Foreign investment in the U.S. real estate market has grown dramatically in recent years. Reports indicate that in 2016 alone, foreign investment surpassed $20 billion, with offshore buyers accounting for 43 percent of the 50 largest U.S. commercial real estate transactions.1 Advising a U.S. client in a transaction with a foreign counterparty requires familiarity with certain issues and potential complications. In particular, U.S. clients need to be aware of issues relating to (i) the ability to enforce judgments of U.S. courts against foreign counterparties; (ii) so-called “know your customer” diligence requirements as they are applied to foreign counterparties; (iii) foreign capital export controls; (iv) potential Committee of Foreign Investment in the U.S. (CFIUS) review; and (v) registering transactions with the Department of Commerce’s Bureau of Economic Analysis.2
Enforcing Judgments Abroad
In a transaction with a domestic counterparty, the ability to enforce a judgment against that counterparty is rarely an issue. With a foreign counterparty, enforcing a U.S. judgment is not a given. As a result, lenders often refuse to consider foreign guarantors unless those guarantors have significant U.S. assets. While a guaranty (or joint venture agreement or other agreement with a foreign counterparty) may be drafted to provide that the foreign counterparty (i) consents to U.S. court jurisdiction, (ii) appoints someone within the court’s jurisdiction to accept service of process, and (iii) accepts the preferred choice of law, none of these contractual provisions will matter if a judgment relating to the agreement cannot be enforced against the counterparty’s assets. Absent the ability to enforce the judgment abroad, the foreign counterparty is only at risk to the extent of its investment.
