Treasury Proposes Rule to Expand CFIUS Oversight on Real Estate Deals

CFIUS Jurisdiction Expanded  

The U.S. Department of the Treasury has proposed significantly expanding the Committee on Foreign Investment in the United States (CFIUS) jurisdiction over real estate transactions near military installations.  

This administration aims to bolster national security by increasing scrutiny of foreign investments in sensitive areas. This proposed rule will significantly expand its jurisdiction and ability to accomplish this critical mission. 

Key Proposed Changes to CFIUS Jurisdiction  

The proposed rule introduces several key changes to CFIUS oversight:  

• Expanded geographic scope: The rule extends CFIUS jurisdiction to real estate transactions within a one-mile radius of 40 additional military installations and within a 100-mile radius of 19 others. 
• Increased coverage for existing installations: CFIUS oversight is expanded for real estate transactions between one and 100 miles of eight already listed military bases. 
• Clarified definitions: The rule provides updated names of 14 and locations of seven military installations already listed in the regulations to enhance public understanding. 
• Broadened military installation definition: Special Force bases, Army depots, and Marine Corps installations are now included under the definition of military installations.  

Why Expand CFIUS Coverage of Real Estate Transactions  

This expansion is driven by a recent Department of Defense assessment highlighting the need for increased protection of military installations from potential external threats. By expanding CFIUS jurisdiction, the government aims to:  

• Prevent foreign entities from acquiring sensitive information or compromising military operations. 
• Reduces risks to military installations and related defense assets. 
• Provide the committee with broader authority to address evolving national security challenges.  

Impact of CFIUS on Real Estate Transactions  

The proposed expansion will impact real estate transactions in areas surrounding military installations. These transactions are often associated with projects and operations outside urban areas, such as energy transportation, logistics, data centers, telecommunications, agriculture, industrial manufacturing, chemical production, and mining. CFIUS has the authority to review real estate transactions, including the purchase or lease by, or concession to, a foreign person near designated sites.   

Foreign investors and fund managers should carefully consider the potential implications of these changes, including:  

• The need to be aware of the potential CFIUS implications of any pending or future transactions involving real estate near facilities included in this proposed rule.
• Address the broader issue of foreign investment in U.S. real estate, which has become a federal concern. In addition, 26 states have passed laws restricting specific types of foreign investment in real estate.
• Recognize that if a transaction is completed, divestiture may be required at the federal and/or state levels. 

The Treasury Department has opened a public comment period for the proposed rule. How the final regulations will shape the CFIUS review process for real estate transactions remains to be seen.