Florida Ban on Chinese Real Estate Investment Recalls ‘Alien Land Laws’

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A recently enacted Florida law restricting foreign real estate investment from seven so-called “countries of concern” is rippling through the Sunshine State’s commercial real estate industry.

Passed in May, SB 264 prohibits entities from six countries — Iran, North Korea, Syria, Russia, Venezuela and Cuba — from acquiring agricultural land or any property within 10 miles of a military installation or critical infrastructure, such as airports or power plants. Entities from China may not purchase any property in the state at all. 

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The measure is meant to address potential national security concerns, and to counteract the influence of the Chinese Communist Party, said Gov. Ron DeSantis, who is running for president in the Republican primary.

“I’m proud to sign this legislation to stop the purchase of our farmland and land near our military bases and critical infrastructure by Chinese agents,” DeSantis said in a press conference following his signing of the bill. “We are following through on our commitment to crack down on Communist China.”

The law applies both to business entities and to people “domiciled” in the seven countries, which includes visa holders who live in the United States. In addition to the primary restrictions, SB 264 requires the targeted entities and individuals to register with the state any property they owned prior to July 1, when the law went into effect, before Dec. 31. 

The law has been challenged by the American Civil Liberties Union (ACLU) on behalf of several Chinese individuals, who argue that the law is discriminatory and unconstitutional, echoing the widespread Alien Land Laws of the last century, which barred Asians from owning land, and were struck down by the U.S. Supreme Court.

The plaintiffs in Shen v. Simpson include a dietician, a doctoral student, a political asylum seeker who fled China, and a real estate agency that primarily represents Chinese clients. They argue the law will impact many law-abiding non-citizens while doing little to address the purported national security concerns that motivated it. 

The case hit its first snag in August, when a judge denied the plaintiffs’ request for an injunction, allowing the law to remain in place as the challenge works its way through the court. That decision is now on appeal. 

In the meantime, the real estate community in Florida is contending with the political and societal implications of this law, as well as its impact on investment. 

“As a broker, I don’t have a lot of faith that it’s going to be found legal,” said Mike Pappas, president and CEO of The Keyes Company, who has been in the business since the 1980s. “It feels contradictory to what we’ve been doing for 50 years, since the fair housing laws came out.”

Others are concerned with the law’s potential chilling effect on investment. “There is an argument that the law went too far, and is already creating adverse effects that are discriminating against Chinese Americans, or even Asian Americans,” said Joe Hernandez, a real estate lawyer and partner at Bilzin Sumberg.

“My personal concern is that I don’t want to see anything that chills fund investment in Florida real estate,” Hernandez added. 

The ambiguity problem

The real estate community’s most pragmatic concern is how to implement the measure, also called the “Interests of Foreign Countries” law, which remains ambiguous on several fronts. While the law went into effect July 1, the state agencies tasked with implementation and enforcement of its provisions have not yet released any final rulemaking on how to do so.

“We’re all in a purgatory period,” said Hernandez. “It doesn’t seem to me like we’re going to get hard concrete answers for a while.”

The primary implementation mechanism of the law is an affidavit that real estate buyers will have to sign before closing, affirming that the purchase does not violate any of the new restrictions, to be finalized by the Florida Real Estate Commission. On the one hand, the affidavit provides a safe harbor for real estate agents, attorneys and title companies, since it places the liability on the buyer. On the other, it means that all buyers on any transaction in the state have to sign the paperwork. 

And getting it wrong is no joke. For transactions involving the first six countries, violations are potential misdemeanors for both the buyer and seller. Chinese investors who violate the law would be guilty of a felony, punishable by up to five years in prison. In either case, the property could be confiscated. 

One key ambiguity is how to define what constitutes a military installation or critical infrastructure site, though any definition would likely eliminate almost the entire state. “Ten miles is everything,” said Pappas. “Who’s going to define what 10 miles is? It’s very nebulous.”

Another question most concerning to institutional and private equity investors is how the law applies to minority investors. While the law does exclude buyers with a noncontrolling or de minimis interest, it’s unclear how exactly the law is to be applied.

“We’re seeing confusion from fund managers, who buy from all over the country, who may have Chinese investors,” said Hernandez. “If a Chinese bank were to hold a mortgage, or be a major investor in a REIT that provides loans on real estate property and they have some measure of control, would that qualify?”

Additionally, the two state agencies tasked with enforcing the law, the Department of Agriculture and Consumer Services for agricultural land and the Department of Commerce for all other property, have not yet provided information on the reporting process.

“We’ve been waiting to see what that reporting requirement is actually going to be,” said David Kaye of law firm Ropes & Gray, who represents private equity funds. His clients are concerned that they might need to restructure their investment to comply with the law. 

“If there’s a limited partner in the ownership structure that’s Chinese or Chinese government, who is the burden on to report? Is it the Chinese government that owns an interest in a private equity fund? Is it the private equity fund itself? Is it both? We just don’t know.”

These issues are likely to be clarified in time, but in the interim, the uncertainty may already be affecting institutional investment in Florida. 

“[Chinese investment] is a large stream of capital that real estate sponsors have as their investor base,” said Kaye. “If you’re excluding a significant pool of capital from being able to invest in Florida, it does reduce the pool of capital available.” 

The historical problem

Florida was the last state in the union to remove the once widespread Alien Land Laws from its constitution. The language allowing Asians to be barred from owning land in the state wasn’t removed until 2018, when Florida voters approved a ballot measure to amend Florida’s constitution.

Alien Land Laws barred or restricted “aliens ineligible for citizenship” — a coded term that applied only to Asians — from owning land in over 15 states, and had mostly been passed in the early 20th century, beginning with California in 1913. They were upheld by the U.S. Supreme Court in a 1922 challenge.

But in 1948, the same court ruled California’s law unconstitutional, and most others were struck down in the following decade, going the same way as segregation, discrimination in housing, and other laws explicitly predicated on race or national origin. 

“Historically, the Alien Land Laws are a big part of the discrimination against Asian Americans in the United States,” said Gabriel “Jack” Chin, a professor at UC Davis School of Law, who is an expert on the subject, and contributed to an amicus brief from a group of racial justice organizations in Shen v. Simpson. “This was a part of the anti-Asian system of regulation that existed in that time that was exemplified by the Chinese Exclusion Act and immigration laws.”

Chin was briefly involved in the effort to remove the Alien Land Law language from Florida’s constitution. Back in 2000, he penned a legal brief on the matter, which was sent to every member of the Florida legislature.  

“In 2000, I really thought this was cleaning up historical loose ends,” Chin said. “It was unimaginable to me that anyone would defend laws like this, that anyone would think that this sort of thing was a good idea.”

Orlando attorney Don Nguyen would take up the mission more than a decade later. Nguyen, a lawyer at DHN Attorneys, moved to Orlando for a job after law school in 2007. He joined a network of Asian American lawyers in the city, and helped educate voters on the history of these laws. 

“Nothing screams out at you that ‘alien ineligible for citizenship’ is anti-Asian American, but in history that was only applied to Asian immigrants,” Nguyen explained. “That’s the history that we had to educate people on.”

Nguyen is concerned that SB 264 is a modern form of those discriminatory laws, even if it’s dressed in the interest of national security. 

“When you’re talking about taking rights away from people, or affecting U.S. citizens, you have to keep it narrow,” he said. “The enemy here is not Chinese people; it shouldn’t be Chinese people. It’s the Chinese Communist Party. You’re conflating the Communist Party with all people of Chinese descent.”

Nguyen is afraid that the law will affect many Asian Americans by continuing to stigmatize anyone of Asian descent and putting them under a cloud of suspicion. 

“I think it’s going to have a real impact not just on Chinese individuals who reside in China, but U.S. citizens with a Chinese name,” Nguyen said. “That has a chilling effect against a lot of buyers, even if they’re not the ones who were intended to be targeted.”

The constitutional problems

Supporters of the law argue that SB 264 was designed to protect Florida from nefarious foreign influence, and that it’s within the state’s right to do so. That’s the primary argument made by a group of state’s attorneys general who wrote an amicus brief in support of the law. 

In fact, Florida is not the only state with such a law on the books. More than 20 states introduced or passed laws restricting real estate investment by foreign parties in the 2023 legislative session. 

The problem is how Florida’s law was written, according to Chin. “There seems to be pretty good authority that states can deny the right to non-citizens to own land,” he said. “It’s also pretty well established that there are significant limits to pick and choose — to classify non-citizens.”

Florida law does exactly that by singling out non-citizens from particular countries, and targeting Chinese internationals even further. “Frankly, it’s just like the way it was in 1913 through the ’40s and ’50s,” said Chin. “The states want to express their disfavor of particular non-citizens for political and, I would say, racial, reasons. They want to say it’s a legitimate concern, just as the ‘Yellow Peril’ once was.”

Even taking the national security motive at face value, the law could conflict with the federal government, which has an entire foreign intelligence and military apparatus that would be expected to pick up on foreign threats. More importantly, if each state were to design its own foreign policy, that would create problems on a federal level, said Chin. 

“If each state could identify the groups they favor and disfavor, it wouldn’t be the United States,” he said. “And we wouldn’t have the same kind of real estate markets that we have now.”

For Don Hayden, a founding partner of law firm Mark Migdal & Hayden, the national security motive is not convincing. “I have some questions as to why this was put in place,” he said, “except as a vehicle for Ron DeSantis, a talking point for him for his presidential campaign.”

In fact, many see the law as a political ploy by DeSantis, as it was pushed through during the legislative session that preceded his presidential run, by a very willing legislature that rubber-stamped most of the governor’s agenda. 

But Eric Requenez, a lawyer with Ropes & Gray who listened through the legislative discussion of the bill, isn’t so sure. “I don’t think Florida, or at least the Senate, passed the bill with the intent for this to be challenged and revisited and not go into law,” he said. “It seemed like they believed that this was the best path forward.”

For Hernandez, it’s about weighing the costs and benefits. “The push and pull is the security motive for the law, and the effects and disparate impact of them,” said Hernandez. “That’s the question, whether there’s a way to protect our national security without discriminatory effects against Asian Americans.”

The motive is fairly obvious to Nguyen.

“It’s easier to find a common enemy than a solution,” he said. “It’s playing on people’s fears of China.”

Chava Gourarie can be reached at cgourarie@commercialobserver.com