On
This is the first expansion of CFIUS' real estate authority since it came into effect in 2020.
This incremental expansion of CFIUS' jurisdiction will increase the number of transactions subject to CFIUS review. However, it is unlikely to satisfy members of
There are also legislative proposals to prohibit Chinese investment in real estate in dozens of
For instance, on
A proliferation of restrictions at the state level, with various parameters and definitions, is likely to complicate transactions by even non-Chinese corporations and funds that operate in multiple states and have indirect Chinese investment, and could result in inadvertent violations once the prohibitions become effective.
Background
CFIUS is the interagency body, chaired by the
In 2020, CFIUS implemented significant changes pursuant to the Foreign Investment Risk Review Modernization Act2 that, among other things, expanded CFIUS' jurisdiction to include certain real estate transactions by foreign persons.3
This new jurisdiction addressed long-standing concerns regarding CFIUS' inability to address national security risks arising from foreign persons purchasing real estate in or around ports and military installations that would provide them the ability to collect intelligence or conduct surveillance on national security activities conducted at those locations.
By capturing real estate transactions in those sensitive areas, the CFIUS real estate rules capture certain greenfield transactions that would not otherwise be subject to CFIUS jurisdiction that applies to transactions involving investments in existing
CFIUS implemented its real estate jurisdiction through regulations4 that define "covered real estate" as real estate that is located within:
-
Certain airport or maritime ports;
- Close proximity, i.e., one mile, to — or, for a subset, the extended range, i.e., a total of 100 miles, from — the boundary of identified military installations;
- Certain geographic areas identified in connection with other specified military installations, e.g., military installations that are home to
U.S. intercontinental ballistic missile programs; or - Any part of a specified offshore military range or operating area within the territorial sea of the
U.S. 5 Dyess Air Force Base , located inAbilene, Texas ;Ellsworth Air Force Base , located inBox Elder, South Dakota ;- Iowa National Guard Joint Force Headquarters, located in
Des Moines, Iowa ; Lackland Air Force Base , located inSan Antonio ;Laughlin Air Force Base , located inDel Rio, Texas ; andLuke Air Force Base , located inGlendale, Arizona .
Each of these military installations and categories is identified specifically in an appendix to the regulations.
Subject to certain exceptions,6 CFIUS has authority to review any purchase or lease by, or concession to, a foreign person of real estate in these areas that gives the foreign person three of four identified property rights.7
Recent CFIUS Developments
When issuing these regulations in 2020, CFIUS specifically stated its intention to periodically review and update the list of sites around which it has jurisdiction to review investments.8
On
Notably, these installations include the
In 2022, CFIUS reportedly determined that it did not have jurisdiction to review an acquisition of real estate near this base by
The other installations proposed for inclusion are:
-
Air Force Plant 42, located in
State and Federal Legislation
In the wake of the
The scope of the bills varies considerably. While some proposals focus primarily on transactions involving the government of
A few examples are outlined below.
Investors from other countries of concern are prohibited from acquiring property within 10 miles of a military installation or critical infrastructure facility or any agricultural land.
In both cases, there is a de minimis exception for certain indirect holdings through public securities.
This leaves open the possibility that a small ownership interest by a Chinese company anywhere in the ownership chain of a private corporation or fund that purchases real property, or purchases another
Current holdings will also need to be registered with the state.
Recently enacted legislation in
This law prohibits restricted foreign entities, including Chinese companies identified by the
Proposed legislation in
The proposed legislation would prohibit direct purchases of agricultural land, quarries and mines — rather than real estate more generally — by the government of
Assuming it remains in any final legislation, a majority threshold will reduce the likelihood of companies and funds inadvertently violating the law.
Federal Legislation
Members of
In 2023, bills have been introduced that would prohibit15 the purchase of agricultural land by foreign nationals associated with the government of
It remains to be seen whether any of these bills will move forward in the near term.
Implications
CFIUS' latest action, if finalized as currently proposed, will increase the number of real estate transactions that are subject to CFIUS review, though not significantly.
The proliferation of restrictions at the state level, however, with various parameters and definitions, is likely to complicate or prevent certain foreign investment.
In fact, where a
Such companies and funds must increasingly understand and navigate federal and state laws to avoid unintentional violations, and conduct enhanced due diligence concerning indirect holdings of real property to assess whether they are covered under the applicable set of laws and options for compliance, as relevant.
For investment funds, one option may be establishing separate vehicles for Chinese investors.
Footnotes
1. https://www.federalregister.gov/documents/2023/05/05/2023-09259/provisions-pertaining-to-certain-transactions-by-foreign-persons-involving-real-estate-in-the-united.
2. https://home.treasury.gov/sites/default/files/2018-08/The-Foreign-Investment-Risk-Review-Modernization-Act-of-2018-FIRRMA_0.pdf.
3. For a more in-depth discussion of FIRRMA and the implementing regulations, please see our prior alert on this subject here: https://www.akingump.com/en/news-insights/treasuryreleases-final-regulations-implementing-cfius-reforms.html.
4. https://home.treasury.gov/system/files/206/Part-802-Final-Rule-Jan-17-2020.pdf.
5. See 31 C.F.R. §802.211.
6. The regulations except certain real estate transactions involving certain urban clusters, single housing units, retail, accommodation or food serve establishments, commercial office space and American Indian land, as well as real estate transactions by certain investors from excepted foreign states (currently,
7. "Property rights" means any of the following rights or abilities, whether or not exercised: (i) physically access the real estate; (ii) exclude others from physical access to the real estate; (iii) improve or develop the real estate; or (iv) attach fixed or immovable structures or objects to the real estate. See 31 C.F.R. §802.233.
8. See Preamble to 31 C.F.R. Part 802.
9. https://www.federalregister.gov/documents/2023/05/05/2023-09259/provisions-pertaining-to-certain-transactions-by-foreign-persons-involving-real-estate-in-the-united.
10. See, e.g., Press Release by
11. Legislation has been enacted or proposed in at least the following states:
12. https://www.flsenate.gov/Session/Bill/2023/264/BillText/er/PDF.
13. See Sections 63L-13-101 and 63L-13-201, Utah Code Annotated. These restrictions apply after
14. https://media.defense.gov/2022/Oct/05/2003091659/-1/- 1/0/1260H%20COMPANIES.PDF.
15. https://newhouse.house.gov/sites/evo-subsites/newhouse.house.gov/files/evo-media-document/2.2.2023-china-act.pdf.
16. https://stefanik.house.gov/2023/2/stefanik-costa-crawford-rounds-tester-work-to-protect-u-s-agriculture-from-foreign-adversaries.
Originally Published by Law360
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