The Committee on Foreign Investment in the United States (CFIUS) reviews foreign investments in the country to assess potential national security risks. Investments analyzed by CFIUS include mergers, acquisitions, and other transactions that could give foreign entities control over U.S. businesses, including those involved in critical technologies or infrastructure. CFIUS has the power to block or impose conditions on such deals to protect national security interests.
Also eligible for review, though few real estate professionals may be aware of it: real estate transactions involving foreign entities. In May, President Biden released an Executive Order mandating MineOne Partners Limited, a Chinese-backed cryptocurrency mining company, to diversify its recently acquired real estate near Warren Air Force Base (AFB) in Wyoming. This location houses several strategic missile silos, including those storing Minuteman III intercontinental ballistic missiles (ICBMs), which are part of the U.S. nuclear triad.
After purchasing real estate near Warren AFB in June 2022, MineOne installed specialized cryptocurrency mining equipment. A public tip alerted CIFUS, which reviewed the transaction and determined that the “proximity of the foreign-owned Real Estate to Warren AFB, and the presence of specialized and foreign-sourced equipment potentially capable of facilitating surveillance and espionage activities, presents a national security risk to the United States.”
President Biden’s Executive Order empowered CIFUS to require that MineOne remove its equipment within 90 days, divest its ownership stake within 120 days, and update CIFUS weekly regarding its compliance.
The proposed expansion of CIFUS’s jurisdiction can potentially affect future real estate transactions involving foreign stakeholders.
A little background
CIFUS has evolved significantly since its inception in 1975. Initially established to address Cold War concerns about foreign investments, CFIUS primarily functioned as an advisory body. But as the global landscape evolved, so did CIFUS’s role and authority.
The Exon-Florio Amendment (part of the Omnibus Trade and Competitiveness Act of 1988) granted U.S. presidents the authority to block or unwind foreign acquisitions that threaten national security. After 9/11, the Foreign Investment and National Security Act (FINSA) of 2007 strengthened CIFUS further by codifying many of its practices and expanding its membership. Key updates and changes included:
- Expanding CFIUS Membership, adding the Secretary of Energy and enabling the president to appoint additional members
- Increasing accountability by requiring senior-level Treasury officials and lead agencies to certify the national security implications of transactions
- Enhancing congressional oversight by mandating regular briefings and annual reports to Congress
- Strengthening the review process by imposing stricter timelines, requiring more detailed reporting, and allowing reopening of reviews in certain circumstances
- Expanding scope by broadening the range of transactions subject to CIFUS review, including non-controlling investments and real estate transactions near sensitive sites.
The most recent overhaul and update came with the Foreign Investment Risk Review Modernization Act (FIRRMA) of 2018. FIRRMA significantly broadened CIFUS’s jurisdiction, including non-controlling investments and real estate transactions near sensitive sites. The act also introduced mandatory reporting requirements and stricter review timelines.
Current CIFUS review process
Whether or not the stakeholders voluntarily file a review request, CIFUS can review foreign investments if national security concerns arise. The process typically involves three phases:
- The initial review (30 days): CFIUS determines whether a transaction poses potential national security risks.
- Detailed review (45 days): CFIUS conducts a more in-depth review of any identified risks.
- Investigation phase (45-60 days): If necessary, CFIUS launches an investigation to assess the specific nature and scope of the risks.
Should an entity fail to resolve any identified risks to the satisfaction of CFIUS, the organization can either negotiate a mitigation agreement as a condition for approval or recommend to the president that the deal be blocked. The president has 15 days to decide on the transaction.
According to its 2023 report to Congress, CFIUS reviewed 233 notices of covered transactions. The percentage of transactions cleared within the first 30-45-day review period increased to 66% (up from 58% in 2022). Under the current administration, CFIUS has significantly increased its enforcement efforts, a shift seen in several key areas:
- Increased scrutiny of non-notified transactions: CFIUS is actively monitoring and investigating potential non-notified transactions, leading to a higher number of formal requests for filings.
- Stricter enforcement of mitigation agreements: The Committee is imposing stiffer financial penalties for violations of mitigation agreements and monitoring compliance more closely.
- Greater emphasis on voluntary disclosures: CFIUS encourages voluntary disclosures of potential violations to mitigate penalties.
- Clearer enforcement guidelines: The 2022 Enforcement and Penalty Guidelines provide more transparency and clarity regarding CFIUS’s enforcement approach.
Updates and proposed changes to covered real estate transactions
In July 2024, the Treasury chairperson of CFIUS issued a Notice of Proposed Rulemaking (NPRM) to expand the organization’s jurisdiction over foreign real estate acquisitions. The NPRM proposed updating the definition of “covered real estate” under FIRRMA.
Key changes include expanding the list of military installations. The expansion would add 40 installations to the list of sites within one mile, of which foreign entities can’t acquire real estate and 19 installations to the list of sites within 100 miles. The NPRM also proposes moving eight installations from the one-mile to the 100-mile list.
This expansion reflects growing concerns about foreign investment near U.S. military installations, particularly in light of recent high-profile cases like the MineOne incident.
Key takeaways
CFIUS will use all tools available, including unwinding closed deals, to address national security concerns. Its authority includes real estate transactions that do not involve investments or acquisitions in a U.S. business.
- While CFIUS doesn’t typically review all CRE transactions, it will closely examine properties near important U.S. government or military sites, especially when foreign buyers or investors are involved. This online tool calculates property proximity. However, transaction parties should also consult CFIUS personnel to fully assess potential CFIUS risks.
- CFIUS seeks to mitigate national security risks via agreements that impose conditions on buyers or investors, but this approach is less effective when the primary concern is the ownership itself. CFIUS’s “best” tool in those cases may be a forced sale to mitigate a potential national security risk. To minimize these risks, parties engaged in real estate transactions near sensitive areas — especially those involving foreign investment — should engage with CFIUS earlier in the deal process.
- To mitigate CFIUS risks, sellers and landlords should incorporate robust know-your-customer (KYC) and anti-money laundering (AML) protocols into their due diligence processes, especially when dealing with foreign buyers or investors.
- State-level regulations and restrictions on foreign real estate investments are becoming more common. Transaction parties should stay informed about these evolving laws to avoid potential complications and ensure compliance.
While foreign investment in U.S. CRE may be slowing, factors like falling commercial office space prices and additional interest rate cuts could stimulate renewed interest. When evaluating CFIUS risks, all parties should carefully consider the property’s location and the buyer’s or investor’s nationality.
Are you a commercial real estate investor — or looking for a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United: an organization of CRE professionals from 92 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
