High-speed rail company turns to wealthy foreign investors
A private company seeking to build a high-speed rail train from Rochester to the Twin Cities hopes to raise some of the money from wealthy foreign investors seeking a path to U.S. citizenship.
A private company seeking to build a high-speed rail line from Rochester to the Twin Cities hopes to raise some of the money from wealthy foreign investors seeking a path to U.S. citizenship.
The North American High Speed Rail Group looks to raise $300 million of the project's $4.2 billion cost via the federal EB-5 investor program and "other investments," according to a business plan obtained by the Post-Bulletin from the Minnesota Department of Transportation as part of a data practices act request.
As part of the EB-5 program, immigrants who are willing to invest a minimum of $500,000 are eligible to receive a two-year conditional green card. If the project creates at least 10 jobs after two years, the investor is eligible to receive a regular U.S. green card. Rail group spokeswoman Wendy Meadley confirmed the company is exploring the use of EB-5 to finance part of the project.
"It is a small portion of the financial package, but it allows us to diversify our sources of investment and, of course, this project would create numerous jobs in Minnesota," Meadley said in an emailed response.
The rail group has said it wants to build an 84-mile, elevated, high-speed rail line from Rochester to Bloomington that would cater to trains with top speeds of 260 mph to 280 mph. It would serve an estimated 20,000 to 28,000 passengers per day, according to company documents. MnDOT is considering a request from the company to grant exclusive negotiating rights to lease air space on portions of Interstate 494, Minnesota Highway 55, U.S. Highway 52, U.S. Highway 63 and Interstate 90. DFL Gov. Mark Dayton's office has said the governor will have the final say on whether the request is granted and he wants to seek legislative input before making a decision. The company has said that if it is successful in building the Twin Cities to Rochester line, it hopes to extend it to Chicago .
Rail leaders own EB-5 center
It turns out key leaders in the North American High Speed Rail Group are also behind a new EB-5 regional center. Rail group CEO Joe Sperber and Chairman Joseph Wang are co-owners of Liberty Minnesota Regional Center , which won approval from the U.S. Citizenship and Immigration Services in April. These centers sponsor economic development projects people can invest in via the EB-5 program.
Interest in the EB-5 program has exploded since the great recession, according to Laura Danielson, an immigration lawyer at Twin Cities-based Fredriksson & Byron, P.A.
"It really kicked into gear with the economic downfall and the traditional sources of money started to dry up and a lot of developers started looking at alternative sources like this," Danielson said.
The program was established in 1990 and operated in relative obscurity for many years. Today, there are nearly 700 EB-5 regional centers that have been approved by the federal government. Danielson said the vast majority of the money comes from Chinese investors, thanks in large part to skyrocketing real estate prices in that country and a desire for children to be educated in the U.S. While EB-5 can be an extremely successful financing tool, the major challenge for developers is to put forward a project that stands out and will attract EB-5 investments, given the competitive marketplace.
"There's a lot of competition out there in the market in China and elsewhere, so they have to have a project that is really going to be appealing to the investors. So that's a pretty big hurdle," Danielson said.
The rail group addresses the stiff competition for EB-5 investors in its business plan.
"The company recognizes that EB-5 investment opportunities are becoming a 'crowded marketspace' in China, but we believe that the opportunity to invest in a high speed train, backed by the Chinese government and state-owned contractors will have a special appeal as a secure investment."
The company has said it plans to raise $1.4 billion from Chinese investors for the project — in addition to the EB-5 funding. The goal is to bring state-of-the-art foreign rail technology — like that used in China — and create a new technology to serve U.S. rail needs.
Program has its critics
Mazeppa Republican Rep. Steve Drazkowski, a vocal critic of the high-speed rail project, said he has serious concerns about the project being funded via Chinese investment.
"The whole idea of the Chinese government being involved in major transportation arteries throughout southern Minnesota is troubling. China is a communist government, the last time I checked," Drazkowski said.
The EB-5 program has also had its share of critics. The U.S. Government Accountability Office issued a report earlier this month that concluded the federal government needs to do a better job overseeing the program to address fraud and national security risks. Meanwhile, the EB-5 program is set to expire on Sept. 30 unless Congress takes action. Sen. Chuck Grassley (R-Iowa) and Sen. Patrick Leahy (D-Vt.) are sponsoring a bill that would tighten oversight of the program. It would also boost investing the minimal investment requirements from $500,000 to $8000,000 for projects in areas with higher unemployment and from $1 million to $1.2 million for all other areas.
Asked about how the rail group would respond the program's critics, Meadley said Liberty Minnesota Regional Center is different from other regional centers because the company is a "co-investor in all projects we involve foreign investors in."
The rail group's business plan offers an explanation of how the company expects to raise the $4.2 billion needed to fund the project. The breakdown is as follows: $1.4 billion from U.S. investors, $1.4 billion from Chinese investors, $700 million in loans, $300 million from EB-5 and other investments and $400 million in revenue from retail projects associated with the rail development. The rail group expects to retain approximately 25 percent of the equity shares from development associated with the high-speed rail train, which could include hotel, retail and parking, according to the company's business plan. The developments would be operated by a third party.
Rochester Area Economic Development Inc. President Gary Smith said he is not aware of any local development projects funded using EB-5 dollars. But he said he has recently heard some groups express interest in pursuing this type of international investment. In fact, he said RAEDI has studied the idea of tapping into the funding for projects.
He added, "We've actually looked at it in the past but we would not likely do it unless there is a consortium of folks."