As U.S. lawmakers continue to call for all of Putin’s supports to be sanctioned, US lawmakers are now pushing to target Russian oligarchs who own real estate in the United States. Real estate sources in Washington, DC say that Russian oligarchs also hold substantial real estate holdings in the DC metro area, in particular, Mclean Va and Potomac Maryland. Washington DC has long been held as a trophy environment for Russians to own real estate, especially lavish homes and investment properties including hotels, office space, and other types of commercial properties.
Many of these oligarchs also own property in Florida and the Caribbean, and often hide their identities behind layers of shell companies, trusts, and limited liability companies. Used as financial vehicles, the mansions and penthouses are worth up to tens of millions of dollars. Commonly known as land banking, Russian interests have historically used realty trusts, and opaque limited liability companies to mask the ownership of these valuable investment properties. Interestingly, many of the techniques used by Russian investors are the very same ones that are used by celebrities and others to mask the true ownership of real property. These are the same type of techniques that individuals who are concerned about privacy requests, those that might be famous, in the press, or are dealing with things like stalkers or fear of doxing.
Interestingly, while there are several known Russian billionaires on the U.S. sanctions, none of them have any traceable property in their names making actually sanctioning them much more difficult. Some individuals are coming under fire for having close ties with Putin and using U.S. properties to stash trillions of dollars of stolen assets from the Russian people. This form of land banking has been popular for years and has fueled a large portion of the run-up in real estate values in the United States in areas like Washington, DC, Miami, and New York City. Foreign investors have been land banking in the United States for at least the last 20 years that I know of. Whether it is a Chinese businessman trying to hide money from the CCP or Russian oligarchs trying to stash money in the United State for fear of Putin, the goals and the means by which they are accomplished are basically the same, a foreign investor is afraid that their money isn’t safe in their country of original, so what do they do? They buy real estate in the United States. Most of the time they don’t even care if they get a positive return, all they really want to make sure of is that they have a place to live and maybe a few investment properties they can sell to finance their life in the United States. It’s a golden parachute strategy financed through international real estate.
Through one of the loopholes in sanctions legislation, these oligarchs are allowed to transfer wealth to families and friends without retribution. It’s estimated that there is at least $12 trillion tucked away in offshore accounts, according to the human rights group, Global Witness. In NYC alone, a full accounting of the real estate holdings exceeds a billion dollars of value. These transfers of value can mean millions in tax revenue as well as an influx in real estate transactions in the near term. What will be interesting to see is if there is a corresponding influx of Russians seeking some form of asylum in the United States, based upon Putin’s actions and that now may be as good a time as any to pull the ripcord on their golden parachutes. While land banking can be an effective strategy during peacetime to move money from insecure countries to more secure markets, wartime is a whole new playing field. What the last several days have shown is that for all of those Russians hoping to land bank in the United State to avoid potential seizure in Russia, that conflict with the United States even indirectly can put assets that they have moved to the United States for “safekeeping” in peril. I hardly expect that any of the Russian oligarchs who bought 30 and 40 million dollar properties in the United States ever thought they would have to worry about asset seizure by the US government, I think for the most part they have always worried more about their own government back in Moscow taking their assets. Where this all heads is anyone’s guess, but I expect we are going to start to see a lot of asset transfers to avoid seizure in the coming weeks.
What will be even more interesting is should China invade Taiwan in the near future, will similar sanctions be imposed against Chinese interests in the United States. For Chinese and Russian real estate investors alike it may be a good time to have those limited partnerships, LLC and realty trusts that hold real estate in the United States reviewed with your legal counsel.