By Joshua Burd
Many market watchers say that New Jersey real estate has become increasingly attractive to investors from beyond the state. Some believe that trend could only grow under the next generation of the embattled EB-5 visa program.
The nearly 30-year-old federal program — which offers foreigners a path to a green card if they invest at least $500,000 in a project that creates jobs in certain areas in the U.S. — has predominantly attracted wealthy Chinese investors in recent years. But EB-5 experts say that pattern has shifted amid growing scrutiny and concerns about fraud and abuse, not to mention its connection to the hot-button issue of immigration.
“I think the industry is in a much better place than it used to be, in particular with the types of deals that are going into the market,” said Samuel Newbold, who chairs the immigration law group at Chiesa Shahinian & Giantomasi PC in West Orange. “But gone are the days of $300 million raises from Chinese investors. The deal sizes have shrunk, the source of investors is coming from different countries.”
Newbold recently moderated a panel discussion co-hosted by CSG and Baker Tilly, the accounting and advisory firm, that focused on changes to the visa program. He said EB-5 deals have become more “institutionalized” than in years past and looked upon with a more discerning eye by both investors and sponsors in the space.
Those changes have taken places alongside a trend toward longer lead times and a more diverse investor pool, the panelists said. Marcelo Salas, vice president for business development with NES Financial, said Chinese nationals in recent years have accounted for some 85 percent of all EB-5 revenue in the U.S. That has shrunk dramatically to around 30 percent, while investors in India, Vietnam, South America and other regions now make up a larger share.
All the while, the average capital raise for an EB-5 offering has declined from about $50 million historically to around $20 million, Salas said. But he and other panelists noted that the trend bodes well for developers who are piecing together a deal.
“It’s a good source of financing and it’s usually accretive to the capital stack,” said Amy Ericson, an EB-5 analyst with the lender and advisory firm Greystone & Co.
She added that, during EB-5’s heyday, gateway cities such as New York, Miami and San Francisco were top of mind for investors and provided the comfort they needed to commit large sums of cash. But she believes the criteria has changed for many — and in a way that could benefit a market such as the Garden State.
“Maybe you haven’t necessarily heard of West Orange, New Jersey, but I think with where EB-5 is now, geography is less important than the actual fundamentals of the deal,” Ericson said.
Baker Tilly Principal Aaron Goforth agreed, noting that the firm recently helped source EB-5 funding for a hotel project in Montclair. Salas, meantime, said he has worked on four EB-5 projects in New Jersey in recent months.
“That’s certainly a spike over the last year,” said Salas, whose firm provides solutions for real estate and financial transactions such as EB-5 raises and 1031 exchanges.
Newbold added that New Jersey’s diverse population would become an asset when it comes to attracting EB-5 investors. And with the decline in deal size, he believes EB-5 investors will follow the trend of viewing New Jersey as a viable alternative.
“Deal sizes have gone down and for a lot of developers in New York, it’s just not enough money for a lot of the more expensive projects,” Newbold said. “And New Jersey has been a great transition point for a lot of capital in the metro area, so I’m seeing a lot of really good deals in New Jersey.”