On July 8, 2024, the Committee on Foreign Investment in the United States ("CFIUS") issued a proposed rule that would significantly expand its jurisdiction to review foreign persons' real estate transactions in the United States. Comments will be due 30 days after publication in the Federal Register.
Background
CFIUS has jurisdiction to review transactions by foreign persons involving real estate that is located near or within, or functions as part of, certain designated U.S. government sites, military installations, or critical infrastructure (e.g., airports and maritime ports) that are "sensitive for reasons relating to national security." The Committee is charged with reviewing transactions that may pose threats to national security by virtue of providing the foreign person the ability to collect intelligence on activities being conducted at nearby U.S. government facilities. CFIUS jurisdiction covers transactions involving the purchase or lease by or concession to a foreign person of real estate within "close proximity" (defined as within a one-mile radius) or the "extended range" (defined as within a 100-mile radius) of such government or infrastructure locations, unless such transactions are excepted because, e.g., the real estate is located in an "urbanized area" or "urban cluster." See 31 CFR § 802.212 (Covered real estate transaction), § 802.216 (Excepted real estate transaction).
U.S. government sites that are considered as sensitive for purposes of CFIUS review are listed in Appendix A of the CFIUS regulations, 31 CFR Part 802 Appendix A. This list is periodically reevaluated to determine whether additional sites should be added based on the sensitivity of activities conducted at those facilities and the need to protect them from surveillance that might be possible if foreign persons were permitted to acquire adjacent or nearby real estate. Additions to the list have been made following instances in which CFIUS determined that it did not have jurisdiction to review a foreign person's acquisition of an interest in real estate near a significant but unlisted U.S. military installation.
Proposed Rule
The proposed rule would expand CFIUS's jurisdiction over foreign real estate transactions in the U.S. by:
- Adding 40 military installations to Appendix A Part 1 ("close proximity," i.e., within a one-mile radius);
- Adding 19 military installations to Appendix A Part 2 ("extended range," i.e., within a 100-mile radius); and
- Moving eight military installations from Part 1 (one-mile radius) to Part 2 (100-mile radius).1
These revisions will significantly increase the number of listed installations and substantially expand the geographic scope of CFIUS's jurisdiction over foreign real estate transactions in the United States.
CFIUS has requested public comment on its proposal, which will be due 30 days after publication in the Federal Register. If adopted, the rule will become effective 30 days after publication of the final rule in the Federal Register. It is not expected that any final rule will apply retroactively to transactions that already have been completed or are in progress.
Implications
CFIUS is becoming increasingly aggressive in its review of foreign investments in the United States, including those involving real estate. This accompanies and perhaps is in part provoked by increased congressional scrutiny and bipartisan calls from Congress for stricter review by CFIUS of foreign investments in U.S. real estate, including agricultural lands. At the same time, approximately twenty states have enacted laws providing for national security reviews in parallel with and in some cases even more aggressively than CFIUS, and similar proposals are pending in other states; indeed, even some local governments have gotten into the national security game by using local zoning and permitting laws to restrict foreign investment in certain classes of real estate.
These developments call for early review in real estate transactions of:
(1) whether the real estate falls within the scope of CFIUS's jurisdiction;
(2) if so, whether the transaction constitutes an " excepted real estate transaction" that is exempt from CFIUS review; and
(3) if it is not an excepted transaction, whether the location and nature of the real estate raises concerns that on a risk analysis basis warrant voluntarily notifying CFIUS of the proposed transaction.
Footnote
1 The proposed rule would also:
- Remove one installation from Part 1 and two from Part 2;
- Broaden the definition of "military installation"; and
- Update the names and/or locations of 21 installations already included in Appendix A to the rule.
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