Sally Forster Jones and Michael Nourmand
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. Over 8,000 EB-5 investors and their family members resided in California from 2009 to 2014 — 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.
Although experts say these numbers may have waned in recent years, they underscore California’s enduring popularity among foreign investors, in terms of both commercial potential and quality of living.
“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.”
The backyard bonus
On the residential side, La La Land’s appeal is obvious, thanks to perpetual sunshine and wide-reaching cultural cachet. 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,” Nourmand said, adding that Chinese buyers favor new construction over older homes.
As for the price range, it varies. For Nourmand, his 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 cash or in a 45 to 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 domestic economic slowdown.
“At the moment, the number of my Chinese clients is a fraction of what it used to be,” Forster Jones said.
Commercial appeal
“California attracts a lot of investment because of its size and population, and EB-5 is a job creation program after all,” Gregory Karns, an attorney at Cox Castle & Nicholson told The Real Deal.
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.
In Downtown L.A. alone, Chinese nationals have poured billions of dollars into megaprojects. Greenland USA’s Metropolis is among the developments rising in the skyline 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.
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 changes
The number of foreign buyers in the U.S. has dipped in recent years, and changes to the EB-5 program may exacerbate that decline.
U.S. Citizenship and Immigration Services 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.
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.