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EB5 INVESTORS MAGAZINE

Viable Economic Models for EB-5

By Kevin Wright, Eugenia Larmore and Jenny Thorvaldson

         A large part of my job with Wright Johnson is to travel around the world to meet with migration agents and others involved in the EB-5 industry. As you might expect, people ask me a variety of questions during our conversations. Many of those questions involve the different output models that are used to predict the number of jobs an EB-5 project creates. I would like to take this opportunity to explain the major differences between the two most widely used input-output models—RIMS II (Regional Input-output Modeling System) and IMPLAN (Impact Analysis for Planning)—and summarize some of the recent changes in the data used for both models.

RIMS II vs. IMPLAN

         The RIMS II differs from the IMPLAN in three main ways:

  • RIMS II uses a single household national average spending pattern for induced personal consumption, while IMPLAN has spending patterns for nine household income classes weighted by local demographics.
  • RIMS II maintains the national ratio of Value-Added to Intermediate Expenditures regardless of the study area. IMPLAN adjusts the national coefficients to reflect state- and county-level value-added data.
  • RIMS II uses the location quotient method for estimating Regional Purchase Coefficients. This method does not correct for cross-hauling, thereby underestimating inter-regional trade and overestimating regional multipliers. IMPLAN uses trade flows based on a gravity model.

         Although these technical variations may seem subtle, they have a very real effect on job creation predictions. IMPLAN's nine household types and greater sector detail along with its multipliers, combined with the more advanced methodologies used by IMPLAN, generally result in more accurate predictions than with RIMS II. The IMPLAN model tends to estimate a smaller number of jobs than RIMS II, although this is not true with all sectors, as can be seen in the hypothetical projects below.

Model Updates

         RIMS II released their 2013 multipliers earlier this year. The 2014 RIMS II multipliers are anticipated in late 2016. RIMS II multipliers will now be updated on an annual basis.

         IMPLAN has 2013 and 2014 multipliers currently available. IMPLAN is updated on an annual basis.

Multiplier Comparison between RIMS II and IMPLAN

         The following chart represents a side-by-side comparison of 2010 RIMS II multipliers, 2013 RIMS II multipliers, and 2013 IMPLAN multipliers:

LOCATION

2010 RIMS MULTIPLIER

2013 RIMS MULTIPLIER

2013 IMPLAN MULTIPLIER

LA MSA

 

 

 

Non Residential Construction

14.2875

13.8547

11.1045

Health Care Structure Construction

14.2875

13.8547

9.7079

Hotel

15.9353

14.3689

15.4050

Assisted Living Facility

24.0208

21.8876

22.4830

Full-Service Restaurant

22.9647

23.6290

24.8967

 

MIAMI MSA

Non Residential Construction

18.6844

18.4304

11.8170

Health Care Structure Construction

18.6844

18.4304

10.1662

Hotel

17.9695

16.3665

15.1880

Assisted Living Facility

26.9299

25.9901

24.7800

Full-Service Restaurant

24.8790

25.8234

24.8673

 

NEW YORK MSA

Non Residential Construction

14.0583

14.4809

1.6926

Health Care Structure Construction

14.0583

14.4809

1.71103

Hotel

16.2012

15.0739

11.5095

Assisted Living Facility

24.0925

22.7829

18.7366

Full-Service Restaurant

23.9649

25.0491

22.0529

 

SAN FRAN MSA

Non Residential Construction

11.7774

11.1007

1.6286

Health Care Structure Construction

11.7774

11.1007

1.6360

Hotel

14.7108

12.9763

13.6680

Assisted Living Facility

22.2759

19.9976

20.2368

Full-Service Restaurant

21.3871

21.7089

22.5281

Hypothetical Project Examples

         Three hypothetical projects are listed below, along with their assumptions. Both 2013 RIMS II and 2013 IMPLAN multipliers were used to determine the construction expenditure and operational revenue for the Los Angeles and Miami Metropolitan Statistical Areas (MSA).

Project #1

  • A 98,000 square-foot, 126-key full-service upscale hotel
  • Hard construction costs: $17,000,000
  • Average Daily Rate (ADR): $253.00
  • Stabilized occupancy: 75%
  • Revenue input: $8,725,000

LOCATION

2013 RIMS MULTIPLIER

2013 IMPLAN MULTIPLIER

LA MSA

Job Creation

Job Creation

Non Residential Construction

96.3

77.0

Hotel

116.1

123.0

 

Miami MSA

Job Creation

Job Creation

Non Residential Construction

123.3

83.0

Hotel

132.2

121.3

 

Project #2

  • 5,000 square-foot full-service restaurant
  • Hard construction costs: $1,200,000
  • Revenue input: $5,000,000

LOCATION

2013 RIMS MULTIPLIER

2013 IMPLAN MULTIPLIER

LA MSA

Job Creation

Job Creation

Non Residential Construction

6.8

5.5

Full-Service Restaurant

112.5

116.8

 

Miami MSA

Job Creation

Job Creation

Non Residential Construction

8.7

5.9

Full-Service Restaurant

122.9

116.6

 

Project #3

  • 143-bed assisted living facility
  • Hard construction costs: $15,200,000
  • Monthly rent: $4,397
  • Stabilized occupancy: 85%
  • Revenue input: $6,400,000

LOCATION

2013 RIMS MULTIPLIER

2013 IMPLAN MULTIPLIER

LA MSA

Job Creation

Job Creation

Non Residential Construction

86.0

Health Care Structure Construction

71.4

Assisted Living Facility

132.2

133.2

 

Miami MSA

Job Creation

Job Creation

Non Residential Construction

110.2

Health Care Structure Construction

76.4

Assisted Living Facility

157.0

146.8

 

New for RIMS II Multipliers

         The Bureau of Economic Analysis made changes to their RIMS II multipliers with the release of their 2013 data. The most notable is the addition of greater sector detail. For example, 2010 RIMS II data only had one construction sector multiplier, while 2013 RIMS II data now has four (Maintenance and Repair, Nonresidential Structures, Highways and Streets, and Residential Structures). The retail trade sector was also increased from one sector multiplier in 2010 to four in 2013. There are several other sectors that were similarly expanded to include more detail.

         IMPLAN multipliers currently have more sector detail available than RIMS II. Notably, IMPLAN features 13 construction multipliers and 12 retail sectors, compared to four sectors for both multipliers in RIMS. This provides a greater level of detail and accuracy when developing models in these two sectors.

Conclusion

         RIMS II and IMPLAN are both tried-and-true economic tools commonly used to analyze job creation for the EB-5 program. Some differences exist between the two economic models, which generate different results depending on the project. While job counts tend to be higher when using RIMS II multipliers, IMPLAN has slightly more sectoring detail and can be more accurate when estimating project job counts. However, with RIMS II increasing its sector detail and with more frequent updates to both models, either of these input-output models are a viable option for your next EB-5 project.

 

Jenny Thorvaldson

Jenny Thorvaldson

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