New York City is the commercial epicenter and global real estate mecca of the world. Known for its sprawling skyscrapers that continuously multiply, countless commercial establishments, residential properties as far as the eye can see and the finest restaurants, and most renowned museums, the city has been one of the greatest havens of opportunity to investors of real property for the last hundred years.
As we enter 2025, the growth of the real estate market in New York, having swiftly rebounded from the COVID-19 pandemic, is as strong as it has ever been. However, the ongoing warfare between Ukraine and Russia and the conflict in the Middle East, along with the recently unexplained drone sightings on the Northeastern corridor, has resulted in increased regulation over the acquisition of real property by foreign investors at both the federal and state level. This comes as no surprise as the government at both the national and local level have historically enacted legislation aimed at thwarting the purchase of domestic real property by foreigner investors—particularly those hailing from countries with adverse interests—in the name of national security.
New York State Assembly Bill 5301 and Senate Bill S6522
On March 7, 2023, the New York State Assembly introduced New York Assembly Bill 5301 (“2023-A5301”). 2023-A5301, sponsored by Assembly Member Matthew Slater, a Hudson County Republican, and co-sponsored by several other Republican assembly members, was introduced with the specific goal of “prohibit[ing] the acquisition of real property by foreign countries and entities of particular concern.” Shortly thereafter, on April 25, 2023, the New York State Senate adopted and introduced New York Senate Bill S6522 (“2023-S6522,” along with 2023-A5301, shall collectively be referred to as the “Bills”). 2023-S6522, sponsored by State Sens. Jacob Ashby and Alexis Weik, who are both Republicans, is a carbon copy of 2023-A5301. On January 3, 2024, 2023-A5301 was referred to the judiciary and is in committee before the State Assembly. Identically, 2023-S6522 was referred to the judiciary on January 3, 2024, and is presently in committee before the State Senate.
In analyzing these bills, it is useful to understand the general procedural life cycle associated with the passage of bills through the New York State legislature. Once a bill is introduced, it needs to first pass through both chambers of the legislature before making its way to the governor, who then has 10 days to either: (i) sign the bill into law; (ii) allow the bill to become law without taking any affirmative action; or (iii) veto the bill entirely. After a bill is introduced, it is brought before the Assembly for consideration and, if passed by the Assembly, then to the Senate for consideration. Alternatively, a bill may be introduced first through the Senate, then to the Assembly. The legislative review process is oftentimes short. Moreover, a bill is only alive for consideration during a two-year legislative term, which is made up of two consecutive one-year legislative sessions. If a bill is not signed into law during its legislative session, it will retain its number and be automatically reintroduced during its second legislative session. If a bill is still not signed into law after the second legislative session, the bill becomes stale and must be reintroduced, with a new bill number, before the legislature can reconsider the bill again. In many cases, the original sponsor or sponsors of a bill will ensure that the bill is reintroduced, “as a matter of course.”
The reason for the introduction of these two identical bills before the State Assembly and Senate, respectively, is not as nuanced as it may seem at first glance. Rather, the introduction of “companion” or identical bills is a legislative tactic often employed by both chambers, especially in situations in which assembly members and senators—oftentimes aligned through partisan interests—seek to speed up the consideration and passage of a bill. Since proposed legislation in New York must first be approved by both legislative chambers before introduction to the governor for execution, the “companion” bill procedure allows both bodies of the legislature to undertake an identical review process, on parallel tracks to expedite bill passage.
While the stated purpose of the bills is straightforward, it is prudent to analyze the far-reaching implications of this proposed change to the New York State real estate investment landscape. In particular, the bills seek to amend certain provisions of Chapter 50, Section 10 of New York Real Property Law (“RPP”) to now expressly limit the type of persons or entities that can purchase real property within New York State. New York RPP § 10. This proposed amendment also applies to limit the types of persons or entities to whom real property can be transferred. More particularly, the proposed amendment seeks to restrict the purchase and transfer of New York State real property by and to: (i) a governmental entity of a foreign country “of particular concern[;]” (ii) a private company or entity that is headquartered in, or majority owned by, a foreign country “of particular concern[;]” and; (iii) an individual who is a citizen of a foreign country “of particular concern[,]” or member of an entity “of particular concern[.]”
In employing the specific language “of particular concern,” the assembly members and senators that introduced these bills cite directly to the United States Department of State’s classification of suspect countries and entities made by the Secretary of State, Antony J. Blinken, on Dec. 29, 2023. Here, the State Department currently classifies the following countries to be “of particular concern": Burma, People’s Republic of China, Cuba, Eritrea, Iran, the Democratic People’s Republic of Korea, Nicaragua, Pakistan, Russia, Saudi Arabia, Tajikistan, and Turkmenistan. Additionally, the entities “of particular concern” are al Qa’ida affiliate Al-Shabaab, Boko Haram, Hayat Tahrir al-Sham, the Houthis, ISIS-Sahel (formerly known as ISIS-Greater Sahara), ISIS-West Africa, al Qa’ida affiliate Jamaat Nasr al-Islam wal Muslimin, and the Taliban.
The Current State of Foreign Ownership of New York Real Estate
Foreign investments in New York real estate account for a substantial amount of the overall ownership holdings of property in this state. For example, The Real Deal reported that in 2023, foreign purchasers accounted for 32.4 percent of real estate investors in New York City. In the specific case of China, a country that has been classified as a nation “of particular concern” by the State Department, Chinese real estate investors recently spent approximately $12.3 billion toward the purchase of United States real estate nationally.
Given that Chinese affiliated entities have been prominent investors in New York City real estate, there is a clear nexus between the passage of the Bills to curb the direct impact on foreign investments in New York City, particularly by countries and affiliated entities that have been explicitly blacklisted from owning real property by the United States government.
The Committee on Foreign Investment in the United States
On the federal level, the Committee on Foreign Investment in the United States (“CFIUS”) has been spearheading the growing development of legislation aiming to alienate the acquisition of real property by foreign investors in domestic real estate. By way of background, CFIUS was established in 1975, by Executive Order under President Gerald Ford with the purpose of discouraging foreign investments during a period of time in which the United States was observing rapid increases in investments by the Organization of the Petroleum Exporting Countries (“OPEC”). The Ford Administration was growing increasingly concerned that OPEC investments were motivated by political and not economic considerations.
While CFIUS has remained essentially dormant since its creation, it was recently utilized by the Biden Administration in May 2024, in the unwinding of a real estate investment that was going to be used for cryptocurrency operations because the purchasing company was owned by Chinese nationals and the property was within close proximity of the Francis E. Warren Air Force Base located in Cheyenne, Wyoming. Through its review process, CFIUS assesses various aspects of the national security implications of an underlying transaction. Notably, CFIUS is even empowered to place broad, catch-all restrictions on foreign investments of domestic real property, including limiting a foreign investor’s information or governance rights, or even blocking or unwinding a foreign investor’s previously consummated transaction without any repose. While these actions by CFIUS often involve the unwinding of foreign investments by countries and investors “of particular concern,” such actions can even extend to purchasers involved in the chain of development of the real property being acquired. For example, CFIUS has the authority to unwind a transaction involving not just a purchaser originating from a country “of particular concern,” or an investor “of particular concern,” but also transactions involving, for example, a Chinese architectural firm performing surveys or a Russian general contractor developing the underlying real property.
CFIUS has recently mobilized to increase scrutiny over foreign transactions for locations found to be in close proximity to certain military bases around the country. In parallel with the proposed bills in New York, the increased focus on imposing regulations by CFIUS is a direct response to the heightening concerns to protect military infrastructure and safeguard national security, as well as protecting domestic agricultural land. The buck likely will not stop here as CFIUS regulations of agricultural land and specifically, with regard to future Chinese acquisitions, will likely be augmented under the incoming Trump Administration. In fact, in June 2023, U.S. Sens. Kevin Cramer (R-North Dakota) and John Kennedy (R-Louisiana) introduced the Exposing China’s Belt and Road Investment in America Act with the intention of placing Chinese “greenfield” initiatives within the direct crosshairs of CFIUS’ regulatory authority. This piece of legislation takes aim at China’s attempts to utilize “greenfield” investments—projects on undeveloped land for agricultural or urban construction—to curb China’s attempts to exert influence over America’s economy and infrastructure.
Unsurprisingly, just like New York State is trying to do with its passage of its bills, regulatory activity on foreign investments of domestic real property have also been increasing on the state level, as the majority of states have already passed restrictive legislation in this arena, with other states also now following suit. Currently, 26 out of 50 states have passed similar restrictive legislation, with other states proposing related legislation of their own. Predictably, New York is trending in line with the majority of states in levying restrictions on foreign ownership over domestic real estate within the confines of its jurisdiction.
Conclusion
It remains to be seen whether the bills will ultimately pass legislative muster before the New York State Assembly and Senate and be brought to the governor’s office for approval and execution. While the bills were introduced through a patently partisan line from the Republican party, the Democratic Party still holds a majority in both legislative chambers. Nonetheless, the preservation of national security interests has always been a bipartisan issue and, therefore, the bills should certainly not be written off as dead on arrival.
Instead, the bills should be viewed as yet another addition to the growing body of federal and statewide legislation that has been proposed across the country, and New York would join the majority of states in adopting laws restricting the purchase and sale of real property by foreigner parties. Since similar new state legislation has been gaining steam across the U.S. and CFIUS has been revived corresponding with the proliferation of global conflicts of war, it will be interesting to see if New York adopts more stringent regulations such as divestiture of real property holdings or the unwinding of real estate transactions which involve an individual or entity from a country “of particular concern.” In sum, it is incumbent upon any foreign investor seeking to acquire or develop real property within the State of New York to engage sophisticated and knowledgeable counsel to navigate this evolving legislative minefield.
"New York’s Proposed Legislation Restraining Transfer of Real Property," by Massimo F. D’Angelo and William M. Pekarsky, was published in the New York Law Journal on January 6, 2025.
Reprinted with permission from the January 6, 2025, edition of the New York Law Journal © 2025 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited.
