Foreign Enterprise in Florida: Land and Real Estate

Just as Kentucky has obtained non-U. S. investment in horses, Alaska in oil production, and Georgia and South Carolina in textiles, so too Florida attracts foreign investors to particular industries and to land and real estate investments because of its climate, geographical location, natural resources, general economy, and popularity as a vacation region. The U. S. Department of Commerce figure of $280 million for foreign direct investment in Florida real estate as of December 1974 was low for that time and is now entirely out of date. Substantial investment has taken place since 1974, and some foreign investors have already sold properties purchased earlier. By 1978, in south Florida, there was continuous media comment on new, existing, or former foreign investments.

The Bureau of Economic Analysis of the U. S. Department of Commerce considers non-U. S. investment in land and real estate to be direct foreign investment. It counts as investment the amount (the dollar sum) that the foreign investor contributes. This definition is in keeping with its approach to all other direct foreign investment. However, land and real estate investments present special issues. Normally, mortgages are involved; 10 per cent down can control 100 per cent of a property. The amount down is what counts as direct foreign investment. The face value of the property is the amount of U. S. dollar value controlled. It is, in common parlance, the "price paid." If the mortgage is held by a foreign investor, it is counted as a "portfolio" investment, not as a direct foreign investment. Trends in foreign investment in Florida land and real estate appear different in relation to different types of properties.

RAW LAND

In 1972-1974, land seemed an immensely attractive investment for foreigners. Florida, and south Florida particularly, experienced a boom in land sales from 1969 to 1973. Large U. S. corporations invested. Foreign investors accentuated and then helped to prolong the boom. Indeed, during 1974, as other buyers retreated, foreign investors continued to purchase raw land; often, they sold to one another. Prices skyrocketed. A developer from Toronto bought 13,500 acres for $23 million early in 1974; another Canadian investor, six months later, acquired a 50 per cent interest in 2,800 acres of that same property for $9,337,000. The price of this land per acre thus rose from $1,704 to $6,669. In 1971 an offshore investor bought 40 acres in South Dade for $184,000; a Panamanian firm acquired the same land in 1975 for $520,000.

In the early 1970s, non-U. S. investors were excellent customers for American land salesmen, realtors, and large-scale developers such as Arvida, Deltona, GAC Properties, General Development Corporation, Cavanagh, and I.T.T. For example, between 1966 and 1974 Arvida sold over 4,000 acres worth more than $9 million to foreign investors; indeed, there is some evidence that these figures are low and that the amounts were actually larger. The largest buyers of record were: Mexican investor Fernando Leiseca, $3.4 million for 640 acres in 1972-1973; British-owned Taylor Woodrow Homes, Ltd., $1.6 million for 1,225 acres in 1972-1973; and Leiden Properties (incorporated in the Netherlands Antilles), $1 million for 80 acres in 1974. Taylor Woodrow's purchase was in Sarasota; the other acquisitions were in Dade County. In 1972-1974, Mitsui, Mitsubishi, and Nichimen--all huge Japanese trading companies--made multimillion-dollar land investments in Orange and Palm Beach counties.

Different development projects attracted different nationalities. Lehigh Acres advertised its land sites in Belgium and lured Belgian investors. Canadians bought in Cape Coral, the GAC development near Fort Myers. General Development Corporation prepared promotional films in French for the French market. Individual realtors and large developers ran advertisements in Latin American newspapers. Canadians, Latin Americans, Japanese, and Europeans made both large and small investments. It is difficult to estimate the total nonU. S. investment in raw land, but it clearly runs in the hundreds of millions.

The boom did not last. By early 1975, non-U. S. purchases of Florida land were declining, and U. S. interest had sunk even more rapidly. An analysis by the Miami Herald's Charles Kimball in the summer of 1975 indicated that the market for speculative and investment land tracts in Dade County was "severely depressed" and that foreign investors accounted for nearly 75 per cent of the low dollar volume in undeveloped land. However, this buying eventually waned, and in early 1976, observers were blaming the slow land market in South Florida on the "virtual disappearance of foreign buyers from acreage sales." Foreign investors seem to have followed the investment pattern of Americans, except that they remained in the market for acreage longer than domestic buyers.

Retreats from existing stakes in land included partial sales of properties, with the seller obtaining a mortgage and in this way retaining an interest. Sometimes the sale was complete; the seller then could invest elsewhere in the state, or invest out of state, or export the funds. Some retreats were due to bankruptcy, foreclosure, and inability to meet payments. In early 1976, the Miami Herald reported that thousands of acres held by out-of-country corporitions and individuals had gone into litigation. This "shakeout" continued into 1977. For example, in 1974, Ravafa Sociedad Anónima, a Costa Rican firm, purchased ten acres of land in Broward County for $679,000, with a purchase money mortgage of $543,172; in April 1977, the Costa Rican firm "gave back" the land to the seller ( Gulfstream Land & Development Company) for the balance due on the land loan.

By early 1977, there seemed to be less new foreign investment in raw land than a few years before, although the downturn apparently had touched bottom and begun reversing itself By mid-1977 land investment--both U. S. and foreign--had once again started to rise. Land sales accelerated in 1978, with foreign investors playing a major role, especially in south Florida. For example, in June 1978, Corporación Toscana, S. A. (incorporated in Panama), purchased 200 acres of Miami land at a price of $5.5 million.

Why did the slowdown in investment in raw land occur? Several reasons emerge. Some foreign investors were taken in by high-powered salesmen. Certain unscrupulous individuals sold swampland. Among small-scale investors in some areas, Florida was getting a reputation for fraudulent dealings. Latin Americans and Europeans on occasion bought land sight unseen. Experience taught the non-U. S. investor to be wary about raw land. Moreover, the boom years brought inflated prices. The bankruptcy, foreclosure, and inability-tomeet-payments difficulties of existing non-U. S. investors discouraged potential ones. Planned developments did not materialize, because of apparent "overbuilding." The general economic recession intervened. American firms, especially the Real Estate Investment Trusts and large corporate investors, faced comparable problems. Recovery seems to have occurred in late 1977-1978. The recession is now over and building has resumed.

Land investments can be made for appreciation or development, for agriculture and/or mining. The raw land acquired by foreign investors (or any investors, for that matter) falls into categories: speculation; agricultural land; mineral land; and land for development (residential, commercial, and industrial). None of these categories is mutually exclusive. Acreage purchased for speculation, mineral reserves, or development may be put to temporary agricultural use. Developers acquire land for homesites, single-family homes, townhouses, condominiums, and commercial and industrial purposes.

One category of buyer in the early 1970s bought solely for appreciation --that is, speculation. He had no development plans of his own. He expected the land's value to rise and, at that point, intended to sell. Many Latin American and European investors belonged to this type. Some buyers acquired land not zoned for development on the assumption that the zoning could be changed.

AGRICULTURE, MINING, DEVELOPMENT

There is no income from land unless it is used for agriculture, mining, or development. Indeed, if no use is made of land, the investor has a negative cash flow for mortgage payments (if any) and property taxes. Sometimes an investor in raw land will hire a local farmer to cultivate the acreage. This provides income to pay local property taxes (and mortgage payments) and "proof" that the property is farmland and thus subject to substantially lower taxes.

A number of foreign investors in Florida land have invested in agricultural properties. Some have bought ranches in central Florida; earlier, we noted an $11 million, 14,000-acre acquisition in 1974 by A. K. Florida Properties, N.V. The French phosphate firm Gardinier, Inc., owns almost 38,000 acres, of which about 25,000 are used for agricultural purposes--mainly citrus, but also cattle; Gardinier owns 4,000 head of cattle. Other foreign investors in citrus land include American Agronomics Corporation in Tampa, which in 1972 sold orange groves to about 300 small-scale non-U. S. investors, who each paid about $20-22,000 for 10-acre orange groves in south and central Florida. This represented a total foreign investment of $6-6.6 million by Germans, Dutch, Italians, Colombians, Venezuelans, Peruvians, Mexicans, and Canadians. American Agronomics managed the properties for a fee. From the standpoint of the investors, these were income-producing properties. The Swiss-owned Nestlé subsidiary Libby, McNeill, and Libby has a subsidiary called Florida Citrus Groves Corp., headquartered in Orlando; it leases more than 5,700 acres of citrus groves in Florida. A Japanese investor has $ 1.1 million invested in grapefruit groves.

The largest single non- U. S. holding in agricultural land is in the Panhandle--33,000 acres, according to the St. Petersburg Times ( November 29, 1977). The investment is not new. The land is farmed--with soybeans and corn--by First American Farms, which is a subsidiary of Bunge Grain Company, a subsidiary of Bunge y Born, the giant Argentine-headquartered private international trading firm.

In January 1978, the Sentinel Star ( Orlando) publicized a pending sale of 400,000 acres of agricultural land in Osceola County to an "international syndicate," which would use the land for growing soybeans and corn and raising cattle, all of which would be exported to South America. As of June 1978 the sale had not been consummated.

Coblan Enterprises, N. V. (a Netherlands Antilles company), bought 201 acres of agricultural land in southwest Dade County in 1973 for $1.4 million. In 1977, Limonar, N. V., another offshore firm based in the Netherlands Antilles, purchased this same parcel of lime and avocado grove land for $1.9 million. The beneficial ownership of these companies is unknown to us.

There is no way to determine the amount of agricultural land in Florida owned by non-U. S. investors. In many instances, agricultural land seems to have been acquired by non-U. S. investors who anticipate nonagricultural use of it in the future. In reviewing the totals, the amount of agricultural land in non-U. S. hands does not seem threatening.

Florida has also attracted foreign investments in mineral lands, mainly those with phosphates; these investments are discussed in chapter 5. A subsidiary of a subsidiary of Anglo American Corporation of South Africa mines kaolin clay in Gadsden County near the Georgia border. Additionally, oil companies have held land for oil exploration. In the 1940s, Coastal Petroleum--owned by a Bermuda holding company and called by the Federal Energy Administration a "foreign company" (although actually the beneficial ownership is American) -- leased 4.5 million acres of "coastal and inland submerged areas and other Florida bottom properties." Most of the coastal rights reverted to the state, and in February 1976, the company reported that its operations had been suspended. In any case, following our rule of tracing beneficial ownership, this company's leases would not qualify as non-U. S. investment.

Some non- U. S. investors in Florida land have first purchased land and later become developers (alone or in partnership with others). The Miami Herald on May 1, 1977, ran a story about a new 170-unit townhouse project called Lakeridge, being built around a twenty-acre lake near South Miami. A Honduran group held a minority share of the project; this group had been the "original" owners of the forty-acre site. The developers were Americans.

Other buyers in the development category have purchased acreage with a plan for development. This was true of the three large Japanese investments of the early 1970s. The Japanese trading company Mitsui bought more than 300 acres in the Orlando area near Disney World for $2.5 million, with the idea of building a hotel-motel-restaurant complex. The company first had problems with zoning; then, the Orlando area began to seem overbuilt. Mitsui still owns the land, but no development has taken place. Similarly, in 1974 Nichimen acquired prime land on Singer Island (Palm Beach County), zoned for condominiums. As condominiums were overbuilt, it postponed construction. At about the same time, Mitsubishi, in a joint venture with Morgan Guaranty, bought two miles of beachfront near Juno Beach (Palm Beach County); it too delayed development. The non-U. S. companies Marca, S. A. (a Panamanian firm), and Tourist Promotion, A. G. (probably a Liechtenstein firm), acquired land (320 acres and 640 acres, respectively) in the North Kendall area of Dade County. Inability to obtain zoning changes in Dade County's Master Plan thwarted development.

During the Disney boom, developers hoped to build bedroom communities for Orlando in Osceola County. Between 1971 and 1974, the Osceola County Planning Commission approved twenty applications to start development. But at the beginning of 1976, only two had broken ground, and one of these was in bankruptcy; the other was the Mexican-financed Buenaventura Lakes project, east of Kissimmee. Originally, the Mexicans had planned to build 13,500 units; by early 1976, only a dozen homes in the development were occupied, and the plans had been sharply scaled down.

The Mexican developers at Buenaventura Lakes and the Hondurans (in their minority role) in South Miami appear to have been exceptional. So too was the development by Taylor Woodrow, Ltd., at Sarasota, where this sizable British firm planned more than 3,000 homes. There have been some German condominium developments. In general, however, Latin Americans and Europeans have tended to be more active as land buyers for appreciation or agriculture rather than as developers.

By contrast, Canadians have undertaken formidable developments. The major Canadian developers are closely associated with one another -- through the Canadian Institute of Public Real Estate Companies, through joint-ventures, and through some interlocking directorates. As one Canadian put it, "The Toronto real estate community is very close. We're used to communication. In Toronto, competitors exchange information freely."

A number of the Canadian enterprises are backed by European investors. Wimpey is a large British firm; its Canadian affiliate acts in Florida. Genstar has Belgian connections -- although early in 1976, the Canadian Foreign Investment Review Agency ruled that, for its purposes, Genstar would be considered a Canadian company. Fininvest has German money participating, as does Walco Holding Co. The "Canadian" Eurosyndicat Finance, Ltd., had a German president. Europeans invested in these Canadian entities and used them for U. S. investments. The reason seems to lie in a continuity of experience; the Europeans had been dealing with the Canadians for years. As the latter extended into Florida, they brought their backers with them.

The Canadian developments stretch from southern Dade County to Palm Beach County; there have been some west coast developments; and one developer (Trizec) has had properties as far north as Daytona Beach and on the west coast from Dunedin south to Fort Myers. Canadian developments have no rivals among other non-U. S. investments; the largest is in Homestead, in southern Dade County.

Source: Foreign Enterprise in Florida: The Impact of Non-U.S. Direct Investment