On Tuesday, September 17, 2019, the U.S. Department of the Treasury issued proposed regulations to implement the Foreign Investment Risk Review Modernization Act (FIRRMA), a law that significantly expanded the jurisdiction and operational mandate of the Committee on Foreign Investment in the United States (CFIUS). The proposed rules will amend and restate the current CFIUS regulations at 31 CFR part 800 and will add a new part 802 covering certain real estate transactions.
In a previous alert, Wiley Rein analyzed the proposed revisions to part 800, which will significantly broaden CFIUS’s authority to review certain non-controlling, non-passive foreign investments in U.S. technology, infrastructure, and data companies. This alert analyzes the proposed regulations under part 802, which will implement CFIUS’s new authority under FIRRMA to review certain real estate transactions. Public comments on both sets of rules must be submitted by October 17, 2019. The final regulations will become effective no later than February 13, 2020. Treasury recently announced that it will host two public teleconference briefings on the proposed regulations this Friday, September 27, 2019, beginning at 10:00 a.m. (EDT).
New CFIUS Jurisdiction Over “Covered Real Estate Transactions”
Prior to the enactment of FIRRMA, CFIUS was limited to reviewing only transactions that could result in “control” of a U.S. business by a foreign person. FIRRMA significantly expanded CFIUS’s jurisdiction to include (among other things) certain real estate transactions involving foreign persons. Specifically, FIRRMA authorized CFIUS to review transactions by foreign persons involving U.S. real estate that is either (1) located within, or will function as part of, an airport or maritime port, or (2) in close proximity to a U.S. military installation or another U.S. government facility or property that is sensitive for reasons relating to national security; could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility, or property; or could otherwise expose national security activities at such an installation, facility, or property to the risk of foreign surveillance. Although CFIUS had reviewed and even opposed a number of transactions involving real estate prior to the enactment of FIRRMA – such as the 2012 acquisition by China-owned Ralls Corporation of an interest in four wind farm project companies located near a restricted military airspace, which was later unwound pursuant to a presidential order of divestiture – the expansion of CFIUS’s jurisdiction under FIRRMA is significant because it allows CFIUS to review real estate transactions even where the transaction does not involve a foreign investment in a U.S. business.
The proposed rule would implement CFIUS’s new authority under FIRRMA by creating a new category of “covered real estate transactions” that would include any purchase or lease by, or concession to, a foreign person of any “covered real estate” (discussed in greater detail below) that affords the foreign person at least three of the following four property rights:
The right to physically access the real estate;
The right to exclude others from physical access to the real estate;
The right to improve or develop the real estate; or
The right to attach fixed or immovable structures or objects to the real estate.
Covered real estate transactions also include any “change in the rights that a foreign person has with respect to covered real estate in which the foreign person has an ownership or leasehold interest or concession arrangement” if that change could result in the foreign person having at least three of these property rights. A “concession” refers to “an arrangement, other than a purchase or lease, whereby a U.S. public entity grants a right to use real estate for the purpose of developing or operating infrastructure for an airport or maritime port.” Treasury is considering whether other types of concessions should be included in this definition, such as concessions relating to energy generation and oil and gas activities.
The proposed rule defines “covered real estate” to include real estate that is either (1) located within, or will function as part of, an airport or maritime port, or (2) located within a specified geographic range of certain military installations and other U.S. government facilities or properties that are sensitive for national security reasons. To assist parties in determining whether real estate falls within the latter category, the names and locations of the relevant military installations are listed in an appendix to the proposed rule. Although the proposed rule defines “covered real estate” to include real estate located within one mile of other unspecified U.S. government facilities or properties that are sensitive for national security reasons, the appendix does not currently list any such facilities or properties.
The applicable geographic ranges are as follows:
Within one mile of any military installation or another facility or property of the U.S. government identified in part 1 or part 2 of the appendix;
Within 100 miles of the military installations identified in part 2 of the appendix (applicable to Army combat training centers; major range and test facility base activities; and military ranges owned by the U.S. Navy or U.S. Air Force, or joint forces training centers located in certain states);
Within the same county or other geographic area of the military installations identified in part 3 of the appendix (applicable to active Air Force ballistic missile fields); and
Within 12 nautical miles seaward of the U.S. coastline for the military installations identified in part 4 of the appendix (applicable to U.S. Navy offshore range complexes and offshore operating areas).