by Matt Smith from "Center for Investigatice Journalism" [cironline.org/reports/firm-tied-willie-brown-gets-political-boost-hunters-point-plan-4896]:
Manuela Zoninsein contributed to this report from Shanghai. This story was edited by Amy Pyle. It was copy edited by Nikki Frick and Christine Lee.
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House Minority Leader Nancy Pelosi and San Francisco Mayor Ed Lee have devoted staff time, lobbying resources and political capital to ensure the success of a private investment firm linked to Democratic power broker Willie Brown.
The firm, the San Francisco Bay Area Regional Center, would help secure visa priority for foreign investors who back a city dream: redevelopment of the former Hunters Point Naval Shipyard with Lennar Corp. Like other investment firms, its core business is to sell private shares, collect fees, reap returns and pass along risk.
In a letter to the U.S. Department of Homeland Security, Pelosi, a longtime Brown ally, wrote that “it would be in our national interest” to allow the firm to collect fees and investment returns under a federal program, noting federal investment in the toxic cleanup of the property.
Lee’s support has included having an aide travel to China to help market shares to investors.
Brown’s exact role in the investment firm is a bit of a puzzle. He denies knowledge of it, but the company’s brochures and website call him a “principal,” and regional center CEO Ginny Fang says he is a minority partner.
But when Fang wrote to city officials July 4, 2012, making the case for lobbying the Homeland Security Department, she wrote that the regional center has three leaders: herself, Brown and Steven Kay, secretary of the board for the Willie L. Brown Jr. Institute on Politics & Public Service. Brown is chairman and CEO of the institute.
Records show the regional center’s managers are lining up $67 million in investments and hope to eventually raise $300 million. Investments would be held by two separate LLCs. In U.S. Securities and Exchange Commission filings, both of those LLCs name Kay as president.
“If I had to diagram this project, it would look like a family tree with lots of extra little problems,” said Judy Nadler, senior fellow in government ethics at Santa Clara University. “Brown as chair and principal of this financial services firm stands to benefit financially, probably in a significant manner. So I’d say that the skeptic would look at this and say this pretty much looks like an inside deal.”
Fang took issue with the term “inside deal,” telling The Center for Investigative Reporting that support for her firm was no different than other civic enterprises. She did not answer questions about Brown’s potential financial stake.
“The City supports, advocates and funds a myriad of projects, nonprofits and contractors across San Francisco, most of which have no relationship with Willie Brown,” Fang wrote in an email. “Are each of those also ‘inside deals?’ ”
The San Francisco Bay Area Regional Center formed a partnership with Miami-based developer Lennar Corp. in 2011 to act as a broker for foreigners, primarily Chinese, under the federal EB-5 visa program, according to company memos. Named for a section of the U.S. immigration code, the program gives green-card priority to people who invest at least $500,000 in designated U.S. enterprises.
The regional center hired the Shanghai firm Visas Consulting Group to host a series of seminars this spring in Chinese cities. The pitch to foreign investors has emphasized the firm’s links to political figures such as Brown as evidence that it is a sound investment. At an April 14 seminar in Shanghai, prospective investors received glossy brochures illustrated with photographs of Lee and Brown.
The investment brochures, like online materials, refer to Brown as a company “principal.” During the seminar, a presenter described Brown several times in connection with the regional center as “dong shi zhang,” or chairman of the board.
Fang said Brown is not chairman but, after being provided a tape of the presentation, acknowledged that was what he was called. She offered no further explanation.
A video featuring Brown led into the April 14 sales pitch. It was shown before a presenter told attendees that 50 investments already had been made, with 40 remaining.
“I am Willie Brown, former mayor of San Francisco and, of course, former speaker of the California Assembly, and I am a principal in the San Francisco Bay Area Regional Center,” Brown said in the video. “I am just delighted to be a part of this.”
At a May 21 City Hall speech by Lee, Brown brushed off a reporter’s request to discuss the regional center.
“I have no idea what you’re talking about,” he said.
The CIR reporter asked Brown: “You don’t know what the San Francisco Bay Area Regional Center is?”
“Nope,” Brown said, before excusing himself.
At a June 26 groundbreaking for the first 247 Hunters Point housing units, Brown wound up the ceremony by touting the project’s moneymaking potential. The regional center was never mentioned.
“The investment opportunity here represents something that’s unique in America,” he said, highlighting his own role in getting government funds for the project. “There is no other piece of soil as potentially lucrative and profitable for the public sector and private sector than this spot is going to be.”
Asked at the event what he expected the San Francisco Bay Area Regional Center’s profit to be, Brown said: “I don’t know what that is. I don’t know what that is. I don’t know what that is.”
Development at Hunters Point -
Brown is credited with engineering Lee’s 2011 appointment to serve out the remainder of Gavin Newsom’s mayoral term after he was elected lieutenant governor. Brown later played a prominent role in Lee’s campaign to remain mayor.
Lee likewise initially claimed ignorance about the regional center. Asked at a May 30 ribbon cutting to comment on the San Francisco Bay Area Regional Center, he said, “I can’t say that I have much detail on that.”
However, in an interview at the Hunters Point groundbreaking last week, Lee acknowledged that the first phase of construction would be financed by the Brown-linked firm. The Lennar Urban division previously installed streets and sewers at the Hunters Point project site, but delayed construction, citing lack of money.
“The ones taking the risk and putting infrastructure into the ground, that’s Lennar,” Lee said. “And they’ve been doing a really great job.”
Before the event, regional center CEO Fang said her company would fund part of the first phase of Hunters Point construction, referring specific questions to Lennar. Lennar Urban President Kofi Bonner, who served as San Francisco’s director of economic development while Brown was mayor, did not answer questions.
“We don’t discuss financing,” Bonner said.
Pelosi’s Sept. 18 letter urging U.S. immigration authorities to fast-track the regional center’s certification was part of her efforts to bring jobs to low-income sections of her congressional district, her press secretary wrote in a statement.
“By incentivizing private investment to the redevelopment of the Hunters Point Naval Shipyard, the shipyard will be transformed into a source of local jobs and economic development into this disenfranchised community,” the statement said.
In her letter to the Homeland Security Department, Pelosi wrote that the government so far has spent $1 billion at Hunters Point, with most of the money going to toxic and radioactive waste cleanup.
The project still requires $3 billion to pay for infrastructure and $7 billion for planned apartments and office space, yet neither the city nor Lennar has been able to come up with necessary funds, Pelosi wrote.
According to Pelosi, U.S. Citizenship and Immigration Services needed to authorize the San Francisco Bay Area Regional Center to solicit funds under the Immigrant Investor Program, so the city can “proceed with the remainder of the project without delay.”
City support at seminars -
The City and County of San Francisco’s lobbyist, Eve O’Toole, joined the effort last September, also pressing U.S. immigration officials to fast-track the application, according to internal emails.
The city government may have opened itself up to liability by helping in the sale of securities, said Michael Gibson, who leads a Tampa, Fla., firm that audits EB-5 regional center investment firms.
In March, Wells Lawson, Lee’s aide overseeing the Hunters Point project, traveled to China and Japan for two weeks to help with seminars marketing shares in the company to potential investors. The regional center paid for all of Lawson’s travel expenses, including more than $1,300 in plane tickets, said Leo Levenson, the city accountant who tracks government finances related to redevelopment projects such as Hunters Point.
According to Lawson’s presentation notes, obtained through a public records request, he underscored the backing of government officials for the Hunters Point project.
“This would not be possible without deep commitment at the federal, state and county level and the extent of public investment cannot be overestimated,” Lawson’s notes read. “I invite you to be a part.”
Although Lawson was on the city payroll while in China, the city kept no financial records of the trip, Levenson said. Lennar ultimately reimbursed the regional center, Lawson said. Fang, the regional center CEO, also said the developer paid for the trip.
Lawson said he simply was performing his government job, which is to try to ensure the Hunters Point project proceeds. The China trip was “a project cost. It’s no different than if I went over to Sacramento to make a presentation to Caltrans about the project,” he said.
Fang also defended Lawson’s involvement in the Chinese investment sales seminars.
“The city is not selling the investment,” she wrote in an email. “It is legitimizing the existence of the project in its own self interest.”
Trouble gaining financing -
After he became San Francisco mayor in 1996, Brown pushed to redevelop the Hunters Point Naval Shipyard, which closed in 1988. With Pelosi’s help, the federal government contributed to the $815 million cleanup of toxic and radioactive waste at the former base, she wrote in her letter to the Department of Homeland Security.
But developer Lennar, which in 1999 was chosen by the city to develop the 770-acre parcel, has stumbled in obtaining financing for construction of what was to be a $10 billion project.
The last such failure came in April. Following a trip to China by Lee, the mayor’s office confirmed that a proposed $1.7 billion loan to Lennar from the China Development Bank had fallen through. It would have funded redevelopment projects at Hunters Point and the former Treasure Island Naval Station.
Lennar announced soon afterward that the development would proceed nonetheless, with 88 housing units to be built this summer and 159 more in the fall. Not included in the announcement was that, behind the scenes, Brown’s allies in local and federal government had helped assure that funding would flow through a Brown-linked company, according to communications and other documents obtained through public records requests.
For the Hunters Point deal, the regional center is asking for a $45,000 fee from each $500,000 investor, according to documents filed with the SEC.
It intends to create an investment partnership with Lennar to build the first and second phases of a residential and commercial development at the former base. That development ultimately is to include 10,500 residential units and more than 4 million feet of retail and office space, according to investment materials and government documents obtained by CIR.
Eunice Edwards, a San Ramon, Calif., real estate agent who had discussions with the firm on behalf of a client, said she was told that investors would earn a return of about 2 percent, be able to get their money back in five years and have an option to buy a Hunters Point apartment at market rate.
Carolyn S. Lee, an attorney representing the San Francisco Bay Area Regional Center, emphasized that there is no conflict of interest in the arrangement.
“So let’s say the principal is Willie Brown, and he was a key fundraiser for the current mayor. So what?” she said. “These are local businesses, and it’s not unusual for public officials to support them.”
The Brown-linked firm is not related to the Bay Area Regional Center, another EB-5 visa investment firm based in Oakland.
Controversy in EB-5 program -
The EB-5 visa program has long been controversial. Since it began in 1990, it has been a perennial source of stories about immigrants who saw their investments evaporate and their visa applications denied.
One repeated criticism has been that sales pitches don’t focus on ordinary investing principles such as risk and rate of return. Emphasis instead is put on political support and the tangible benefits of a U.S. visa.
During the Shanghai marketing seminar, one video featured Chinese citizens who had successfully immigrated to the United States through the EB-5 visa program.
“A few years ago, I was concerned about my son’s education and wasn’t sure what to do,” said one videotaped woman who identified herself as Michelle from Guangzhou. “But now, I look at my son’s education today and he’s studying at the University of California at Berkeley.”
Lately, the EB-5 program has ballooned, expanding from 806 visas issued in 2007 to more than 7,400 in 2012, according to U.S. immigration figures. Troubles likely will grow as well, said Gibson, the EB-5 investment specialist.
“In the next few years, there will be investors not given any capital or only a fraction of what they invested,” Gibson said. “That’s where we’re going to see a lot of investigation.”
Already, litigation is emerging around the country. Last year, EB-5 investors filed a class-action suit in New Orleans alleging misuse of funds that still is pending. In April, a federal judge ordered a Chicago developer raising investor-visa funds to return the money after the SEC filed fraud allegations.
San Francisco attorney Edward Lau, who specializes in the EB-5 program, obtained a fraud judgment earlier this year for three Chinese clients after an EB-5 developer – unrelated to the San Francisco Bay Area Regional Center – disappeared along with $3 million that was to be invested in a San Bruno restaurant.
“If there is a major loss because of a regional center, attorneys go after everybody – everybody who’s a conspirator, a cohort, everybody who’s a participant in advancing the scheme itself,” Lau said.
At an April seminar in Shanghai, prospective investors for the San Francisco Bay Area Regional Center received about 100 pages of promotional material. They included glossy brochures with endorsements from San Francisco Mayor Ed Lee and Willie Brown, the former mayor and state Assembly speaker. "The Hunters Point project is, to my knowledge, the best opportunity in the world of San Francisco development," the brochure, translated from Chinese, quoted Brown as saying. According to Lee: "This collaborative project between government and enterprise ... will breathe new life into San Francisco's south-eastern district. ..."
Former Mayor Willie Brown speaks during the Hunters Point groundbreaking. On its website and in company brochures, the San Francisco Bay Area Regional Center refers to Brown as a "principal," but he denies knowledge of the investment firm. (Credit: Michael Short/For The Center for Investigative Reporting):
Lennar Urban President Kofi Bonner (left) and former San Francisco Mayor Willie Brown attend a June 26 groundbreaking for Lennar Corp.'s housing development at the old Hunters Point Naval Shipyard site in San Francisco. (Credit: Michael Short/For The Center for Investigative Reporting):
Mayor Ed Lee speaks during the Hunters Point groundbreaking. Lee’s support for the San Francisco Bay Area Regional Center, which is involved in financing for the Hunters Point project, has included having an aide travel to China to help market shares to investors. (Credit: Michael Short/For The Center for Investigative Reporting):
San Francisco Mayor Ed Lee poses for a photo with Ginny Fang, CEO of the San Francisco Bay Area Regional Center, during the Hunters Point groundbreaking. Lee acknowledged that the first phase of construction would be financed by the regional center, a private investment firm that has ties to former Mayor Willie Brown. (Credit: Michael Short/For The Center for Investigative Reporting):
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