REPOST: US Rule of Law Drives Foreign Investors

Foreign investors sees U.S. real estate as a good investment. Know the reason behind this from the article below:

“The US has one of the best transparency indices; the rule of law is enforced here, so foreign investors have greater confidence in their ownership position.” | Image Source: globest.com

NEWPORT BEACH, CA—It’s no secret that foreign investors are bullish on US real estate. But which foreign investors are having the biggest impact on our market, and why is real estate here so attractive to them? Kerry Vandell, director of the Center for Real Estate at UC Irvine, will be speaking about these and other subjects at this week’s California Association of Realtors conference in Los Angeles, “The Real Estate Summit: Partnering for Change,” along with other representatives for leading real estate research centers at California’s top universities. We caught up with Vandell to discuss the issues he’ll be broaching at the conference.

GlobeSt.com: What foreign investment dollars are having the biggest impact on US real estate?

Vandell: Traditionally, at least in recent years, Canada has been the largest foreign investor in US real estate, but there’s been a real increase by the Asian countries and the various funds from those countries. China and Russia have become big players, Singapore through its sovereign wealth funds, Malaysia and Australia. And Norway has recently become one of the largest investors in US real estate through its sovereign wealth fund. Countries are making use of their oil revenue and trying to put 5% into real estate—and more in US real estate recently.

GlobeSt.com: Where geographically is most of this money going?

Vandell: Traditionally, most of the foreign money allocated for US real estate has been invested in gateway cities like New York, San Francisco and Washington, DC, but more recently we’ve seen an increasing proportion in Houston, Los Angeles and Miami (which has a Latin American flavor to it), and they’re talking about some of the money going into Austin and other knowledge and tech centers like Silicon Valley. If you’re focusing on California, the biggest amount historically was in the San Francisco area at first, then Silicon Valley, but more recently Los Angeles is coming in from a variety of sources and sectors. This also includes the Greater Los Angeles area of Orange County.

GlobeSt.com: On which sectors are they concentrating?

Vandell: When you look at the sectors, you might think of the high-end, triple-A office buildings, but foreign investment has moved substantially beyond that. Last year, a lot of foreign money went into multifamily, and this year it has been on less jazzy industrial properties. For the most part, these are not class-B properties (they are investment grade. They’re moving more into value-add a little bit, but they’re typically investing for the long haul—they’re not flippers by any means. They’re bidding down cap rates by this activity, and class-A cap rates in some major cities are below 4%.

GlobeSt.com: Why are foreign investors willing to drive up prices and drive down cap rates in order to own here?

Vandell: The reason they can do this is because they don’t have all the strictures. If they’re holding a property for several decades, they can accept the risk. One thing that’s often overlooked: a lot of single-family residential is being bought by foreign nationals, and it can be urban condo or suburban high-end markets. A lot of capital moving out of China into investments elsewhere is motivated by future holding and possibly for family members. This has happened before to a degree—in the late ‘80s, this was going on in the Bay Area.

GlobeSt.com: Why are foreign investors seeing US real estate as a good bet?

Vandell: These folks can pay all cash, and strict mortgage qualification standards in this country have put a damper on new-home and family-home construction and the ability of people to transact domestically to buy their first home. This is attracting institutional and foreign investors. One of the factors is that institutional investors use a transparency index that deals with risk and other issues related to real estate, and the US has one of the best transparency indices. The rule of law is enforced here black money exchange is minimal in the US, and we have a very transparent process in terms of acquisition, so they have a greater confidence in their ownership position.

Also, the dollar has gotten stronger relative to many currencies, so they’re trying to get an additional pop through currency appreciation. It’s not true in every case, but many European currencies are much weaker than before.

In addition, there’s a sense that the US is in a sweet spot in terms of growth in the economy. The demand for real estate is clearly related to the growth in the economy. As the economy grows, the demand for hotels, industrial—virtually all of the sectors—increases. China is slowing down somewhat, and many European economies are not doing well—along with Latin America—so from that standpoint, it looks attractive, too.

And finally, there’s EB-5. I have students in China from well-to-do families who are actively involved in this. They started their own programs where they bring this money in and it’s pooled for larger investments. EB-5 is one of the major sources of capital for real estate development in the state of Vermont, which has formalized this process. They like to get their money out of the country as quickly as possible—that’s a driver, too—but there are also restrictions holding the money back.

GlobeSt.com: Are foreign investors impacting values and the amount of distressed real estate?

Vandell: To the extent that there’s a large stock of distressed real estate, it’s not primarily where their money is going. This is not a major focus of foreign investors, so there’s less of an impact there, although it’s clearly having an impact on non-distressed properties. There’s a huge demand from foreign buyers for condos in New York City, and we see some of that here in high-end areas. This is certainly having an impact on values and driving cap rates down. Yield is more important to domestic investors than to foreign because they’re looking at longer hold periods.

Sovereign wealth funds have become so important. Basically, all the sovereign wealth funds diversified into many different types of investments, but this never happened in the US. In the Middle East, China, Norway and other European countries, Australia, Japan and Singapore, they all have sovereign wealth funds that have been a major source of investment capital. They recognize investment-grade CRE especially—it’s really a global market now. It’s broadly diversifying across the world.

Learn more about the EB-5 program by following this Shalom Segelman Twitter account.

EB-5 for developers: Options for raising capital

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The EB-5 visa program was created in 1990 as part of the Immigration Act in order to boost economic growth and job creation.


To foreign investors, the EB-5 visa program provides an opportunity to obtain a green card in return for a minimum investment and the creation of at least 10 jobs for American citizens. To developers, EB-5 is a low-cost source of financing for a variety of projects.


Developers have three ways to access EB-5 financing:


Regional center designation



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Developers have the option to access EB-5 financing by applying for a regional center (RC) designation from the USCIS. The process is long and costly, and requires the filing of a Form I-924, Application for Regional Center Under the Immigrant Investor Program petition, paying various fees, and assembling documentation such as a sample business plan and economist report for the proposed project. The advantages of obtaining EB-5 capital by seeking RC designation include less stringent requirements when it comes to job creation. RCs need only to create 10 indirect or induced jobs, or jobs that are created by the project's suppliers, vendors, or other ancillaries, whereas individual EB-5 investments require 10 direct full-time jobs. RCs are also allowed to pool funds from multiple investors: there is no limit to the number of investors that can contribute to a project as long as the job creation requirement is met.



 Money invested through RCs can go directly into a project, or be held in escrow until the investor's I-526 Immigrant Petition by Alien Entrepreneur is approved.

Regional center affiliation 



Many developers opt to “rent” an existing RC to avoid the time and expense associated with creating a new one while reaping most of the same benefits. In return, the RC might ask for a portion of the project's revenues or a fixed fee. 


Direct investment 


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With direct investment, developers receive financing directly from investors, cutting out the middleman. Investors are typically more involved and invested in the project. In addition, while regional centers can have multiple projects, direct EB-5 projects must be formed separately and have stringent requirements, such as the creation of 10 direct full-time jobs. 


Developers who wish to take advantage of the EB-5 program for their financing needs should consider seeking the guidance of an EB-5 specialist for guidance. 


Subscribe to this Shalom Segelman blog to learn more about accessing capital through the EB-5 program.

America’s top 5 states for business

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Location is one of the primary keys to successful business operations. In the United States, this means finding the right state where one’s business would grow.

Aimed to find the best places for commerce, CNBC ranked the 50 states in America to determine the one that has the most ideal business climate for investors and entrepreneurs. Here is what the study revealed:

Georgia: Topping the list for the second consecutive year, the southern state has shown strength in terms of job growth and its rebounding housing market. Home to a number of Fortune 500 companies and one of the busiest airports in the world, Georgia has marked superiority in transportation and infrastructure.

Texas: Also showing a solid performance in recent years, Texas has intensified its goal of attracting businesses and jobs through massive ad campaigns in 2013. Last year, the state has added more than 300,000 jobs in the market. It also ranks high in terms of technology and innovation.

Image Source: hcareers.com

Utah: A major tourist destination for outdoor recreation, Utah remains one of the most competitive places in the U.S. for traditional lending and venture capital.

Nebraska: Ranked as the 10th cheapest state to establish a business, Nebraska tops the list in terms of quality of life and business friendliness.

North Carolina: Adding jobs at rapid rate, North Carolina has showcased a massive and growing workforce, finally reviving from its economic struggle during the recession in 2007.

The competitiveness of the states in the study were based on the cost of doing business, economy, infrastructure, workforce, quality of life, technology and innovation, business friendliness, education, cost of living, and access to capital.

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Shalom Segelman is an EB-5 visa specialist in search of investors looking into gaining a Green Card in exchange for a job-creating investment in the U.S. Learn more about him by visiting this Facebook page.

REPOST: Real Estate Financing Through the EB-5 Investor Immigration Program

The article below discusses how the Immigrant Investor Program can be used as a tool for real estate financing:

Image Source: nreionline.com

One of the largest challenges for most new real estate developers (especially, when it comes to commercial properties) is funding. Sometimes traditional places investors go to for financing real estate projects can be difficult to find. In 2008 as the usual sources for money started to dry up, many business owners and real estate developers started turning to a different source of funding for their projects. The Immigrant Investor Program, EB5 as it is also known, was signed into law in 1992, but only relatively recently has it become a tool for real estate financing.

The program is administered by the U.S. Citizenship and Immigration Services (USCIS). The program allows for foreigners with deep pockets to get a green card and become a conditional, permanent resident of America. With an investment of at least $500,000 in a qualified, for-profit business, the EB5 program can be a win-win.

There are two basic options available to “investment immigrants.” A person can invest on his own as an “individual investor” or they can pool their money and invest through an “EB5 Regional Center.”

If an investor chooses to invest on their own, they must find the property or business on their own and it should be one they can directly manage. This makes it an attractive option for people who prefer to have a hands-on style of management.

Investing through a regional center, the investor isn’t alone. Regional centers help sustain economic grown and job creation in specific areas and act like brokers who match investors and developers. As reported by Investorvisa.ae, roughly 95 percent of all visa investments are channeled through regional centers and the centers frequently coordinate multiple development projects at any given time.

The EB-5 program has expanded as more real estate developers learn of the program and see the benefit. In 2007 there were 11 regional centers nationally. Today there are over 200. The number of investors has grown as well. In 2007 there were just 775 EB5 Investor applications. Today that number has grown into the thousands.

One downside of the EB5 is the amount of time required before the money can be seen. The interval between initial application and funding can be up to 12 months in some cases, and many cases take up to a year and a half. The waiting period can be reduced if a real estate developer wants to use the capital before the visa is issued. If the visa is later denied though, the funds must be returned to the investor. Because of this, some developers ask for more capital than is actually needed for their projects.

President Obama signed into law a three-year reauthorization of the EB5 program in 2012. With the increase in interest in the program and the past success, Congress is starting to review the idea of making the EB5 program permanent. Another option being considered is lowering the minimum threshold for investment to allow more foreign investors, which would help fuel an American real estate recovery.


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REPOST: EB-5 backs big NYC project

Chinese investors are pursuing major developments to New York City. Read the article from ECNS.cn to learn more about their latest redevelopment plans.

10 Hudson Yards, a building currently under construction to be completed in 2015 overlooks the Freedom Tower and downtown Manhattan, at the $1.2 billion Hudson Yards project. | Image Source: ecns.cn

Through the investor immigrant visa program - or EB-5 - Chinese investors have already had a big impact on the Big Apple, including the Barclays Center at the Atlantic Yards Project in Brooklyn and the Kingsbridge Armory redevelopment plan in the Bronx.

Now, as a surge in demand from wealthy Chinese for the green cards for cash offer is threatening to overwhelm the program, EB-5 money from China is behind what's being billed as the largest private real estate development in the history of the United States and the largest development in New York City since Rockefeller Center - Related Companies' Hudson Yards.

The 38-acre site on Manhattan West Side between 34th and 30th Streets and 10th Avenue and the West Side Highway, will include 17 million square feet of commercial and residential space, more than 100 shops, 20 restaurants, 5,000 residences, 14 acres of public open space, a public school and a luxury hotel. Related says it will draw more than 24 million visitors a year and create more than 23,000 construction jobs.

Related is planning to set-up an in-house EB-5 center to help raise funds for the Hudson Yards project, Crain's reported last fall. A Related Companies spokesperson told China Daily Wednesday the project involved EB-5 investors, but declined to give specific numbers.

New York City developers have been utilizing the EB-5 program for a while, as sourcing cheap debt from foreign markets is becoming ever-more popular and developers try to establish their own programs to fund new projects.

Any foreigner can apply for an investor immigrant visa by committing at least $500,000 to a project that creates at least 10 self-sustaining, on-going jobs in America.

EB-5 investors can invest either directly to finance projects or go through regional centers.

"An EB-5 regional center is an 'umbrella' under which investment projects that are EB-5 funded are managed and processed," BoBi Ahn, a partner at New York law firm McCormick & O'Brien LLP, told China Daily.

EB-5 investors align themselves with regional centers, she said, because under the regulations, "investments made through regional centers can count 'indirect' jobs created toward the required job creation element in order to qualify", said Ahn.

According to the US Citizenship and Immigration Service (USCIS), which administers the EB-5 program, approximately 90 percent of EB-5 visas come through regional centers. Last year, 90 percent of them were issued to Chinese nationals.

According to the Real Deal, last fall Related Companies was in the process of requesting approval to open their own EB-5 regional center, instead of having to rely on state-sponsored sites, as developers had in the past.

"More developers who are handling large projects are looking to utilize this source of financing," Steven Polivy, head of law firm Akerman Senterfitt, told Crain's. Polivy estimated there were roughly a dozen regional centers operating in New York at the time and he expected that number to double over the next six months.

By having a regional center in-house, builders like Related will be able to more efficiently and flexibly raise EB-5 funding, said Mr. Polivy. "Developers are getting senior construction financing from traditional sources like banks and then using EB-5 to supplement that, normally a mezzanine loan in today's market is about 15 percent but you can get the same capital from EB-5 and pay a 5 percent return," Polivy told Crain's.

Hudson Yards is a partnership between New York University's Center for Urban Science and Progress, Related Companies and Oxford Properties. The project will incorporate the High Line phase, which will be finished in September this year.

The EB-5 visa program, created by Congress in 1990 to help stimulate the economy by creating jobs and opportunity for foreign investment, is limited to 10,000 visas per year.

Last year, 6,895 Chinese nationals were issued visas through the EB-5 program.

The USCIS estimates that the EB-5 program has created more than 57,000 jobs and raised close to $9 billion.

Learn how to obtain an EB-5 visa by visiting this Shalom Segelman website.

A look at immigrant investor programs around the world

Immigrant investor programs are created and implemented by countries that wish to boost their economies by attracting foreign investors.

The following is a brief look at some of the countries that have immigrant investor programs.

Canada

Image Source: canada-immigration.biz

 
The Canadian Immigrant Investor Program was a favorite among foreign investors prior to its cancellation in June of 2014 due to the ease of application. Under the program, investors must show proof of business experience, have a net worth of at least C$1.6 million, and invest a minimum of C$800,000 in order to be eligible for permanent residency. The funds were to be divided among Canada's provinces and to be used in five years' worth of job creation. Investments made under the program were to be returned within five years and three months after payment, interest-free.

The cancellation of the program caused dismay and anger in the investor community, particularly among Chinese nationals, more than a thousand of whom filed a suit against the Canadian government.

Canada still has two smaller foreign investor programs: the Quebec investor program and the Quebec entrepreneur program.

Japan

Image Source: delicious-bunny.blogspot.com

 
The Japanese Investor/Business Manager visa is for foreign nationals who invest, start, operate, or manage a business in Japan. In order to apply for the visa, a foreign investor must secure a business space in Japan, and hire at least more than two full-time employees who are either Japanese or permanent legal residents. Business management experience of more than three years is also a requirement.

Foreign investors must also make a minimum investment of 5 million yen. The length of stay under the program is one or three years.

Australia

Image Source: australianews.org.au

 
Under Australia's Business Innovation and Investment Program, foreign nationals must invest a minimum of AUS$5 million to an approved investment fund. They will then be eligible for a four-year residency under the Business Innovation and Investment provisional visa. Afterwards, they can apply for a Significant Investor permanent resident visa if they've maintained a designated investment of AUS$1.5 million for four years. The Significant Investor visa allows holders to stay in Australia indefinitely, apply for citizenship, sponsor eligible relatives for permanent residence, and enroll in Medicare.

The United States has its own immigrant investor program, the EB-5, which grants green cards to foreign businesspeople in exchange for a minimum investment of $500,000 and job creation for at least 10 qualified American workers.

Subscribe to this Shalom Segelman blog for related articles and news about immigration policies that affect business.

A primer on the EB-5 visa

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The EB-5 visa is the outcome of a permanent residence program targeted to foreign investors who are gainfully participating in the maintenance and growth of the American economy. This type of visa is an alternative to a green card, and offers unique opportunities for its holder and benefits to American industries.

Image Source: rsc.org

 In short, the EB-5 visa allows foreigners to immigrate to the United States if they invest in U.S. business. This visa program was first established in 1990 by the United States Congress through the Immigration Act of 1990 designed to facilitate local economic growth through foreign investment. Applications have been growing due to the rising demand for additional capitalization in burgeoning and crucial industries like energy and agriculture.

Image Source: freeenterprise.com

There are several requirements an investor must meet to qualify for an EB-5 visa. The most basic is an investment capital of $1 million (or $500,000 for an area with high unemployment). The commercial enterprise should employ at least 10 full-time US workers for a minimum of two years. The investment must also be made in an approved business entity, which follows one of the many prescribed business structures. Foreign investors may also invest in regional centers that manage EB-5 investment projects.

Image Source: eb5investors.com

Once decided, applicants must submit their I-526 petition and have it approved. Accomplishing that, the investor will receive a conditional permanent residency, which is essentially a permit to monitor his or her investment for two years. If the investor successfully meets all the requirements of the EB-5 program after two years, he or she can then file the I-829 application, or the petition by an entrepreneur to remove the conditions of his or her temporary residency.

Only after this application is approved can the investor be granted a permanent residency card.

The general process for an EB-5 visa is relatively simple and straightforward. For a more detailed description of each process, it is recommended that the investor consult an EB-5 specialist.

Shalom Segelman has helped many foreign nationals gain permanent U.S. residency with his expertise. Learn more about his services by visiting his Facebookpage.