Proposed rule would expand CFIUS’s jurisdiction regarding U.S. real estate

Under the CFIUS regulations, CFIUS has jurisdiction over certain transactions involving the purchase or lease by, or concession to, a foreign person of certain real estate in the United States. Appendix A to 31 C.F.R. Part 802 identifies certain U.S. military installations and other U.S. government sites the proximity to which can trigger CFIUS’s jurisdiction, assuming certain other criteria are met.  These  installations and sites were determined by the U.S. Department of Defense (“DoD”) based on national security considerations; the preamble to the final rule establishing Part 802  stated that DoD would continue on an ongoing basis to assess the installations and sites listed in Appendix A in light of national security considerations. The proposed rule reflects such ongoing evaluation, likely at least in part due to public and U.S. Government concerns about certain recent Chinese purchases of land near U.S. military bases.        

The proposed rule would revise Appendix A to add the following eight sites listed below.

• Air Force Plant 42, located in Palmdale, California
• Dyess Air Force Base, located in Abilene, Texas
• Ellsworth Air Force Base, located in Box Elder, South Dakota
• Grand Forks Air Force Base, located in Grand Forks, North Dakota
• Iowa National Guard Joint Force Headquarters, located in Des Moines, Iowa
• Lackland Air Force Base, located in San Antonio, Texas
• Laughlin Air Force Base, located in Del Rio, Texas
• Luke Air Force Base, located in Glendale, Arizona

Accordingly, if the proposed rule goes into effect, CFIUS will have jurisdiction over transactions involving the purchase or lease by, or concession to a foreign person that are within 100 miles of these additional U.S. military installations, unless an exception applies.   

In addition, under the proposed rule, a conforming change would be made to the definition of “military installation” at 31 C.F.R. §  802.227, adding Arizona, California, Iowa, North Dakota, South Dakota, and Texas (the states in which the eight additional installations and sites are located) to the list of existing states in which the current installations and sites are located.

The proposed rule reflects the recent controversies surrounding certain purchases of land by Chinese companies.  A Chinese businessman sought to build solar and wind farms on land his companies purchased in Val Verde County, Texas, but the Texas legislature thwarted his plans by passing a law prohibiting Texas businesses from contracting with entities owned or controlled by citizens of certain countries, including China, if the contracting relates to critical infrastructure and meets certain other criteria.  The Val Verde County land was near Laughlin Air Force Base, which is among the military installations that the proposed rule would add to Appendix A.  In a recent CFIUS case, according to media reports, CFIUS concluded in December 2022 that it lacked jurisdiction over China’s Fufeng Group Company Limited’s purchase of land for a wet corn milling plant about 12 miles from the Grand Forks Air Force Base because the base was not identified in Appendix A.  The proposed rule would add Grand Forks Air Force Base to Appendix A.

Although the CFIUS real estate regulations do not include any mandatory filings, the proposed rule highlights the importance of assessing CFIUS’s jurisdiction for all U.S. real estate transactions involving foreign persons and considering the submission of voluntary CFIUS filings.  Parties should be particularly mindful of real estate transactions involving Chinese or Russian purchasers or lessees because such transactions continue to receive heightened CFIUS scrutiny.    

Next Steps

Interested persons may submit comments electronically through the Federal Government’s  Rulemaking Portal at https://www.regulations.gov or by mailing comments to: U.S. Department of the Treasury, Attention: Meena Sharma, Deputy Director, Office of Investment Security, 1500 Pennsylvania Avenue, NW, Washington, DC 20220. As noted above, written comments must be received by June 5, 2023.  Please let us know if you are interested in submitting comments regarding the proposed rule.

If you have any questions about assessing the CFIUS risks associated with real estate investments by foreign persons in the United States, or CFIUS issues generally, please reach out to any of the listed Hogan Lovells contacts.

Authored by Anne Salladin, Brian Curran, and Kelly Zhang.