EB-5 investors are California dreamin’

More than half of all EB-5 investors and their family members live in California: report

Jan.January 12, 2017 05:13 PM

UPDATED, 12:12 p.m., Jan. 13: West Coast, best coast. That’s certainly the attitude among EB-5 investors, the majority of whom choose to live in California, according to a recent report from the Department of Commerce. According to U.S. Citizenship and Immigration Services data recorded between 2009 and 2014, over 8,000 EB-5 investors and their family members resided in California  —  more than half of all EB-5 investors in the U.S.

The second-biggest EB-5 hotspot trailed far behind. New York had roughly 1,500 EB-5 residents during the same period. California also surpassed New York and all other states when it came to total EB-5 investment. The Golden State saw nearly $1.5 billion flow through its regional centers into 38 projects between 2012 and 2013, while New York saw $1.2 billion in 17 projects, the report found.

Commercial appeal 

In Downtown L.A. alone, Chinese nationals have poured billions of dollars into megaprojects. Greenland USA’s Metropolis is among the developments rising that was funded by EB-5. Outside of DTLA, Beny Alagem courted EB-5 for his Waldorf Astoria in Beverly Hills, as did the developers of Hollywood Park in Inglewood.

“California attracts a lot of investment because of its size and population, and EB-5 is a job creation program after all,” said Gregory Karns, an attorney at Cox Castle & Nicholson who specializes in Asian investment. Investors can also expect larger returns in L.A. than they would get in New York because L.A. has more favorable capitalization rates and underwriting terms, he said.

However, the flow of EB-5 money into Los Angeles may level off as investors turn to cities with even lower cap rates, Karns said.

“I’m already seeing these investors looking at Portland, Austin, and around Boston,” he said. “They’re beginning to branch out. There’s a learning curve, but the low cap rates will end up driving them outside of the three big choices: New York, San Francisco, and L.A.”

Legislative uncertainty

A new proposal from the Obama administration is making developers skittish about what’s to come.

USCIS recommended Thursday that the minimum EB-5 investment amount increase from $500,000 to $1.35 million in areas with high unemployment and from $1 million to $1.8 million in areas with average or low unemployment. This could serve as a deterrent to investors, sources told TRD, though they added that the proposal might not see the light of day under a Trump administration.

Congress, meanwhile, is considering a different set of changes that include raising the minimum amount to $800,000 and enacting tougher qualifications for project sites.

The backyard bonus

Many of the EB-5 investors who get their green cards end up planting roots in Los Angeles, sources said.

La La Land’s appeal is obvious, from its perpetual sunshine and wide-reaching cultural cachet to, perhaps most importantly, its abundance of top universities. “You have everything in L.A. — good schools, the beach, a short drive to ski,” said Michael Nourmand of Beverly Hills-based brokerage Nourmand & Associates. “And it’s more affordable here. Even if people make more money in New York, housing is cheaper here, and you get a backyard.”

Another pull is that the majority of EB-5 investors are Chinese nationals, and Los Angeles County has no shortage of established Chinese enclaves, such as Arcadia in the San Gabriel Valley.

While some buyers acquire homes purely as investment assets, most Chinese buyers establish a permanent residence so their children can be educated in the U.S., brokers said. The quality of schools largely decides which neighborhoods Chinese buyers choose. Outside of the San Gabriel Valley, the Platinum Triangle is the go-to choice.

“For the Chinese, there’s a lot of appeal in Beverly Hills and other tony locations like Bel Air and Holmby Hills,” said Nourmand, adding that Chinese buyers are partial to new construction.

As for the price range, it varies. Nourmand’s Chinese clients tend to stay within the $3 million to $12 million range. Peter Wong, a broker with Coldwell Banker, said his clients go for homes between $2 million and $8 million, and often pay in all cash or with a 50 percent down payment. Sally Forster Jones, president of John Aaroe Group’s Beverly Hills office, said she has seen deals north of $60 million, but they are the exception.

In recent years, however, the number of Chinese buyers has dipped because of the economic slowdown in China, brokers said.

“At the moment, the number of my Chinese clients is a fraction of what it used to be,” Forster Jones said.


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