Wednesday, February 10, 2010

Commercial Real Estate Financing And Why EB5 Investors Should Care

The Miami Herald published an article today by
Elaine Walker regarding commercial real estate financing and what’s coming down
the (Turn)pike.  You can read the article
here but I
wanted to point a couple of things out for those of you close to deciding on an
EB5 Regional Center…not just in Florida but anywhere.



We’ve all been told that things are “getting
better” in real estate; I personally don’t buy it, notwithstanding the
statistics which, when viewed at just precisely the right angle and light,
suggest we are “rebounding”.  Granted,
that perception contradicts what is being said by every realtors association in
the country, and it certainly isn’t like me to be pessimistic.  But Ms. Walker did a great job of telling the
story objectively…and what can be extrapolated from can have MAJOR consequences
on today’s EB5 Regional Center activities.



The problem, you see,  is that no matter how the numbers add up…the
numbers just don’t add up!



The article reported on Urban Land
Institute's South Florida Economic & Development Outlook gathering, which
took place on Tuesday.  Consider these
points made in the article:



-Delinquencies on
Commercial Mortgage Backed Securities are expected to steadily increase from
the current level of about 4 percent, hitting a peak in late 2012 at 12
percent.



- the abundance of ``extend
and pretend'' loan rewrites, lenders to extend the term of a loan in order to
avoid writing down the value of the asset, which could have seen as much as a
50 percent decline.



Only Dr. David Altig, senior vice president
and director of research at the Atlanta Fed, was quoted in terms of linking the
commercial real estate finance market with what I personally think is the big
pink elephant in the room, ignored by almost everyone in the sector: ``If the
unemployment rate doesn't come down significantly, the lifting of the fog is
not going to happen,'' he said.



Bingo. 
No jobs means no business expansion, which means now growth in
commercial real estate…unless it continues to be speculative in nature, as it
is right now in certain markets…and as it was right before this whole real
estate nightmare began in the is country.



So here’s the
point: last year, the number of USCIS-approved EB5 Regional Centers nearly
doubled and our phones are ringing off the hook with developers who have “discovered”
the EB-5 Regional Center mechanism and who are being told by some attorneys
that, ahem, they will be glad to get them approved as a Regional Center.  Most of these are, of course, equity-based
programs linked to commercial real estate projects…projects which had been
shelved or, at least, slowed by the unavailability of construction
lending.  Some are great programs with
sound planning a first class management; others, frankly, have left me
incredulous…honestly amazed that USCIS would grant Regional Center status to
structures almost surely poised for doom.



 



And no, I will NOT
tell which those are because I have no interest in getting sued.



 



I will leave you
with the question you, as a potential EB5 Regional Center investor, should be
asking him or herself:



 



“Does it make sense for me to
invest in an EB5 Regional Center when:



 



a) I will be holding an equity stake in commercial real estate in this
market



 



b) I will be investing as a limited partner in a commercial-real-estate-driven,
equity-structured Regional Center precisely when commercial lenders deem such
investments as risky AND



 



c) Even if all goes well, I have no clear exit strategy through which to
retire my investment funds?? "


BTW: if you are being promised a “buyback” (such as what many Chinese brokers are telling their clients), RUN
for the hills: no risk equals no green card, period.

Choose wisely, my
friends.  Choose wisely.



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