In September 2019, the U.S. Department of the Treasury issued proposed regulations to implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). Part of those proposed real estate transactions passing ownership to a foreign person near critical locations. The final regulations came out and are largely unchanged.
The regulations extend CFIUS jurisdiction to cover the purchase or lease by, or a concession to, a foreign person of real estate in and/or around specific airports, maritime ports and military installations. The restricted areas depending on the type of critical real estate.
The specific restricted areas are:
- Within one mile of any of the 100 identified military installations
- Within 99 miles of any of 32 identified military installations
- Any county or other geographic area identified in connection with certain Air Force bases located in Colorado, Montana, Nebraska, North Dakota, and Wyoming;
- Any part of 23 identified military installations and located within 12 nautical miles of the U.S. coast
- Located within or will function as part of an airport or maritime port
Arnold & Porter put together this map of its applicability:
That’s a lot of real estate covered by this rule assuming its accurate. The rule talks about the creation of tool to make this more certain.
One of the exceptions is urbanized areas. Unless the real estate is in “close proximity” of an identified military installation or is part of a covered port, the rule provide an exception for transactions that involve real estate located within an “urbanized area” or “urban cluster.” Those two terms: “urbanized area” or “urban cluster” are defined by the Census Bureau based on population density. Hopefully, most major cities inside all of those problematic areas in the map will fall under this exception. The question will be how far does the urbanized area extend outside the CBD.
Another exception is if your foreign investor is from Australia, Canada or the United Kingdom. Apparently, the Trump administration likes these countries and investors from those three get a pass from CFIUS on real estate transaction. The rules do allow for other countries to be added to the list.
Leases are also excluded from CFIUS as long as the lease is for less than 10% of the building and there are at least 9 other tenants.
Real estate transactions are not subject to mandatory CFIUS filings. Of course you risk having the transaction fall apart if CFIUS comes in later to undo the transaction.
The new rules give you the option of filing a short-form “declaration” rather than the longer, traditional form of “notice.” That also means a shorter 30-day review period.
Sources:
- Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States as published in the Federal Register
- Implementing FIRRMA: CFIUS’ Real Estate Final Regulations
- CFIUS Finalizes FIRRMA Real Estate Transaction Rules
- Treasury Issues Final Regulations Implementing FIRRMA
- New Restrictions on Foreign Ownership of Real Estate