Most of us in the United States are philosophical descendants of a Middle Eastern pioneer who left his parents’ home and ventured to a new land. He was inspired by his firm belief in monotheism, and his descendants founded the Jewish, Christian and Moslem faiths. Aside from the stories about his destruction of idols in his father’s shop, Abraham was well known for his hospitality towards strangers. The bible describes how he washed the feet of travelers who came to his tent after crossing the desert. In the realm of human behavior, this progenitor of three great world religions is best known for welcoming the stranger.
During this time of tumult over refugees coming to our shores, you might think I’m writing about the influx of Syrian’s fleeing war in their homeland. No, I’m a real estate and business lawyer, not a politician. This message is about welcoming the participation of foreigners in our real estate markets, especially our Pacific neighbors – the Chinese.
We are experiencing a giant wave of Chinese investment in America. Throughout our country, Chinese investors are snapping up residential, commercial and hospitality properties. We certainly notice when our “trophy properties” are acquired. Recently the tallest building in this region, the 76-story Columbia Tower, was purchased by Gaw Capital out of Hong Kong. In New York, a Chinese firm purchased one of the country’s best-known hotels, the Waldorf Astoria. In the commercial realm, Chinese funds have invested $46 billion in the U.S. from 2000 to 2014, most of which was investment in the last few years. $8 billion was invested in the U.S. during the first quarter of 2014 alone, and that pace appears to be increasing. China is now the largest foreign investor in the United States.
I’ve personally observed a major Chinese influx in my suburban community, Mercer Island. One can hear as much Chinese spoken as English at the Stroum Jewish Community Center, and in the lists of local academic honor students, Asian surnames dominate. My observations are consistent with the national statistics. The New York Times recently reported that in 2015 Chinese families represented the largest group of overseas home buyers in the U.S. According to a survey by the National Association of Realtors, on average, buyers from China pay $831,000 for a home, more than three times as much as Americans spend, as Chinese families move into some of our more affluent neighborhoods.
The reason for this investment influx is two-fold: The United States has a relatively strong, steady economy as well as political stability. The Association of Foreign Investment in Real Estate 2014 survey of large global funds indicated that the U.S. remained the most stable and secure country for investment by a margin of more than 50% over that of Germany, the second leading market. Of the respondents surveyed, 48% indicated an interest in a modest increase in the U.S. investments, and 20% indicated a major increase.
Another factor leading to personal investments from China is that the ability to give one’s children a U.S. education is viewed as significant career boost. In addition, in a country that has experienced great political turmoil in the last century, having the ability to live in the U.S. provides a safe haven if the political winds change in China. The recent stock market drop in China may reduce much of the influx of capital by smaller investors in the U.S. residential market in the short-term, but most observers expect the market volatility in that country over the longer term will only further encourage diversification by the Chinese into the relatively safe U.S. market.
Overall, this massive influx of wealth from China is a very positive development for the U.S. economy. It is estimated that the increasing ties between our nations helped propel Chinese travelers into the sixth largest country generating almost $10 billion in travel and tourism revenue in the U.S. in 2013. It’s estimated that Chinese-affiliated companies now directly employ more than 80,000 American, up from fewer than 15,000 five years ago. American property owners, developers and the construction industry are benefitting by increasing property values and increased development activity.
Another avenue for investment in and building ties with the US – both financial and human – is through the EB-5 visa program. An EB-5 visa allows foreign investors in certain qualified job- creating activities in the U.S. the right to a green card for both the investor and his or her family. With a green card, they can live and work in the U.S. Congress just extended the program through September 2016. While Congress may adjust certain aspects of the program in the future, such as increasing the amount of the required investment, the EB-5 visa program enjoys widespread bipartisan support. The New York Times estimates that in 2015, 86% of the EB-5 visas issued worldwide have gone to Chinese. Given the strong desire by Chinese with newfound wealth to provide themselves and their families an escape hatch if the Chinese political climate worsens, as well as to give their children the educational options referred to above, the interest from and investment by the Chinese in the EB-5 program is strong.
EB-5 investment has provided a huge amount of needed capital for real estate development in the U.S. In the wake of the Great Recession, most real estate lenders have reduced the amount of money they’ll lend for new projects, which has correspondingly increased the amount of equity needed for development. EB-5 investment had provided a relatively low cost means of generating equity for development to supplement a developer’s other capital. This past September, when Congress was debating possible changes to the EB-5 program, it was reported that there were $13.2 billion in U.S. real estate projects “in the pipeline” funded with EB-5 investment.
Foreign investment, particularly in real estate, encourages long-term stability and partnership between the U.S. and the foreign jurisdiction. No foreign owner is going to be extracting an American trophy property from its present location. What smart investor would allow his or her country to endanger another nation, where it owned property? Meanwhile, having business relations encourages understanding and a sense of shared destiny. Hopefully by working together we can learn from one another.
In the midst of a Presidential campaign, we hear rhetoric from some quarters that we need to build literal as well as legal and financial walls around America. It is human nature to fear the unknown, the different, and the strange. But such talk contradicts our philosophical traditions and American history, which was built by successive waves of immigrants. Encouraging foreign investment in job creation and real estate in the United States provides an important boost to our economy and is ultimately enriching in many ways. Let’s bring it on!
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