How to Take Advantage of the Foreign CRE Spending Spree in 2022
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
If you’re watching the commercial real estate space the way we are, then you might have picked up on some acquisitions launching what we know of as a prominent real estate trend. Foreign buyers are not a new thing in real estate; after all, there is no legal requirement for citizenship or even permanent residency to purchase property in the United States.
However, foreign firms are ramping up the spending in a way that makes it clear the foreign commercial real estate spending spree is undoubtedly here to stay. Take Samsung, for example. They announced in November that they will invest 17 billion dollars to build a semiconductor factory outside Austin, Texas. It’s a sizable investment, so big that Gov. Greg Abbott commented publicly about the big news.
This plan is interesting because it addresses multiple significant problems at once, which is often the game plan for foreign investment companies. In the case of Samsung, the best way to address the chip shortage and massive demand for more chips is to build their own factory. They can not only produce the materials they need for their electronics, but they can also take on the demand from other players in the marketplace.
South Florida is experiencing a surge in new buyers, especially international buyers. Miami is well known as a hotbed for foreign investment, but buyers are looking outside Miami to snap up other properties in Florida.
This means that you have a new market to promote your properties for sale, but jumping into this pool will require some work.
The Commercial Real Estate Broker Is Back
When you’re trying to get the best sale possible, going the for sale by owner route isn’t the way to do it. This is doubly true for sales involving foreign buyers. There are simply too many moving pieces to pull off things solo. You deserve to have the best representation possible.
The Best Characteristics of Successful Commercial Real Estate Brokers
A person who helps others buy and sell real estate is an agent, but it takes extra education and experience in order to become a real estate broker. Commercial property brokers are an interesting group of people that can handle pressure, nonstandard hours, and navigating a wide swath of the community. Here are some of the best characteristics to look out for in finding your own broker:
- Commitment to quality. The best brokers are masters of their local market, which means that they take the time to study the ongoing trends as well as historical buying/selling patterns.
- Time management masterminds. Managing time is the name of the game here, and managing deadlines successfully is the key to pulling off a big deal.
- Network strength. A seasoned broker has taken the time to cultivate relationships across the local community, making it easier to get deals done.
While we sympathize with the uphill battle of the rookie agent, this is not something that you want to hand to somebody else that’s very new to the RE world. You need a wise broker that can connect with buyers that have the funding to close. If that means that they have to line up a mortgage, bear in mind that non-US citizens do have some extra hoops to jump through. However, cash buyers in the foreign market are legion.
Getting Your Property Ready for Sale
A lot of people tend to waffle on whether or not they should put their property up for sale. The answer to that is pretty tricky because there is no direct formula or answer. Maybe you have a partnership, and selling the property is part of the exit strategy. Perhaps you have poured some money in the place but haven’t seen that money come out. Putting up the property for sale means getting a quick cash infusion that can be used for better properties.
The game isn’t emotion-driven; it’s about making the most of your options. Holding onto a property that isn’t serving your needs is a losing proposition. Even if you purchased the property with the best of intentions, letting it go is often the best thing you can do for your business.
Other Considerations for Real Estate Transactions with Foreign Buyers
Keep in mind that selling to a foreign buyer means that the tax implications are a little different. The United States government certainly isn’t going to miss out on any taxable events, which means that you have to take care not to miss where taxes come into play. Of course, a seasoned tax professional well versed in real estate transactions with foreign buyers is an absolute must to pull this strategy off for your own business interests.
The law in question is called FIRPTA, which stands for the Foreign Investment in Real Property Tax Act. It’s from 1980, so it’s been around for a while. You can check out the full details here in a pretty straightforward video at the IRS website.
Moving Forward with Confidence
We cannot stress it enough: having the right team in place before you dive into selling property to foreign buyers is so critical. This guide assumes that you’ve taken the time to line up your "dream team," so you aren’t blindsided by wrinkles that come up in your future real estate transactions.
For example, do you have a real estate attorney that has experience working with foreign entities? Do you have anyone that can review all of the contracts before they go live? Those elements are just as important as finding the right buyer. And in this element of commercial real estate, the right buyer is very important. Going with a seasoned broker is an absolute must if you’re transitioning into opening the doors to non-US-based buyers.
You want to get the broker with the strongest network and best track record for pulling off this kind of deal. And if they don’t have that experience, you don’t want to be the first deal that they work on.
Trying to take on a deal like this by yourself is a recipe for trouble. The deeper you go into the CRE world, you’ll realize that nobody is really doing anything truly solo. The better your team, the more results you’ll get in the long run.
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