Little-Known Legislation Could Increase Foreign CRE Investment

A little-noticed bill was introduced in Congress in January that could bring a new source of liquidity to the commercial real estate sector – foreign investment.  Legislation introduced by Congressman Joseph Crowley (D-NY) called the Real Estate Revitalization Act of 2010 would cut taxes that were introduced as part of the Foreign Investment Real Estate Property Tax of 1980 (FIRPTA).  This required foreign investors to pay as much as 55 percent on capital gains from the sale of American real estate shares in REITS and other investment vehicles.

Crowley and the legislation’s other supporters believe that repealing FIRPTA could open the floodgates to needed liquidity at a time when commercial real estate loan defaults pose a risk to the nation’s recovery.  According to the bill’s supporters, the FIRPTA tax penalizes foreign investors willing to infuse their cash into American real estate because they aren’t taxed similarly when they buy Treasury securities, corporate equities or corporate bonds.

Dan Fasulo, managing director of Real Capital Analytics, points out that foreign investors comprise only 10 percent of commercial real estate acquisitions in the United States.  Fasulo notes that “Could (removing the tax) double the amount of investment activity in the U.S.?  Sure.”

Crowley’s legislation has received little attention, although it has little vocal opposition, because it is being drowned out by Congress’ preoccupation with the healthcare reform debate.  Peter Peyser, managing principal of the lobbying organization Blank Rome Government Relations LLC, believes the legislation will likely be attached to a larger bill to assure passage this year.  “A small targeted provision like this one would need to be part of a larger package because it’s unlikely that something like this is going to gather enough steam to get through on its own.”