On Taxes, Culture and Foreign Investors

PALM SPRINGS, CA—Educating foreign buyers on US real estate practices and laws, in addition to becoming sensitive to other cultures, is key to success with this growing faction of investors, said panelists at NMHC's Apartment Strategies Outlook Conference here earlier this week. A certain amount of hand-holding is necessary in order to bring these investors up-to-speed and make them feel comfortable with investing in US multifamily properties.

Tax leakage is one of the biggest hurdles foreign investors face, said David Schwartz, CEO of Waterton Associates. “Each country has its own tax treaty, and they have to get to know our market.”

Clyde Holland, chairman and CEO of Holland Partner Group, said cultural sensitivity is also necessary in order to make foreign investors feel welcome. This means understanding their values, societal norms and even their cuisine. He added that the return goals on investments for foreign buyers are “not different from domestic buyers, but the level of reporting and how the process works is important to them.”

Start with a tax analysis and cultural sensitivities, agreed David Olney, managing director and head of multifamily property investments for Berkshire Group. “Education is important—they don't know how the process works here. Showing up and being there throughout the process is important.”

Janice Lin, director of the Canada Pension Plan Investment Board, an equity investor backed by a large Canadian investment fund, said taxes are “most important to us. Also, product quality is different between the US and Canada. “We're looking into residential investments across the globe. In many countries, such as China, there is a lot of older stock. The US is very special in the quality of rental product in which people can live.” She added that in some countries, the concept of multifamily as an investment property is unfamiliar, so there is an education process there as well.

Schwartz said his firm doesn't focus on Europe because many countries have something similar to Dodd Frank—lots of security laws. “In some countries, you could go to prison if you solicit investments wrong. The 'life's too short' principle applies here.”