Sourcing non-U.S. capital comes with its own challenges

Working with non-U.S. investors poses unique challenges for U.S.-based real estate investment partners. One of those is tax structuring, explains Nicolas Ibanez, president of Drake Real Estate Partners. Ibanez explains many foreign investors in U.S. real estate have been “affected by inadequate tax structures that make their after-tax returns too low for the riskiness of the asset class or from an opportunity cost standpoint.”

Internationally based investors are subject to the Foreign Investment in Real Property Act of 1980 (FIRPTA), which was updated in 2015 to exclude to foreign pension plans, but does not exempt high-net-worth investors, insurance companies and many sovereign wealth funds. In addition, the process remains lengthy and complicated.

Ibanez says it is important for U.S.-based investment partners to understand the intricacies and details of the legal structures, and that they must think about after-tax returns.

“During our early stages, we m