CFIUS & Foreign Investment in Real Estate

By: Thomas A. Vorbach

Published: January 13, 2020

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:

If you have any questions or concerns about these matters, please contact the author of this alert.

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