Game changer? FIRPTA and European real estate capital

One of the challenges for European pension funds investing in U.S. real estate was the Foreign Investment in Real Property Tax Act, or FIRPTA, which was introduced in 1980 and required foreign investors in U.S. real estate pay taxes on their capital gains as income as well as to set aside 10 percent of the purchase price as a tax withholding. This has limited foreign investors, including European pension funds, to accessing U.S. real estate primarily through REITs and real estate debt (which offered exceptions to the FIRPTA rules).

This past December, FIRPTA was revised (in the PATH Act of 2015) and its revisions include granting tax-free capital gains foreign pension funds. This has the potential to be a game changer for the U.S. real estate industry in a number of different ways. One result of this change is expected to be greater interest and demand for value-add funds because foreign pension funds could be more willing to invest in projects with higher potential capital gains, as they will be better compensated for taking that higher level of risk.

There will be a special workshop on “Opportunities in the United States” at the upcoming VIP Europe conference, which takes place Feb. 23–25, 2016, at The Grand Hotel Eastbourne, East Sussex, United Kingdom.

Stephen Tomlinson, a partner at Kirkland & Ellis LLP, will present “Accessing Investments in the United States”: An overview of the regulations and tax considerations related to accessing real estate investment opportunities in the United States. Tomlinson’s presentation will be followed by an open forum discussion with attendees.

Then David Sherman, president of Metropolitan Real Estate Equity Management, will moderate a panel called, “How Do Local Investors View U.S. Opportunities?” with panelists Josh Kawaii-Bogue (investment officer, California State Teachers’ Retirement System) and Christina Scarlato (principal portfolio manager, The World Bank Pension Fund). This session will provide an overview on investing in the United States followed by an interactive panel discussion with local investors reviewing where they see opportunities and risks in the United States right now.

To see VIP Europe’s full agenda and to register, please click here.

We are looking forward to seeing you at VIP Europe!

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JohnHunt91x119John Hunt is conference program manager of Institutional Real Estate, Inc.