In 2008, the U.S. Citizenship and Immigration Services began a program
that allows Foreign Direct Investment (FDI) into U.S. development projects
in exchange for legal residency for the investors and their immediate
families. In 2016, the FDI reached $3.8 billion, a growth of over tenfold
since the program’s inception. In fact, the program has become so
successful that EB-5 authorized visas must now be apportioned and rationed.
The largest demographic and contributor to this program by far has been
Chinese investors. So many Chinese – approximately 80% of all EB-5
investors - apply to the program that the government has begun to limit
the number of visas offered to immigrant investors from China. However,
that restriction does not seem to be slowing demand or the flow of money
into new construction. Chinese money has been used in a variety of high-profile
projects, but the top destination has been commercial and residential
real estate development.
Nowhere else is this investment more apparent than the Bay Area of Northern
California. The state has seen roughly $500 million a year in project
funding funneled from EB-5 investors. Although there are no statistics
for the amount of investment that directed to the San Francisco area,
the proof is in the projects, so to speak. Scanning the skyline, one can
see how areas of the city are being modernized and transformed with help
from an influx of EB-5 capital.
From the San Francisco Bay, to Oakland, to Silicon Valley, megaprojects
are being developed with immigrant investors playing a vital role.
In Oakland, there is a massive 3,100-unit residential development on an
empty lot near the poor-side of town. EB-5 funds helped pay for the infrastructure
and construction of the first 200 units. In the bay, there is a project
on land that formerly belonged to the Department of the Navy, where $155
million in program capital is being utilized to fund the build-out of
a master-planned community of 8,000 homes. Another 12,000 new homes are
being built near San Francisco, with investor financing also supporting
an attached commercial development. EB-5 investors have already committed
over $300 million to the project.
The government has been happy to advertise the program success, touting
on the official EB-5 “Invest in the USA” website that in 2012
and 2013 alone, the program created over 170,000 American jobs –
16 per investor – supporting over 560 projects across the states.
President Trump signed an omnibus bill in May that extended the program
until the end of September, but it appears, based on the results, that
the popular program will again be extended by Congress.
According to a review by the Department of State, if the program were to
be allowed to lapse it would result in $13.7 billion in lost investment,
and could also reduce tax revenue by nearly $12 billion. These numbers
represent more than enough incentive to keep the foreign investment program
going strong. While there have been high-profile instances of fraud, the
government has been quick and harsh with the prosecution of the offenders
and shutting down of affiliated EB-5 offices that fail to live up to the
ideals of the program.
Outside of the EB-5 investment, Chinese real estate developers are also
playing a significant role in new projects throughout the area. The Chinese
mega-developer, Oceanwide, has $20 billion in assets and is currently
involved in construction projects across the U.S. They recently broke
ground on a new skyscraper that looks to become the tallest in the downtown
district. Vanke, another Chinese firm, just completed the sale of 656
luxury condos that overlook the Bay Bridge. Another five Chinese companies
are taking advantage of a red-hot housing market by breaking ground on
multiple residential housing projects across the city.
Developers are not the only foreign groups getting in on the action. Chinese
homebuyers, many whom are EB-5 investors, are snapping up properties in
the Bay Area with all-cash offers. For the fourth straight year, Chinese
nationals have been at the top of the list for international real estate
buyers in the United States. In 2016, Chinese nationals spent more than
$31 billion on residential purchases, with nearly half of the homes bought
in California. Some analysts see this trend as an indication that wealthy
Chinese are eager to move their money out of their home country before
the Communist government levels restrictions against the transfer of money
out of the country.
Some fear that China’s currency reforms could place a damper on the
amount of money available for EB-5 visas. However, EB-5 program reforms
being proposed would likely expand the program and work to speed up the
visa issues that have slowed expansion over the past year. Lawmakers in
Washington are bogged down in a legislative sessions for the next several
months after their summer recess, leaving program reform somewhere down the list.
For now, there is no denying the success of the program, and wealthy citizens
of other countries, such as India, Mexico, and Russia are also beginning
to see the benefit and submit applications. This new interest has prompted
the USCIS to alter the way visas are allocated under the program’s
guidelines. Inthe near future, it appears China will continue to lead
the way in the new American real estate boom.