On November 1, 2024, the U.S. Department of Treasury (“the Treasury”), as chair of the Committee on Foreign Investment in the United States (“CFIUS”), published a Final Rule expanding its authority to review certain transactions involving foreign investment in U.S. real estate. CFIUS has jurisdiction to review certain “covered real estate transactions” located within specific degrees of proximity to sensitive government and military sites. The new Final Rule, which becomes effective on December 9, 2024, includes the addition of 59 new military installations and government sites designated as sensitive, ultimately broadening CFIUS jurisdiction. This Final Rule continues the trend of increasing government monitoring authority over foreign investment in U.S. real estate, a trend reflected at both the federal and state level.
Background on CFIUS Real Estate Authority
CFIUS was granted the authority to review certain real estate transactions involving foreign persons and located within specific sensitive geographic locations by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”). Under FIRRMA, CFIUS has the authority to review “covered real estate transactions” which are defined as purchases, leases, or concessions to a foreign person of certain “covered real estate” which affords the foreign person at least three of the following rights:
- Right to access the covered real estate;
- Right to exclude other parties from access to the covered real estate;
- Right to improve upon or develop the covered real estate;
- Right to attach fixed structures and objects to the covered real estate.
“Covered real estate” constitutes property within a certain proximity of military and government installations as listed in Appendix A to 31 C.F.R. Part 802. Foreign acquisition of property near the sensitive locations listed in Appendix A triggers CFIUS jurisdiction as proximity to these locations presents risk that a foreign party may collect intelligence on activities being conducted at sensitive government sites or expose the sensitive government site to risk of foreign surveillance. Under 31 C.F.R. Part 802, CFIUS has the authority to review transactions that afford foreign persons with rights in property (1) within “close proximity” (i.e., a radius of 1 mile) of any installation in Parts 1 and 2 of Appendix A or (2) within the “extended range” (i.e., a radius of 100 miles) of any installation in Part 2 of Appendix A. Notably, the Department of Defense (“DoD”), as a member of CFIUS, conducts periodic assessments of the geographic scope for CFIUS real estate reviews as provided in Appendix A to ensure that the lists of sensitive locations continue to reflect emerging or evolving national security risks.
Updates to Appendix A List of Covered Real Estate
The November 1st Final Rule broadens CFIUS jurisdiction to review real estate transactions involving foreign persons by updating and expanding the list of sensitive locations in Appendix A. Key changes made by the Final Rule include the following:
- The addition of 40 new military installations to Part 1 of Appendix A which provides CFIUS the ability to review covered real estate transactions within one mile of these sites.
- The addition of 19 new military installations to Part 2 of Appendix A which provides CFIUS the ability to review covered real estate transactions within one-hundred miles of these sites.
- Moves 8 previously listed military installations from Part 1 to Part 2 of Appendix A expanding CFIUS jurisdiction for these sites from a one-mile to a one-hundred mile radius.
- Updates to the names of 14 military installations and locations of 7 military installations already listed in Appendix A to assist the public in identifying these sensitive sites.
Increasing Government Scrutiny
The expansion of CFIUS jurisdiction as provided in the November 1st Final Rule reflects a broader trend of heightened scrutiny toward foreign investment in U.S. real estate. On a federal level, the Biden administration previously expanded the list of sensitive locations in Appendix A in August 2023. In addition, several legislative efforts were made throughout 2024 to address rising concerns over foreign acquisition of U.S. agricultural land and establish mechanisms focused on monitoring of agricultural land acquisitions that would normally fall outside the scope of covered real estate provided in the current CFIUS regulations.[1] Specific legislation on the topic of foreign acquisition of agricultural land has not yet been signed into law, however, the Consolidated Appropriations Act 2024 enacted on March 9, 2024, now directs that the U.S. Secretary of Agriculture be included as a member of CFIUS to assist with review of real estate transactions on a case-by-case basis.[2]
Also of note this year was the Biden administration’s exercise of the Executive’s authority to order the unwinding of a covered real estate transaction reviewed by CFIUS. This unprecedented step was made pursuant to CFIUS review authorities and formally prohibited MineOne Cloud Computing Investment, a British Virgin Islands company majority owned by Chinese nationals, from continuing ownership of a property located within one mile of a Wyoming air force base listed in Appendix A to 31 C.F.R. Part 802. According to the White House press release published on May 13, 2024, the decision to order the foreign party to sell the subject property and remove equipment already located there was made in light of national security concerns over the foreign party’s access to and operation of crypto-currency mining operations at the subject location and presence of elevated risks for potential foreign surveillance of the nearby “strategic missile base” that is a “key element of America’s nuclear triad.” The President’s decision to prohibit MineOne Cloud Computing Investment’s ownership of the covered real estate demonstrates the full extent of the federal government’s power to regulate foreign investment in U.S. real estate which may continue to be exercised under the incoming Trump administration.
In addition to actions being taken on a federal level, there has also been a recent uptick in the number of states implementing rules regulating foreign investment in certain real estate, particularly in agricultural lands. Despite several legal challenges that have arisen related to the constitutionality of foreign ownership restrictions established in various states, in 2024, a majority of states continued to amend current laws and introduce new legislation regulating foreign acquisition of certain real estate within state bounds.[3] As such, the trend of heightened scrutiny and regulatory monitoring toward foreign investment in U.S. real estate is expected to continue at both a federal and state level even after the Trump administration takes effect in 2025.
Compliance Considerations
Importantly, notification to CFIUS of a covered real estate transaction by a foreign person remains voluntary. Thus, while CFIUS may have jurisdiction to review a real estate transaction, the involved parties are not required to proactively submit notification of the real estate transaction to CFIUS for review.
Although not required, in certain cases it may be beneficial to submit a voluntary notice to CFIUS of a potential covered real estate transaction because this allows CFIUS to review and possibly clear the transaction, providing a “safe harbor” against potential review by the Committee in the future. In addition, if CFIUS does identify national security concerns in its review of a covered real estate transaction, it may require the parties adopt certain measures to mitigate these concerns and allow the transaction to proceed accordingly. Those involved in a foreign party’s acquisition of property near sensitive locations should ensure that their pre-acquisition due diligence analyses include a review of the potential for CFIUS review and consult legal counsel as needed to determine whether submission of a voluntary notification to CFIUS is advisable.
In addition, to considering the potential for CFIUS review of a real estate transaction, involved parties should also review state-level regulations to identify any additional legal compliance risks. As the regulatory landscape related to foreign investment in U.S. real estate continues to expand, it is important for parties involved in foreign investment in real estate to ensure they are aware of how certain transactions may implicate CFIUS regulations and emerging state-level restrictions to fully assess the legal and regulatory risks associated with a transaction.
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[1] See Focusing on Foreign Investments: Congress Aims to Add Agriculture to CFIUS, Nat’l Agric. Law Ctr. (Oct. 1, 2024), available at https://nationalaglawcenter.org/focusing-on-foreign-investments-congress-aims-to-add-agriculture-to-cfius/.
[2] Consolidated Appropriations Act of 2024, Pub. L. No. 118-42, § 787, 138 Stat. 25 (2024).
[3] See Foreign Ownership of Agricultural Land: FAQs & Resource Library, Nat’l Agric. Law Ctr., https://nationalaglawcenter.org/foreign-investments-in-ag/#:~:text=In%202024%2C%20eleven%20states%20enacted,their%20state’s%20foreign%20ownership%20law (last updated Mar. 20, 2024).