Tapping into a federal program that offers green cards to wealthy foreigners, the Sacramento Kings are seeking Chinese investment dollars to help finance redevelopment of the site around the new downtown arena.
Officials with the Kings and their development partner, JMA Ventures of San Francisco, recently traveled to China to pitch the redevelopment of Downtown Plaza, recently renamed Downtown Commons, to potential investors. The Kings and JMA plan to build more than $300 million worth of development near the new Golden 1 Center arena, including a hotel-office tower and a shopping and dining district.
“We’ve had a lot of great early interest” from investors, said Todd Chapman, chief executive at JMA.
Chapman said Tuesday the redevelopment project has plenty of “traditional financing” and the foreign money would represent “only a small portion of our capitalization.” He added that none of the foreign money would be spent on the arena itself. The $507 million arena is being funded by the Kings’ owners and the city, which is contributing a $255 million subsidy.
The Kings and JMA would raise the foreign funds via EB-5, a 25-year-old federal program that gives international investors the right to gain permanent U.S. residence – a green card – in return for hefty investments that create jobs. The program is a source of low-cost financing for American developers, as the investors expect a modest financial return on their money.
Using the EB-5 program is in line with a Kings ownership group, led by India-born software tycoon Vivek Ranadive, that has worked to raise the team’s international profile since taking over in 2013. The club played two exhibition games in China in 2014, and Ranadive has marketed the Kings in his home country.
EB-5 has produced $11.2 billion in investments in the United States since its launch in 1990, according to a recent report by the U.S. Government Accountability Office. It has provided investors with as many as 10,000 green cards a year, the GAO said. The lion’s share of EB-5 investments come from China, although the program is open to investors worldwide.
Federal auditors have expressed concerns that the program is vulnerable to abuse and fraud. The GAO report said some investors may “be involved in schemes to fraudulently portray job creation or economic activity.” Without going into detail, the report said one investor loaned money for a hotel development in 2013, but the owner of the lot “was not aware of any plans to build a hotel there.”
The program is due to sunset Dec. 11, and members of Congress are exploring possible changes to its structure as they decide whether to renew its authorization.
“There is bipartisan consensus that the program is in dire need of reform,” Sen. Patrick Leahy, D-Vt., said recently. Leahy and Sen. Chuck Grassley, R-Iowa, are sponsoring legislation to tighten investment requirements and oversight.
Sacramento has had experience with EB-5. Investors from overseas pumped $18 million into the conversion of McClellan Air Force Base into a business park.
“We found it very helpful here,” said McClellan’s lead developer, Larry Kelley, who is also a minority owner of the Kings. “It’s a very good source of capital … very efficient, a very reasonable interest rate.”
Pro sports is also no stranger to EB-5. Developers of the Barclays Center, the 3-year-old home of the NBA’s Brooklyn Nets, raised $249 million in EB-5 money.
At one point four years ago, Sacramento officials explored EB-5 as a means of helping to finance construction of a new Kings arena at the downtown railyard. The arena project since has moved to the former Downtown Plaza and the financing model changed.
Using EB-5 on the downtown mall project would do more than provide additional sources of funds. Chapman said it would burnish Sacramento’s reputation among international investors.
“The really nice thing is this is an opportunity to introduce some of the mainland Chinese markets to the Sacramento market,” he said. “They’re very interested in the project, in the scale of the project.”
To get their green cards, investors have to invest at least $1 million and produce 10 jobs in the United States. The minimum investment is reduced to $500,000 if the project is in a rural or high-unemployment area. Chapman said he wasn’t sure if the downtown redevelopment qualified for the lower investment threshold.
The arena is scheduled to open next October, in time for the start of the 2016-17 NBA season. However, much of the mall redevelopment, including the 16-story hotel tower, isn’t expected to open until early 2017.