Treasury issues proposed rule to expand CFIUS’s jurisdiction over real estate transactions

The proposed rule would create zones in which CFIUS has jurisdiction over real estate transactions around an additional 50 military installations across 30 states.

On July 8, 2024, the Treasury Department released a notice of proposed rulemaking that amends the rules of the Committee on Foreign Investment in the United States (CFIUS) governing real estate transactions to substantially expand the geographic areas subject to heightened scrutiny.[1] CFIUS's real estate rules, found at 31 CFR Part 802 (Part 802), provide a list of military installations and other sensitive government facilities around which CFIUS has authority to review not only acquisitions of operating U.S. businesses, which CFIUS can do anywhere in the United States, but of acquisitions of a wide range of interests in real estate by foreign persons. The proposed rule identifies an additional 50 military installations, spread across 30 states, to the existing list of sensitive installations around which CFIUS has heightened jurisdiction.[2]

CFIUS has for a number of years scrutinized acquisitions of facilities located near sensitive government facilities, but such transactions have recently been the subject of particular political and regulatory focus. For example, the Biden Administration recently issued an order requiring divestiture of land purchased by a Chinese-owned crypto mining company,[3] mitigating national security concerns with respect to both the location and intended operations of the acquiror.[4] Earlier, in 2023, CFIUS engaged in a previous round of expansion after the proposed construction of a Chinese-owned corn mill near city of Grand Forks, North Dakota attracted significant political opposition and a statement from the Air Force that the acquisition posed a national security risk, but CFIUS concluded that it did not at the time have jurisdiction over the transaction.[5]

Given the increased focus in this area, U.S. businesses and potential foreign investors and acquirors should continue to assess the potential national security risks associated with the physical location of real estate and facilities associated with a transaction.

Overview of the proposed rule

Under Part 802, CFIUS has authority to review covered real estate transactions, which are transactions in which a foreign person acquires certain property interests (including purchases, leases, or concessions) in covered real estate property that does not rise to the level of a U.S. business (over which CFIUS already has jurisdiction under its principal rules), including property located within:

• "Close proximity" (i.e., one mile from the outer boundary) of certain specified U.S. military installations;
• "Extended range" (i.e., 100 miles outward from the outer boundary) of certain specified U.S. military installations;
• Counties or other geographic areas connected to certain specified bases and military installations;
• Certain large airports and maritime ports; and/or
• Any part of certain specified U.S. military installations, to the extent located within the limits of the territorial sea of the United States.[6]

We discuss Part 802 further in this client update. While Part 802 does not impose mandatory filing requirements for covered real estate transactions, it authorizes CFIUS to review covered real estate transactions for national security concerns and, if the Committee identifies concerns, to impose mitigating measures (up to and including blocking of the transaction).

The proposed rule would make several updates to Appendix A of Part 802, which identifies the subset of facilities that qualify as covered "military instillations" and are subject to CFIUS's jurisdiction. The proposed rule would not change the scope of the current filing requirements for covered real estate transactions, and such transactions would remain voluntary under CFIUS's regulations.

The proposed rule would specifically amend to Appendix A to:

• Add 40 additional military installations to Part 1 of Appendix A, which are the installations around which CFIUS has jurisdiction over real estate transactions within a one-mile radius of the installations;
• Add 19 military installations to Part 2 of Appendix A, which are the installations around which CFIUS has jurisdiction over real estate transactions within a 100-mile radius of the installations;
• Move eight military installations from Part 1 to Part 2, which would expand CFIUS's jurisdiction over real estate transactions around these installations from a 1-mile to a 100-mile radius;
• Update the names of 14 military installations to reflect recent official installation name changes;[7] and
• Update the location of seven military installations already listed in the current regulations to better reflect the installations' approximate location.

To help illustrate the amendments the proposed rule would introduce, we provide below a visual of the military installations that would be covered by the proposed rule.

Part 802 military installations

[Link]

The table provided below also provides an overview of the forthcoming changes to Appendix A, with name changes indicated in green.

The amendments to Part 802 also provide an informative indication of locations that CFIUS may consider sensitive if a foreign person acquires control of a U.S. business with facilities in those areas. CFIUS can consider the security implications of foreign control over a target company's facilities and their proximity to sensitive locations regardless of whether they fall within the scope of Part 802, and it has in fact in the past taken action under CFIUS's general jurisdiction to prohibit transactions of operating businesses in proximity to sensitive facilities (including Fallon Naval Air Station, Trump Tower, and Naval Amphibious base Coronado). The inclusion of an area in Part 802 signals that CFIUS has heightened concerns with real estate-related national security risks in the area, or at least with respect to the identified facilities, and may indicate a heightened risk that CFIUS will have security-related concerns with a proposed transaction - although the area covered by Part 802 is now so large as to cover a significant fraction of the United States.

If you have any questions regarding the matters covered in this publication, please reach out to any of the lawyers listed below or your usual Davis Polk contact.

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