Why FinCEN’s Anti-Money Laundering rule can be good for Miami CRE
The Treasury Department’s recent initiative to curb money laundering tied to cash purchases of luxury properties in Miami and New York may fuel future commercial real estate deals. As investors from unstable economies rush to invest their cash in Miami, they may turn their attention to single-tenant assets such as office, retail and industrial properties. While the new regulation seeks to identify the names of investors behind the LLCs paying cash for luxury homes/ condos, the new rule does not apply to commercial assets.
FinCEN’s new regulation will take effect on March 1st and end on August 27, 2016. It will target residential purchases of more than $1 million in Miami and more than $3 million in Manhattan. The move aims at exposing investors who seek to hide their identities behind ghost corporations.
FinCEN’s goal is to combat money laundering, which can occur when properties are bought with cash. Based on my experience working with foreign investors, the main reason for seeking anonymity is ‘personal security,’ as kidnapping and other crimes directed toward wealthy citizens may be rampant in their country.
Cash buyers will be able to preserve anonymity if they purchase commercial properties. This is good news because in Miami, foreign investors are increasingly redirecting their capital from condos to office, retail and other cash-flowing assets. Unlike other real estate cycles, foreign investors are increasingly emerging as important players in the acquisition of income-producing properties ranging from $1 million to $20 million.
Many investors have an insatiable appetite for restaurant space leased to McDonald’s, Burger King and other credit-worthy tenants. They are also chasing single-tenant assets occupied by reputable national chains such as pharmacies, auto parts stores and bank branches. For the most part, these tenants are also responsible for paying property insurance, property taxes and maintenance costs. The only responsibility required of the foreign investor is the collection of rent.
In the next six months, we will learn how this new money-laundering rule affects the Miami home and commercial real estate markets. One fact seems inarguable to me: for many Latin American investors, revealing their names is not a viable option.
By: Alex Zylberglait