By Rick Sharga
Senior Vice President, RealtyTrac Inc.

As we enter a new year — and begin a new decade — it’s a good time to take a look ahead and try to answer some of the most frequently asked questions about the foreclosure market.

Overall, we expect an ample supply of discounted foreclosures to be available in 2010, but pent-up demand and record-low cost of ownership will ensure the best deals will be snatched up quickly by well-prepared bargain hunters. Most local markets won’t experience a double-dip in home prices during the year, but the prime buying conditions in place now may be gone by year’s end.

Question 1: What’s the outlook for foreclosure activity in 2010?

It’s likely that we’ll set a new record in terms of overall foreclosure activity for the fourth consecutive year. Over 1.3 million U.S. households received a foreclosure notice in 2007; over 2.3 million received notices in 2008; and although the 2009 numbers haven’t been completely counted at the writing of this article, there will be somewhere in the vicinity of 2.8 to 3 million households in foreclosure. We’re likely to see more than this in 2010, with the number of homeowners in foreclosure probably exceeding 3.5 million, before the trend begins to reverse itself sometime in 2011.

Question 2: Will we see a flood of REOs?

Investors, home buyers and real estate professionals have all been anxiously awaiting a tidal wave of REOs for the past two years. Instead, inventory levels have remained frustratingly low, even in some of the hardest-hit foreclosure markets. Expect more of the same in 2010.

What this means for buyers and sellers is that there will be limited availability of REOs, albeit at higher-than-normal levels. No flood, but a good chance that the trickle on the market today will grow to a more steady stream. What this makes it less likely that we’ll see a “double dip” in home prices, we also won’t see much price appreciation until these distressed assets are finally gobbled up. The most likely scenario is a long, relatively flat period of recovery in the housing market.

Question 3: Will there be a surge in Short Sales?

A big frustration for potential foreclosure buyers has been the difficulty in buying a property via short sale. Agents have questioned why banks reject a short sale offer 20 percent below the mortgage amount only to spend tens of thousands of dollars to foreclose on the home and then sell it as an REO at a 50 percent discount.

We’ll see an increase in the number of short sales if the Treasury Department has anything to say about it: Lenders participating in the Obama Administration’s loan modification program will be strongly encouraged to offer any homeowner who doesn’t meet the requirements for HAMP a short sale opportunity as an alternative to foreclosure.

But short sales won’t be a panacea, either. In many cases, the presence of a second loan will make negotiating a short sale much more difficult; in other cases, the owner of the primary loan might foreclose on the home, wipe out the second loan, and sell the home, using the amount of the second loan as a “market discount” to move the property.

Question 4: Is now a good time to invest in foreclosures?

What all of this means to foreclosure buyers and investors is that the process will require more diligence, persistence and patience. But there has never been a market with as much — or as varied — inventory to choose from, and the combination of deeply discounted pricing and historically low interest rates make many deals once-in-a-lifetime opportunities.

Whether you’re a wholesale investor looking to buy, rehab and resell, or a buy-and-hold investor looking for a cash flow property to rent out, 2010 marks the beginning of a decade of unprecedented opportunity.

In down economy, EB-5 program takes off as H-1B filings decline

Zack Needles

The Legal Intelligencer

January 12, 2010

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Ronald Klasko

After the struggling economy significantly slowed demand for H-1B nonimmigrant work visas for the 2010 fiscal year, some Pennsylvania immigration law firms have turned their attention to wealthy foreign investors.

According to H. Ronald Klasko of immigration boutique Klasko Rulon Stock & Seltzer in Philadelphia, H-1B visa applications comprise the “nuts and bolts and bread and butter work” for many immigration firms, but a weakening job market in 2009 changed that.

The first day of filing for H-1B visas each fiscal year is April 1 and, according to Klasko, it’s not unusual for the number of filings during the first week, and sometimes the first day, to exceed the fiscal year quota of 85,000 visas.

For FY2010, however, the first day of filings was April 1, 2009, but the cap wasn’t reached until almost nine months later, on Dec. 21.

In the weeks leading up to Dec. 21, H-1B work picked up significantly, but prior to that, Klasko said, it was a “totally bizarre time” at his firm and one in which it became necessary to focus on other types of visa applications.

Enter the EB-5 immigrant investor program, which awards visas to wealthy foreigners willing to invest $1 million — $500,000 in high unemployment or rural areas, as well as in virtually all designated “regional centers” — in a commercial enterprise that will employ 10 full-time U.S. workers.

Klasko has spent much of his time recently traveling overseas in an attempt to educate foreign investors about the program, which he calls “the hottest thing going on right now in immigration.”

The program has been around for close to two decades but, according to Klasko, “hasn’t really become popular or been used much until about four or five years ago and hasn’t really totally boomed until the last year or two.”

China, Korea and Japan are the largest three investors in the EB-5 program, according to Klasko, but “in many parts of the world it’s unknown.”

That’s why Klasko has been traveling the world to promote the program.

The United Kingdom, Canada, Russia, Switzerland and South Africa are some of the countries in which interest in the program is starting to pick up, Klasko said.

Robert S. Whitehill, chairman of Fox Rothschild‘s immigration group in Pittsburgh, said that, beginning in 1998, the number of EB-5 cases in the country dropped sharply.

That year, the U.S. Immigration and Naturalization Service issued four precedent decisions retroactively tightening restrictions on investments, which resulted in lawsuits and effectively halted the program until 2002.

Whitehill said it wasn’t until 2006 or so that interest in the program really picked up again and, by 2008, it was commonplace to see regional center representatives at every immigration conference.

“There was a time when the EB-5 was moribund, it was dead,” he said. “It has certainly come back to life.”

Like Klasko, Whitehill said he has seen a recent uptick in inquiries about the program in his own practice.

He attributes this phenomenon to a host of factors beyond the slowdown of H-1Bs, such as the diminished value of the American dollar compared to the euro and the recent emergence of newly wealthy people in China, as well as in Russia and other oil-rich countries.

James J. Orlow, of Philadelphia immigration boutique Orlow Kaplan & Hohenstein, said it’s a fair assessment that a “selected number” of immigration attorneys who typically handle employment-driven cases have turned their attentions to EB-5 cases in the failing economy but was quick to point out that this type of work is not for everyone.

Orlow said EB-5 cases tend to be very complex and time-consuming and can often extend beyond the expertise of the average immigration lawyer, but the payoff can be significant.

“These are cases that call for an intense amount of work and provide substantial fees and you pay attention to them instinctively,” Orlow said, adding that the nature of EB-5 cases is such that they tend to be relatively few and far between even with interest in the program booming.

Whitehill agreed.

“These are not garden variety cases,” he said. “They are highly technical, require a particular type of client and not everybody has the wherewithal to invest the requisite amount of money.”

A PROGRAM TO SPUR JOB CREATION

According to the U.S. Department of Homeland Security, Congress established the fifth employment-based, or EB-5, visa category in 1990 pursuant to the Immigration Act of 1990 and set aside 10,000 visas annually for foreign investors.

Originally, the only option in the program was for an individual to invest either $1 million in a commercial enterprise or $500,000 if the enterprise was located in a rural area — one with a population of less than 20,000 — or an area with unemployment rates 150 percent or more of the national rate, according to the DHS.

In this option, an investor is issued a two-year temporary green card and, in order to apply for a permanent green card, must prove after those two years expire that the investment directly created 10 U.S. jobs.

In 1993, according to the DHS, Congress created the Immigrant Investor Pilot Program reserving 3,000 of the 10,000 allocated visas for foreigners investing in designated regional centers across the United States.

Rather than wait a year or longer for other immigrant visas, foreign investors–through the so-called EB-5 program–can snag a slice of equity and a quick-and-dirty U.S. visa in just three-to-six months; plus, unlike other immigrant visas that might expire in a few years, the EB-5 flavor offers permanent residency. EB-5 minimum requirements: a $1 million investment from a lawful source in a new or existing commercial enterprise that directly creates at least 10 U.S. jobs. Investors can put up as little as $500,000 if the company is in a rural area or in a county sporting 150% of the average national unemployment rate. (Canada has a similar program, called the Canadian Business Immigrant Investment Program, though it doesn’t impose any job-creation requirements.)

EB-5 is catching fire in the latest downturn. In 2007, the U.S. Citizen and Immigration Services (USCIS) approved 473 petitions–called I-526 forms–for foreign investors. That figure rose to 640 in 2008, and jumped to 1,256 in 2009. Since October 2006, U.S. companies have raised more than $1 billion and have created over 20,000 jobs (directly and indirectly) through EB-5, estimates the USCIS.

NET RESULTS: WE ALL know that start-up companies mean jobs, but creating the start-up companies is the challenge, writes KARLIN LILLINGTON 

So who creates start-up companies? Entrepreneurs, obviously, but where do the entrepreneurs come from?

In the technology sector, the answer might surprise you. Studies in the US have shown consistently that a significant proportion of technology companies are started by immigrants. In Silicon Valley, about half of all new technology companies have an immigrant founder.

In the US generally, more than 25 per cent of technology companies created between 1995 and 2005 have an immigrant founder or co-founder. Those companies produced more than $52 billion (€36 billion) in revenue in 2005 and have created almost half a million jobs.

Outside the technology sector, immigrant entrepreneurs are also important. According to a 2008 study for the US Small Business Administration, immigrants are almost 30 per cent more likely to start a new business, and the businesses started by certain nationalities generally outperform businesses started by US-born entrepreneurs.

Businesses started by Indian and Chinese entrepreneurs lead the way, with Taiwanese, Canadian, Filipino and Greek businesses also doing well.

A 2006 study by the US National Venture Capital Association noted that one out of every four public venture-backed companies founded since 1990 in the US had at least one immigrant founder, and represented a collective market capitalisation of $500 billion. Those companies include technology giants such as Sun Microsystems, Yahoo, eBay, Google and Intel.

Almost half of all the immigrant entrepreneurs, 46 per cent, arrived as students. More than half started their business within 12 years of their arrival in the US. They hold an average of 14.5 patents. Two-thirds say they will start further US-based companies. Most go on to acquired US citizenship.

We could sure use some of that dedication and commitment.

But the US, like Ireland, has no special immigrant visa that recognises entrepreneurs.

Investors who promise to arrive with deep pockets and create a minimum of 10 jobs are eligible for a special US visa, but not the people likely to create the companies in the first place. Nor is there a visa that recognises the student who is about to turn entrepreneur.

This situation, coupled with recent reports that underline the importance of immigrants to the economy, has prompted the formation of a US group lobbying for the creation of an entrepreneur visa.

The Start-up Founder Visa campaign proposes that a company founder or entrepreneur receiving a certain amount of private capital investment could qualify for such a visa. At least one investor would need to be a US citizen or US organisation.

It is proposed that, rather than create an entirely new visa, the existing EB-5 visa – the one currently open to investors – could be modified under new legislation.

The group’s website, Startupvisa.com, argues that if the visa situation is not amended, the US will face a brain drain, especially in smart-economy industries such as technology and engineering.

Surely this is an idea worth considering here. Historically, Ireland too has placed more importance on investors than entrepreneurs, offering passports in return for investment in Irish businesses.

We still need to attract foreign venture capital – now more than ever, perhaps – but we need to have start-up companies seeking that capital in the first place. Based on the US situation, we have no reason to expect that Irish-born entrepreneurs alone can create those companies.

One of our key competitor nations, Britain, has already recognised the need to attract foreign-born entrepreneurs and has recently launched its own entrepreneur visa. The visa uses the existing points system for immigrant applications, but includes special categories for awarding points, such as the applicant’s ability to access capital above £200,000 (€223,000).

Canada, Germany, Australia and New Zealand also have entrepreneur visas.

As the Government considers ways to drive innovation, creating a similar visa is an obvious choice.

Alongside a system for recognising high-potential entrepreneurs from abroad who wish to establish companies here, such a visa should have provisions that would enable entrepreneurial foreign-born students studying in Ireland to continue on and found companies here if they demonstrate the potential to do so. It is those students who are likely to become the “new Irish”.

Given that there are several existing models for such visas, setting up an Irish version shouldn’t be too difficult.

In particular, the Government could look closely at how the UK visa works, given that the UK would be our most immediate and direct competitor for foreign

brainpower. With its high-emigration past, few nations are as familiar with the tragedy of brain drain as Ireland. If we continue to view “indigenous” as meaning only “Irish-born”, our industry, competitiveness and economy are likely to suffer even more than they are now.

Rather than losing our best and brightest to foreign lands, we need to keep them and Irish jobs here by convincing the world’s best and brightest that there is no better place to innovate and found a new company than on Irish soil. And then we need to give them the visa to do so.

The competition is administered by the New
York City Economic Development Corporation (NYCEDC) and supported by
Columbia University’s Business School. This was the first year it was
carried out.

Teams from 10 leading universities in six
countries submitted proposals, and the winners are being awarded
$20,000 and an incubator space in the city for two years.

Mayor Mike Bloomberg, who announced the winner Thursday, emphasized the
importance of giving opportunities for foreign entrepreneurs to
establish their businesses in New York City.

“I have
described this country’s immigration policies as national suicide. We
are educating the best and the brightest and giving them the
opportunity, and then we don’t give them green cards,” he said. “Too
many people don’t understand; they think that immigrants are
threatening and in fact, immigrants are the solution to our problem.”

Bloomberg commended Colorado Congressman Jared Polis’ EB-5 Visa
program, which has allowed more entrepreneurs to enter the United
States.

“A key to maintaining New York’s status as the world’s
economic capital is ensuring that we continue to attract and retain
talented entrepreneurs from around the globe,” said NYCEDC President
Seth Pinsky. “It is their energy and their ideas which keep this city
and this country fresh and competitive.”

Robert Lieber, Deputy
Mayor for Economic Development, added that their ideas “will lead to
new jobs and new opportunities for people in NYC.”

The winning
team, Greenext Technology Solutions, represents the Indian Institute of
Technology Madras in India. It is developing a product called XEstor,
which can act as backup power source.

Software receives data
from electric grids to evaluate consumers’ energy demand and energy
prices, and then charges or discharges battery storage sites
accordingly.

“It just gives us a better chance to understand
and focus [on] what consumer demand is going to be like, and how best
we can optimize or how best we can give that power to the consumers in
the cheapest and cleanest possible way,” said Sriram Kalyanaraman, one
of the team members.

The team hopes to finish the prototype by
the end of the year. They estimate that $3 million would be needed to
finish the project.