• The U.S. Department of the Treasury (“Treasury”), the Chair of the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”), has released a Notice of Proposed Rulemaking (“NPRM”) to expand CFIUS’ jurisdiction to review foreign real estate transactions with proximity to U.S. military installations.
• Treasury specifically proposes amendments to 31 CFR Part 802 (the “Real Estate Regulations”) to amend the definition of “military installations” and add 59 new locations across 30 states identified as important to national security.
• The NPRM invites public comment on the proposed changes to the Real Estate Regulations, which can be submitted within 30 days following the NPRM’s publication in the Federal Register.
• Dealmakers are on notice: the NPRM marks the second time in the last year that CFIUS has expanded its jurisdiction to review foreign real estate transactions and arrives alongside greater national and state-level scrutiny of foreign investment in real estate. Parties contemplating transactions involving foreign investments in U.S. real estate should evaluate CFIUS-related considerations from the start of the transaction planning process to avoid potential disruptions.

This OnPoint discusses the current U.S. regulatory landscape regarding the review and restriction of foreign real estate acquisitions and Treasury’s newly proposed rule to expand CFIUS’ jurisdiction to review the same.

Background

CFIUS is an interagency committee, principally comprising nine members and chaired by the Secretary of the Treasury, which has broad powers to review foreign investments in and acquisitions of U.S. businesses and certain U.S. real estate to determine their potential impact on U.S. national security. The Committee has the authority to impose mitigation measures, suspend transactions and, where appropriate, recommend that the President block or unwind transactions.

Since its authority was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), CFIUS has had jurisdiction to review transactions involving the purchase or lease by, or concession to, a non-U.S. person of certain U.S. real estate that might raise national security concerns. Of note, the current Real Estate Regulations focus in part on real restate that is located within:

• “Close proximity” (i.e., one mile from the outer boundary) of certain specified U.S. military installations;
• “Extended range” (i.e., 99 miles outward from the outer boundary) of certain specified U.S. military installations;
• Specific counties or other geographic areas connected to certain specified bases and military installations; or
• Any part of certain specified U.S. military installations and located within the limits of the territorial sea of the United States.

The CFIUS Real Estate Regulations identify approximately 170 military installations, and the list is updated periodically. To assist transaction parties with assessing whether a contemplated investment involves one or more such installations, the Committee has made available a tool (available here).

The NPRM proposes three key categories of amendments to the Real Estate Regulations.

1. Amendments to the Military Installations List in Appendix A.

Appendix A to the Real Estate Regulations identifies certain installations of interest to CFIUS and helps identify whether a foreign real estate transaction falls within CFIUS’ jurisdiction for review based on proximity of the real estate in question to such installations. The NPRM proposes the addition of 59 military installations to Appendix A.

2. Technical Amendments to Update the Identification of Certain Military Installations.

The NPRM proposes technical amendments to update the names of 14 military installations listed in Appendix A to reflect their official names and account for recent renaming, and also update the locations of seven military installations to better assist parties in identifying the military installations by their location.

3. Amendments to the Definition of “Military Installation”

The definition of the term “military installation” in the Real Estate Regulations will be broadened to reflect the additional military installations that the NPRM proposes adding to the list in Appendix A. Specifically, the definition will be amended to add:

• Space Force bases, stations, and major annexes;
• Army depots, arsenals, and military terminals; and
• Marine Corps installations, logistical battalions, and support facilities.

The definition of “military installation” will also be amended to remove specific reference to military ranges owned by the Navy or Air Force, in order to broaden the scope to military ranges owned by each of the Armed Forces.

Foreign Investment in U.S. Real Estate in the Spotlight

The June 2024 additions to the military installations are not the first time Treasury has expanded the list. Treasury previously added eight new locations to the list approximately a year prior in response to public scrutiny following an investment by a Chinese investor near Grand Forks Air Force Base.

In November 2021, Fufeng Group, a Chinese food manufacturer, acquired a 300-acre parcel of land approximately 12 miles from Grand Forks Air Force Base (in North Dakota) in order to build a corn milling plant. The transaction attracted both local and national scrutiny as the type of transaction that the Real Estate Regulations were designed to address. The matter identified potential “gaps” in CFIUS’ jurisdiction. As pressure mounted on CFIUS to intervene and restrict the investment, upon review, the Committee determined in December 2022 that it did not have jurisdiction; Grand Forks Air Force Base was (inadvertently) not included in the military installation list maintained in the CFIUS regulations at the time of the review. Ultimately, the transaction did not go through after the U.S. Air Force raised concerns with officials in North Dakota; CFIUS later amended its list of military installations to include the air force base.

CFIUS’ Real Estate Regulations remained in the news in 2023 with the Gotion High-Tech (“Gotion”) transaction. In June 2023, Gotion, a Chinese electric vehicle manufacturer, announced its intentions to build a large-scale electric vehicle battery factory near Big Rapids, Michigan. The plans for the $2.4 billion facility were widely opposed, as the building site is located within 60 miles of U.S. military armories and within 100 miles of Camp Grayling, which is the largest U.S. National Guard training facility in the United States. Again, when the proposed real estate transaction was submitted to CFIUS for review, CFIUS determined that it did not have jurisdiction to review the transaction as the military installations in question were not included in the Real Estate Regulations (CFIUS is addressing this gap with the NPRM described herein).

After a string of misfires with Fufeng and Gotion, the Biden Administration flexed its authority under the Real Estate Regulations in recent months by blocking an investment near a listed military installation. In May 2024, President Biden issued a historic executive order (the “Order,” available here and which we discuss here) unwinding the purchase by the Chinese company MineOne Cloud Computing Investment I L.P. (collectively with its affiliates, “MineOne”) of U.S. real estate in close proximity to Francis E. Warren Air Force Base (“F.E. Warren AFB”) in Wyoming. The Order related to a June 2022 acquisition in which MineOne acquired real estate within one mile of F.E. Warren AFB. MineOne did not seek CFIUS approval in connection with the acquisition, and CFIUS learned of the transaction thereafter through a public tip. Upon receipt of the information, CFIUS investigated the transaction and ultimately identified national security risks that could not be mitigated through a national security agreement, at which point the matter was referred to President Biden. President Biden then issued the Order prohibiting MineOne’s property acquisition, requiring the divestment of certain real estate operated as a cryptocurrency mining facility located within one mile of F.E. Warren AFB, and requiring the removal of certain improvements and equipment at the relevant property by MineOne. Both the divestment and the equipment removal were mandated to occur on a rapid timetable.

The MineOne-related Order was only the eighth time that the President has formally blocked a transaction, and it marks the first time the President has blocked a transaction involving CFIUS’ authority to review certain real estate transactions. The Order demonstrates the attention that potentially sensitive real estate transactions are receiving from the U.S. government, the breadth of the Real Estate Regulations, and the importance of evaluating potential CFIUS issues from the early days of a transaction.

State-Level Restrictions on Foreign Real Estate Transactions

There also has been increased attention on foreign real estate investment, and corresponding restrictions, at the state and local levels. Various states and even a few municipalities have now enacted (or are contemplating) state-level legislation to restrict foreign real estate ownership. Many state-level regimes prohibit acquisitions of land by investors from a variety of “countries of concern,” including China, Russia, Venezuela, Iran, and North Korea. In some cases, these prohibitions apply to investments by individuals who are citizens of those countries even if they also are legal residents of the United States.

Florida, for example, has enacted some of the broadest state-level restrictions regarding foreign real estate ownership, which specifically target foreign ownership by citizens of certain countries. On May 8, 2023, Governor Ron DeSantis signed into law legislation, effective July 1, 2023, that prohibits China-domiciled persons and other persons who are not lawful permanent residents of the United States from purchasing or owning more than a single parcel of two acres of land. Such land also may not be within five miles of a military installation or critical infrastructure facility. Specifically, these persons “may not directly or indirectly own, have a controlling interest in, or acquire by purchase, grant, devise, or descent any interest, except a de minimis indirect interest, in real property.” The law also restricts agricultural land purchases by persons domiciled in China, Russia, Iran, North Korea, Cuba, Venezuela, and Syria. There is an accompanying rule with respect to land acquisitions near military installations or critical infrastructure facilities (not agricultural) that grants an exception for passive investors. Moreover, the rule excepts any passive ownership interest of a foreign principal in an entity, provided that the foreign principal does not possess, by virtue of that ownership interest or otherwise, the power to direct or cause the direction of the management or policies of the entity with respect to the interest in real property.

The Florida law is notably ambiguous, and litigation challenging the law has been launched on multiple grounds, including for vagueness and for violating the U.S. Constitution. Shen v. Simpson, a case that is pending before the Eleventh Circuit Court of Appeals, could result in the law being deemed unconstitutional; the court’s opinion is forthcoming. Florida’s law is broad compared to other state-level regimes, but the Eleventh Circuit’s decision may inform the way other states approach the drafting and enactment of their own laws.

Treasury’s additions in the NPRM may solve for some of the gaps that current state-level restrictions are attempting to tackle and thus appease states that have yet to enact their own legislation, especially if the Florida legislation is deemed unconstitutional.

Conclusion

A sophisticated CFIUS strategy, at every step of a transaction, can make a significant difference. Parties contemplating transactions involving foreign investments in U.S. real estate should evaluate CFIUS considerations early in the transaction process. As CFIUS continues to make clear through its rulemaking processes, the cost for failing to do so will be more than reputational. At the same time, parties should evaluate any potential state-level restrictions regarding foreign investments in real estate to ensure they remain compliant with laws and regulations at all levels.