Trends Watch: Macro Correction; EB-5
October 10, 2019
By Elana Margulies-Snyderman
EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.
This week, Elana talks with Daniel Healy, Chief Executive Officer, Civitas Capital Group.
What is your outlook for real estate?
We are operating under the assumption that a macro correction will happen in the near future and the strategies that we are pursuing reflect that. Depending on who you ask, we are either well overdue for a correction or, if you look at the aggregate economic growth in the recovery rather than just its duration, we are two-thirds of the way there. But it’s difficult to predict obviously. Therefore, our approach has been to pursue strategies and assets in U.S. markets that we think are going to be relatively resistant to a possible correction, assume reasonable hold periods accordingly, and not to be too aggressive with leverage, for example.
Does the EB-5 visa program still present attractive investment opportunities?
The EB-5 program has been around a long time, since the early 1990s, but it really wasn’t until the advent of the global financial crisis in 2008-2009 that it started to have any real volume. This was driven primarily by commercial real estate users of capital, who at the time were looking everywhere but the couch cushions for money. Foreign nationals were primarily interested in pursuing the immigration benefit that coincided with this investment, and therefore were generally willing to accept a below-market yield on their capital, which for us starting out in 2008-2009 basically created enough of a cushion to allow investments to be made in that environment which would otherwise have been impossible or extremely difficult. We believe these investment opportunities will provide allocators a secure path to U.S. permanent residency and, at the same time, allow the cost of the capital to be below market. In addition, we also want to make sure the protections are there on the downside since they are not going to be getting as much of the upside, which is the value proposition for them.
Meanwhile, from our perspective as the users of this capital, these investments are inexpensive and flexible and have been a great tool. Now, unfortunately, the program has reached its capacity and, because of the volume in EB-5 investments, is down by a huge percentage since 2016. Hopefully, we will be able to fix that in Washington, D.C.
What is your outlook for the economy?
I think that much like the last time around, our home state of Texas is well positioned, relatively speaking. There is no shortage of attention to the amount of growth in the state in terms of jobs, populations and diversity of the economic drivers. Therefore, we are very focused on overweighting there relative to other parts of the country.
I think another big-picture issue that is not given enough attention in the commercial real estate industry is climate change. There is in my view tens of billions of dollars of value at risk from the effects of climate change in the relatively short term that we really aren’t talking about as an industry. That is something I think is going to start to get more attention as the floodwaters approach us.
What keeps you up at night?
What keeps me up at night is the uncertainty that we face generally in both the domestic and global geopolitical environment. The trends are pretty worrisome. The conventional wisdom about a correction being a relatively standard correction as opposed to a 2008-like crash could be amended if we end up seeing a major oil shock or some other sort of geopolitical event. Volatility and uncertainty has been increasing in recent months. So essentially, fear of the unknown keeps me up at night.