The Federal Government Will Start Databasing Secret Buyers of NYC Luxury Real Estate

January 13, 2016

The Time Warner Center, one of NYC’s most notorious buildings for secret foreign investment

For the first time ever, the U.S. federal government will start identifying and tracking secret buyers of high-end real estate, requiring those making all-cash transactions or hiding behind an LLC to disclose their names for entry into a law enforcement database. The regulation is kicking off in Manhattan and Miami-Dade County, two hotbeds of foreign investment, according to the New York Times. “The initiative is part of a broader federal effort to increase the focus on money laundering in real estate. Treasury and federal law enforcement officials said they were putting greater resources into investigating luxury real estate sales that involve shell companies like limited liability companies, often known as L.L.C.s; partnerships; and other entities,” the paper explains.

The news comes after the DeBlasio administration imposed a similar rule last year, which requireds shell companies to provide to the city both the names and tax IDs of all members involved in a transaction. The Mayor’s move was fueled by a lengthy exposé in the Times that zoomed in on the growing number of foreign real estate investors hiding behind LLCs as a way to avoid paying taxes. The Times focused on the Time Warner Center, but reported that “an estimated 89,000 of the city’s condos and co-ops—valued at $20 billion based on city tax assessment data but with an actual estimated fair market value of $80 billion—are owned by people who claim to be nonresidents of the city.” Plus, more than half of 2014’s condo sales valued at $5 million or more were to LLCs.

The specifics of the new program are as follows: Sales of more than $3 million in Manhattan and more than $1 million in Miami-Dade County must be reported. To put this into perspective, Manhattan saw 1,045 $3 million+ sales in the last six months of 2015 alone, which totals a whopping $6.5 billion. On a national level, it’s estimated that nearly half of all $5 million+ home sales are made using shell companies. Since these entities can often be difficult to penetrate, the government will require beneficial owners of shell companies–those who directly or indirectly own at least 25 percent of the equity interests–be identified by the title companies.

If the Treasury sees a great deal of fraud and suspicious transactions, they’ll extend the program to the entire country.

[Via NYT]


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