On November 7, 2024, the Office of Investment Security of the Department of the Treasury published a final rule (“Final Rule”) amending the regulations at 31 C.F.R. Part 802 to expand the authority of the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) to review transactions entered into on or after December 9, 2024, involving certain types of U.S. real estate. 89 Fed. Reg. 88,128 (Nov. 7, 2024).
CFIUS, a committee comprising representatives of various federal agencies and chaired by the Secretary of the Treasury, reviews inbound foreign investments in the United States to evaluate risks to U.S. national security. If CFIUS identifies national security risks relating to a particular transaction, it may recommend that the President order cancelation or modification of the transaction or, if the transaction has already concluded, divestment.
CFIUS has broad authority to review (a) “covered control transactions,” which involve a foreign person acquiring control over a U.S. business; (b) “covered investments,” which involve non-controlling investments by a foreign person in a U.S. business involved in critical technologies, critical infrastructure or sensitive personal data; and (c) “covered real estate transactions,” which involve a foreign person acquiring certain property rights commonly associated with leasehold and ownership interests in “covered real estate” located within a specified distance of the national security-related facilities and installations enumerated on Appendix A to 31 C.F.R. Part 802.
More specifically, “covered real estate” means real estate that is located within (a) certain airports and seaports, (b) close proximity (i.e., a one-mile radius) of any military installation, facility or other property of the U.S. government listed on Part 1 of Appendix A, (c) the extended range (i.e., a 100-mile radius) of any military installation listed on Part 2 of Appendix A, (d) any county or other geographic area identified in connection with the locations listed on Part 3 of Appendix A (i.e., locations in the western United States near underground missile silos), and (e) any offshore range or operating area described on Part 4 of Appendix A (to the extent within the limits of the territorial sea of the United States.)
The Final Rule significantly expands the list of military installations that dictate the definition of “covered real estate”, meaning that, after December 9, 2024, the Committee will have jurisdiction to review a larger number of real property-related transactions. (See the updated Appendix A here.) The Final Rule does the following:
- Adds 40 additional military installations to Part 1 (the 1-mile radius list)
- Adds 19 additional military installations to Part 2 (the 100-mile radius list)
- Moves eight military installations from Part 1 to Part 2
This broadened range of CFIUS’s authority has implications for any person doing projects related to land, including clean energy developers, mining companies, and oil and gas operators, as the listed locations cover real estate across the country and, at times, in areas of potential development, including federal public lands. It might not be obvious to project proponents that a foreign investment transaction could have national security risks, but in the “covered real estate” areas, the risk is based on the location rather than the type of business. Indeed, in May of 2024, President Biden issued the first real estate-related divestment order based on CFIUS’s recommendation after a Chinese cloud computing company purchased land within one mile of a U.S. Air Force Base. In that case, the transacting parties did not notify CFIUS; instead, CFIUS received a tip from the public regarding the transaction and investigated, then required the parties to file a notice and ultimately recommended that the President order divestment. This serves as an example of the possible consequences of failing to be cognizant of CFIUS’s reach, which may become increasingly relevant to real estate developers across the country as the nation approaches a change in presidential administration.
Please contact Almira Moronne or Alexandra Burton with any questions.