USA - NEW YORK Law and Practice Contributed by: Adam S. Walters, Erin C. Borek, Timothy P. Moriarty and Kelly E. Marks, Phillips Lytle LLP
2.11 Legal Restrictions on Foreign Investors Regulations issued since passage of the Foreign Investment Risk Review Modernization Act of 2018 expose even noncontrolling foreign invest - ments to potential CFIUS review if the invest - ment conveys certain minimal rights in property within one of the listed proximities to specified national security installations or infrastructure. In view of the substantial penalties should CFIUS later determine a filing should have been made, as well as CFIUS’ authority to block an invest - ment or even order divestiture, filing for such review by simple declaration or more detailed notice, if applicable, would seem advisable. Investors from “excepted investor states” (cur - rently Australia, Canada, New Zealand, and the United Kingdom) are exempt from filing for noncontrolling investments provided the inves - tor meets the detailed criteria of relationship to the “excepted” state outlined in the regulations. Even for these states, however, the usual rules apply for acquisition of controlling interests. Commercial real estate acquisitions are typically financed through commercial real estate loans from institutional lenders, customarily secured by a mortgage. In addition, commercial mort - gage loans are usually further supported by guarantees of payment from the borrower’s indi - vidual principals. For new construction, borrow - ers can apply for a construction loan mortgage. In addition to mortgage loans, purchasers of commercial real estate may obtain mezzanine financing to finance amounts beyond what is 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
New York Tax Law was recently amended to provide that when the purchaser fails to pay the tax, the seller is required to pay. When the seller is required to pay the additional tax because the purchaser failed to pay, the additional tax becomes the joint and several liability of the seller and the purchaser. A transaction of shares in a property-owning company also triggers a transfer tax obligation if the grantee, or a group of grantees acting in concert, acquires a controlling interest (50% or greater) from one or more grantors. Section 1402 of the New York Tax Law regulations provides a safe harbour for acquisitions of a controlling interest completed outside of a three-year peri - od. The transfer tax is calculated by utilising the consideration paid for the shares or the gran - tor’s pro rata share of the fair market value of the real property owned by the property-owning company. Standard Exemptions There are certain standard exemptions, includ - ing conveyances: • to the federal or state government, or their agencies or political subdivisions; • to secure a debt or other obligation; • to confirm, correct, modify, or supplement a prior conveyance; • made as gifts; • that are only intended as a change of identity; • given in connection with a tax sale; • by deed of partition; • made pursuant to the federal Bankruptcy Act; • that only consist of certain contracts to sell, or options to purchase, real property; or • not deemed a conveyance within the meaning of New York Tax Law.
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