The Committee on Foreign Investment in the United States (CFIUS) is authorized to review certain transactions involving foreign investment in the United States to determine the effect of such transactions on national security.

The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded the jurisdiction of CFIUS to include, generally, real estate transactions involving the purchase or lease by, or a concession to, a “foreign person” of certain private or public real estate located in the United States or changes to the rights a foreign person has with respect to covered real estate. FIRRMA focuses on real estate relating to certain airports, maritime ports and real estate described by its relation to military installations and other facilities of the U.S. Government.  Proposed regulations (31 CFR Part 802) were issued in September of last year and provide the names and locations of the military installations in Appendix A; final regulations must become effective no later than February 13, 2020. A “foreign person” is defined as any foreign national, foreign government, or foreign entity or any entity over which control is exercised or exercisable by a foreign national, foreign government, or foreign entity.  

Since CFIUS has broad authority (including blocking a transaction or requiring a foreign person to divest its interest in a project), the regulations will be impactful on all parties involved with the covered real estate transaction. Additional due diligence will be necessary.

FIRRMA allows parties to notify CFIUS of a proposed real estate transaction by filing a “declaration” to potentially qualify for a safe harbor letter as an alternative to the traditional voluntary notice for transactions under 31 CFR Part 800.  While there is no mandatory declaration requirement, parties to a potential covered real estate transaction may choose to file the declaration. Notwithstanding the foregoing, real estate transactions that are also subject to CFIUS’s existing and proposed regulations regarding control transactions and non-controlling investments (31 CFR Part 800) and the pilot program involving critical technologies (31 CFR Part 801) should be analyzed under those regulations.

The beginning point is to determine if the transaction involves a foreign person and covered real estate.  Understanding the Definitions is vital.  A sampling of terms:

• Close proximity: the area that extends outward one mile from the boundary of a designated military installation, facility, or property.

• Concession: arrangement, other than a purchase or lease, whereby a U.S. public entity grants a right to use real estate for the purpose of developing or operating infrastructure for an airport or maritime port.  The Department of Treasury is considering whether other types of concessions should be included, such as those relating to certain ENERGY generation and OIL AND GAS activities.

• Control: power, direct or indirect, to determine, take or cause decisions regarding covered real estate.

• Covered real estate transactions include transactions that afford the foreign person at least three of the following property rights:  to physically access, exclude others from physical access, improve or develop the real estate, or attach fixed or immovable structures or objects to the real estate.

• Excepted real estate investor: limited exception for a foreign national who is a national of an excepted real estate foreign state to be determined by the Committee.

• Excepted real estate transaction: transactions that are not “covered real estate transactions” and exceptions thereto. For example, single housing units and certain urbanized areas and urban clusters as identified in the most recent U.S. Census are, generally, excepted real estate transactions.

• Extended range: with respect to designated military installations, the area that extends 99 miles outward from the outer boundary of close proximity but no more than 12 nautical miles seaward of the U.S. coastline.

• Real estate: any land, including SUBSURFACE and submerged, or structure attached to land, including any building or any part thereof.