USA Law and Practice Contributed by: Richard L. Rosen, Leonard S. Salis and Dennison Marzocco, Rosen Karol Salis PLLC
• the Tax Equity and Fiscal Responsibility Act of 1982 (which tightened withholding and reporting requirements on payments to foreign persons, including income from US real property). These laws generally impose reporting or disclosure requirements in which foreign investors report the real estate transaction to the appropriate federal agency by submitting information returns. Additionally, some states prohibit foreign investors from purchasing land, and others limit the amount of certain types of land that can be acquired. The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded the reach of the Committee on Foreign Investment in the United States (CFIUS), which is vested with the authority to prohibit foreign investments that it determines would adverse - ly affect national security. CFIUS now has the author - ity to review the purchase or lease of controlling and non-controlling interests in real property acquired by foreign persons located in close proximity to sensitive government facilities, such as military bases and air - ports. If the parties to a real estate transaction believe that the transaction falls within CFIUS’s purview, they should, but are not required to, file notice with CFIUS to seek its approval. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate The commercial real estate private lending market is substantial, with about USD4.75 trillion in outstand - ing commercial and multi-family mortgage debt. The sources of capital are diverse and encompass tradi - tional lenders, such as large financial institutions, as well as private debt funds, REITs and other specialised real estate lenders. Private debt funds, which provide capital and loans to real estate investors, are funded by capital raised from institutional investors such as pension funds, endowments, family offices and sovereign wealth funds. Interest received from the debt is then distrib - uted to the fund’s investors. Private debt funds grew in prominence following the 2008 financial crisis, during
which traditional lenders retrenched, and more strin - gent rules were created, to apply to borrowers. REITs are publicly traded companies set up to own and operate large commercial properties. REITs are funded through the sale of securities to investors. Equity REITs own and operate properties directly, while mortgage REITs function as lenders, by provid - ing financing secured by real estate. Both types of REITs raise capital through the sale of securities to investors. REITs may be publicly traded or privately held. For larger portfolio or corporate acquisitions, other structures may be used, including commercial mort - gage-backed securities, syndicated loans, and mez - zanine financing or preferred equity to bridge gaps in the capital structure. Where the target acquisition is a company holding real estate, rather than the real estate directly, leveraged buyout structures more typi - cal of M&A transactions may also be employed. 3.2 Typical Security Created by Commercial Investors Lenders typically require commercial property own - ers and developers to grant a mortgage or deed of trust over the property being acquired or developed as collateral on the loan, and will commonly take an assignment of leases or rental income, along with other assets. The borrower may also be required to provide a personal guarantee, meaning that the bor - rower, or the borrower’s principal(s) or a third party, will be personally responsible for the debt, if the collateral is insufficient to cover it. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders Foreign lending activity is generally not restricted in the United States; however, foreign lenders may be required to obtain licensure in the states where the lending activity occurs. Depending on the circum - stances, national security clearance may also be required. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security The recording of a mortgage usually requires the pay - ment of mortgage fees and taxes, which vary from
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