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Florida Bill Restricting Foreign Real Estate Purchases A ‘Slippery Slope,’ Brokers Say

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A proposed bill in Florida that would dramatically restrict investment in real estate from Chinese buyers and those from other communist countries could have ripple effects on the rest of the foreign buyer market, experts say.

Florida lawmakers are advancing controversial House Bill 1355, which would ban Chinese nationals from purchasing real estate anywhere in the state. Chinese businesses and people who live in China and aren’t U.S. citizens or residents and who currently own real estate in Florida would not be able to buy additional property after July 1, if the bill becomes law as it is currently written.

They would also have to register their existing ownership of such properties with the state, which some critics have compared to Hitler’s 1938 decree requiring all Jews in Germany and Austria to register their properties.

The amount of Chinese investment in South Florida real estate has dwindled since before the pandemic. But Chinese investors still invest in commercial real estate, such as shopping centers and office buildings, and parents continue to buy condos for their children who attend colleges and universities in South Florida, brokers say.

“As it stands, the Florida bills could make it difficult for families to purchase homes for students studying in Florida,” said Ana Bozovic, founder of real estate data firm and brokerage Analytics Miami. “Is that something we really want to restrict?”

Rep. Katherine Waldron, a Democrat who co-sponsored the bill, said it would likely be changed to carve out Chinese students, the Miami Herald reported.

Waldron said, “We’re not trying to cause anybody harm who lives here.” 

The bill would also ban foreign nationals from Russia, Iran, North Korea, Cuba, Venezuela and Syria from purchasing agricultural land in the state. And it would ban foreigners from those countries from buying land within 20 miles of a U.S. military installation or critical infrastructure facility.

“I understand restricting farmland for purposes of national security, but I think we are on a potentially slippery slope of defining anything and anyone Chinese as potentially insidious,” Bozovic said. 

Lawmakers across the country have sounded the alarm on foreign influence over agricultural production and national security in the U.S., but a Forbes article published in March states that 18 other countries own more agricultural land nationwide than China.

In Florida, foreign nationals own about 6 percent of all private agricultural land, according to the state’s analysis of HB 1355. The analysis, published on Wednesday evening, said that the bill could have a major impact on property ownership because it would allow the state to “seize and sell illegally owned property.”

It’s important to note that the proposed law would likely not have an effect on foreign investors participating in the federal EB-5 real estate investment program, unlike what other publications have reported.

“The proposed bill should not have any effect on the EB-5 program, since the EB-5 investor invests in an entity that usually makes a loan to a business or project, which may or may not be real estate,” said attorney Ronnie Fieldstone, a partner at Saul Ewing in Miami. 

Craig Studnicky, CEO of the brokerages ISG World and Related ISG, agrees with the restrictions on land purchases near military installations and infrastructure facilities, but said the ban on all real estate deals for Chinese investors is going “too far” and “highly discriminatory.”

Several years ago, brokers were known to send real estate agents to China to sell South Florida condo developments — Studnicky’s ISG included. The brokerage partnered with a Chinese group in 2015 to court Chinese buyers, even adding a Mandarin-speaking member to its staff.

But that effort from South Florida brokers died down, and even major development sites purchased by China City Construction in Brickell and Miami Beach have since been sold.

Only seven properties in Miami-Dade County are owned by people or entities with Chinese mailing addresses, according to The Real Deal’s analysis of property appraiser information. That’s just a small fraction of the properties entirely or partially owned by Chinese investors. Many foreign investors will typically create a company in the U.S. and use that company to buy real estate, with a U.S. mailing address.

Chinese buyers accounted for 6 percent of all foreign U.S. residential real estate purchases from April 2021 to March 2022, according to the National Association of Realtors. Buyers from China, Hong Kong and Taiwan spent $6.1 billion on those deals.

Jason Damm, an assistant professor at the University of Miami’s business school, doesn’t think the restrictions would affect the real estate market. Latin Americans make up the majority of foreign investors in Miami real estate.

“It would be difficult to imagine it’s going to make a huge dent in our market,” Damm said. “It’s more of a political statement than anything.” 

Daniel Ettedgui, owner of Miami Beach-based lender and mortgage brokerage firm Financial Triangle, flew to Tallahassee on Wednesday to speak out against the proposed legislation, drawing parallels to Nazi Germany and calling the bill racist.

Ettedgui, who moved from France more than 30 years ago, expects the proposed law would send a message to people from other Asian countries to avoid investing in Florida real estate, and it could also discourage European investment.

“If you do that today with the Chinese, what’s next?” he said. “History is repeating itself.”

 

Source:  The Real Deal

 

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Bill Blocking China From Buying Land In Florida Coasts Through Last Senate Panel Stop

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Less than three weeks after being filed, a bill blocking China and six other “countries of concern” from buying or holding interest in land within range of strategic sites in Florida is heading to the Senate floor.

The Senate Rules Committee voted unanimously to advance the measure (SB 264), a priority of Agriculture Commissioner Wilton Simpson intended to safeguard state security against foreign threats.

Countries named in the legislation — which also includes provisions to protect Floridians’ health information — include China, Cuba, Iran, North Korea, Russia, Syria and Venezuela.

If passed, the bill would ban the governments of those nations and businesses based there from owning real property within 20 miles of “critical infrastructure.” That includes military bases, water treatment facilities, power plants, emergency operation centers, seaports, telecommunication facilities, police stations and other such structures.

Tampa Republican Sen. Jay Collins, a decorated Army Special Forces veteran and the bill’s sponsor, said the measure “does a very good job of protecting our strategic-level interests.”

“We’ve talked about the humanities issues around the world,” he said. “Frankly, there are people who just don’t believe in the American dream and the American way of life.”

As an added layer of protection, Collins’ bill — as well as a House version (HB 1355) by Republican Rep. David Borrero and Democratic Rep. Katherine Waldron — would require documentation from potential buyers attesting their good intent. Any entity purchasing agricultural or real property within 20 miles of a military base or critical infrastructure must provide an affidavit affirming compliance with the proposed law, which would go into effect July 1.

The bill also bars government agencies in Florida from entering into contracts with those seven countries for services that include access to personal information.

Similarly, it would also require health care providers to ensure that the repositories for their patients’ digitally kept records are located within the United States. An amendment the panel approved Wednesday expanded that proviso to also allow storage of that data in U.S. territories and Canada.

Beginning Jan. 1, 2024, any company bidding on government contracts involving access to Floridians’ personal information would have to provide a signed affidavit asserting a foreign country of concern does not own the company or hold a controlling interest in it.

Miami Springs Republican Sen. Bryan Ávila, a lieutenant in the Florida Army National Guard, co-introduced the bill.

According to the U.S. Department of Agriculture, 6.3% of nearly 22 million acres of privately held agricultural land in Florida was foreign-owned in 2021. Senate staff wrote in an analysis that while it is “unclear” how much of that land — roughly 1.4 million acres — belongs to China, “the (federal) department does report that (China) owns 96,975 acres in the ‘South Region,’ which includes Florida.”

SB 264, HB 1355 and a similar but more limited measure (SB 924) Boynton Beach Democratic Sen. Lori Berman filed last month — more than two months after Collins and Borrero announced their legislation — complement an executive order from President Joe Biden. The executive order, which Biden signed Sept. 15, defines additional national security factors the Committee on Foreign Investment in the U.S. must consider when evaluating transactions.

Biden acted in response to growing, bipartisan concern among government officials over protecting Americans’ data, enhancing U.S. supply chain resilience and safeguarding the country’s position as a tech leader.

“The United States’ commitment to open investment is a cornerstone of our economic policy, benefits millions of American workers employed by foreign firms operating in the United States, and helps to maintain our economic and technological edge,” the executive order said.

“However, the United States has long recognized that certain investments in the United States from foreign persons, particularly those from competitor or adversarial nations, can present risks to U.S. national security.”

Isabelle Garbarino, director of legislative affairs for the Florida Department of Agriculture and Consumer Services, signaled support for Collins’ bill Wednesday.

HB 1355 and SB 924 both await a committee hearing.

 

Source:  Florida Politics

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A Strong U.S. Dollar Could Mean A Lot — And Not So Much — For Commercial Property Investment

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A strong U.S. dollar could propel foreign interest in commercial real estate stateside as investors flee weakening economies and geopolitical conflicts abroad.

But the strength of U.S. currency is just one piece of a complex puzzle that dictates global investment activity, and it won’t necessarily translate into billions of dollars pouring in from overseas.

As of July 29, the value of the dollar was outpacing the euro and the pound by 2 cents and 18 cents, respectively. That could signal an even greater investment opportunity in the U.S. among foreign buyers, though it is far from the only factor at play, FTI Consulting Senior Managing Director Josh Herrenkohl said.

“The value of the investment will always trump the value of currency,” he said. “While the value of the U.S. dollar certainly plays into some of the decision-making, at the end of the day, institutional investors are looking to acquire assets that are going to appreciate and will continue to be strong on a go-forward basis, regardless of what currency they’re paying.”

Long seen as a safe haven for assets, overseas investment in U.S. commercial properties made a triumphant return in 2021 when foreign institutions purchased close to $71B of domestic CRE. That was double 2020’s volume and marked the greatest foreign investment in the U.S. since a total of $94.6B was invested in 2018, according to Real Capital Analytics.

If history repeats itself, foreign interest could break down along national lines, Herrenkohl said.

In 2015, when the strength of the dollar outweighed most world currencies, countries with economies similar to the U.S., like Canada, chose to keep their money close to home. But countries with more volatile economies, like Brazil and Argentina, chose to level up their U.S. investments.

“You think we have it bad, many countries have seen 20%, 25%, 30% inflation,” he said. “Even if you are paying a little bit more because of the U.S. denomination, you’re less subject to many of those fluctuations that South American investors might traditionally be faced with.”

In other parts of the world, geopolitical conflicts could dissuade certain countries from investing in the States, Herrenkohl said. China, for example, put a significant amount of money into U.S. commercial real estate in 2015, but that is less likely this time around.

“I don’t think we are going to see a lot of investment in the near term from China, and the same could be said for Russia, for obvious reasons,” he said.

Asian investors have so far this year been more cautious with their investments in the U.S. and Europe, said Harry Tan, head of Asia Pacific research at Nuveen Real Estate. This hesitancy is motivated more by elevated recessionary risks and higher borrowing costs than changes to currency value, he said.

“Investors backed by dollar funding may take the opportunity to accelerate their investments into markets where they already have an existing interest to invest into,” Tan said in an email. “However, institutional investors invest into CRE based on fundamentals; they do not speculate on currency movements.”

The relative strength or weakness of the dollar against the euro makes little difference in investment decisions made by Commerz Real AG, a German investment firm, because the company is legally required to hedge foreign currencies, which protects its assets from future fluctuations, Head of Fund Management Timo Lutz said.

“It doesn’t really matter if the exchange rate is 1-to-1 — as it is more or less nowadays — or 1-to-20 or 1-to-40,” he said. “You have to bear the costs … but you are more or less protected in the long run.”

Commerz Real considers many factors when choosing where to invest, and the cost of currency is just one part of that equation. Investments in U.S. real estate come at a premium when there is a strong dollar, but that added cost is outweighed by other factors, such as the market’s unprecedented demand and distance from the Russia-Ukraine War, Lutz said.

“It’s always the big picture for us from a research point of view,” he said. “We are of the opinion that the U.S. economy is slightly stronger, and they will most likely be able to manage a recession more quickly than the eurozone.”

Commerz Real could choose to redirect funds away from the U.S. if the cost of hedging decimates returns, though Lutz said that is unlikely. The company has $3.19B of assets under management in the U.S., including hotels, offices and retail properties.

“The expectation is that the European Central Bank will increase interest rates, meaning hedging costs will get cheaper and cheaper,” he said. “Nowadays, it’s quite high due to the fact that there is a huge gap, but that will narrow the gap.”

American investors in European CRE flocked to the continent in the first quarter of this year, but cross-border investment volume slowed in Q2, in part due to economic impacts from the Russia-Ukraine War, said Judith Fischer, an associate at Knight Frank, a UK-based real estate consulting firm.

The weak outlook for the European economy, fueled by rising interest rates and inflation, a softening of commercial property prices and a waning occupier market, are all factors behind the dip, Fischer said.

“They are probably worried of what is still to come in Europe,” she said. “That’s why you’re not seeing so much of an influx of institutional investors. At the moment, they may be more hesitant.”

The decision of whether or not to invest in the U.S. could also come down to how much confidence a buyer has in the Federal Reserve. The Fed has thus far responded to volatility in the market by raising interest rates, which could deter some investors, said William Edward Spriggs, a Howard University professor of economics and chief economist for the AFL-CIO.

“The U.S. economy continues to be strong, but it faces clear headwinds,” he said. “The Fed is one of those threats because the Fed is mischaracterizing what it needs to slow down. We’ve already seen the slowdown in the U.S. from fixed investment, which would include commercial real estate.”

Despite economic turmoil in the U.S. and the Fed’s aggressive — or, in Spriggs’ view, misguided — attempts to tamp down inflation, overseas investors will continue to view the U.S. dollar as a safe and stable currency.

To explain this phenomenon, Spriggs referenced a moment in history when Alexander Hamilton solidified America’s reputation as a reliable economy by promising to pay off its debts from the Revolutionary War.

“The commitment that Hamilton made has forever marked the United States as the most stable government in the world,” he said. “The United States always pays its debts — and that’s why they revere the dollar.”

 

Source:  Bisnow

 

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Could Higher Gas Prices Have Ripple Effects For Retailers, E-Commerce Leasing In Industrial Market?

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Retailers and wholesalers accounted for the most industrial deals at 200,000 square feet or larger last year, or 35.8% of all leasing activity, a considerable increase from 24.7% in 2020, according to CBRE Group Inc. E-commerce fell from the No. 1 spot in 2020 to third last year, accounting for 10.7% of all deals, while 3PLs grew from 25.8% to 32.2%, ranking No. 2 among large industrial leases in both 2020 and 2021.

Propelled by a surge in online ordering, and changes to consumer preferences in part because of the pandemic, retailers and 3PLs have ramped up their distribution networks considerably in recent years. That demand is expected to be sustained this year, and could become even more frenzied with the recent surge in gas prices.

James Breeze, senior director and global head of industrial and logistics research at CBRE, said transportation accounts for at least 50% of a typical industrial occupier’s costs, even before the recent hike in inflation and oil prices. But, largely because of sanctions imposed on Russia from the war in Ukraine, oil prices have risen dramatically, although Brent crude futures — a key benchmark for oil prices — began to decline this week. National gas prices were down 0.2% between Monday and Tuesday, according to AAA.

Any run-up in transportation costs will likely outpace warehouse rent growth, even while that’s growing at a rapid clip, which could result in even more demand for warehouse space, Breeze said.

Carolyn Salzer, senior research manager of industrial logistics at Cushman & Wakefield PLC, said higher gas prices could have a ripple effect on the industrial market, depending on the user and their supply-chain model. Both Salzer and Breeze said real estate costs for warehouse users have typically been about 5% of a company’s costs but, more recently, that’s gotten closer to 10%, Salzer said.

 

Source:  SFBJ

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