Terra FIRRMA: How Upcoming CFIUS Reform Will Impact the Real Estate Sector


The Committee on Foreign Investments in the United States (CFIUS) is an inter-agency committee designed to review foreign investments that raise national security concerns. While you may have seen CFIUS play a role in prior transactions, upcoming expanded regulations will further impact acquisitions of U.S. real estate.

How exactly will this occur?

Under existing rules, a “covered transaction” subject to CFIUS review requires an acquisition of a “U.S. business.” This means that so-called greenfield investments in vacant land are generally outside the scope of the Committee’s jurisdiction. The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) will add the acquisition (whether by purchase, lease or concession) of certain public or private real estate to the definition of a covered transaction.

Categories of real estate subject to review include land that is part of an airport or maritime port, as well as land that will “function as part of” the foregoing. Another category includes certain land in “close proximity” to a U.S. military installation or other sensitive U.S. Government property.

CFIUS raising national security concerns due to proximity is not new. For example, a San Diego hotel was carved out of a major hotel chain purchase by China’s Anbang Insurance Group because that property was located near a U.S. naval base. In that case, CFIUS was able to assert jurisdiction because there was a pre-existing business. The new legislation will provide CFIUS with clearer jurisdictional power, including new authority for the purchase or lease of vacant property.

Like many aspects of FIRRMA, terms such as “close proximity” are subject to future definitions developed by CFIUS. It remains to be seen whether CFIUS will choose to narrowly construe relevant terminology to prevent an influx of notifications involving transactions that present little to no national security concerns.

There are also several important exclusions to consider. First, single housing units and real estate in “urbanized areas” are exempted from review. In addition, CFIUS will be issuing regulations limiting the law’s application to only certain categories of foreign persons. Details are currently unknown, though CFIUS may create further carve-outs for investors from “friendly” nations, such as NATO allies, or may restrict investment in which purchasers are owned or controlled by certain foreign governments.

The upcoming changes highlight the importance of CFIUS considerations early in the diligence phase of a proposed transaction, including leasing transactions. It is especially important to conduct a detailed assessment of the surrounding environment of a proposed site, including the potential to conduct foreign surveillance of a U.S. military installation or other particularly sensitive locations. These considerations extend beyond pure real estate transactions to any acquisition of a U.S. business with a physical presence in the United States. In those cases, it is often prudent to examine the geographic coordinates of each location and assess whether any particular site would pose a concern.

Much of FIRRMA is subject to a delayed effective date that is no later than February 13, 2020. Importantly, the above is largely unaffected by the recently announced CFIUS pilot program, which is related to foreign investment into certain U.S. businesses that produce, design, test, manufacture, fabricate or develop one or more critical technologies. CFIUS retains the authority to institute additional pilot programs, and could potentially announce a pilot program pertaining to real estate transactions to help inform the full implementation of FIRRMA. In the meantime, U.S. and foreign parties engaged in real estate transactions should closely examine how FIRRMA impacts both existing and future investment activities.