MEXICO Law and Practice Contributed by: Roberto Cannizzo, Carlo Cannizzo, Stefano Amato and Mauricio Moreno-Rey, Cannizzo
3.2 Typical Security Created by Commercial Investors
When the seller is an individual or foreign tax resident, taxes are withheld by the notary public who formalises the transaction. If a purchase is performed through share acqui - sition, only income tax will be generated. 2.11 Legal Restrictions on Foreign Investors In principle, foreigners can acquire real estate in Mexico, with the exception of properties locat - ed within the restricted zone (100 km-wide strip along the border or 50 km-wide strip inland from the beaches). However, foreigners may partici - pate with 100% of the equity of corporations, including in the restricted zone, provided the property will not be used for residential pur - poses. A foreigner can own property located in the restricted zone through a trust, by holding ben - eficiary rights, which will grant to the beneficiary practically all the benefits of an owner. Acquisitions of commercial real estate are gener - ally financed by a loan facility whose terms and conditions will depend on the creditworthiness of the borrower and the collateral available. There are different financing options for the acquisition of large real estate portfolios or com - panies holding real estate. In addition to a loan facility with collateral (mortgage, pledge, etc), other options include acquiring the seller’s debts or swapping shares, depending on the transac - tion and the parties involved. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
A commercial real estate investor who is bor - rowing funds typically creates the securities requested by lenders. Lenders usually request mortgages, trusts, shares pledges, furniture, fix - tures and equipment pledges (FF&E pledges), cash deposits, etc. Lock boxes, trusts or other forms of cash control may also be requested by the lender. Depending on the nature and function of the real estate, the borrower may create reserves for maintenance, insurance and improvements. The most common equity financing provisions include the following: • equity financing – the amount of investment versus the participation percentage of the company’s equity; • access to the books and records; • reporting and covenants; • expected return for equity; • the right to appoint directors; and • investment restrictions, limiting the use of invested funds to certain projects or pur - poses. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders There are no restrictions on granting securities over real estate to foreign lenders or on repay - ments to foreign lenders under loan or security agreements. However, taxes may be withheld from the interest paid, which in some cases depends on the tax residence of the lender and whether there is a double taxation treaty with the lender’s country of residence. The acquisition of real estate by foreign lend - ers as result of a mortgage foreclosure could be
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