A reformed Saudi Arabia could provide vital foreign investment in U.S. commercial real estate at a time when cross-border capital from countries like China is drying up. But political tension is already a hurdle of a business relationship still in its infancy.
“We thought there was an opportunity for relations with the Middle East and especially Saudi Arabia to improve and have them start spending money in the U.S.,” One and Only Realty partner Edward Mermelstein said. “But what has happened recently in Saudi Arabia has really thrown sticks in the spokes of that wheel.”
Mermelstein has watched as foreign investment in U.S. commercial properties has dried up in recent years. Chinese investment in U.S. real estate fell 55% from 2016 to 2017. While the Middle East’s capital contributions weren’t as large, Saudi Arabia has been a key U.S. ally.
The killing of Jamal Khashoggi, a Saudi journalist for the Washington Post, has sparked calls for the U.S. to distance itself from its closest ally in the Arab world. Some real estate owners worry alienating the Saudis could diminish a critical source of foreign investment in the late stages of the current economic cycle.
Saudi Arabia has become a more active global investor in recent years as Crown Prince Mohammed bin Salman seeks to diversify his country’s economy beyond oil as part of the Saudi Vision 2030 plan. Launched in 2016, the government plan calls for global investment to help develop sectors like healthcare, infrastructure and tourism in the Middle East’s largest sovereign state.
Many of the projects are funded by the Public Investment Fund of Saudi Arabia, the 10th-largest sovereign wealth fund in the world. Vision 2030 has a set target for the fund to control $2 trillion by 2030, and that has sparked a wave of financial commitments in tech and real estate around the world.
The PIF has committed $20B to Blackstone’s $40B U.S. infrastructure fund while also contributing $45B into SoftBank’s Vision Fund. SoftBank is considering taking a majority stake in WeWork. SoftBank and Blackstone did not respond to Bisnow’s requests for comment.
Individual Saudi investors are also showing interest in real estate.
An estimated 57% of Saudi Arabians responding to a survey from British developer Select Property Group said they considered making an overseas property investment. The United Arab Emirates was the most popular destination with 28% of respondents indicating that is where they would invest, but the U.S. was second among those surveyed with 18%.
While the surveyed investors in most of the six Gulf Cooperation Council countries — Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman — indicated they preferred residential real estate, the report noted that most Saudi investors prefer commercial projects.
The longevity of that investment sentiment may hinge on how the U.S. responds to Saudi Arabia’s involvement in the killing of Khashoggi, which took place Oct. 2 in the Saudi Consulate in Istanbul. The killers’ ties to the Saudi prince, along with the Saudi government’s denial-turned-admission of its role in Khashoggi’s death, sparked a global outcry for sanctions.
The Future Investment Initiative, an annual investment forum hosted in Saudi Arabia’s capital, Riyadh, was held as scheduled Oct. 23. The yearly event is designed to create an avenue for some of the world’s biggest businesses and investors to network in person with well-heeled Saudis. Some of the biggest names on the attendance list, like JPMorgan Chase CEO Jamie Dimon, SoftBank CEO Masayoshi Son and Blackstone CEO Stephen Schwarzman, pulled out in response to Khashoggi’s death.
But the conference still happened, and even companies that ditched the conference downplayed the impact the journalist’s murder would have on business dealings with Saudi Arabia.
“So I would start by noting like everybody, we’ve been concerned about what we’ve been reading in the last couple of weeks,” Schwarzman said on a Blackstone earnings call earlier this month. “That said, for us, we take a long-term approach, both to our relationships and to building businesses.”
Commercial real estate experts indicated they didn’t expect the Khashoggi killing to hinder business deals with Saudi Arabia.
“Sometimes these things do have an impact, but countries tend not to act against their own economic interests,” Counselor of Real Estate and CBRE Global Chief Economist Richard Barkham said.
Saudi Arabian direct investment in U.S. real estate doesn’t match the headline-grabbing, multibillion-dollar commitments from the PIF. It even pales in comparison to other sources of foreign capital.
So far this year, roughly $178M in Saudi Arabian capital has flowed into U.S. commercial real estate, up from $85M in 2017, according to Real Capital Analytics data. Those deals were involved with joint venture partners, meaning Saudi investment is likely less than the reported sums.
By comparison, even though Chinese investment was down 55% in 2017 due to tightened outbound capital regulations, it still accounted for $7.3B in U.S. real estate investment, according to Cushman & Wakefield.
The Middle East accounted for 10% of total international capital into U.S real estate over the last five years. Saudi Arabia accounted for 10% of that figure, according to Barkham.
“We shouldn’t overstate it,” he said. “In terms of total cross-border investment, it isn’t that big of a source.”
Mermelstein still thinks Washington responding to Saudi Arabia with the same tough stance it has issued to Russia and China will send a message. Alienating an ally in the Middle East, especially one that has the potential to eventually pour funds into luxury commercial projects that once appealed to Chinese buyers, could inch the U.S. closer to an economic downturn, he said.
But the world is still one with excess capital and not enough investment opportunity, Barkham said. When funds from one country dry up, another has been waiting in the wings. Mermelstein doesn’t see where the next country in line will come from.
“As far as investors of emerging economies, there isn’t anyone left to fill the void in the United States,” he said.
Attorney, consultant, investor and developer in New York City, Mr. Edward A. Mermelstein has recently been appointed to serve as President of ZAKA Search and Rescue in the USA. The organization supports the work of the UN-recognized ZAKA International Rescue Unit, which not only offers a swift search, rescue and recovery response to mass casualty incidents around the globe, but also trains volunteers on a local basis to increase their community’s capabilities for crisis management before the arrival of international emergency forces.
“In today’s world, where natural and manmade disasters can overwhelm local emergency forces by their inordinate scope, communities deserve to receive the right training and tools necessary to save lives,” explains Mermelstein. “The importance of local teams rescuing survivors in their own region is essential, and this is precisely the solution that ZAKA Search and Rescue will offer to communities throughout the United States and around the globe.”
Mermelstein continued: “Earlier this year, ZAKA trained 45 volunteers in Guatemala in light search and rescue. It was just four months later that they put that training to the test, when the Fuego volcano devastated the area. They were able to save lives, rescue trapped survivors and help recover victims in the days before the airport opened and international teams arrived.”
Organizations and communities are invited to contact ZAKA Search and Rescue in the USA to implement light search and rescue training in their area.
About ZAKA International Rescue Unit
ZAKA is a global volunteer based, rescue and recovery organization. A UN-recognized international rescue organization that trains thousands of volunteers around the world, ZAKA is ready, equipped and able to respond immediately in times of major disasters. Whether responding to natural or man-made disasters, ZAKA can be counted on as a first responder, providing professional and highly skilled volunteer services. In times of tragedy, ZAKA is always the first in and the last out.
Thanks to its extensive experience at natural disasters and terror attacks around the world, ZAKA was recognized in 2005 by the United Nations as an international volunteer humanitarian organization. In 2016, ZAKA was granted advisory status at the UN as an official body, and, in the same year, the ZAKA light search and rescue training course received recognition from INSARAG (International Search and Rescue Advisory Group under the UN umbrella). ZAKA’s extensive experience at global mass casualty incidents includes, among others, Haiti, Thailand, Japan, Philippines, Nepal, Texas, Florida, Mexico and Guatemala. ZAKA cooperates with government agencies, military and civilian emergency forces to provide the fastest and most professional operational response.
About Edward A. Mermelstein
A top-tier legal strategist, businessman, consultant, investor and developer in New York City with over 30 years of experience in the real estate business, Mr. Edward A. Mermelstein is a founding partner of One & Only Holdings, LLC and the boutique law firm Rheem Bell & Mermelstein, LLP. Originally from Ukraine, his impressive achievements and in-depth understanding of the global markets and political arena have earned him recognition as one of the 10 most influential figures in NYC real estate.
Fluent in English and Russian, Edward emigrated to the U.S. in 1976. He holds a BA from NYU and a JD from Western Michigan Law School. In 2016, Edward joined the Board of Overseers of NYU, where he maintains the Mermelstein Family Scholarship. He has served as the USA Director of the Link of Times Foundation, helping to repatriate cultural and historical valuables taken from Russia. As Chairman of COJECO, Edward helps facilitate the integration of Russian-speaking Jews into the greater American Jewish community while preserving their cultural heritage. Edward has served on the Boards of the UJA, RAJE and numerous charitable organizations. Edward lives in NYC with his wife, Rose, a Broadway producer and five-time Tony award winner, and his two sons.
As the United States grew more hostile toward Chinese investment in the country this year by blocking a handful of high-profile deals, many investors and advisers were confident China would find opportunities elsewhere.
That confidence has proven premature.
In recent months, Germany, France, Britain, the European Union, Australia, Japan and Canada have all joined an unprecedented global backlash against Chinese capital, citing national security concerns. Dealmakers now wonder whether this dynamic will run its course or should be taken as a new normal.
Outside the U.S., Chinese acquisitions have increasingly run into trouble. In August, the German government for the first time vetoed a Chinese takeover — the nuclear equipment maker Yantai Taihai’s proposed acquisition of Leifeld Metal Spinning, which specializes in manufacturing for Germany’s aerospace and nuclear industries — on national security grounds.
In May, Canada blocked a proposed takeover of the construction firm Aecon by a unit of China Communications Construction, also invoking national security reasons.
As a result, China’s outbound direct investment dropped globally for the first time since 2002, to $124.6 billion, from a peak of $196.15 billion as recently as 2016, according to data compiled by the United Nations Conference on Trade and Development.
“The movement we are seeing around the world is an expression of calls for wariness about Chinese investments, especially in technology,” said Jeremy Zucker, co-head of the international trade practice at the law firm Dechert in Washington. “And it was sharpened and accelerated by the Trump administration.”
One big trigger, Zucker said, was China’s public vow to dominate high technology in the next seven years, a program known as “Made in China 2025.” “When the Western world heard this, it sounded like a declaration of war,” he said.
The resistance comes as U.S. complaints about China — and its insistence that China was using investments to acquire critical infrastructure technologies — grow louder.
The U.S. has always subjected foreign acquisitions in sensitive industries to tough review. But the present administration has taken it to a new level and made it a focus in its disputes against China’s trade practices.
Since Donald Trump became U.S. president in 2017, he has repeatedly described China as an unfair player in trade and his administration has blocked a number of proposed Chinese acquisitions.
The hundreds of billions of dollars’ worth of deals shot down this year alone on national security concerns included HNA’s bid for Skybridge Capital, a hedge fund founded by Trump’s one-time communications director Anthony Scaramucci; the $580 million purchase of U.S. semiconductor company Xcerra by a Chinese investment firm backed by state-owned Sino IC Capital; and the $117 billion takeover of the semiconductor equipment maker Qualcomm by Broadcom, a Singapore-based company with close ties to Beijing.
The drop in Chinese investment in the U.S. has been severe. In the first half of this year, Chinese companies invested just $1.8 billion, a plunge of more than 90 percent from the year earlier and the lowest level in seven years, according to investment consultancy Rhodium Group.
Last month, Trump signed legislation that expanded the powers of the 43-year-old interagency Committee on Foreign Investment in the United States.
Under the new law, the range of deals the committee can review for national security concerns grew to include transactions in which a foreign investment was merely a minority interest, instead of a controlling share; and extended review powers into the real estate sector that previously had not been part of its portfolio. In the legislation, Congress encouraged other countries to adopt CFIUS-like reviews of Chinese investment.
“The wave took off because the U.S. reached out to other governments. That led to other CFIUS-like entities to emerge around the world,” said Mario Mancuso, a U.S. undersecretary of commerce in the George W. Bush administration.
From Canada to Mexico to the European Union, other nations are having their own problems dealing with the Trump administration. Even so, governments outside the U.S. are in agreement about what they perceive as the threat from China, which is accused of using investments and merger deals to steal technologies and gain access to sensitive data that could endanger national security.
“History repeats itself in a way. During the Cold War, there were concerns about the internet. Right now, it’s the fear about technology,” said Christopher Griner, chairman of the national security and CFIUS practice at the Washington office of the Stroock & Stroock & Lavan law firm.
Germany started drafting its legislation after a number of high-profile takeovers by Chinese buyers, including a 2016 $5 billion purchase of Kuka, Germany’s most advanced robotics manufacturer, by Chinese appliance maker Midea.
Concerned about China’s growing appetite for its most advanced technologies, Germany last year changed its laws to improve the government’s ability to block acquisitions of stakes as small as 25 percent stake in “critical infrastructure” industries.
Just last month, the Chinese nuclear equipment manufacturer Yantai Taihai dropped its bid for the German metal tool maker Leifeld, a key company for Germany’s nuclear power industry. Berlin had hinted that it was prepared to use its new power to veto takeovers.
“It’s the first time Germany has used its veto power in such a way, and that could have a ‘snowball effect’ across Europe,” a China-based news publication Caixin Global quoted an analyst as saying at the time.
Also last year, Germany joined France and Italy in calling for a Europe-wide mechanism for more rigorous review of foreign takeovers. The move was seen as a response to rising worries about transferring so-called dual-use technologies to China through investments.
Britain, which was one of the most welcoming nations toward Chinese investment under former prime minister David Cameron, is now following the lead of the U.S., Germany and France and expanding its regulatory entity into a separate unit, like CFIUS.
Britain used to operate under a much looser approach to sensitive deals. Chinese telecommunications giant Huawei, for example, won a key contract with the leading British telecom provider BT 13 years ago.
In July, Britain released a National Security and Investment White Paper, which aimed to improve the government’s powers to block foreign acquisitions of British assets that are deemed national security sensitive.
Government ministers were frustrated late last year when they failed to block the purchase of British chipmaker Imagination Technologies by Chinese fund Canyon Bridge, which is owned by state-owned Yitai Capital. The deal went through weeks after the Trump administration blocked Canyon from buying the US chip maker Lattice Semiconductor.
Under the new proposal, the British government expects to review as many as 50 proposed foreign deals a year for national security concerns. In each of the last two years it reviewed just one.
The new proposal also eliminates a previous requirement that a deal involve a target with at least $91 million in annual revenue to trigger a review. Now the government can effectively review any deal, regardless of the size.
In April, a British watchdog agency notified government agencies not to do any further business with the Chinese telecoms equipment maker ZTE, in tandem with the U.S. blocking ZTE from buying American components for seven years. The U.S. wound up retreating from its stand, but there are no indications that Britain has changed its position.
As trade tensions between the U.S. and China continue to escalate, with Trump soon to impose tariffs on an additional $200 billion of Chinese imports, Chinese deals for U.S. tech companies are likely to be harder to come by. And other Western nations no longer provide an easy alternative.
“Down the road, Chinese money will probably find a way to come out — and the world knows it needs China money,” said Edward Mermelstein, a foreign investment adviser based in New York. “But right now, protectionism is on the rise and it’s not just in the U.S.”
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.
As the Russian diplomats and their families leave London, the UK is considering taking yet further measures against Russia. They could include financial sanctions that would make it harder for Russian companies to do business in the UK. That could lead some in London’s large Russian expat community, to think of taking their money elsewhere, which would have a knock-on effect for British companies and shareholders. From London, CGTN’s Paul Barber reports.
RSL Law describes itself as ‘more than just a law firm’. And indeed for its Russian clients, the company helps them navigate London’s property market and immigration rules so they can live and do business in the UK. But in recent days – its Managing Director Tatiana Sharposhnikova has heard a new word being thrown around in the media: Russophobia.
TATIANA SHARPOSHNIKOVA MANAGING DIR. & SENIOR SOLICITOR, RSL LAW “I’ve lived in this country for 25 years and it’s the first time I’ve heard that word. I’ve never heard that word before. So is the situation worrying? Yes. But should we panic? No.”
With UK-Russia relations falling to a low not seen since the cold war, Tatiana says her clients are concerned. Most are on visas that come from investing large sums of money in the British companies, stock and bonds.
TATIANA SHARPOSHNIKOVA MANAGING DIR. & SENIOR SOLICITOR, RSL LAW “Economically the Russian-speaking community still contributes a lot to this country. But not economically but also culturally. And I think this country will be a lot poorer, not just economically, if the Russian community wasn’t here, if the Russian community wasn’t respected in this country.”
Belgrave Square is home to embassies from around the world and some very rich Russians. Well over a billion dollars worth of prime property in central London is believed to be Russian-owned. But the British government is considering expanding so-called ‘unexplained wealth rules’ – which would subject Russian investors to greater scrutiny. Tycoons with ties to the Kremlin could even have assets seized.
“The anticipation is that there’s going to be a lot of money moving out of the UK in the short term.”
Lawyer Edward Mermelstein helps wealthy investors buy property and private equity in London. He says he’s getting worried calls from clients who might take their business elsewhere.
EDWARD MERMELSTEIN, PARTNER ONE AND ONLY HOLDINGS “Realistically the expectation is yes it’s going to be much more difficult for someone holding a Russian passport to do any business in the UK. I would say all of our clients have no issues to show where their wealth came from but when politics come into play it changes the equation because no matter what you show it’s never going to be enough and that’s the concern they have today.”
Russian-UK business ties are deep and complex. More than 46 billion dollars of Russian stock has been sold in London since the mid-1990s. They span many sectors, including energy – BP owns around 20 percent of Russian state-owned energy giant Rosneft – and Premier League football clubs. Roman Abramovich owns Chelsea and Arsenal is 30 of Arsenal is owned by another well-connected Russian oligarch, Alisher Usmanov.
PAUL BARBER LONDON “Russian investment here is controversial – for pushing up property prices among other things – many businesses, both Russian and British, hope the current diplomatic row blows over soon. If not, the days of this city being an easy environment for Russians to hold investments, could be numbered. Paul Barber, CGTN, London.”
Three things Russians look for when coming to the United States; luxury, glamour and elegance, so it’s no surprise that the majority of this group finds themselves in New York City. Endless shops and high-end clubs in the city that never sleeps, New York has been the destination for every want-to-be Oligarch since the early 90’s. From the glamorous boutiques to the top restaurants of the world, Russians have been making their way to New York to part take in this lifestyle. It’s dream destination for a Russian speaker that has all of a sudden refocused on preserving their newly minted wealthy lifestyle. Throughout the past 25 years, the Former Soviet Union has erupted as one of the major economic forces in the world, and more so in the last 15 years, where the commodities-driven region has exploded with cash rich spenders. With this new rich class comes not only the desire to spend but also save. With the consistent appreciation of New York City Real Estate, FSU’s (Former Soviet Union’s) quest to maintain their wealth is quite the simple one. Oligarchs and their socialite wives are quick to purchase pricy pads, looking not to just fill that vanity void, but for as an investment opportunity too. Manhattan real estate continues to prove to be a safe long term bet as the history of appreciation of these apartments are unlike any other.
Moderate risk, stable economic conditions, and low interest rates have continued to drive investors to Manhattan. More recently, we have been seeing Russian speaking transplants, not only from the FSU but also from many European cities, especially London, come into New York with a clear understanding of the advantages of investing in New York City real estate. Newly released data from TripleMint, a residential real estate start up based in New York, points to a growth in foreign countries investing in American real estate. Topping that list, jumping from the 20th largest investor to the 2nd highest this past year, is FSU.
While these high end buyers come to Manhattan for some of the most respected developments in the world, that is but one of many reasons for their heightened interest. New York City is home to some of the best educational and medical facilities in the world, luxury living and exceptional education is an immigrants dream. As you walk around the campuses of NYU, Columbia University and many of the elite prep schools, you start to notice that Russian is widely spoken and once the kids come, the parents follow. The cultural events held in NYC, (MB fashion week, broadway theater, etc.) have also turned out to be some of the most popular wealth magnets.
Most notably, New York’s ability to provide the best medical treatment, once again puts New York in a league of its own. Adding just another component that help add value to the budding Oligarch considering moving their family half way across the globe.
While your typical Russian comes to invest in New York real estate because of the consistent positive returns and long term value of their purchase, they stay for the glamour, education, health services and luxurious lifestyle
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.”