors who didn’t even have the requisite funds to furnish the loans. At one point the program was shuttered entirely. The scandals continued despite numerous attempts to bring it above board in the 2000s. Well into that decade, only a fraction of the allotted 10,000 annual visas were being awarded.

An artist’s rendering of the New York Wheel, serviced by the Staten Island Ferry.

Bill Murphy

But in 2009, with the world’s investment markets under major duress, the program underwent an overhaul—not aimed at cleaning up its act, but relaxing its standards. In the wake of the same financial crisis that had washed out Bear Stearns, the basic solvency of the country’s major banks was in doubt and it had become nearly impossible to borrow money for large construction and development projects. So that year, USCIS launched a series of changes to the program. Construction jobs hadn’t previously counted toward the 10 jobs per investor threshold; now they would be. The number of jobs would no longer be counted by the number of W-2s issued, but rather by the amount of money spent, according to Gary Friedland, a scholar in residence at NYU Stern School of Business who has testified before Congress on the program. Even the money spent by workers on an EB-5 project—on lunch, transport, and the like—would count toward overall job creation. And the restrictions on what constituted a “high unemployment area” were relaxed so much that nearly any district could be stretched to qualify.

The global financial community finally took notice. “EB-5 became extremely common after the financial crisis,” Friedland told me, “and very broad.” With the rules revised and unemployment spiking anyway, virtually every project in the country could be proven as benefiting a high unemployment area, effectively lowering the individual investment amount to $500,000 across the board. The fact that jobs were being counted by money spent and not jobs created incentivized massive cost overruns. And even though EB-5 investment would only constitute a small percentage of the money spent on a particular project—frequently between 10-30 percent—all the jobs created by that project would count toward the visas.