In the latest episode of the NAREIT Podcast, Jim Fetgatter, chief executive of the Association of Foreign Investors in Real Estate (AFIRE), analyzed the effects of legislative changes to the rules governing foreign investment in U.S. real estate. He also reviewed the results of AFIRE's annual survey of investors.
Congress passed changes to the Foreign Investment in Real Property Tax Act (FIRPTA) in December that are intended to promote cross-border investment in U.S. real estate. Under the changes, non-U.S. investors can now hold up to 10 percent of a publicly traded U.S. REIT’s stock without triggering FIRPTA upon sale of the stock or upon receiving proceeds from a REIT’s sale of assets. Previously, FIRPTA was triggered upon sale or a capital gain distribution if a foreign investor held more than 5 percent of a U.S. REIT’s shares. Also, the new law allows foreign pension and retirement fund investments in U.S. REITs and real estate to receive equivalent tax treatment under FIRPTA as U.S. pension funds.
FIRPTA “has been a big impediment for foreign investment for a long time,” Fetgatter said, “especially for the pension funds.”
According to Fetgatter, the reforms “can only be positive” for the U.S. real estate industry, even if the effects are delayed as the market adjusts to the changes.
Regarding AFIRE’s survey, Fetgatter said the results foreign investors still have “a considerable amount” of interest in U.S. assets. No respondents indicated they planned to cut their holdings in the United States, which Fetgatter said was a first in the survey’s history.
The property types that are popular with non-U.S. investors include multifamily assets and industrial properties. “Multifamily, as we all know, has been on a winning streak for quite a few years,” Fetgatter said.
On a global scale, Fetgatter pointed out that survey respondents identified Berlin as one of the more popular markets for investment. It marked the first time a German city has made its way into the survey’s top five most attractive investment markets worldwide, he said.
Additionally, Brazil has regained favor with investors. Brazil “must have turned a corner of some kind,” Fetgatter said.