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USCIS Statement on EB-5 Tenant Occupancy Methodology

USCIS statement on stakeholder questions about the adjudication of petitions that for purposes of the job creation requirement have utilized what has been commonly termed a “tenant-occupancy” methodology.

One Response

  1. The solid response to the Tenant Occupancy
    Criteria of the USCIS : A real market need.
    March 23rd 2012 by Rodrigo Azpurua

    As part Riviera Point Holdings, we are developing a 70,000 square feet Office Park in the City of Miramar, Broward County, Florida, we are located on the Greater Fort Lauderdale market. We obtained our first I-526 approval in December 2011 and our second one in late 2012. Our business Plan and our econometric Study were performed in the last quarter of 2010 and they do comply with the current Economist criteria of the USCIS.

    The reason for that compliance is that we share their opinion. In a recent Request for Evidence (RFE) they stated, “USCIS believes that based on contemporary economic methodologies appear to indicate that such jobs (the ones derivate by tenant occupancy) would be more appropriately attributed to the tenants themselves and not to the development itself. “…Because the demand for labor precedes the decision about where to house that labor as a general economic principle”. We consider this to be truth.

    Site selection it’s a complicated process with many variables to be considered, and when you add the constraint of the EB5 regulations it gets more complicated, specifically the constrain of a Targeted Employment Area (TEA), while considering the previous statement about the labor and the house of the labor, If the unemployment is high how can the Real Estate Development be attractive?

    As Developers we are proud to say that we are continually monitoring the markets on all main MSA (Metropolitan Statistical Areas) of the state of Florida, in order to identify a market need and provide a solution, a respond that would satisfy such need. When we decided to get into the EB5 raising funds challenge, we didn’t loose our site selection criteria to fit our development into the Eb5 frame of legal and economic regulations. Our main core ideology and values that supports our company and to execute the envisioned future of our project needed to supersede EB5 rules.

    We did deep research until we found a site within our site selection criteria of market need, and that it would comply with EB5 regulations: it’s hard but is doable.

    Have in mind with all this new “Tenant Occupancy Issue” the USCIS did not rejected the tenant occupancy model for the adjudication of the job creations, they left an OPEN DOOR: while stating: “However,… Regional Center may present additional evidence to demonstrate that the proposed methodology is economically reasonable”.

    As standard procedure on our research we use 6 broad areas of data, that happen to comply with the USCIS request, we recommend this data to be gathered a use of as best practice for site selection on every real estate development, and with more importance in this time that will also satisfy the USCIS guidelines.
    Such areas of data are the following:

    1. Geographic area of which the data is presented.
    a. Formal, these are the established political boundaries like the nation, state, county, cities, Metropolitan Statistical Areas, Consolidated Metropolitan Statistical Areas, Census Tract, Zip codes.
    b. Segmentation or Functional Regions, this are chosen and established by the analyst and are define by considering the area from which the majority of business will come to support the site’s use. The must common are the radius (around the site) and the driving distance (contemplates the traffic factor that influence how the people will drive to the site).

    2. Demographics:
    a. This means, “describe the people”, this data includes, population statistics by age, race, sex, education, occupation, income, house value, etc.

    3. Jobs (Employment):
    a. it’s important to understand the causes and effects that creates a demand. Economist uses employment as the primary predictor of real estate demand because it starts a chain of reaction. The way such chain works: First identify the basic industries and business that bring export oriented income into a community and measure relative importance of basic employment to the local economy, identify any employment changes due to changes in the basic industries, forecast the impact the changes in the basic industries and the resulting changes in total employment, that way the demand for office and for warehouse space (based also on the type of employments) can be determine, and the impact of such employment change on the total population change, the will define the expenditure dollars amount for the retail space demand.
    b. Basic Employment: Jobs in industries with activities that produce more goods and services that can be consumed in the local area. It brings money into the local market drives the local economy.
    c. Non Basic Employment: Activities that produces goods for the local economy, production for internal production.
    d. Within the EB5 world: The description of such business activities must be done within the requested industry categories and NAICS codes.

    4. Vacancy Rates:
    a. Is the number of square feet available for occupancy at a certain point in time, usually the present and is expressed as a percentage of the total supply.
    b. If increases: the supply is increasing or there is a loss of basic employment.
    c. If decreases: An expansion in the market is occurring and the demand is increasing due to rapid growth on basic industries and its reaction on the non basic sector.
    5. Rental Rates:
    a. The way the rental rates varies it must be analyze in conjunction with the vacancy rates and absorption data, if the rental rates are stabilize mode or the growth is below in the inflation rate, is a sign that the market is expanding.
    b. Market is in clear expansion when rental rates rise rapidly toward new construction levels.

    6. Absorption:
    a. It’s the amount of inventory measure either by unit or square footage, that becomes occupied during a specific time period, either a quarter or a year, an acronym that you often find in the market reports is YTD (year to date).
    b. This data helps to decide the amount of new square footage or units that can be added every year.
    c. Absorption is calculated my subtracting the total amount of unit occupied at the beginning of the year period to the total amount of units (or square feet) occupied at the beginning of the year.

    By gathering this data from reliable sources and analyze them with the proper methodology and adding them to the USCIS acceptable econometric methodologies (including IMPLAN, RIMS II, and REMY) every developer should be able to fulfill the PATH ALREADY SET: “To adjudicating the fundamental reasonableness of any particular economic methodology, USCIS requests that any econometric study provide a data-based assessment, and the source of data utilized by the assessment in order to address the following points:

    1. Evidence that there is excess demand for the specific types of tenant.
    2. Data, which establishes whether there is “pent-up” demand for the specific professional and business services relevant to your project
    3. Evidence of congestion externalities as demonstrated by a low vacancy-unemployment ratio pursuant to specific space and businesses seeking to expand, respectively; and
    4. Evidence of upward wage and rental pressures in specific regional sectors that are likely to be attracted to the proposed project space
    5. The jobs that become located within the tenant space of the project should be shown to be a result of an expansion in specific services driven by your project as opposed to tenant shifting and/or relocation of already-existing jobs.

    In our case, Riviera point Holdings, the vacancy rate for the submarket where the project is located is 8.9% and it has been on a consistent declining trend since last quarter of 2010.
    There is no new construction in the area due to lack of land with entitlements for office space and lack of Bank Financing for construction projects.
    We add to the formula that we are developing a Green Building that are very few in the state of Florida, what give our project a unique proposition that our competitors don’t have. All that is parte of our Business plan and included on the econometric report.
    Our project is and “On Going” project and we are breaking ground on a week from now ready to satisfy that gap we found in the market.
    For more information about Riviera Point Holdings visit our website http://www.rivirap.com or contact me at razpurua@rivierapointholdings.com, cc: Rodrigo.azpurua@gmail.com


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