Locating Potential Real Estate Transaction Issues: CFIUS Releases New Part 802 Geographic Reference Tool
Parties to deals involving the purchase or lease by, or a concession to, a foreign person of certain US real estate now have a new online tool to assist with their initial assessment of whether the transaction may be concerning to Committee on Foreign Investment in the United States (CFIUS). On March 25, 2020, CFIUS released a Geographic Reference Tool (the new tool)1 that can help indicate if a transaction involving particular real property in the United States would be a "covered real estate transaction" under the CFIUS' regulations implementing Section 721 of the Defense Production Act (Section 721). Under those regulations, CFIUS may, if it finds foreign parties to a particular transaction involving "covered real estate" pose a risk to US national security, recommend that the President block or otherwise limit the transaction. The new tool provides a quick means to locate specific real estate in relation to sensitive government facilities, which facilitates the analysis of whether a transaction involving that real estate may be a "covered real estate transaction."
On February 13, 2020, the Department of the Treasury enacted new real estate regulations (the new regulations) to implement the real estate-related provisions of the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).2 The real estate-related provisions of FIRRMA granted CFIUS jurisdiction to review and recommend Presidential action with respect to certain transactions involving the purchase or lease by, or a concession to, a foreign person of certain real estate in the United States, even where there is no accompanying investment in a US business. Under the CFIUS' new regulations, these transactions are termed "covered real estate transactions," and consist of the purchase, lease or concession to, a foreign party of "covered real estate" whether proposed or completed.
As explained in our recent Advisory on CFIUS' new regulations on covered real estate transactions,3 FIRRMA's expansion of CFIUS' jurisdiction with respect to- real estate is limited to real property in or around specific sites—certain airports, maritime ports, and military installations and other "sensitive" properties owned by the US government. CFIUS has defined these sites to include:
- Real estate within, or that will function within or as part of, covered ports. This includes most major and "joint use" airports—airports handling both civilian and military air traffic—as determined by the Federal Aviation Administration. Similarly, maritime ports within the top 25 "tonnage, container, or dry bulk ports" as well as certain strategic seaports listed by the Department of Transportation are also covered.
- Real estate within certain distances of US military installations and other US government property. Transactions involving foreign parties may also qualify as a "covered real estate transaction" if the transaction involves property located within certain distances of military installations and other government property that is sensitive for national security reasons. These sites are divided into different categories.
- Real estate located within "close proximity" (i.e., one mile from the outer boundary) of a designated military installation or other government property.
- Property within an "extended range" (i.e., within 99 miles of the "close proximity" boundary and, where appropriate, no further than the territorial sea of the United States) of such specified property. The extended range category applies to various combat training, range and testing facilities and may also include adjacent airspace.
- Real estate in specified counties and other geographic areas near missile ranges located in Colorado, Nebraska, North Dakota, Montana, and Wyoming.
- Any part of certain identified property located within the territorial sea of the United States.
CFIUS' new regulations include a list of military installations and other qualifying US government property and their corresponding vicinity restrictions in an appendix. Unless the property is within "close proximity" of an identified military installation or is within, or functioning as part of, a covered port, the new regulations provide an exception for otherwise covered real estate transactions that involve real estate located within an "urbanized area" or "urban cluster." The terms "urbanized area" or "urban cluster" are defined by the Census Bureau based on population density.
The new Tool
Parties to a planned "covered real estate transaction" have the option to notify CFIUS of the transaction as a means to obtain assurance that CFIUS will not recommend the President take action adverse to the transaction. Assessing whether such notification would be prudent involves analyzing the proximity of subject real estate to the sensitive governmental properties, as described above. While detailed, the new regulations generally do not provide site specific descriptions of the exact location and boundaries of specified military and other governmental sites, requiring foreign investors to engage in substantial and often arbitrary guesswork. The analysis is further complicated by the new regulations' references to definitions administered by separate agencies in order to determine if subject real estate involves a "covered port" or whether the "urbanized area" or "urban cluster" exception applies.
The new tool facilitates the analysis of whether a transaction is a "covered real estate transaction" under CFIUS's new regulations by providing a web-based interactive map that allows users to search for a specific address, street intersection, or coordinates of real estate in the United States. This search enables the user to determine the proximity of subject real estate to certain military installations designated in parts 1 to 3 of the appendix to the new regulations. The new tool also identifies whether the subject real estate is within any of the US Census Bureau's designated "urbanized areas" and "urban clusters." Thus, the new tool provides a means to rule out a transaction being a "covered real estate transaction": if the real estate is within "urbanized areas" and "urban clusters," it will not meet that definition unless it is within "close proximity" of an identified military installation or is within, or functioning as part of, a covered port.
LIMITATIONS OF THE NEW TOOL
The new tool provides a helpful means to take the first step in determining whether subject real estate is covered under the new regulations. However, it does not address the full scope of the factors that may need to be addressed, For example:
- The new tool does not identify to the full scope of real estate covered under the new regulations. Although the new tool may be used to identify certain military and other sensitive locations, the new tool does not display offshore areas identified in part 4 of the appendix to the new regulations. Further, the tool does not include the locations and boundaries of covered ports. CFIUS guidance on the new tool's webpage suggests that "[r]elevant information on the [covered] offshore areas and covered ports are available through other U.S. government websites."4
- The new tool is overinclusive. The new tool uses a publicly available dataset of Department of Defense properties. As a consequence, not all locations displayed by the new tool are relevant to analyzing whether a transaction involves covered real estate. Additionally, the new tool does not delineate locations as requiring "close proximity" under the new regulations and those subject to an "extended range." Users should carefully review the appendix to the new regulations prior to determining whether to submit a voluntary notice or declaration to CFIUS.
- Additional exceptions may apply. In addition to certain real estate located in within "urbanized areas" and "urban clusters," the new regulations provide exceptions for transactions involving particular types of real estate and investors, such as those involving single housing units or certain commercial office space. The new tool does not account for these, and other, exceptions to the new regulations.
CFIUS itself emphasizes that the new tool is intended for reference purposes only and "should not be interpreted as guidance or interpreted as guidance or an advisory opinion with respect to any particular transaction."5 The size and locations displayed by the new tool do not necessarily represent the legal or surveyed land boundaries. As a result of this limitation and those addressed above, users cannot exclusively rely on the new tool for determining whether subject real estate is covered under the new regulations. Thus, the new tool is a welcome resource to help determine whether certain transactions are covered real estate transactions under the new regulations, but work still remains for many parties who use the tool to conclusively make such determinations.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.
See CFIUS Finalizes Rules Implementing Its Expanded Jurisdiction to Review Foreign Investment in US Businesses, Arnold & Porter (Jan. 17, 2020).
See CFIUS Finalizes FIRRMA Real Estate Transaction Rules, Arnold & Porter (Jan. 17, 2020).
CFIUS Real Estate Instructions (PART 802).