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Back in May, Gov. Ron DeSantis approved a bill restricting certain real estate sales to Chinese citizens throughout Florida.
SB 264 banned foreign investors from specific countries from purchasing land that is agricultural or near critical infrastructure like military bases. But the law specifically singles out Chinese investors and puts a broader ban on real estate purchases for them.
While guidance on what kinds of restrictions affect investors from Cuba, Iran, North Korea, Russia, Syria and Venezuela is more clearly defined, lawyers are still grappling with how to navigate the statute that targets Chinese investors.
One particular area of concern is how the bill could affect investment funds containing Chinese investors, Eric Requenez, New York-based Ropes & Gray partner focused on asset management, said.
“One of the things we’ve really been focused on has been … both impacts to investors and institutional investors as well as asset managers, who either invest in Florida real estate directly, or have portfolio companies that may own Florida real estate,” he said.
As a result, Requenez says he’s been swamped with questions on how those funds will be affected, the possibility of structuring alternatives and risk disclosures the funds will need to provide to investors.
But because the statute around Chinese ownership is so broad, both Requenez and his Ropes & Gray colleague David Kaye, a real estate partner, are still trying to iron out the details on how to navigate the law.
“The confusion comes when you have an investor or a fund that owns a piece of raw land prior to July 1 [the bill’s effective date], then after July 1, they build a building on it. As drafted, there’s an interpretation that prior to July 1, it’s not a violation as long as you register, because that’s just the land. But after July 1, once the building is constructed, is that a violation?” he said. “As time goes on, and we’re presented with more fact patterns like that, it’s just creating more confusion and exposing some of the ambiguities that surround this bill.”
Both Kaye and Requenez are also keeping an eye out for similar proposals popping up in other states. Montana Gov. Greg Gianforte signed a similar bill in May while the Texas version died before it could be signed into law.
Meanwhile in Florida, Greenberg Traurig is working with its Tallahassee connections to figure out how to help its clients comply with the law while also keeping a close eye on whether the federal government will go in a similar direction, Fred Karlinsky, co-chair of Greenberg Traurig’s global insurance regulatory and transactions practice, said.
“We will continue to see the federal government and state governments look at the interplay between foreign investors and local communities and also other aspects, not only on the real estate side, but on contracting with state governments,“ Karlinsky said. “As the world becomes a smaller place … state governments and the federal government are going to make sure they understand who they’re doing business with.”
A Potential Chill on Investment
Another factor to consider is whether the law will scare away some investment activity in Florida. Rafael Aguilar, a real estate partner at Winston & Strawn’s Miami office, says it’s possible.
Private equity funds in particular are facing complications, according to Aguilar.
“There’s an exception in the law allowing for a certain percentage of the indirect owners of a fund being Chinese investors without tripping the law,” he said. “Unfortunately, that only applies to publicly listed investment funds, so a lot of the private equity funds that are privately held don’t have that exception, which means that, theoretically at least, just a handful of Chinese investors in those funds, irrespective of what percentage they comprise of the overall fund, could trip up the funds in doing deals in Florida.”
Going beyond Chinese investors, Aguilar’s practice focuses more on Latin American clients, a driving force in Miami’s overall market. With Venezuela on the broader list of countries named in the law, investors there, who have historically invested heavily in Miami, may get spooked, he said.
But because the housing market in particular is still strong and supply is so low, Aguilar does not see an imminent impact there.
On the immigration side, EB-5 investments, a federal program that offers visas to some foreign citizens who invest in the U.S., may be subject to a chilling effect, said Maria Casablanca, chair of Akerman’s immigration planning and compliance practice.
Casablanca has seen the huge effect Venezuelan investors have had on Miami, but those investors are typically individual investors as opposed to pooling investors. But she says she has historically seen a large percentage of EB-5 investments coming from China.
Based on what she’s seeing today, the EB-5 program has seen a slowdown over the last year or so. Now with SB 264 in place, it is seemingly forcing a further deceleration, Casablanca said.
“The rumor among the EB-5 players is that they’re not going to start any new projects in Florida because of the restriction on Chinese investment,” she said. “That is just how it will affect the large multimillion dollar EB-5 projects … The real estate will be affected by the Venezuelans pulling away because they invest in smaller developments that the Chinese would not do.”
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