Chinese investors to fund turnpike-I-95 connection

Posted: May 10, 2013

To help pay for the construction of the long-awaited connection between the Pennsylvania Turnpike and I-95, turnpike officials plan to borrow $200 million from wealthy foreign investors.

The investors, expected to be primarily from China, could get green cards for themselves and their families to live in the United States in exchange for their money.

The complex deal is being brokered by officers of a prominent and politically connected Philadelphia investment management company.

If the financiers get federal approval, the deal will offer something for everyone:

The turnpike will get cheap money.

The investors and their families will get a quick path to legal residence in the United States.

The brokers will collect sizable commissions and fees.

The heavily indebted Pennsylvania Turnpike Commission, which typically borrows money through the municipal bond market, has signed an agreement with two Philadelphia financiers to borrow $200 million from foreign investors.

The deal makers are Joseph P. Manheim and Paula Mandle, who brought the proposal to the Turnpike Commission and stand to make a tidy profit if it works.

The deal was suggested to turnpike officials by Turnpike Commissioner Pasquale T. "Pat" Deon Sr., a Bucks County restaurateur and beer distributor and Republican power broker.

Manheim and Mandle are officers in the Swarthmore Group, a Philadelphia investment management firm headed by James E. Nevels, a prominent Republican donor and fund-raiser.

Nevels is deputy chairman of the board of the Federal Reserve Bank of Philadelphia, and was the first chairman of the Philadelphia School Reform Commission, appointed by Republican Gov. Mark Schweiker. He is also president of the Pennsylvania Society, the organization best known for its annual Manhattan gathering of Pennsylvania politicians, lobbyists, and business people.

Manheim, the managing partner of the Swarthmore Group, and Mandle, its chief executive officer, have created a separate business, the Delaware Valley Regional Center, with a virtual office in West Conshohocken. Manheim is president and Mandle is secretary-treasurer of the new business, according to a memorandum of understanding with the Turnpike Commission.

They are seeking approval from U.S. Citizenship and Immigration Services to operate a federally designated "regional center" to recruit foreign investors and provide the turnpike loan.

Creating jobs

Such regional centers operate throughout the United States under the federal Immigrant Investor Program, created by Congress in 1990 to grant EB-5 immigration visas to wealthy foreign investors who provide money to U.S. projects that will create at least 10 American jobs within two years.

The minimum investment is $1 million ($500,000 for high-unemployment areas) from each investor.

The funds are required to be used for "new commercial enterprises" engaged in for-profit activity.

The Pennsylvania Turnpike is not a new commercial enterprise, having opened to motorists in 1940. And it is not a for-profit operation.

So, to meet the legal requirements, the brokers have created a limited partnership called DVRC Pennsylvania Turnpike L.P., with an office in Berwyn. Because the construction area - Bristol Township, Bucks County - is deemed "high unemployment," foreign investors would invest a minimum of $500,000 each in shares of the limited partnership, which would then lend the money to the Turnpike Commission.

The Turnpike Commission signed a $200 million loan agreement with the limited partnership on April 26. The agreement requires the creation of 4,000 direct and indirect permanent jobs by the turnpike project.

The $420 million construction project will link the turnpike and I-95 where they cross in Bristol Township, with high-speed connections, a new mainline turnpike toll plaza, and widening of the turnpike.

The completion of that first stage, along with the re-designation of sections of the Pennsylvania and New Jersey Turnpikes as I-95, would finally make I-95 continuous between Maine and Florida.

The connection project is supposed to be completed by 2017, project manager Jeff Davis said. Additional construction of future stages will last beyond 2020.

The foreign-investor money will fill a gap left by inadequate federal funding, turnpike officials say.

Federal law permits the dealmakers to go immediately to China or elsewhere to begin recruiting investors for the turnpike project, but they are not allowed to accept funds until they get federal approval as a regional center.

"Hey, Chinese money should come back to us once in a while," Deon said. He is also chairman of the SEPTA board of directors, and saw a similar deal work for the transit agency in 2011 when SEPTA borrowed $175 million for its new fare-collection system.

Deon said the deal proposed by Manheim and Mandle would be much cheaper for the turnpike than going to the bond market, especially since the turnpike's bond rating has declined recently because of its rising debt.

If that turns out not to be the case, he said, the turnpike can reject the deal.

Manheim referred all questions to the Turnpike Commission.

Big savings

Nikolaus Grieshaber, chief financial officer of the Turnpike Commission, said the deal will save the turnpike about $35 million over five years. The foreign investor deal offers financing at a 2 percent annual interest rate, about half the rate for municipal-bond borrowing, Grieshaber said.

The deal is a move into uncharted waters for the turnpike.

"I never heard of EB-5 financing before," Grieshaber said. "It's kind of a test case for us. Commissioner Deon suggested we take a look at this proposal.

"If it's successful, we may do it with other projects," Grieshaber said.

The turnpike does not expect to receive its first $50 million installment from the deal until 2014, Grieshaber said, and all of the money is expected to be received by 2016.

Turnpike officials did not consider doing the immigrant investor deal with other, already-established regional centers, such as one operated by the Philadelphia Industrial Development Corp., Grieshaber said.

EB-5 foreign-investor deals have grown in popularity in recent years, as developers and others found it increasingly difficult to borrow money from traditional lenders.

The number of "regional centers" that have sprung up to recruit wealthy foreign investors has grown from 11 in 2007 to nearly 300.

One of the biggest and oldest such businesses is the PIDC Regional Center, a partnership between PIDC and CanAm Enterprises of New York.

The PIDC Regional Center has used money from 1,100 foreign investors to make $550 million in loans through its "Welcome Fund" to such businesses as Aker Philadelphia Shipyard, Comcast Corp., Butcher & Singer Steakhouse, Temple University Health System, the Convention Center, and SEPTA.

Despite such successes, the national Immigrant Investor Program has drawn criticism for lax oversight and dubious projects that produce neither American jobs nor permanent green cards for foreign investors.

Some regional centers have solicited investors for vineyards in California, a gold mine in Idaho, a ski resort in Vermont, dairy farms in South Dakota, and gas stations in Guam.

This year, the Securities and Exchange Commission accused an Illinois man of fraudulently selling more than $145 million in securities and collecting $11 million in administrative fees from more than 250 foreign investors through a regional center scheme to build a hotel and convention center near Chicago's O'Hare airport.


Contact Paul Nussbaum at 215-854-4587 or pnussbaum@phillynews.com.

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