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Residential Real Estate News
EB-5 Visa Program Sparking Foreign Real Estate Investor Activity
(AUSTIN, TX) -- After languishing in obscurity for 20 years, the EB-5 visa program is suddenly a hot commodity in the U.S. real estate business.
"There's massive interest compared to a few years ago," said Stephen Parnell of WhichEB5, a consultancy that started as a relocation service and now focuses almost exclusively on EB-5 visas.
While the name suggests the sequel to a bad sci-fi film, EB-5, in concept, is relatively simple. Foreign investors and their families are offered a fast track to permanent green cards if they invest in projects that create jobs.
The number of immigration visas issued under the so-called "investor's green card" more than tripled in 2009--from about 1,400 in 2008 to 4,200--in large part due to the unique attributes the program presents the property business.
To developers, EB-5 offers a new track to raise money, appealing to foreign investors who see residency status as an extra bonus for stashing money in U.S. property. At the same time, agents and service companies view the program as a new source for wealthy international clients already committed to moving their families to the U.S.
Outside Seattle, Steve Smith of Twin Development LLC is using EB-5 to raise $235 million to fund construction of the Sky Hotel and Residences, a 45-story mixed-use tower, including 400 condominiums. With little "conventional" funding available, he says EB-5 is a way to "broaden access to foreign capital sources while providing a lucrative opportunity for international investors."
No bank financing will be involved in the project, Smith says. Twin Development is working with partners in Korea, where he expects to raise the bulk of the money from investors eager to jump the long waiting list for U.S. visas. About 70 percent of the EB-5 visas issued in 2009 went to investors from China and Korea, according to State department statistics.
Although EB-5 originally required a $1 million investment, the program now allows a $500,000 minimum, as long as the project is located in a designated "regional center," typically an area hard hit by the economic crisis.
The number of "regional centers" has more than doubled in the last year, often focusing on real estate projects, anything from office buildings to ski resorts in Vermont.
"It's very cheap money," said Chaim Katzap, chief executive of Lion's Property Development, which has offices in New York and China. "I think it is the best way today to raise equity."
Using the EB-5 program, Katzap helped raise $60 million from 100 foreign investors for the Brooklyn Navy Yards redevelopment in New York, which is a designated regional center.
EB-5 is particularly appealing to wealthy Chinese, who may already have family members working or living in the United States, Katzap says.
"EB-5 does not require language skills, does not require that you work here or that you live here full time," he said.
Despite the recent activity, EB-5 is still dramatically under utilized. The program allows for 10,000 visas a year, more than twice the number issued in 2009.
Part of the hang-ups is purely bureaucratic. Garnering regional center status requires a lengthy process, with a variety of hurdles to overcome.
Smith said his company spent more than a year lobbying for regional center status for Federal Way, the site of his project. The efforts included a letter of recommendation from Washington Gov. Christine Gregoire and a campaign to demonstrate the area was worthy of the special designation.
"To be a regional center, you have to show it's an area that needs incentives for development," Smith said.
The program is also not ideal for all investors. There is no guarantee the investment will be successful, nor is there any assurance that a green card will be issued. The investor's immigration application will still need to be reviewed and approved, just like any other application.
The investor also takes on the risks of the project, many of which may or may not be a great investment. Construction projects may take years to generate income, which may not suit investors looking for a quick return.
"This is not an easy route to money," Parnell said. "Some [investors] look at this as the Holy Grail. If they do they are in for a shock, because it's not easy."
But chance for a green card is a big enticement for many investors who may not need instant yield on $500,000.
"It's the predictability of the program," Parnell said. "If you choose a regional center carefully, it's the most predictable route to permanent residency."
While some have criticized the program as a "pay for play" visa program, the program has managed to avoid the emotional and partisan debate over U.S. immigration policy. Due to expire last year, the program was instead extended until 2012, receiving an unusual amount of bipartisan support, thanks to the focus on jobs.
Earlier this year Sen. John Kerry and Sen. Richard Lugar proposed a variation on the EB-5, an EB-6, which would offer a citizenship track for immigrants who start companies in the U.S.
Real estate executives say awareness of the program is at an all time high, especially in areas with high numbers of foreign home buyers.
"Before we would talk about EB-5 once a month," said Alfredo Vizcarrondo, president of the AV Group, a Florida-based real estate company dealing extensively with buyers from Latin America. "Now we talk about it once a week."
In Florida, many of the regional centers involve real estate, which fits with investor interest in U.S. property, Vicarrondo says. His company primarily deals with clients from Venezuela and South America, who are eager to live in the United States.
"Everybody is looking for a visa," Vizcarrondo said.
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