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Sunday, 03 April 2016 15:47

Foreign investment in West Michigan real estate remains elusive

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Foreign investors have considered Michigan an attractive place put their capital to work in the post-recession years.

But those funds typically have gone to sectors other than commercial real estate.  

From January 2006 through January 2016, foreign nationals have invested $12.8 billion in the state’s economy, with nearly $2.5 billion of that total coming in a two-year span from 2014 to 2015, according to a report from FDIMarkets.com supplied to MiBiz by the Michigan Economic Development Corp. 

The decade of investment has helped create nearly 53,000 jobs, according to the report. 

While many wealthy foreign individuals have made choice investments in real estate in top markets in New York, Chicago and Miami, the FDI Markets report shows investors looking at Michigan tend to choose the state’s best-known industries. 

Of the total investment over the 10-year timeframe, 30 percent has gone to automotive components companies, while 15 percent was invested in other industrial manufacturers of machinery, equipment and tools, according to the report. 

But with more high-end projects in the development pipeline and the Grand Rapids area increasingly gaining positive national attention on best-of lists and in media reports, commercial real estate brokers say they’re bullish on the prospects of future investment. 

“My perspective is that Grand Rapids has grown up some in the last years,” said David Rapp, an investment associate in Grand Rapids at Colliers International, a commercial real estate brokerage. “There’s a lot of things showing up that set us up for long-term stability. Lots of the (rising commercial real estate) pricing is just us catching up with the rest of the nation.” 

While Rapp said the Grand Rapids area offers a number of attractions for investors to consider the region, he also pointed to a handful of reasons that could serve as deterrents. 

Specifically, Rapp said that labor shortages can add cost and time to construction projects. Additionally, a lack of available development sites can make it difficult to invest in the area, he said. 

Not only have foreign investors largely stayed away from investing in Michigan real estate in favor of manufacturing and business services, but they’ve largely eschewed a popular, albeit controversial, investment vehicle. 

Only one project has leveraged EB-5, a federal government program that grants a permanent visa to qualified foreign investors who put at least $500,000 or $1 million into a commercial project, depending on the project’s location, as MiBiz reported last September.

In interviews, developers say that Midwestern states like Michigan — which have areas with relatively high unemployment rates and have grappled with significant disinvestment over the last decade — are exactly the type of market for which EB-5 was created.

While developers and investors in Michigan have largely ignored EB-5, applications for projects in New York City hit record levels, spurred by fears that Congress may not renew the program, according to a Wall Street Journal report from late March. 

Some developers in West Michigan remain convinced that the EB-5 program could bring a whirlwind of new projects to Michigan. However, the only developer in the state to have used the program says that Michigan’s reputation as a flyover state makes it hard to convince investors to park their capital here. 

Ron Schults, principal at St. Joseph-based Edgewater Resources LLC, used EB-5 to get 38 foreign investors to pitch in a collective $18 million for Harbor Shores, a resort and golf course development in Benton Harbor.

However, to get buy-in from the investors, Schults needed to describe Benton Harbor for its proximity to the nation’s third-largest city. 

“We actually sold (Benton Harbor) as a suburb of Chicago because at least people know about Chicago, even though it’s still in the Midwest,” Schults told MiBiz in September. “But they do know about it, so that helped us a lot.” 

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