May 8, 2023
Client Alert
By: Chris Griner, Shannon Reaves, Tom Firestone, Christopher R. Brewster, Gregory Jaeger, Andrew J. Astuno, Erin Bruce Iacobucci
The multi-agency Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) has long had jurisdiction to review foreign investments in real estate that involve the acquisition of a U.S. business. Several years ago, however, Congress gave CFIUS authority to review certain real estate transactions that do not involve foreign control of a U.S. business – namely, acquisitions located in proximity to certain maritime ports, airports, and military installations. In all cases where CFIUS has jurisdiction, acquisitions deemed a threat to U.S. national security may be referred by the Committee to the President, who can block the transaction if the President determines that the threat cannot be effectively mitigated.
On May 5, CFIUS announced proposed rules that would expand the list of sensitive military installations to include 8 additional sites (identified below). Under the proposal, foreign purchases of real estate within a 100-mile radius of these facilities (with certain exceptions) could trigger CFIUS review.[1]
A “covered real estate transaction” is any purchase or lease by, or concession to, a foreign person that affords the foreign person at least three of the four following rights in “covered real estate”:
(1) the right to physical access;
(2) the right to exclude others from physical access;
(3) the right to improve or develop the parcel; and
(4) the right to attach fixed or immovable structures or objects to the real estate.[2]
In the vast majority of cases, any purchase or lease of a real estate parcel will confer the requisite number of rights outlined above.
Not all transactions are covered. The land must be “covered real estate” under the CFIUS regulations, a term that includes real estate in proximity to certain military facilities identified in the regulations. Among other things, “covered real estate” includes (1) real estate in “close proximity” (a 1-mile radius) to military installations and other sites listed in Part 1 of Appendix A of the CFIUS Real Estate regulations (the “Part 1 List”) and (2) real estate within an “extended range” (a 100-mile radius) of particularly sensitive military installations and other sites listed in Part 2 of Appendix A (the “Part 2 List”).[3] CFIUS now proposes to add the following 8 military installations to the Part 2 List:
One of the proposed military installations, Grand Forks Air Force Base, was the subject of a recent controversy involving Chinese-based Fufeng Group’s purchase of real estate 12 miles outside the base to build a wet corn milling processing plant Although top U.S. military officials characterized the completed real estate acquisition as a “significant threat to national security,”[4] CFIUS concluded that it did not have jurisdiction to review the purchase, let alone recommend presidential intervention After the Air Force raised its concerns, local government officials denied Fufeng Group necessary permits to proceed with the construction of the proposed plant.[5] The Fufeng Group acquisition highlighted concern over possible gaps in CFIUS jurisdiction – and the proposed rule indicates that CFIUS is not only aligned with the Air Force concerning this matter, but saw the need to add another 7 bases to the Part 2 List of highly sensitive installations and other sites.
Why this matters
The proposed rule will almost assuredly become final soon (written public comments are due to CFIUS by June 5, 2023). When it does, any covered real estate transaction within 100 miles of any of the listed facilities will be subject to CFIUS review. (It is important to note that the 8 listed military installations are not the only facilities on the Part 2 List, which identifies over 30 facilities and other sites, and is in addition to the Part 1 List, which lists over 130 facilities and other sites.)
Although CFIUS filings involving the acquisition of “covered real estate” are, in many cases, ostensibly voluntary, CFIUS has the ability to call in transactions that are not voluntarily submitted (even well after closing) – which is to say that the process is voluntary until it isn’t. Nor are Chinese acquisitions the only deals subject to close scrutiny – absent a small coterie of “excepted real estate investors”[6] from “excepted foreign states,”[7] even real estate acquisitions made by foreign investors from countries closely allied to the United States may be subject to review.[8] For this reason many lenders and sellers make successful CFIUS review a condition to closing.
For all of these reasons, when a foreign investor is considering any investment in the United States – including the purchase of real estate – it pays to consult CFIUS counsel to interpret the regulations. Even if the acquisition does not involve a listed facility, the acquisition of a U.S. business near a sensitive government facility (or involving a commercial building with government tenants) may warrant filing. In cases involving foreign government-controlled investors or certain sensitive industries, filings may even be mandatory It is worth noting that most transactions are cleared – and the short-form “declaration” process can provide significant peace of mind for eligible transactions.
If you would like a copy of the proposed rule, or have questions concerning the CFIUS process, including the criteria for “excepted investors,” please contact any member of Stroock’s National Security/CFIUS/Compliance Team.
[1] See: https://www.govinfo.gov/content/pkg/FR-2023-05-05/pdf/2023-09259.pdf?utm_campaign=subscription+mailing+list&utm_source=federalregister.gov&utm_medium=email
[2] See 31 C.F.R. §802.212 (citing 31 C.F.R. §802.233(a)).
[3] In addition to the exemption for “excepted investors,” there are limitations on CFIUS’s real estate jurisdiction involving the purchase of covered real estate within an “urbanized area” (though, as always, other rules involving acquisitions of U.S. businesses may nevertheless apply).
[4] See: Smith, Mitch, The New York Times, “Air Force Says Proposed Chinese-Owned Mill in North Dakota Is ‘Significant Threat,’” Jan. 31, 2023 (citing statement of Andrew P. Hunter, Assistant Secretary of the Air Force for Acquisition, Technology and Logistics), available at: https://www.nytimes.com/2023/01/31/us/corn-mill-fufeng-china-north-dakota.html
[5] See: https://www.scribd.com/document/639744281/Letter-to-Eric-Chutorash#download&from_embed
[6] See 31 C.F.R. §802.215.
[7] A robust set of criteria must be met to qualify as an “excepted investor,” including being incorporated and principally based in one of the following “excepted foreign states”: Australia, Canada, the United Kingdom, and New Zealand.
[8] And even “excepted investors” are subject to CFIUS review when obtaining “control” over a U.S. business (including businesses that hold real estate near sensitive facilities), though their excepted status may well auger a favorable review.
May 8, 2023
Client Alert
By: Chris Griner, Shannon Reaves, Tom Firestone, Christopher R. Brewster, Gregory Jaeger, Andrew J. Astuno, Erin Bruce Iacobucci
The multi-agency Committee on Foreign Investment in the United States (“CFIUS” or “the Committee”) has long had jurisdiction to review foreign investments in real estate that involve the acquisition of a U.S. business. Several years ago, however, Congress gave CFIUS authority to review certain real estate transactions that do not involve foreign control of a U.S. business – namely, acquisitions located in proximity to certain maritime ports, airports, and military installations. In all cases where CFIUS has jurisdiction, acquisitions deemed a threat to U.S. national security may be referred by the Committee to the President, who can block the transaction if the President determines that the threat cannot be effectively mitigated.
On May 5, CFIUS announced proposed rules that would expand the list of sensitive military installations to include 8 additional sites (identified below). Under the proposal, foreign purchases of real estate within a 100-mile radius of these facilities (with certain exceptions) could trigger CFIUS review.[1]
A “covered real estate transaction” is any purchase or lease by, or concession to, a foreign person that affords the foreign person at least three of the four following rights in “covered real estate”:
(1) the right to physical access;
(2) the right to exclude others from physical access;
(3) the right to improve or develop the parcel; and
(4) the right to attach fixed or immovable structures or objects to the real estate.[2]
In the vast majority of cases, any purchase or lease of a real estate parcel will confer the requisite number of rights outlined above.
Not all transactions are covered. The land must be “covered real estate” under the CFIUS regulations, a term that includes real estate in proximity to certain military facilities identified in the regulations. Among other things, “covered real estate” includes (1) real estate in “close proximity” (a 1-mile radius) to military installations and other sites listed in Part 1 of Appendix A of the CFIUS Real Estate regulations (the “Part 1 List”) and (2) real estate within an “extended range” (a 100-mile radius) of particularly sensitive military installations and other sites listed in Part 2 of Appendix A (the “Part 2 List”).[3] CFIUS now proposes to add the following 8 military installations to the Part 2 List:
One of the proposed military installations, Grand Forks Air Force Base, was the subject of a recent controversy involving Chinese-based Fufeng Group’s purchase of real estate 12 miles outside the base to build a wet corn milling processing plant Although top U.S. military officials characterized the completed real estate acquisition as a “significant threat to national security,”[4] CFIUS concluded that it did not have jurisdiction to review the purchase, let alone recommend presidential intervention After the Air Force raised its concerns, local government officials denied Fufeng Group necessary permits to proceed with the construction of the proposed plant.[5] The Fufeng Group acquisition highlighted concern over possible gaps in CFIUS jurisdiction – and the proposed rule indicates that CFIUS is not only aligned with the Air Force concerning this matter, but saw the need to add another 7 bases to the Part 2 List of highly sensitive installations and other sites.
Why this matters
The proposed rule will almost assuredly become final soon (written public comments are due to CFIUS by June 5, 2023). When it does, any covered real estate transaction within 100 miles of any of the listed facilities will be subject to CFIUS review. (It is important to note that the 8 listed military installations are not the only facilities on the Part 2 List, which identifies over 30 facilities and other sites, and is in addition to the Part 1 List, which lists over 130 facilities and other sites.)
Although CFIUS filings involving the acquisition of “covered real estate” are, in many cases, ostensibly voluntary, CFIUS has the ability to call in transactions that are not voluntarily submitted (even well after closing) – which is to say that the process is voluntary until it isn’t. Nor are Chinese acquisitions the only deals subject to close scrutiny – absent a small coterie of “excepted real estate investors”[6] from “excepted foreign states,”[7] even real estate acquisitions made by foreign investors from countries closely allied to the United States may be subject to review.[8] For this reason many lenders and sellers make successful CFIUS review a condition to closing.
For all of these reasons, when a foreign investor is considering any investment in the United States – including the purchase of real estate – it pays to consult CFIUS counsel to interpret the regulations. Even if the acquisition does not involve a listed facility, the acquisition of a U.S. business near a sensitive government facility (or involving a commercial building with government tenants) may warrant filing. In cases involving foreign government-controlled investors or certain sensitive industries, filings may even be mandatory It is worth noting that most transactions are cleared – and the short-form “declaration” process can provide significant peace of mind for eligible transactions.
If you would like a copy of the proposed rule, or have questions concerning the CFIUS process, including the criteria for “excepted investors,” please contact any member of Stroock’s National Security/CFIUS/Compliance Team.
[1] See: https://www.govinfo.gov/content/pkg/FR-2023-05-05/pdf/2023-09259.pdf?utm_campaign=subscription+mailing+list&utm_source=federalregister.gov&utm_medium=email
[2] See 31 C.F.R. §802.212 (citing 31 C.F.R. §802.233(a)).
[3] In addition to the exemption for “excepted investors,” there are limitations on CFIUS’s real estate jurisdiction involving the purchase of covered real estate within an “urbanized area” (though, as always, other rules involving acquisitions of U.S. businesses may nevertheless apply).
[4] See: Smith, Mitch, The New York Times, “Air Force Says Proposed Chinese-Owned Mill in North Dakota Is ‘Significant Threat,’” Jan. 31, 2023 (citing statement of Andrew P. Hunter, Assistant Secretary of the Air Force for Acquisition, Technology and Logistics), available at: https://www.nytimes.com/2023/01/31/us/corn-mill-fufeng-china-north-dakota.html
[5] See: https://www.scribd.com/document/639744281/Letter-to-Eric-Chutorash#download&from_embed
[6] See 31 C.F.R. §802.215.
[7] A robust set of criteria must be met to qualify as an “excepted investor,” including being incorporated and principally based in one of the following “excepted foreign states”: Australia, Canada, the United Kingdom, and New Zealand.
[8] And even “excepted investors” are subject to CFIUS review when obtaining “control” over a U.S. business (including businesses that hold real estate near sensitive facilities), though their excepted status may well auger a favorable review.
