Foreign Direct Investment (FDI) is a large part of the U.S. economy, and recent investment has been dominated by China. Over the past fifteen years, Chinese firms have spent approximately $46 billion on acquisitions in the U.S., most of it in the last two to three years. While high-profile Mergers & Acquisitions (M&A) transactions get much of this publicity, the investment in real estate is equally large. Favoring trophy acquisitions, such as the 2014 Anbang Insurance purchase of the Waldorf Astoria Hotel in New York City for $1.95 billion, this investment in U.S. real estate is driven by both the private sector and high-net worth individuals through U.S. government programs, such as the Employment Base (EB)-5 program. EB-5 accelerates the Visa process for foreigners through investments in U.S. real estate. As the Chinese economy slows, particularly the domestic real estate markets, Chinese firms and investors are looking for safer havens to place their money.
Chinese investors typically prefer larger coastal communities, such as New York, San Francisco and Los Angeles, but these investments are becoming increasingly sought-after by state and local governments and trade offices. Georgia is actively pursuing these investments through trade delegations and the efforts are starting to pay off, with approximately 50 U.S. subsidiaries of China-owned firms in Georgia.
The local real estate markets are also active with this investment. MG Valuation is currently working with an international private sector firm focused on investments in the Southeast, including a mixed-use project in a major Southern city. The EB-5 program, which is approximately twenty years old, is also very active. While created as a vehicle to attract foreign investment in U.S. real estate, it has been characterized as one dominated by Chinese investors. Of the 10,000 Visas granted through this program in 2014, more than 9,100 went to Chinese individuals. The program requires a minimum investment of $500,000 in certain Targeted Employment Areas (TEAs). Regional centers have emerged as vehicles for these EB-5 investments, often pooling the minimal investments into larger, multi-billion dollar projects. There are several Atlanta-based regional centers, listing current EB-5 projects, including a Marriott hotel at the Gwinnett Center and Arena, a Hyatt Place hotel in Athens, a senior retirement village in Stockbridge and student housing at local universities.
There are issues associated with these programs, including the requirement that they create a minimum of ten full-time jobs for the minimum investment. It’s not clear if the definition of ten full-time jobs refers to permanent employment, such as workers at hotels or construction workers building these projects. The program came under Congressional review last fall for renewal. However, rather than address these issues, Congress renewed the EB-5 program for another twelve months, leaving resolution for another day. Organizations, such as the Asian Real Estate Association of America (AREAA), are highly active and aware of these investments in the local real estate markets. Meanwhile, Chinese investors will continue these investments, with increasing frequency in the greater Atlanta and Southeastern markets.
Bruce Kellogg is a Managing Director with MG Valuation, an independent multi-disciplinary valuation firm serving clients in eleven countries in the Americas, Asia/Pacific and Europe, including China, and responsible for client relations and business development. He is a CREW member, Past President of the Appraisal Institute, Past Chair of RICS Americas Professional Valuation Group, and a member of the Atlanta chapter of AREAA.
 New Neighbors: Chinese Investment in the United States by Congressional District, National Committee on U.S.-China Relations and Rhodium Group, May 2015
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