On January 17, 2020, the U.S. Treasury Department published final rules in the Federal Register implementing the Foreign Risk Review Modernization Act (“FIRRMA”), one of which implements FIRRMA’s provisions regarding foreign investments in U.S. real estate. In accordance with FIRRMA’s expansion of Committee on Foreign Investment in the United States (“CFIUS”) jurisdiction, these final rules give CFIUS jurisdiction over purchase or lease by, or concessions to, foreign persons of “covered real estate” even when there is not an investment in a U.S. business. These final rules are generally consistent with the rules proposed last September.
Covered real estate transactions
The final rules identify two types of covered real estate: 1) real estate within, or that will function within or as a part of, a “covered port;” and 2) real estate within “close proximity” of U.S. military installations or other government property. The former group includes certain airport and maritime ports identified by reference to other regulatory authorities, incorporating both major airports and strategically significant seaports. The latter group includes real estate within one mile from the outer boundary of a designated military installation or other government property (i.e., in “close proximity” to such a location) and property within 100 miles of the real estate (i.e., within an “extended range” of such a location), among other enumerated properties. The relevant properties are enumerated within the rule and will be included in an appendix to Part 802.
To qualify as a “covered real estate transaction” transaction within Part 802, a transaction must confer certain property rights to covered real estate. Specifically, a transaction is covered only if it allows a foreign person at least three from the following property rights: 1) access the real estate; 2) exclusion of others from the real estate; 3) improve and/or develop the real estate; 4) attach fixed or immovable structures and/or objects to the real estate. Holding these rights concurrently with another party, including a U.S. party, does not remove such a transaction from CFIUS jurisdiction.
The final rules identify a series of exceptions to what would otherwise be covered real estate transactions:
- Excepted real estate investors: certain individuals, governments, and entities meeting a series of factors, provided that they are from an “excepted real estate foreign state.” Currently, the excepted real estate foreign states are Australia, Canada, and the UK, though this list has the potential to expand.
- Urbanized areas and urban clusters: real estate transactions that are within urbanized areas or urban clusters, as defined by the U.S. census, are excepted unless they are in close proximity to a military site or within, or functioning as a part of, a covered port.
- Other exceptions are available for certain commercial office space and individual housing units, among other enumerated exceptions.
CFIUS explicitly refused to adopt an exception for certain intra-company real estate transactions.
These final rules become effective February 13, 2020, and will be located at 31 C.F.R. Part 802.
 Transactions in real estate that qualify as controlling investments in a U.S. business continue to be subject to CFIUS jurisdiction pursuant to 31 C.F.R. Part 800 under the traditional “control” analysis.