Foreign investment in US commercial real state is not only impossible, it is also extremely difficult

Non-US investors wishing to purchase commercial real estate in the United States face legal, financial, and operational issues which require expert, trustworthy local advice. These fall into the following broad categories:

First, Legal and Regulatory challenges:

The US government may review transactions involving non-US investors to ensure they do not pose a risk to national security. Furthermore, foreign investors may need to comply with specific visa requirements to conduct business in the US. Last but not least, foreign investors must navigate complex US domestic and international tax laws, which, if not competently addressed, will result in unnecessary taxes and penalties for non-US owners.

Second,?Operational Challenges:

Non-US investors may lack familiarity with the US commercial real estate market, including local market conditions and property valuation norms. In addition, conducting thorough due diligence, that is, inspecting properties and verifying information, can be challenging. Another challenge is finding and overseeing a reliable local property management company and a competent leasing agent.

Third, Lender Requirements When the Purchase Price Is Not Paid In Cash:

Lenders may require extensive documentation, including proof of income, asset declarations, and a detailed business plan. ??Also, US lenders typically require a good credit history and strong financial statements, although these requirements can be easier to satisfy depending on the stability of income from the property being purchased.

In addition, the political relationship between the investor's home country and the US, and or economic instability in the investor’s home country can influence the ease of obtaining financing. ?In other words, non-US borrowers may, owing to the political environment, be subject to higher interest rates and fees than lenders would otherwise charge.

For some or all of the foregoing reasons, foreign investors may have access to fewer lending options compared to domestic investors. For example, some lenders might prefer, or require, foreign investors to partner with US-based entities or individuals to mitigate risk. In all events, cross-border financial transactions involve international laws, and they therefore require specialized legal advice.

Fourth and Last: Strategies to Overcome These Challenges:

Regarding third-party financing, a non-US investor may want to explore alternative financing options, such as private equity, venture capital, or international banks.

Regarding all of the above, a final piece of expert advice: your client’s essential first step is to hire a lawyer who has lots of experience in real estate law and in domestic and international US tax law, and who knows lots of managers and brokers in the US real estate industry. It is essential both for the value of the advice and to assist in assembling a team of trustworthy property managers, financial consultants and leasing agents.

David Borinsky, the author, is a US lawyer with over thirty years’ experience giving tax and real estate advice to midsized and large US real estate investors.?? He holds a masters degree in US taxation from New York University and a masters degree in international taxation from Leiden University in the Netherlands.

He will be happy to have a short, uncompensated conversation with you about tax and real estate issues, and about strategies for identifying trustworthy leasing agents, property managers and financial consultants. ?

[email protected]