The invasion of Ukraine by Russian President Vladimir Putin is setting up serious consequences for the global economy. The sanctions and subsequent ripple effects are likely to impact certain areas of the U.S. real estate market in very real ways.
The invasion led the U.S. government to join international allies in moves to freeze the assets of Putin and Russian elites in his close circle.
The full impact of the sanctions is still to be determined, but it is likely to make it difficult for Russians to do business in America. How difficult that becomes will depend on how the international communities impose further sanctions.
Property sales and loan approvals are likely to be delayed regardless as the crisis continues.
Russian oligarchs have purchased some of the most expensive properties in Manhattan and Miami, and these transactions will get a lot harder.
If there is a need for a Russian oligarch to make a payment in the U.S. or EU, it will be challenging, if not impossible.
Frozen Assets
If the U.S. identifies a Russian official as being tied to or supporting the Ukraine invasion, their assets will be blocked and frozen. Assets can include real estate and jewelry, yachts, and cars.
The Office of Foreign Assets Control is creating a list of Specially Designated Nationals of Russia and Belarus who sanctions will target.
The Magnitsky Act authorizes the government to impose sanctions on individuals it deems to be human rights offenders, including freezing American assets of the people on the list.
If the U.S. government blocks an asset in the U.S., it can’t be sold or mortgaged. It’s also subject to forfeiture, meaning the government can seize it and sell it.
While the asset freeze applies technically only to the people closest to Putin, which is a pretty small pool of investors in the U.S., banks will probably closely scrutinize any deals with Russian investors or businesses going forward.
The typical due diligence will be heightened quite a bit.
The U.S. is also putting sanctions on Russian state-owned financial institutions, including the largest in the country—Sberbank, and its subsidiaries.
American banks are being required to cut ties within 30 days as the world attempts to cripple Russia economically to halt the invasion.
Russia is also being kicked out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT). That’s a messaging network facilitating transactions around the world. That complicates transactions significantly, and it blocks the use of wires, so money transfers can’t be completed freely.
Russian Investments in U.S. Real Estate
The annexation of Crimea by Russia in 2014 significantly impacted the Russian market. For example, the population in Sunny Isles, Florida, is around 50% of what it once was.
Real estate professionals in South Florida say Russian interest and investment has dropped dramatically in recent years, now making up just 2% of Miami’s foreign investment market.
Already, a few deals have been put on hold in South Florida, according to brokers.
The same is likely going to be true in New York. For example, between 2015 and 2017, billionaire Roman Abramovich paid $96 million for four properties in Manhattan. He had plans to build a massive residence but sold them to his ex-wife in 2018.
Many have said Manhattan has been a safe place to park cash when buying high-end apartments for years.
There could be growing interest resulting from what’s happening in Ukraine for some investors from Russia who want to get their money out of the unstable economy there. For example, brokers in the Hamptons say that they’re seeing more interest from investors who want to take their money out of countries with high levels of conflict.
For some who hope to bring their money into U.S. real estate, it may not be an option right now or in the near-term future.
