The first time Chun Yang saw Tacoma, it reminded him of his hometown of Shanghai. Yang already has built a twin-tower hotel in his hometown. He wants Tacoma to be next.
Tacoma is “a very impressive historical city. It has beautiful scenery,” Yang said last week, just an hour before the City Council approved a development agreement with Yang’s company to explore buying some city-owned land and then building two 24-story towers in the heart of downtown.
In an interview, Yang explained why he believes such an ambitious project can succeed in Tacoma, which has had no fully private commercial construction since 2004, when the Rainier Pacific Bank building opened on Pacific Avenue.
The city “has room to grow for an upscale hotel, especially next to the convention center,” Yang said through his interpreter and project manager, Albert Sze.
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The growth in convention attendance, as well as the future growth of the University of Washington Tacoma, will provide enough demand for the $150 million project, he said.
Based on the initial timeline in the development agreement, a four-star hotel with street-level retail space could be open by December 2018. If the developers decide at that time that an apartment/condo building with more retail space is feasible, it could open by 2022.
The dates are estimates: Any construction project this large almost always comes with delays that can range from months to a year.
Yang is confident demand will exist by the time each phase is finished.
Use of the Greater Tacoma Convention & Trade Center will provide customers to fill part of the hotel, and “brand-name retailers” will draw in more shoppers and visitors to the retail below, he said. Later, demand for closer campus living will drive the success of the apartment/condo tower.
UWT has 4,501 students enrolled now, spokesman Mike Wark said. By 2018, the school projects it will have 6,500 students. By 2020, its furthest projection, it estimates it will have 7,000 students.
In 2013, the school employed about 540 faculty and staff members, whose numbers presumably would grow along with enrollment, though Wark said the school doesn’t project those numbers as it does enrollment.
Yang did not name any potential anchor tenants, but said he believe he can bring something “new to the market, and focus on retailers and a combination of shops” not now in Tacoma that will draw visitors and students to spend their money.
Big names in retail don’t usually subscribe to the “build it and they will come” philosophy. They want a guaranteed customer base before making a commitment.
Yang is undeterred.
“He believes he can be a pioneer,” Sze said. Besides those brand-name retailers, “a food court is probably an essential element to spike business in that area.”
Yang is the owner of Yareton Investment & Management and president of its parent company, Shanghai Minqiang Investment Group.
In Shanghai, Yang’s company built the Shanghai Mingde Grand Hotel, a five-star hotel in the city’s commercial center; and Hui Yang Plaza, a 1-million-square-foot commercial complex that recently opened.
In the United States, Yareton is building the Four Points by Sheraton Seattle Airport South in Des Moines, which is scheduled to open in late summer 2015.
That project is Yareton’s first in the United States, and is being partially financed through the federal government’s Immigrant Investor Program, also known as “EB-5” for employment-based fifth category.
U.S. law has five ways for people to immigrate through employment-based means.
Congress approved the EB-5 program in 1990 to create jobs in America by encouraging foreign capital investment. Immigrants whose investment of $1 million leads to the creation of 10 direct full-time jobs can receive a permanent visa.
The EB-5 program also contains a “ regional center” provision, which has lower investment requirements to encourage capital infusions into rural areas or areas of high unemployment.
To qualify for a permanent visa, immigrants can invest $500,000 if the investment leads to 10 full-time jobs, and those jobs can be direct, indirect or induced. For example, if the investment creates a construction job and a job at the coffee shop where the construction workers visit, both jobs count.
From 2005 to 2013, a trade group estimates the EB-5 program has attracted $6.5 billion in foreign investment to support 131,000 American jobs. The program took off in the aftermath of the Great Recession, because it was a way for developers to raise capital since U.S. banks weren’t lending.
EXTENDING TO TACOMA
Yareton has a regional center designation for the Des Moines project, and Yang plans to ask the federal government to extend it 20 miles south to include downtown Tacoma.
Such an extension is very common, said Peter Joseph, executive director of the Association to Invest in USA, the nonprofit trade association for the EB-5 Regional Center program. Yareton is not a member.
An extension request takes an average of 8.5 months to process, according to U.S. Citizenship and Immigration Services, which oversees the program.
Yareton’s development agreement with Tacoma gives it until about fall 2016 – almost two years from now – to secure its financing for phase one of the project, which is estimated to cost about $85 million.
The city requires the project to have at least 40 percent of that, or about $34 million, come from investment in the project. The rest would be a conventional construction loan from a local bank. Yang and Sze said they have several offers they’re evaluating.
RAISING THE MONEY
The number of immigrant investors allowed on a regional center project is determined by the number of jobs it generates. The federal government must approve the number.
Yang and Sze estimate the first phase of the project will generate about 900 jobs.
At 10 jobs per investor, about 90 investors at the $500,000 level would be allowed. That would raise almost $45 million – about $11 million more than they’re required to have for the equity component, so it gives them a cushion.
The calculations are about the same for the second phase of the project – the apartment/condo building – if Yang decides to build it after the hotel is done and financially stable.
Ultimately the two towers could result in about 180 immigrant investors.
“Maybe not all will live in Tacoma, but some of them might,” Sze said. “And they will bring their related businesses. They will open their own shops. These people have been successful in China. They want to open their own business. And we know that will happen when we have the facilities for them.
“Even if just one-fifth of them are interested in staying in Tacoma and opening businesses, this will make the game change right away.”
SCHOOLS A PLUS
EB-5 investment isn’t available to just anyone.
Investors must meet certain qualifications, most found in the umbrella term “high net worth.” Generally that means a person must have $1 million in liquid assets and an average annual salary of at least $250,000.
China is a country of about 1.3 billion people. About 2.7 million of them, or 0.2 percent of the population, are high-net-worth individuals, according to a recent report on Chinese wealth by the Shanghai-based Hurun Research Institute.
The report showed their average age is 39, and 80 percent of them have children.
And they’re worried, said Michael Fowler of the World Trade Center Tacoma.
“Chinese want to stay in China,” said Fowler, who is working closely with the city and Yang on this project. “But there’s pollution. And the food – they cannot trust that what they’re eating won’t give them cancer. Cancer rates are through the roof.”
Then there’s uncertainty over government policies, Fowler said.
Most wealthy Chinese people have made money in manufacturing, but their wealth is in real estate. Values have appreciated over the years into the double digits. They have no property tax now, Fowler said, but that can change in an instant.
Finally, the attractiveness of college outside China cannot be underestimated, Fowler said, and that’s where Tacoma shines. The UWT, the University of Puget Sound, Pacific Lutheran University, Tacoma Community College and Bates Technical College are giant assets.
The hotel developer Yang’s son, Yiwen, will start attending UWT Tacoma in January.
“There’s a very strong tie between academic pursuits and their children” for foreign investors, Fowler said. College entrance exams in China are, in a word, hellish.
“Rich kids are not necessarily the best test takers,” he said. “Usually it’s the countryside folks who score highest on the tests because it’s their out. So coming to the U.S. is a good alternative for wealthy children and has good career opportunities as well. EB-5 is a way to get there.”
The first project milestone Yareton must meet will be in the spring, when it has finished its due diligence and come up with a development plan for the city’s review. Part of the process is beginning the design process, which will involve the city’s Landmarks Preservation Commission after the new year.
The site of the project sits in two designated historic zones. Yang said he plans a design that will respect the historic architecture of the UWT campus to its south and the post-modern design of the Greater Tacoma Convention & Trade Center to its north.
Among the styles he’s considering: “Art deco,” he said.