U.S. Appeals Court Blocks Law Restricting Foreign Investment in Florida Real Estate

Congressional Research Service Report - Foreign Investment State Laws

A federal appeals court recently blocked enforcement of a Florida law that could have negative consequences for foreign investment in U.S. property and agriculture land. The Real Estate Roundtable has urged Florida officials for months to consider changes to the interpretation of the law’s broad language. As currently written, the measure could prevent U.S.-managed funds from pursuing investment opportunities in the state if there is any level of investor participation in the fund from “countries of concern.” (Roundtable Weekly, Feb. 2 and Dec. 15 | Reuters and WFTV, Feb. 2)

Foreign Investment in U.S. Property

  • The outcome of the case (Shen v Simpson) involving the Florida law (SB 264) could have national ramifications. At least 15 other states enacted similar legislation restricting foreign investment in U.S. real estate during the first six months of 2023. An additional 20 states are considering the issue. (Congressional Research Service, July 2023 and Gibson Dunn, Sept. 2023)
  • On Feb. 5, BisNow quoted a Sept. letter from Real Estate Roundtable President and CEO Jeffrey DeBoer to the Florida Real Estate Commission. The letter emphasized that non-U.S. investors may include small investors from China, who routinely subscribe to funds controlled or advised by regulated U.S. asset managers. Third-party, passive investors ordinarily invest as limited partners in the partnership, and do not have the right to participate in the partnership’s management, or exercise control over its underlying investments.
  • “Our concern with the new law is that these U.S.-managed investment funds, which are controlled and managed by U.S. nationals, may now be precluded from pursuing investment opportunities in Florida if there is any level of investor participation in the fund from countries of concern like China,” DeBoer wrote. (Roundtable letter, Sept. 5, 2023)
  • The Roundtable also submitted a comment letter on Jan. 30 to the Florida Department of Agriculture and Consumer Services, which is considering implementing SB 264 measures addressing foreign investment in Florida’s agricultural land. The Roundtable’s letter raised concerns about the unintended and negative consequences for investment in Florida and future economic growth. (Roundtable letter and Roundtable Weekly, Feb. 2)

SB 264 & FIRRMA

11th U.S. Circuit Court of Appeals
  • The 11th U.S. Circuit Court of Appeals, above, considered a ban authorized by SB 264 restricting certain Chinese citizens from owning homes or land in the state. The U.S. Department of Justice filed a “statement of interest” in the case, noting that SB 264 violates federal law and the U.S. Constitution. (Politico and NBC News, Feb. 2)
  • CFIUS is an interagency federal committee authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons.
  • Roundtable Chairman John Fish (Chairman & CEO, Suffolk) was quoted in Bloomberg about Florida’s SB 264, stating, “The law is far-reaching, very, very confusing, and the unintended consequences would be very, very detrimental.” (Bloomberg, Dec. 11 | Bisnow and Inman, Dec. 12)

Oral arguments in Shen v Simpson are scheduled for this April. (Appeals Court order)

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Roundtable Recommends Changes to Implementation of Florida Law Limiting Certain Foreign Investments in Real Estate

Florida Department of Agriculture and Consumer Services

On Jan. 30, The Real Estate Roundtable urged the Florida Department of Agriculture and Consumer Services to consider several recommendations on implementing a new law that could have negative consequences for foreign real estate investment in the state. Twenty states have enacted restrictions on foreign investors in real estate or agricultural land, eight states are considering similar measures, and others are exploring the issue. (Roundtable letter)

Restrictions on Foreign Investment in U.S. Real Estate

  • The Florida agency is considering various aspects of the proposed rule, published on Sept. 21, which implements State Senate Bill 264 (SB 264). The law aims to limit and regulate the sale and purchase of certain Florida real property by “Foreign Principals” from “Foreign Countries of Concern.”
  • The Roundtable’s Jan. 30 letter commended the national security intentions of the Florida measure yet emphasized that the technical language of SB 264 is much broader in scope than the publicly stated intent of the law. The Roundtable also offered several recommendations to help achieve the law’s stated goals without discouraging U.S.-managed investment funds from pursuing investment opportunities in Florida.
  • Real estate and agricultural land are a critical element of Florida’s economy, with state property taxes contributing over 18% of its overall tax revenue. If legal language in SB 264 is not corrected, implementation of the law could have unintended and negative consequences for investment in Florida and the state’s economy.

Roundtable Recommendations

Real Estate Roundtable President and CEO Jeffrey DeBoer
Real Estate Roundtable President and CEO
Jeffrey DeBoer

The Real Estate Roundtable’s concerns with Section 204 (692.202) of SB 264 include:

  • The new law may prevent U.S. investment funds, controlled and managed by U.S. nationals, from pursuing investment opportunities in Florida if there is any level of investor participation in the fund from countries of concern like China. Non-U.S. investors routinely subscribe for small, generally passive minority interests in these funds. These third-party investors do not have the right to participate in the management of the funds in any way or exercise control over the partnership or its underlying investments.
  • A certain interpretation of a de minimis exception available for investment funds controlled by U.S. registered investment advisers could nullify the exception’s application to many different types of private funds controlled by U.S. asset managers that invest in Florida real estate.
  • Clarification is needed about the definition of a “controlling interest” that impacts exceptions to the law based on an investor’s meaningful ownership or influence. (SB 264 text).

This week’s letter from Roundtable President and CEO Jeffrey DeBoer urged the Florida agency to consider the impact of their interpretation and implementation effort carefully, so that they do not inadvertently prohibit major U.S. investments that are safe from control by foreign countries of concern. Clear legal clarifications to SB 264 can continue to promote safe real estate investment that encourages economic growth without sacrificing the security or economic interests of Florida.

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Roundtable Chairman Raises Concerns About Florida Law Impacting Foreign Investments in Real Estate 

Real Estate Roundtable Chairman John Fish during The Roundtable's Fall 2023 Meeting

Roundtable Chairman John Fish (Chairman & CEO, Suffolk), above, was quoted in media articles this week raising concerns about certain aspects of a new Florida law that would limit and regulate the sale and purchase of certain Florida real property by “foreign principals” from “foreign countries of concern.”

Foreign Investment in Florida Property

  • Fish commented to Bloomberg about Florida’s SB 264, stating, “The law is far-reaching, very, very confusing, and the unintended consequences would be very, very detrimental.” (Bloomberg, Dec. 11 | Bisnow and Inman, Dec. 12)
  • The Real Estate Roundtable urged the Florida Real Estate Commission on Sept. 5 to consider specific concerns about implementing the state law, which could impair capital formation and hinder the important role legitimate foreign investment plays in U.S. real estate, the broader economy, and job growth. (Roundtable Weekly, Sept. 8)

Need for Clarifications

Florida State seal
  • In response, the Florida Department of Commerce on Sept. 21 proposed a positive clarification to one section of the law, which could have implications for similar laws in other states.
  • Montana and Alabama have also passed legislation with similar restrictions to Florida’s that ban the sale or lease of agricultural land, critical infrastructure, and properties near military bases to “foreign adversaries,” including China. (Inman, Dec. 12)
  • Broader prohibitions in another area of Florida’s SB 264—Section 204—generally preclude Chinese investors from acquiring “any interest”in any Florida real property anywhere in the state. The Roundtable is hopeful that Section 204 will be subject to clarification during the rulemaking process. (See highlighted areas in the Notice of Proposed Rule)
  • Roundtable President and CEO Jeffrey DeBoer noted in his Sept. 5 letter, “Our concern with the new law is that U.S.-managed investment funds, which are controlled and managed by U.S. nationals, may now be precluded from pursuing investment opportunities in Florida if there is any level of investor participation in the fund from countries of concern like China.”
  • The Roundtable is seeking a technical clarification that would permit U.S.-managed investment funds, which may include passive investor participation from investors across the globe to continue to pursue investment opportunities in Florida.
  • Non-U.S. investors routinely subscribe for small, generally passive minority interests in these funds. These investors exercise no control over the investments or the operation of the assets. Importantly, the investment decisions are made by the U.S.-managed funds, not by passive investors who simply commit capital for a return, not to control the underlying investments.

Florida Gov. Ron DeSantis has launched the SecureFlorida Portal, where foreign principals from foreign countries of concern like China must register property.

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Florida Proposes Positive Clarification to Law Impacting Foreign Investments in Real Estate

Yesterday, the Florida Department of Commerce proposed a positive clarification to a recently enacted law impacting foreign real estate investment, with implications for similar laws in several other states. The clarification responds to a Roundtable request on Sept. 5 urging the Florida Real Estate Commission to consider specific concerns before implementing the new state law, which could impair capital formation and hinder the important role that legitimate foreign investment plays in U.S. real estate, the broader economy and job growth. (Roundtable letter, Sept. 5 and Roundtable Weekly, Sept. 8)

Section 203

  • The proposed rule published on Sept. 21 addresses the implementation of Florida Senate Bill 264 (SB 264), Section 203, signed into law on May 8. The new law aims to limit and regulate the sale and purchase of certain Florida real property by “foreign principals” from “foreign countries of concern.” The Florida Real Estate Commission will implement the new law. (SB 264 text).
  • Section 203 of the bill prohibits investment in real property near military installations and critical infrastructure.  Importantly, the de minimis exemption has been re-drafted, which (1) fixes earlier drafting errors to the Registered Investment Advisor exemption, and (2) introduces a new category of de minimis interests that categorically exempts passive indirect investment. (See highlighted areas in the Notice of Proposed Rule)
  • The proposed rule clarification remains subject to change during a 21-day public comment period and may include a formal hearing.

Section 204

  • Broader prohibitions in another area of SB 264—Section 204—generally preclude Chinese investors from acquiring “any interest” in any Florida real property anywhere in the state. Since the de minimis language and relevant statutory text are almost identical across Sections 203 and 204, The Roundtable is hopeful that similar language will be adopted during the rulemaking process for Section 204. 
  • The Sept. 5 letter from Roundtable President and CEO Jeffrey DeBoer notes that approximately $1.5 trillion of U.S. commercial real estate debt will come due in the next three years. Foreign equity investments in U.S. assets are often an important source of capital as commercial real estate owners seek to restructure, refinance or sell their properties.

DeBoer urged the Commission to “carefully consider the impact of your agency’s interpretation and implementation efforts of this new law so that it does not prohibit major investments in the state, which are safe from control by foreign countries of concern and promote growth without sacrificing the security or economic interests of Florida.” (Roundtable letter, Sept. 5)

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Roundtable Urges Clarifications to Florida Law Restricting Certain Foreign Investments in Real Estate

On Sept. 5, The Real Estate Roundtable urged the Florida Real Estate Commission to clarify their implementation of a recently enacted law that could have negative consequences for foreign real estate investment in the state. Twenty states have enacted restrictions on foreign investors in real estate or agricultural land, eight states are considering similar measures, and other states are exploring the issue. (Roundtable letter)

Restrictions on Foreign Investment

  • Governor Ron DeSantis signed into law Florida Senate Bill 264 (SB 264) on May 8. The new law aims to limit and regulate the sale and purchase of certain Florida real property by “foreign principals” from “foreign countries of concern.” The Florida Real Estate Commission will implement the new law. (SB 264 text).
  • Foreign investment is a major source of capital funding for U.S. commercial real estate projects, leading to job creation and economic growth for communities nationwide. Real estate is a critical element of Florida’s economy, and the state is one of the most popular states for foreign investment. Property taxes contribute over 18% of Florida’s overall tax revenue.
  • The letter from Roundtable President and CEO Jeffrey DeBoer notes that approximately $1.5 trillion of U.S. commercial real estate debt will come due in the next three years. Foreign equity investments in U.S. assets are often an important source of capital as commercial real estate owners seek to restructure, refinance or sell their properties.

Roundtable Concerns

  • The Roundtable’s letter supports efforts to protect the nation’s economic, military, and civil security, as well as the integrity of commercial real estate investments. The letter also reflects Roundtable members’ concerns that the new law may have a chilling effect on foreign investment in Florida real property, hinder foreign investment in U.S. real estate by legitimate enterprises, and act as a barrier to capital formation by law-abiding entities.
  • The comments detail how SB 264 expands the scope of the law beyond its publicly stated intent, which could have negative repercussions for Florida real estate markets and capital formation. (Roundtable letter)
  • The Roundtable letter includes a request for clarification about the definition of a “controlling interest” that impact exceptions to the law based on an investor’s meaningful ownership or influence. (SB 264 text).

DeBoer requests the Florida Commission to “carefully consider the impact of your agency’s interpretation and implementation efforts of this new law so that it does not prohibit major investments in the state, which are safe from control by foreign countries of concern and promote growth without sacrificing the security or economic interests of Florida.”