Foreign Registration Issue Divides Realtors

Should foreign buyers of more than 5% of an American business or real estate property register with the Commerce Department?

That’s the sticky question now before the House-Senate conference committee in the wake of a little-noticed attempt to enact such a dramatic requirement.

Sen. Tom Harkin (D-Iowa) had pushed an unsuccessful provision as an amendment to the omnibus trade bill before Congress. The House had passed the amendment, keeping it as part of the trade bill, but the Senate killed it by an overwhelming 83-11 vote.

That defeat was attributed to concerns by senators that the Harkin amendment would stall or negate eventual passage of the controversial trade bill itself.

Strong lobbying by the National Assn. of Realtors and an affiliate group, the American chapter of the International Real Estate Federation, had much to do with the outcome. All members of the Senate received letters, urging them to oppose the registration provision in any trade legislation.

One letter to members of the Senate Committee on Governmental Affairs declared:

“This proposal threatens the availability of foreign capital, which has propelled the U. S. economy and has provided needed capital to the real estate industry.”

Although current estimates place foreign ownership of American properties--primarily high-rise office buildings--at just over 1% and valued at $24 billion, a detailed survey by Coldwell Banker Commercial Real Estate Services made available here, cites two very significant points:

--” . . . considering the scope, scale, rapidity and methodical nature of their commitment, the Japanese will become at some point, sooner than we might anticipate, the dominant force in the United States commercial real estate marketplace.”

Extensive purchases in the American market by Japanese investors represent more than “just another wave.” It is a commitment of major, long-term implications to the U. S. market.

The International Real Estate Institute, claimant to the title of the largest international real estate organization, (98 nations) and supporter of the Harkin amendment, expresses great umbrage on the issue.

“The main reason NAR and FIABCI-USA (the affiliate group) oppose this legislation is purely selfish. They simply want to sell real estate to anyone, and since foreign investors are eager purchasers with cash, any registration legislation may hurt sales and thereby their pocketbooks. Therefore, they are against it,” said Stephen L. Schneck, director of international relations for the institute, headquartered in Scottsdale, Ariz.

He said the institute will continue to press the fight for a federal registration bill. He did not single out any particular nation.

“Regardless of whether it’s 10% or 90% of our land and resources the foreign investor will be permitted to own, we must establish some regulations now,” Schneck said. “At the present rate of purchasing U. S. investments by foreigners, it’s only a matter of time when property classified as ‘prime’ will be owned by non-residents.

“Unless Congress takes immediate action, the next generation of U. S. citizens will be nothing more than caretakers for foreign owners. Legislators must see the urgency of the problem. The NAR is not going to help because it could hurt their income, and the legislator must see what would happen without any legislation.

“Even though the institute’s main function is to provide contacts for international investors worldwide, the concern I have for my country greatly outweighs my concern for the international investors industry.”

Schneck said 72% of the institute’s members responded to a survey and were supportive of the proposed foreign investor registration.

Too many foreign buyers remain unidentified, he charged; registration of investors with legitimate purposes would clear the air and remove any question or doubt about any possible “shady” dealings, he said.

The Coldwell Banker survey of international investments, issued in July, was prepared by James B. O’Brien, first vice president and resident manager of the firm’s Boston offices. O’Brien, who formerly served in the Los Angeles office, compiled the data with the aid of 18 other resident managers throughout the nation, including Harry Oliver here.

Their findings show that in the downtown areas of major cities, Los Angeles has the highest percentage (46%) of foreign-owned space. Houston is next, with 39%, Minneapolis--surprisingly--is third, with 32%, and New York is fourth, with 21%.

Canada tops the list of 20 foreign nations whose investors own 57 office buildings, representing 29% of 200 major structures. Japan owns 54, or 27%, of the 200 surveyed in one category.

In the top five are the United Kingdom, with 26 and 13%; West Germany, with 16 and 8%, and the Netherlands, with 12 and 6%.

O’Brien’s report also shows that 209 major office towers owned by foreign investors in 16 major American cities have a current value of over $20 billion and contain 105 million square feet of space. Foreign ownership accounts for 13.5% of the total office space in the top downtown office markets.

Among the nation’s 10 cities with the highest dollar value of foreign investments, New York City has $7.65 billion, or 38%, and Los Angeles is second, with $2.60 billion and 13%. Washington has $1.56 billion and 7.8%; Houston, $1.37 billion and 6.8%; San Francisco, $1.21 billion and 6%; Chicago, $1.20 billion and 6%; Boston, $1.02 billion and 5%; Dallas, Denver and Minneapolis areeach under $1 billion and 4%.

Almost alarmingly, there is limited or no foreign investment in Newport Beach, San Diego, Phoenix, Baltimore and Cincinnati, according to the survey. Also, such seemingly excellent suburban markets as Pasadena, Glendale and the San Fernando Valley have been “largely overlooked,” the report says.

But it adds, “The Japanese are expanding aggressively and rapidly into all phases of the United States commercial real estate market. They are continuing to buy large, existing leased office buildings for premium prices. They are now moving beyond this conservative first phase into higher risk-reward investments, including:

Joint ventures of new projects, financing new construction and long-term mortgages, developing outright by Japanese developers, constructing projects by Japanese building companies, moving into suburbs as well as downtown areas, investing in formerly overlooked markets and starting to tie up future development sites.

In Hawaii, described as the first “stepping stone” into the United States for Japanese investors, half of the more than 60 hotels in Waikiki are Japanese-owned. Japanese investors own property valued at $2.6 billion in the islands and about $232 million in Hong Kong.

O’Brien pointedly quotes one Japanese official as saying:

“We are patient. We have studied. We have prepared. Now we are ready.”