Real Estate Forum - October 2011

NEWS FRONT
In a Divided Congress, EB- 5 Program Up in the Air

WASHINGTON, DC—As Congress continues to debate President Obama’s jobs bill, a much quieter piece of employment legislation is also taking the floor: the renewal of EB- 5. The program, administered by the US Citizenship and Immigration Services, makes visas available to immigrants who invest in commercial enterprises. But with the program set to expire in 2012, industry members are concerned about EB- 5’s fate amid a divided government.

“Congress is so divided that they can’t get anything through,” Rick Spees, Washington, DC-based shareholder and chair of Akerman Senterfitt’s National Government Affairs and Public Policy Practice Group, tells Real Estate Forum. He adds that despite overwhelming industry support, political and economic volatility could leave the program in limbo.

Congress initially passed the law as part of the Immigration and Nationality Act of 1990. The original program allowed foreign investors to secure a preferred visa category status by funding a business that benefits the US economy or saves at least 10 full-time jobs for American workers. The law, subsequently expanded in 1992 to allow creation of regional centers (legal entities akin to a state or private entity), seeks to promote growth by coordinating foreign investment into a targeted geographic region. The required investment for a regional center is around $1 million.

The USCIS is proposing several changes to the regional center program by expediting applications that are development-ready and streamlining the review process through a new decision board.

But the program itself can have its posi-
tives and negatives, says Julia Yong-hee
Park, principal attorney at Julia Park LLC
in New York City. Approximately 158
regional centers in 38 states have been cre-
ated, but long wait times and red tape could
slow the permitting process. “You have to
think of it in the view of the investor,” she
says. “They want a green card and they walk
into a sort of supermarket, with shelves of
all these products. If they pick a good one
and get the job, they get their permanent
green card two years later.”
Spees says he would like the legislation
to be added to the appropriations bill by
the end of the year in order to avoid fed-
eral gridlock. “My concern is that it’s
going through a normal process in a
Congress where the normal process isn’t
working,” he says. “If they bring it up as a
judiciary bill, there’s no judiciary bill that
has to pass, so it can get bogged down.
Any one of the 100 senators can put a
hold on it.”—Jacqueline Hlavenka

Downtown DC Market Tops the List

All real estate eyes and ears are on the federal government’s budget activity and will remain there as we enter a presidential election year. At the same time, attention is focused on the Downtown Washington, DC real estate market, where three interrelated factors are fueling conversation: investment sales, the General Services Administration’s real estate activity and potential expansion by law firms.

The DC market continues to attract both domestic and offshore investors resulting in continued sales of trophy buildings exceeding $800 per square foot at a sub-6% cap rate. In fact, market exuberance for well-located trophy assets remains healthy. We probably won’t see $1,000 per square foot by the end of 2011, given the turbulence in the economy and stock market, but I wouldn’t bet against it.

Investors who are allocating funds to real estate have placed Washington, DC at the top of the list for a number of reasons, including its built-in infrastructure, exceptional transportation, the federal government and low unemployment rate, among others.

Just one example of an offshore investor attracted to this market is Qatari The federal government’s debt-reduction initiative remains a key factor that could potentially impact the local market. GSA is focused on pursuing initiatives that will result in real estate efficiencies, which in turn is creating an interesting dynamic. I predict that a number of federal agencies will seek to locate closer to Capitol Hill and the agencies’ funding source. Moreover, while GSA focuses on teleworking (telecommuting), younger GSA employees like the idea of teaming and collaboration. It’s difficult to do both, since teaming is better executed in person.

Some at GSA believe the government “contraction” is a short-term adjustment and that expansion will resume, especially as urban areas and US population continue to grow. It’s an encouraging sign that the Senate Environment and Public Works Committee recently approved 22 GSA prospectus-level leases, many in the DC metropolitan area.

Law firms, which are one of the larger private-sector occupiers in Washington, DC, are busy with the government’s talk of debt ceilings and debt reduction, as well as potential reduction in government services and regulatory changes. More resources are being deployed within law firms that have regulatory and lobbying practices.

These firms may be taking more efficient space but are willing to pay higher dollar for better space. Though their space requirements remain office intensive due to the confidential nature of legal work, less space is being allocated to libraries, which are now digital. Open areas for “living room environments” with cafes, espresso bars and dedicated collaboration areas are being added. While growing law-firm profits have not yet translated to hiring, many in the legal industry predict this will change once the economy stabilizes.

By Ernest Drew Jarvis

Ernest D. Jarvis is a senior vice president at First Potomac Realty Trust in Washington, DC. He may be reached at ejarvis@first-potomac.com. The views expressed here are the author’s own.