Hear Siddharth Agarwal, a Bay Area Resident and EB-5 Investor,
Explain Why Investors Should Avoid Bay Area EB-5 Projects
In 2023’s precarious economic climate, it is more important than ever for EB-5 visa applicants to evaluate potential projects carefully before investing their hard-earned capital. USCIS has structured the EB-5 program in such a way that investors are not allowed to obtain guarantees of repayment. In fact, EB-5 investors are not guaranteed to obtain a Green Card even if they invest the minimum required amount of $800,000; their immigration success depends on compliance with USCIS’s criteria, including creating at least 10 jobs from their capital.
The EB-5 Reform and Integrity Act of 2022 (“the RIA”) has also introduced stringent new transparency and reporting requirements for EB-5 regional centers and project developers. It is now much more demanding to structure an EB-5 offering, so investors should only choose projects that can both succeed financially and remain USCIS-compliant.
A key consideration for foreign nationals interested in the EB-5 visa is to avoid projects in areas with declining economies or dwindling populations. Certain real estate asset classes also represent a higher risk for EB-5 investors.
Recent population and economic data show that all of the above risk factors are present in the California Bay Area, making this a particularly high-risk location for EB-5 investment. In this article, we demonstrate why Bay Area projects are risky for EB-5 investors and explain how investors can find safe projects that will enable them to immigrate successfully and receive a timely return on their capital.
Why EB-5 Investors Should Avoid Bay Area (Oakland) EB-5 Projects: A Data Driven Analysis of The Current Multi-Family Real Estate Development Landscape
The Bay Area’s Declining Population and Economy
Build-to-Rent Developments: A High-Risk Industry for Bay Area EB-5 Projects
Finding a Low-Risk EB-5 Project
Work with EB5AN to Find a Low-Risk EB-5 Project
The Bay Area’s Declining Population and Economy
Urban locations in the Bay Area have experienced a sustained trend of outmigration since the COVID-19 pandemic in 2020, with thousands of residents flocking to rural or suburban communities elsewhere.
A New York Times article on this trend notes that, given the advent of remote work in 2020, “the story of the Bay Area’s latest tech era is ending for a growing crowd of tech workers and their companies. They have suddenly movable jobs and money in the bank — money that will go plenty further somewhere else.” The article also reports that many Bay Area residents relocated to more affordable states, including Georgia, Texas, and Florida.
In 2020 alone, U.S. Postal Service data indicates that almost 650,000 residents of California left the state, and the California Policy Lab reports that residents of Alameda County were leaving at a 6% higher rate in December 2021 than at the start of the pandemic. San Mateo and Santa Clara counties, which house Silicon Valley, have also lost approximately 2% of their tax filers.
What is more, U.S. census statistics indicate that for every 37 people who move to California, 100 move out.
San Francisco has been particularly hard hit, losing $7 billion of household income between 2019 and 2020. The city would go on to lose a staggering 6.3% of its population between 2019 and 2021 in an unprecedented rate of outmigration. Mark Calvey, a senior reporter for the San Francisco Business Times, notes that “the loss of thousands of taxpayers—and their incomes —could ripple through the economy. In no region of the country did migration in the years before and into the pandemic pack such a devastating economic punch as the Bay Area.”
As a result, the city’s median income declined by 4.6%.
Several analysts ascribe San Francisco’s population decline to its high cost of living and growing crime rates. One survey reports that half of San Francisco’s population claims to have been robbed at some point, and two out of three residents plan to leave due to crime and homelessness.
The situation is even worse in nearby Oakland. Danny Haber, co-founder of Oakland-based developer oWow noted “You have nobody working. There’s no active spaces, and that means you have streets that are quiet and dark and empty at night, which makes people feel unsafe,” in an interview with the San Francisco Business Times.
See below for an excerpt from the article:
Isaac Abid, partner at HP Investors, explained that many downtown residents have been reacting to safety concerns by treating their apartment buildings like “gilded bunkers.” Because many of these buildings are so amenity-rich, residents can remain inside instead of venturing out downtown. A handful of recent public reviews left for Atlas, Carmel Partners’ 633-unit building at 385 14th St. that delivered in 2020, seem to support that theory: At least three reviews left over the last two months mention audible gun shots in the area, and another handful mention frequent car break-ins outside of Atlas’ protected garage.
“This is by far the best building I’ve ever lived in but I regret moving here,” one resident wrote in a review of Atlas, adding they “hear gun shots more weekends than not.” “Unfortunately this area/city is going through a tough moment with violence.”
Build-to-Rent Developments: A High-Risk Industry for Bay Area EB-5 Projects
EB-5 investors should be especially wary of build-to-rent developments, especially given the Bay Area’s diminished real estate market and dwindling population.
Rental prices in the Bay Area remain volatile, with one analyst noting that prices are yet to recover to pre-pandemic levels. An EB-5 apartment development underwritten before the pandemic may be projecting significantly higher rental prices than will actually be feasible.
The above-quoted New York Times article points out that San Francisco’s rent prices declined 27% year-on-year in 2021. Moreover, the city’s office vacancy rate has gone from 4% to 27% from 2019 to 2023.
In 2022, Zumper, a leading rental site, reported that the median rent for a one-bedroom apartment had decreased by 5% from March 2020 in San Jose. The median rent dropped nearly 14% in Oakland and approximately 17% in San Francisco. Zumper’s market analyst pointed out that the Bay Area has “pretty anemic numbers compared to other cities.” The situation may be even worse–with the San Francisco Business Times pointing to months of free rent residents are offered at signing and lower-than-expected market rates.
Even outside of the Bay Area, build-to-rent projects represent a higher risk for EB-5 investors. These projects rely on future rent projections, which, given the present economic downturn, may turn out to be inaccurate. These projects require significant upfront spending before generating revenue and may ultimately be unable to create the 10 required jobs for their EB-5 investors.
Finding a Low-Risk EB-5 Project
Project locations with a stable economy and population demographics, along with industries that can adjust to the changing economic landscape, constitute the best options for EB-5 investors.
Midwest states are experiencing increased demand for residential real estate developments, partly due to the area’s influx of retirees, low cost of living, and admirable economic recovery from the pandemic. Utah is an especially promising location for EB-5 projects given its steadily growing population.
The Southeast is also experiencing sustained post-pandemic population growth and a strong housing market. Florida, which does not have an income tax, welcomed 211,305 new residents between 2020 and 2021, and ranked as the highest state for net migration during this period.
Real estate projects in both the Midwest and Southeast often have access to less expensive land, which reduces a project’s financial commitment and risk.
Besides the favorable economic conditions in the Midwest and Southeast, single-family housing developments in these states also offer a distinct advantage: operational flexibility.
Housing developments can adjust the pace of construction according to fluctuating demand. This makes such EB-5 projects especially safe options; they will be more likely to succeed financially and create the needed jobs even if a major economic downturn takes place. In this way, housing developments can avoid relying on projections instead of current sales data and can generate revenue more quickly.
Work with EB5AN to Find a Low-Risk EB-5 Project
EB5AN is pleased to offer EB-5 projects in both industries and geographic locations that mitigate our investors’ financial and immigration risk. Schedule a free meeting to discuss the best EB-5 investment opportunities on the market today.
Twin Lakes Georgia Single-Family Homes
With all the necessary EB-5 jobs created, 520+ homes already sold, set-aside visas, priority processing, and operational flexibility, the Twin Lakes Georgia housing development is a prime option for EB-5 investors. Both Twin Lakes and Saltaire are being developed by the Kolter Group, one of the top private home builders in the United States. All prior EB5AN Kolter EB-5 projects have 100% USCIS approval.
Saltaire St. Petersburg Condominiums
This condominium development in downtown St. Petersburg, Florida, has already sold out and created all the necessary jobs for EB-5 investors, which reduces their immigration risk to a minimum. Saltaire offers I-526E approval and loan repayment guaranties as well as set-aside visas.
Wohali Utah Residential Home Community
This 428-unit residential golf community near Park City, Utah, offers investors set-aside visas and priority processing through its rural TEA status. With a strong capital structure that does not rely on EB-5 funding, Wohali Utah’s investors will also receive job creation and I-526E approval guaranties.
