U.S. Commercial Real Estate Acquisitions: A Legal Guide for Turkish Buyers

The United States commercial real estate (CRE) market is the world's largest and most liquid, offering Turkish investors access to asset classes, return profiles, and geographic diversification unavailable in most other markets. From Class A office towers in Manhattan to industrial logistics facilities in the Sun Belt, multifamily apartment complexes in growing metros, and retail centers anchored by national tenants, U.S. CRE presents a broad investment universe.

For Turkish buyers — whether individual high-net-worth investors, family offices, or corporate entities — acquiring U.S. commercial real estate requires navigating a legal and regulatory framework that differs substantially from Turkish practice. The transaction structure, due diligence process, financing mechanics, tax treatment, and ongoing compliance obligations all demand careful attention.

This guide provides a comprehensive overview of the U.S. commercial real estate acquisition process from a Turkish buyer's perspective.

The single most important decision a Turkish buyer makes before acquiring U.S. commercial real estate is how to structure the investment. The holding structure determines tax treatment, liability exposure, estate planning implications, and operational flexibility.

The most common structure for foreign investors in U.S. CRE. A single-member or multi-member LLC provides:

• Limited liability — personal assets of Turkish owners are shielded from property-level liabilities
• Pass-through taxation — income and losses flow through to owners (though FIRPTA withholding still applies on disposition)
• Flexibility — operating agreement can be customized for investor relationships
• Privacy — in many states, LLC ownership is not publicly disclosed

Recommended structure for most Turkish buyers: A Delaware LLC (for legal flexibility and privacy) that owns the property, with the Turkish individual or entity as the sole or majority member.

For larger investments or where estate tax planning is a priority:

• A foreign corporation (e.g., a Turkish holding company or a BVI/Cayman entity) owns the U.S. LLC
• The U.S. LLC owns the property
• This structure can eliminate U.S. estate tax exposure on the property (U.S. estate tax applies to foreign nationals on U.S.-situs assets, including real estate, at rates up to 40% with only a $60,000 exemption)

Trade-off: More complex, higher setup and maintenance costs, potential branch profits tax issues.

Generally not recommended for CRE due to double taxation (corporate-level tax on income, then shareholder-level tax on dividends). Occasionally used for specific operational real estate businesses.

Available for larger, institutionally-managed portfolios. Provides tax advantages but requires meeting strict organizational and distribution requirements. Not practical for most individual Turkish buyers.

U.S. federal estate tax applies to foreign nationals on U.S.-situs assets (including real property) at rates up to 40%, with only a $60,000 exemption (compared to $13.61 million for U.S. citizens and residents). Holding U.S. real estate through a foreign corporation can eliminate this exposure. This is a critical planning point that should be addressed before acquisition.

U.S. commercial real estate transactions are typically brokered. Turkish buyers should engage a licensed commercial real estate broker in the target market. Key considerations:

• Buyer's broker vs. listing broker — the listing broker represents the seller; Turkish buyers should retain their own buyer's broker
• Broker compensation — typically paid by the seller from sale proceeds; buyer's broker is generally free to the buyer
• Market expertise — engage brokers with specific expertise in the asset class and submarket

Cap Rate (Capitalization Rate): Net Operating Income (NOI) ÷ Purchase Price. The primary valuation metric for income-producing CRE. Lower cap rates indicate higher valuations (and lower initial yields).

NOI (Net Operating Income): Gross rental income minus operating expenses (excluding debt service and depreciation).

DSCR (Debt Service Coverage Ratio): NOI ÷ Annual Debt Service. Lenders typically require 1.20x–1.35x minimum DSCR.

Cash-on-Cash Return: Annual pre-tax cash flow ÷ Total equity invested. Measures actual cash yield on equity.

Before executing a binding contract, parties typically exchange a Letter of Intent (LOI) — a non-binding document outlining the key deal terms:

• Purchase price
• Earnest money deposit amount
• Due diligence period (typically 30–60 days)
• Closing timeline
• Key contingencies (financing, due diligence)
• Allocation of closing costs

LOIs are generally non-binding, but certain provisions (confidentiality, exclusivity) may be binding. Turkish buyers should have U.S. counsel review any LOI before signing.

The PSA is the binding contract governing the acquisition. Key provisions include:

Representations and Warranties The seller makes representations about the property's condition, title, environmental status, lease status, litigation, and compliance with law. Turkish buyers should negotiate robust representations with meaningful survival periods and indemnification rights.

Due Diligence Period The PSA should provide a meaningful due diligence period (30–60 days minimum) during which the buyer can investigate the property and terminate without penalty if unsatisfied. This is the buyer's primary protection.

Earnest Money A deposit (typically 1–5% of purchase price) held in escrow. May be refundable during the due diligence period and non-refundable thereafter. Turkish buyers should negotiate maximum refundability during due diligence.

Closing Conditions Standard conditions include: satisfactory title, no material adverse change, delivery of required documents, and (if applicable) financing.

Assignment Turkish buyers often need the right to assign the PSA to the acquisition entity (LLC) formed after signing. Ensure the PSA permits assignment to buyer-controlled entities.

Due diligence in U.S. CRE is comprehensive and typically conducted during the contractual due diligence period. Failure to conduct thorough due diligence is the most common source of post-closing disputes.

Title Review

• Order a title commitment from a title insurance company
• Review Schedule B exceptions (encumbrances, easements, restrictions)
• Identify and resolve any title defects before closing
• Title insurance is standard in U.S. CRE and strongly recommended for Turkish buyers

Survey An ALTA/NSPS Land Title Survey provides a comprehensive depiction of the property boundaries, improvements, easements, and encroachments. Required by most lenders and strongly recommended for all buyers.

Zoning and Permits

• Verify current zoning classification and permitted uses
• Confirm all improvements are legally permitted and certificate of occupancy is in place
• Review any pending zoning changes or variances

Lease Review For income-producing properties, review all leases:

• Rent rolls and lease abstracts
• Tenant estoppel certificates (tenant confirmations of lease status)
• SNDA agreements (Subordination, Non-Disturbance, Attornment)
• Options to purchase, rights of first refusal, expansion rights
• Rent concessions, free rent periods, tenant improvement allowances

Existing Financing Review any existing mortgages or liens. Determine whether existing financing can be assumed or must be paid off at closing.

Property Condition Assessment (PCA) Engage a licensed engineer to conduct a Property Condition Assessment (also called a Building Inspection Report). The PCA identifies immediate repair needs and capital expenditure requirements over a 10-year horizon.

Environmental Assessment

• Phase I Environmental Site Assessment (ESA): Reviews historical records and conducts site inspection to identify recognized environmental conditions (RECs). Required by virtually all lenders.
• Phase II ESA: Involves physical sampling (soil, groundwater) if Phase I identifies RECs. Triggered by Phase I findings.

Environmental contamination can result in significant remediation liability. Turkish buyers should never skip the Phase I ESA.

• Review 3 years of operating statements (income and expense history)
• Verify rent rolls against actual lease documents
• Analyze tenant creditworthiness (particularly for single-tenant properties)
• Review service contracts and vendor agreements
• Assess capital expenditure history and deferred maintenance

U.S. commercial mortgages are typically:

• Loan-to-Value (LTV): 60–75% for foreign buyers (lower than for U.S. borrowers)
• Term: 5, 7, or 10 years (with 25–30 year amortization)
• Rate: Fixed or floating; currently in the 6.5–8.0% range (varies by asset class and market)
• Recourse: Most commercial loans are non-recourse (lender's remedy limited to the property), with standard "bad boy" carve-outs for fraud, waste, and environmental liability

Challenges for Turkish buyers:

• U.S. lenders require extensive documentation of income, assets, and creditworthiness
• Foreign income and assets are harder to verify
• No U.S. credit history
• FIRPTA withholding requirements affect lender underwriting

Recommended approach: Work with lenders experienced in foreign national borrowers. Some U.S. banks (particularly those with international divisions) and certain private lenders specialize in foreign national CRE loans.

Debt Service Coverage Ratio (DSCR) loans underwrite based on the property's income rather than the borrower's personal income. These are increasingly available for foreign buyers and can simplify the qualification process.

Many Turkish buyers initially acquire U.S. CRE on an all-cash basis, then refinance after closing. This eliminates financing contingencies and can strengthen the offer in competitive markets.

FIRPTA is the most important U.S. tax law for Turkish buyers of U.S. real estate.

Under FIRPTA, when a foreign person sells U.S. real property, the buyer is required to withhold 15% of the gross sales price (not the gain — the full price) and remit it to the IRS. This withholding is a prepayment of the seller's U.S. tax liability.

Implications for Turkish buyers:

• When you eventually sell, the buyer will withhold 15% of the gross price
• You must file a U.S. tax return to report the actual gain and claim a refund of any excess withholding
• Proper tax planning before acquisition can minimize the FIRPTA impact

FIRPTA withholding can be reduced or eliminated through:

• Withholding certificate application (if actual tax liability is less than 15%)
• Qualifying for exemptions (e.g., sale to a U.S. person for use as a residence under $300,000)

Foreign investors in U.S. CRE must pay U.S. income tax on rental income. Two options:

Net Income Election (Recommended): Make an election to treat rental income as "effectively connected income" (ECI), allowing deduction of expenses (depreciation, mortgage interest, operating expenses). Taxed at graduated U.S. rates (up to 37% for individuals, 21% for corporations).

Gross Income Withholding (Default): Without an election, 30% withholding tax applies to gross rental income with no deductions. Generally unfavorable.

Depreciation: U.S. tax law allows depreciation of commercial real property over 39 years (residential over 27.5 years). This non-cash deduction can significantly reduce taxable income.

When selling U.S. investment property, a 1031 Exchange allows deferral of capital gains tax by reinvesting proceeds into a "like-kind" replacement property. Key rules:

• Must identify replacement property within 45 days of closing
• Must close on replacement property within 180 days
• Must use a qualified intermediary (QI) to hold proceeds
• Replacement property must be of equal or greater value
• Available to foreign investors (FIRPTA withholding still applies but can be reduced)

As noted above, U.S. estate tax applies to foreign nationals on U.S.-situs assets at rates up to 40% with only a $60,000 exemption. Holding through a foreign corporation eliminates this exposure. This planning must be done before acquisition — restructuring after the fact can trigger tax.

The U.S.-Turkey tax treaty provides some relief from double taxation, including reduced withholding rates on dividends and interest. However, the treaty does not eliminate FIRPTA or U.S. estate tax for foreign nationals. Turkish buyers should consult both U.S. and Turkish tax advisors to optimize their overall tax position.

U.S. CRE closings are typically handled by a title company or escrow agent (in some states, by attorneys). The closing process involves:

1. Title search and title insurance commitment — confirms clear title
2. Closing disclosure — itemizes all costs and credits
3. Funding — buyer wires purchase price (less any financing) to escrow
4. Document execution — deed, transfer documents, loan documents
5. Recording — deed and mortgage recorded in county land records
6. Disbursement — escrow disburses funds to seller, pays off existing liens, pays closing costs

Turkish buyers should budget for the following closing costs:

Note: New York City imposes a Mansion Tax (1–3.9% on purchases over $1 million) and a Real Property Transfer Tax (1.425–2.625%). These significantly increase closing costs for NYC acquisitions.

Turkish buyers wiring funds to U.S. escrow accounts should:

• Verify wire instructions directly with the title company by phone (wire fraud is common)
• Allow sufficient time for international wire transfers (2–5 business days)
• Ensure funds are in USD or arrange currency conversion in advance
• Be prepared to document the source of funds for AML compliance

Turkish buyers not based in the U.S. should engage a professional property management company to handle:

• Tenant relations and lease administration
• Rent collection
• Maintenance and repairs
• Vendor management
• Financial reporting

Property management fees typically range from 3–8% of gross rents for commercial properties.

Turkish investors in U.S. CRE must file:

• U.S. federal income tax return (Form 1040-NR for individuals, Form 1120-F for foreign corporations)
• State income tax return (in the state where the property is located)
• FBAR (FinCEN Form 114) if U.S. financial accounts exceed $10,000
• Form 8938 (FATCA) if U.S. financial assets exceed applicable thresholds

The U.S. LLC holding the property must:

• File annual reports with the state of formation and the state where the property is located
• Maintain a registered agent in each state
• Keep separate bank accounts and financial records
• File U.S. tax returns (Form 1065 for multi-member LLCs, or Schedule E for single-member LLCs)

U.S. commercial real estate offers Turkish investors a compelling combination of stable income, capital appreciation potential, and portfolio diversification. But the acquisition process is complex, and the legal, tax, and regulatory requirements are unforgiving of mistakes.

The most successful Turkish buyers in U.S. CRE share a common approach: they engage experienced U.S. legal counsel early, structure their investment correctly before acquisition, conduct thorough due diligence, and maintain proper compliance after closing. The cost of proper legal and tax advice is a small fraction of the value protected.

ULF New York advises Turkish investors on all aspects of U.S. commercial real estate acquisitions — from investment structuring and due diligence to contract negotiation, closing, and post-acquisition compliance. Contact us to discuss your U.S. real estate investment objectives.

This article is for informational purposes only and does not constitute legal or tax advice. U.S. real estate law and tax rules are complex and jurisdiction-specific. Consult qualified U.S. legal and tax counsel before making any investment decision.