World Trade Center Los Angeles Research Shows Declines in LA, OC Offset By Increases in Other Counties
The number of foreign-owned enterprises is rising in the Southern California region, according to a report released today by World Trade Center Los Angeles.
Overall, the number of foreign-owned enterprises in the region, which includes L.A., Orange, Riverside, San Bernardino, San Diego and Ventura counties, increased from 9,964 last year to 10,378 this year.
They now represent 1.2% of all the companies in the region, according to the report. They have a combined total of 427,954 employees, representing 5.4% of the region’s base, with combined wages of nearly $27 billion.
The number of jobs at foreign-owned enterprises declined in Los Angeles and Orange Counties year over year, while the other Southern California counties experienced growth.
The strength of the market lies in the fact that international investors are looking for stable environments for investment, according to Stephen Cheung, president of World Trade Center Los Angeles.
Despite uncertainty about U.S. trade policies, the United States is still seen as a stable market, especially when compared to other parts of the world and in light of the potential impacts of NAFTA and Brexit. Japan tops the list this year for the third year in a row in the number of foreign-owned enterprises in the region.
The fact Japan has been performing so well should come as no surprise when looking at it from a historical perspective, according to Cheung.
“When you look at the ‘60s and the ‘70s, that’s when Japan was investing heavily into this region,” Cheung said. “It wasn’t until the ‘80s during the recession that they, I guess, stopped making as many headlines,” he said. “They’ve been here investing for a long time, and that’s why that number is so large.”
However, many European nations are also in the top 10.
“I think traditionally we only think of Asia investing in the Los Angeles region, but when you look at that top 10 number you’ll see that Japan and China are the only two, the rest of them are Canada or European nations,” Cheung said.
The United Kingdom came in at No. 2, followed by Canada, France, Germany, Switzerland and Ireland. Sweden and the Netherlands are No. 9 and 10, respectively.
China is No. 8 on this year’s list, climbing from No. 9 last year.
“It’s as we expected, and we hope they continue to rise as we see more investors coming from China,” Cheung said.
Yet the tide is changing because of the Chinese government’s restrictions on foreign investment.
In general, Cheung said the key investments that have capital flow restrictions include hotels, real estate and entertainment projects, “so those are actually some of the key investments that Chinese investors have [made] in the Los Angeles region, so it definitely had a huge impact on us.”
Sandeep Pathak, managing director at Ackman Ziff Real Estate Capital Advisors, said he has also noticed the overall impact.
“You’ve seen a slowdown of deals involving ground-up construction getting done, because particularly the Chinese were big on doing big, ground-up developments,” Pathak said.
Megaprojects making headlines recently include Greenland USA’s Metropolis and Oceanwide Plaza.
As a result, the trend is now toward smaller companies coming from China, making for smaller deals, according to Cheung.
“Many of these transactions are not going to be visible because these investors from China, they don’t want to bring attention to themselves,” Cheung said.
There are 428,000 jobs at more than 10,000 foreign-owned firms in Southern California, according to the report.
The World Trade Center Los Angeles will present the findings of its report at its Select L.A. Investment Summit next Thursday.
Other foreign investment that has been picking up in recent months is coming from the Middle East, according to Pathak and Edward Mermelstein, a founding partner of New York-based Rheem Bell & Mermelstein LLP.
Mermelstein noted he has primarily seen an increase in activity in the last six months from the United Emirates and Saudi Arabia, in particular, partially due to the price of oil going up.
Check out this interview with Edward conducted by The Commercial Observer. See article below:
The law firm of Rheem, Bell & Mermelstein handles as wide a range of services for high-net-worth overseas investors as one could hope. From the acquisition and sale of residential homes to the refinancing of commercial properties, from construction financing to commercial leases, and from joint venture agreements to commercial contracts, Rheem, Bell & Mermelstein has you covered.
The firm’s development in this area, and the carving of their unique business niche, stems from the colorful background of its Ukrainian co-founding partner Edward Mermelstein, whose peripatetic childhood provided him with a far-reaching worldview that came in handy when settling on a career. Commercial Observer spoke with Mermelstein about how his place in real estate came to pass.
Commercial Observer: Tell us about your personal background.
Mermelstein: I’m an immigrant, originally from Ukraine. My parents took us out of the Soviet Union in 1974, and we made it to the U.S. in 1976. I went to many different schools. I went to first grade three times in three different countries—Israel, Germany and the U.S. I grew up for about 10 years in Queens, went to the Bronx High School of Science, then [New York University] for undergrad and Western Michigan University for law school.
How did being uprooted so often and having such an itinerant childhood affect you in the long run?
It teaches you to adjust very quickly, because [you have to] when you don’t speak the language of the country you live in, which happened [to me] three times in a two-and-a-half-year period. From 6 to 8 years old, starting with Russian as my first language, then moving to Israel, where Hebrew was my second language. German was my third, and within a short period of time, we moved to the U.S. So English was the fourth language I had to learn in a three-year period. Looking back, it was a good experience.
Did you know early on that you wanted to be in real estate?
I always wanted to work in real estate. While my initial law practice was more focused on litigation, the idea was always to go back into the real estate practice. As our practice started to grow and we started working with foreign investors coming into the U.S.—this was in the mid-1990s—we realized that the main interests of most foreigners coming into the U.S. in terms of placing money into investments typically revolved around the real estate world. That was probably the impetus that drew me further back into real estate as we went forward.
Where are your clients from?
About 60 percent are from the former Soviet Union, and about 30 percent are Asian. The balance is spread between Western Europe and South America.
How did you develop your client base?
Back in the mid- to late- 90s, the former Soviet Union started exporting high-net worth individuals. That started expanding substantially after 2000 and grew rapidly. Our practice started seeing more and more foreign investors coming in, not just from the former Soviet Union but from Asia and, more recently, South America and Western Europe as well. The practice became quite diverse and, for the most part, focused on working with foreigners coming into the U.S. with an interest in real estate.
Was this by design, or was the evolution organic?
When I started the practice, I thought the fact that I spoke Russian and Hebrew and understood German lent itself well to working with foreigners coming into the U.S. Plus, the fact that I didn’t graduate from the top of a class at Harvard Law School limited my practice to what we were able to grow, and that was representing foreigners coming into the U.S. We helped many of our immediate family members that came into the U.S. As time went on, I became involved, through different philanthropies, in helping other families come here. From the nonprofit side, it was very rewarding, but the for-profit side enabled much of what we did in the nonprofit world to work quite well, expanding my business from the law end into other practice areas that support foreigners entering our country. It became a business model that was very hard for someone else to compete with, simply because we, at this point, have been doing it for a long time.
High-net worth individuals from developing countries typically don’t have any professional contacts in the U.S. So when they’re first entering the U.S., the relationships are mostly either family relationships or close friends that are recommending you. This is as opposed to having someone worth several hundred million dollars entering the U.S. Typically they’ll have a contact, whether in one of the largest law firms or consulting firms, and their first stop is not going to be a boutique law firm geared toward working with foreigners entering the U.S. for the first time. They’ll typically go to either a White & Case, a McKinsey & Company or a consulting firm of a certain size simply because when you’re dealing at that level, you’re directed by other high-net worth individuals to the most prominent businesses covering that sector. We were lucky enough to have the ability to leverage our immediate relationships where someone coming into the U.S. wouldn’t know to look for the top law firm, or if they did know, they were more comfortable dealing with someone who understands their culture and language.
How often do you travel?
Less so these days. I used to travel once a month, eight or nine years ago. At this point, most of our clients know where to find us and prefer to deal with us in the U.S., as opposed to in their own countries. Much of that has to do with economic and political instability of many of these countries.
Tell me about some of the deals you’ve done.
Going back to where we initially started, in the mid-1990s, we brought a developer from Russia to the U.S., and that developer was looking for investors to do business in Russia. So we provided a bridge between two developers where both invested in the others’ properties. One was located in the center of Moscow, in one of the most prestigious areas, and the other development was in mid-Manhattan, in the 50s, off Third Avenue. That was the first major transaction for us. The investment was equal on both ends. Both parties had skin in the game, and ultimately, both projects did quite well.
Who were the parties?
One was a fairly prominent developer in New York. I’d prefer not to mention his name. The other was a developer from Russia, no one anyone would recognize today in the U.S. [They invested around] $20 million on each side.
Do you have a few transactions you can talk about in more specific detail?
The names are going to be close to impossible to bring up. Something that is easy to disclose, because it’s public information, is that we’ve done a large volume of transactions at 15 Central Park West. The building opened in 2007 for sale, and we were extremely active in that building. That has continued over the years. Our relationship with [the project’s developer] Zeckendorf Organization has blossomed quite well as a result of the transactions we started back then. Now, working with [William] Zeckendorf and his brother [Arthur] and their investors on their current projects is quite unusual for a boutique organization such as ours.
Why is there so much secrecy about your clientele?
We represent high-net worth individuals from developing countries that, for most, have a political shelf life of three, four, five years maximum. So anyone coming from these countries with a substantial amount of money is typically not looking to publicize the transaction. The media in their own countries is not going to treat them well.
What kinds of deals are your clients most interested in?
Most of our clients are more comfortable in wealth preservation than income-producing properties, so they are interested in very stable investments. They are comfortable in either buying new condominiums and renting those out, going in as limited partners in major developments, or, in certain cases, buying land in high-profile locations.
Where are the surprising markets your clients are investing in?
We’re still seeing an attraction for the safest and highest profile locations, so Manhattan is still the safest and most attractive for anyone who understands real estate. My clients typically will not go outside of Manhattan, and most will not go above 96th Street. They’re not going to be in Long Island City or in Brooklyn. That’s fairly consistent.
Are the majority of your clients based here, or are they overseas?
Many of them began moving to the U.S. a few years ago, when the economies and political situations started to get shaky. More and more we’re seeing that these individuals that have made their money and are comfortable in just preserving their lifestyle and their investments are now moving their entire family to the U.S.
Edward comments on the EB-5 Visa program, also referred to as the Golden Visa, in which foreign nationals can receive a US visa by investing into developing projects in the United States that guarantee creation of US jobs. See the full article below:
While the idea of essentially buying a U.S. visa for hundreds of thousands of dollars might sound shocking (particularly amid a burgeoning global refugee crisis), the program that allows for this transaction—known as EB-5—has been around for years. (You can see the full list of requirements and the application process here.) Also sometimes nicknamed the “Golden Visa” program, EB-5 was initially created as part of the 1990 Immigration Act, in hopes of spurring investment and job growth. As MNBC has reported, the program provides U.S. visas to foreign buyers who invest $500,000 or more in certain qualified projects (generally ones that are considered to be significant job-creators).
Since the 2008 housing crash, EB-5 been a popular means for developers looking to meet funding gaps for projects. “From a developer’s perspective, the interest rate is quite favorable for EB-5 financing compared to hard money rates,” says One & One Realty attorney Edward Mermelstein, who has advised numerous clients on EB-5 purchases. “The New York market today is extremely active with EB-5—you’ll find financing opportunities in practically any major development.”
The reason EB-5 funding is considered “cheap money” is that these projects can only pay back an inflation-adjusted rate (less than two percent) to investors, says Sam Lin, founder and CEO of utofun.com, a site that connects Chinese buyers to EB-5 investment opportunities. “Thus, this is almost free capital for project owners, compared to the traditional financing system,” he explains.
The program also became quite popular with foreign buyers hoping to get a foothold (and stash their cash) in the American economy, hence the launch of sites like Utofun that specifically exist to connect prospective investors with EB-5 opportunities.
“Investors in EB-5 aren’t buying an apartment per se, they’re investing in a project,” explains Craig DeCecchis of CORE NYC. Therefore, says DeCecchis, it doesn’t necessarily affect buyers’ decisions one way or the other if a development happened to be funded by EB-5 investment.
“Those participating in the EB-5 program are not purchasing a specific apartment—they are essentially lending money, at their own risk, to a developer,” adds Sam Lin, founder and CEO of utofun.com. What’s more, EB-5 investments cannot come with guaranteed returns in exchange for green card approval, says Lin, which means that they don’t allow for a guaranteed property purchase as a return on investment.
Critics have raised concerns over lack of accountability in the program, and fuzzy numbers on how many jobs are truly being created, as City Limits has reported on extensively. The program also originated as a way to spur job growth in low-income areas, a far cry from its current status as a cash cow for luxury development.
The timing of the Kushners’ promotion is also sticky with EB-5 currently in limbo. Congress recently extended the program through September after it was set to expire, and though some developers and buyers have been concerned that the Trump administration’s crackdown on immigration might spell trouble for EB-5, it seems likely to be continued indefinitely, which is a source of concern for anyone eyeing the Trump and Kushner families’ respective uses of the government program to bolster cash flow into their real estate projects.
“It very much is likely to be extended,” says Mermelstein. For now, for would-be investors hoping for a fast track to U.S. citizenship, the answer is simple: Pay up.
Edward was quoted in an article in the New York Times commenting on the impact that President Trump’s policy decisions will have on real estate. See article:
April 21, 2017
The controversial visa-for-sale program called EB-5, which allows foreigners to get green cards by investing in economic development projects, has largely been driven by Chinese applicants in recent years.
But interest in the program, which is set to expire on April 28, has spiked in recent months from investors in other countries, mainly because of uncertainty over President Trump’s overall immigration policy.
Shortly after Mr. Trump enacted his first travel ban in January, Michael Gibson, a managing director of USAdvisors, which reviews EB-5 proposals for investors, started getting calls from European, Middle Eastern, Turkish and even Canadian clients, including people who’d traveled, worked or studied in the United States for years on nonimmigrant visas and never felt they needed permanent residency.
Many of these people had not sought green cards before because of the tax consequences, Mr. Gibson said. But now, “they’re afraid their visas may be canceled or not renewed,” he said. “We’ve even got clients from Canada — Canada, of all places. People who in a million years never would have considered applying for permanent residency are considering it now.”
In 2015, more than 80 percent of EB-5 visas went to Chinese investors. Lawyers and consultants who specialize in EB-5 say interest over all in the program has been steady despite the coming expiration date. A three- to six-month straight extension is expected for the program, mainly because it is unlikely that legislators will reach an agreement on proposed reforms, including an effort to increase the required amount invested to $1 million from $500,000, before the expiration date.
Though it remains unclear what impact Mr. Trump will ultimately have on foreign investment in the New York City real estate market, what is clear is that foreign investors are carefully parsing his policies and pronouncements.
Their conclusions often differ. While uneasiness about broader changes to American immigration policy under Mr. Trump has some foreigners rushing into real estate investments in the United States, other foreigners see the president’s hard-line immigration rhetoric and tumultuous first months in office as reasons to hold off.
The uncertainty of election seasons usually make for notoriously slow real estate markets, but Christine Miller Martin, an associate real estate broker at Engel & Völkers, said Mr. Trump’s election was “the first time I’ve ever seen someone making a decision based on who’s president.”
She said she had a buyer from Mexico who during the election postponed his search for a Manhattan condo in the $3 million to $5 million range. He told her, “‘If Trump wins, I’m not going forward,’” Ms. Martin said, adding that with Mr. Trump in the White House, the client hasn’t entirely written off the possibility of buying in New York, but he isn’t looking, either.
The role of foreign investment in New York has become a defining one in recent years, with Manhattan consistently topping the list of American cities attracting foreign investment. Last year, Chinese investors were involved in Manhattan deals totaling $6.5 billion (not including individual apartment sales), followed by Germany at $2.3 billion and Britain at $1.5 billion, according to Real Capital Analytics . Foreigners and foreign-held companies have also been behind many of Manhattan’s biggest deals, like the Chinese insurer Anbang’s $1.95 billion purchase of the Waldorf Astoria in 2015.
But while most caution that it is too soon to tell how Mr. Trump’s presidency will affect this influx of capital in the long run, residential brokers say that the overall volume of deals has increased and foreign capital isn’t disappearing.
Frederick Peters, chief executive of Warburg Realty, said that so far the residential market has been “somewhat surprisingly, stronger than it was before the election.” He added: “Of course, it’s only been a few months. Realistically speaking, we’re in uncharted territory. We’ve never had a president like this.”
Economists point to several factors helping to buoy the real estate market: a strong stock market and many investors salivating over the prospect of deregulation and tax cuts promised by Mr. Trump.
Ryan Severino, the chief economist at JLL, a commercial real estate services firm, said that “if investors think they’ll outperform in the U.S., that’s where they’ll go.”
At least in the short term, brokers said that their experience has largely conformed to that assessment. Leonard Steinberg, the president of Compass, said that many buyers who had halted their property hunts after the election were now circling back. Investors, he said, “tend to be apolitical.”
“They’re more number crunchers than anything else,” he continued. “America goes through cycles, but it always seems to win, and they see it as a long-term investment, not a quick buck.”
Numbers for the first quarter of 2017 bear that out. While overall investment across all categories of real estate was down compared with the first quarter of last year, dropping to $4.03 billion from $9.6 billion, and foreign investment in the institutional market fell to $1.63 billion from $2.03 billion, the percentage of foreign versus domestic investment in the market leapt to 40 percent from 21 percent, according to numbers provided by Real Capital Analytics (which do not include individual apartment sales or deals under $2.5 million) . First quarter numbers from residential firms show that overall deal volume is up, though they do not distinguish between domestic and foreign buyers.
Gary Barnett, president and founder of Extell Development Company, said that he fully expected that with the anticipation of a significant corporate tax cut driving up the stock market, people will be motivated to invest in real assets, further burnishing New York’s reputation as a safe haven for foreign capital. “From a real estate investment perspective, there’s one country that has stability, rule of law, that’s a place you can invest in,” he said. “And that’s the U.S.”
Royce Pinkwater, founder and chief executive of the residential brokerage Pinkwater Select, said while sales this year have been markedly better than last year, she was seeing a lot of confusion in the market. “People are stunned and when people are stunned they avoid commitments,” she said. “Without a doubt Trump has made certain groups of people feel extremely unwelcome.”
One of the largest unanswered questions about the Trump presidency is whether Mr. Trump’s business instincts will prevail over the nationalistic, protectionist ideology favored by some of his top advisers and the base that helped propel him into power.
Many in the industry, however, said that they were confident New York City real estate was “in Trump’s blood” — and that he would look out for their interests.
A number, for example, expressed certainty that Mr. Trump would prove an ally when it came to EB-5, though the president has yet to offer any statement on the program. Abteen Vaziri, a director at Greystone EB-5, an arm of a real estate advisory firm that connects investors with qualifying projects, said that he thought the program might even expand under Mr. Trump.
“They don’t view EB-5 as an immigration program, they view it as a jobs program, and this administration has said that creating jobs is the No. 1 priority,” he said. At least two Trump-affiliated projects have used EB-5, Trump Bay Street in Jersey City and Austin Mirabeau Trump Hotel in Texas.
As much as EB-5 is likely to be preserved and protected, even as other immigration channels are tightened, so too, many speculated, would New York’s real estate market, whose extremely high prices make it distinct from most other American markets.
Edward A. Mermelstein, a managing partner in the law firm Rheem Bell & Mermelstein, which works with many high-net-worth foreign buyers, said that while he’s seen Chinese and Middle Eastern clients pull back to wait for more details on Mr. Trump’s immigration policy, he was confident they would not be deterred for long.
“The president is not going to change the mind-set of anyone buying at $5,000 to $10,000 per square foot,” he said. “As long as the rest of the world is in worse shape, we’re going to see continued investment.”
The number of Russian buyers has dropped in the past year or two, but those who already own here are still buying, said Edward Mermelstein, the managing partner of the law firm Rheem Bell & Mermelstein, who has many Russian clients.
“Those who are coming here for the first time are doing so for political reasons,” Mr. Mermelstein said. “There are changes in Russia, cloaked under the guise of ‘anti-corruption reforms.’ So if they are coming today, it is because they are worried what might happen tomorrow.”
Whatever the motivator, international buyers continue to seek out New York as a safe investment, although the days of the $100 million penthouse appear to be on the wane. “There are no more vanity purchases,” Mr. Mermelstein said. “The name of the game now is return.”
Photograph of The Astor located at 235 West 75th Street, New York, NY
Real estate attorney Edward Mermelstein said he’s seeing it on a daily basis. He described it as a strategy developers are taking “to protect themselves as things move forward.”
“This is definitely a hedge where you’re confident that at least a portion of your property is going to be sold, even though it is going to be to insiders,” he said. “In certain cases, it’s a psychological position.”
In the past year, the Chinese have invested almost $6 billion in U.S. real estate, $4.5 billion of which was in Manhattan. Chinese and Russian ultra net-worth individuals and businesses have become major engines in the market. These high-octane purchasers come with many nuances, which like-minded individuals can appreciate.
EB-5 was established in 1990 wherein an investor must fund an amount of $1million to a project that can create 10 jobs. This is seen as an easier way to get citizenship. The investor can also apply for conditional visas for his family members.
“It’s an expedited road to a green card, nothing more than that,” said Edward Mermelstein, an international real estate attorney in a post in Curbed. “To call it an investment is an overstatement. We’re the least expensive country in terms of a pay-to-play scenario for residency.”
Mermelstein added, “The type of investor who uses this is the kind of investor we’d want to live in the United States, people of means who are supporting our economy,” he says. “You’d be crazy not to continue this program.”
Japanese real-estate firms also have been more willing to work this time with local partners. During the 1980s, most Japanese firms didn’t do this, “and that’s a reason why they departed the market so quickly when it fell apart,” said Edward Mermelstein, a real-estate attorney with RheemBell & Mermelstein LLP. “Foreign investors today are looking to partner with local companies so they can be long-term players.”
The Chinese wealthy along with their country’s various money institutions are aiming for stable and reliable investments notably in commercial and income-generating residential projects as compared to luxurious properties that are considered for personal use. This is according to Edward Mermelstein who is a 20-year-old veteran of consulting for clients in realty business. This game plan is akin to playing “Monopoly” where players pay to acquire money-making real estate like hotels and houses. “There’s an argument that this is a flight to safety,” Mermelstein said. “This is very much a flight to safety,” He emphasized.