Category: CFIUS Reforms

Treasury Releases Regulations Addressing National Security Concerns and Foreign Investment in Real Estate

Posted on by Trey Jackson

The Treasury Department yesterday issued proposed regulations to comprehensively implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which seeks to more closely scrutinize certain investments and real estate transactions potentially affecting national security. (New York Times, Sept. 17) 

  • The proposed regulations include reforms to the Committee on Foreign Investment in the United States (CFIUS) – an interagency committee authorized to review certain transactions involving foreign investment in the United States for national security concerns.  The CFIUS reforms in FIRRMA received broad support in Congress and were signed by President Trump on August 13 as part of a defense funding bill. (Wall Street Journal, Aug. 15 and Roundtable Weekly, August 17) 
  • The Treasury released the rules, which affect real estate and private equity transactions, in two parts:

Provisions Pertaining to Certain Investments in the United States by Foreign Persons (31 C.F.R. part 800)

Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States (31 C.F.R. part 802)

  • The second part of the regulations clearly demonstrate that the federal government is intent on reviewing more real estate transactions for security concerns, while considering country-specific exemptions for the first time. 
  • The text affecting real estate includes, “FIRRMA expands CFIUS’s jurisdiction to include certain types of real estate transactions involving the purchase or lease by, or a concession to, a foreign person of certain private or public real estate located in the United States.”
  • The rule continues, “FIRRMA focuses on two general categories of real estate and provides certain exceptions. The first category of real estate is described by its relation to airports and maritime ports. The second category of real estate is described by its relation to U.S. military installations and other facilities or properties of the U.S. Government that are sensitive for national security reasons.”
  • An analysis of the proposed CFIUS reform regulations is available via Bloomberg Law.
  • The full text of the proposed regulations and frequently asked questions can be found on the Department of the Treasury’s website. 

The Roundtable plans to prepare comments, which are due by October 17, 2019 before the law is scheduled to go into effect in February, 2020. 

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President Trump Signs Bill Expanding Federal Review of Foreign Investments

Posted on by Trey Jackson

President Trump on Monday signed a defense funding bill into law that includes an expansion of federal authority to review and potentially block foreign investments based on national security considerations. (Law.com, Aug. 13 and Wall Street Journal, Aug. 15)

CFIUS recently ordered Chinese conglomerate HNA Group Co., Ltd  to sell its majority stake in a 21-story Manhattan building whose tenants include a police precinct assigned to protect Trump Tower.

  • The defense bill included the Foreign Investment Risk Review Modernization Act of 2018 (FIRMMA), which expands the authority of the Committee on Foreign Investment in the United States (CFIUS) — a U.S. interagency committee that conducts national security reviews of foreign investment. (Pensions & Investments, Aug. 13)
  • CFIUS’s scope now expands to cover the national security implications of transactions that could result in control of a U.S. business by a foreign person — and to block transactions or impose measures to mitigate any threats to U.S. security. (Law.com, Aug. 13)
  • FIRRMA expands the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities.  Responding to concerns raised by The Roundtable and other industry groups, language is also included that exempts real estate located in ‘urbanized areas’ from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people.  See pages 820-826 of the final congressional conference report. 

CFIUS recently ordered Chinese conglomerate HNA Group Co., Ltd to sell its majority stake in a 21-story Manhattan building whose tenants include a police precinct assigned to protect Trump Tower. (Bloomberg, Aug. 8 and The Wall Street Journal, Aug. 10)

 

Congress Passes Defense Legislation Addressing Foreign Investment Risk; Includes Language Addressing Real Estate

Posted on by Trey Jackson

The Senate on August 1 approved the National Defense Authorization Act for Fiscal Year 2019 (NDAA) – a compromise $717 billion defense policy bill aimed at building up the military and blunting Chinese foreign investment – which includes language that may affect some foreign purchases and leases of real estate near military and other strategic facilities.

The final version of the NDAA – including FIRRMA  –  would expand the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities. It is anticipated that President Trump will sign the legislation in August.

  • The NDAA bill also includes the Foreign Investment Risk Review Modernization Act of 2018 (FIRMMA), which reforms the Committee on Foreign Investment in the United States (CFIUS) – a U.S. interagency committee that conducts national security reviews of foreign investment. 
  • FIRMMA expands the review authority of CFIUS to review national security implications of transactions that could result in control of a U.S. business by a foreign person and to block transactions or impose measures to mitigate any threats to U.S. security.
  • FIRRMA also expands the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities.  Responding to concerns raised by The Roundtable and other industry groups, language is also included that exempts real estate located in ‘urbanized areas’ from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people.  See  pages 820-826 of the final congressional conference report.

A congressional conference committee reconciled House and Senate versions of the NDAA last month. The final version of the NDAA – including FIRRMA – passed the House on July 26 and the Senate on Wednesday. It is anticipated that President Trump will sign the legislation in August.

House Follows Senate in Passing Bills Addressing Foreign Investment Risk; Includes Language Affecting Real Estate

Posted on by Trey Jackson

The House of Representatives on June 26 voted 400-2 to pass legislation (H.R. 5841) that overhauls federal review of transactions involving foreign companies or countries, including certain real estate transactions. The Senate on June 18 passed its version of the legislation (S. 2098).  (Dechert, June 2018) 

Both the House and Senate FIRRMA bills would expand the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities.

  • The bills would update the review authority of the Committee on Foreign Investment in the U.S. (CFIUS) to review national security implications of transactions that could result in control of a U.S. business by a foreign person – and to block transactions or impose measures to mitigate any threats to U.S. security.
  • Both the House and Senate bills would expand the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities.  Responding to concerns raised by The Roundtable and other industry groups, each bill includes similar language designed to exempt real estate located in ‘urbanized areas’ from the criteria of a covered transaction.  [See Title II, Sec. 201in the House’s Foreign Investment Risk Review Modernization Act of 2018 (FIRMMA) and for S. 2098, see  pages 7 through 9].  The Census defines an urbanized area as one comprising more than 50,000 people.

While the House and Senate bills are similar, the definition of “critical technology” differs and will require reconciliation before a final vote in each chamber. The Trump Administration has shown support for reforming FIRRMA to strengthen CFIUS’ oversight.

Senate and House Committees Approve Bills Addressing Foreign Investment Risk; Includes Language Affecting Real Estate

Posted on by Trey Jackson

Separate bills that would overhaul the process for reviewing foreign investment risk – including a purchase or lease by a foreign party of domestic properties located close to sensitive U.S. facilities – received unanimous approval Wednesday by the Senate Banking and House Financial Services Committees.  (Lexology, May 23)

Real estate provisions in  S. 2098  appear on pages 7 through 9.

  • The committees’ revised versions of the Foreign Investment Risk Review Modernization Act (FIRRMA) – S. 2098 and HR 5841 – seek to modernize and strengthen how the Committee on Foreign Investment in the United States (CFIUS) reviews acquisitions, mergers, and other foreign investments in the United States for national security risks.  Both bills would expand the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities. (Real estate provisions in S. 2098 appear on pages 7 through 9.)
  • As a result of industry discussions with Senate and Treasury staff, the new legislative drafts include the addition of language designed to exempt real estate in ‘urbanized areas’ from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people. 

FIRRMA may be ready for floor consideration in the House and Senate before the August congressional recess. The Trump Administration has shown support for reforming FIRRMA to strengthen CFIUS’ oversight. 

Senate and House Committees to Mark Up Bills Addressing Foreign Investment Risk Review on May 22; Includes Language Affecting Urban Real Estate

Posted on by Trey Jackson

Legislation that would reform the process for reviewing foreign investment risk introduced by Senator John Cornyn (R-TX) in the Senate and Congressman Robert Pittenger (R-NC) in the House – including a purchase or lease of domestic properties in close proximity to sensitive U.S. facilities by a foreign party – will be marked up May 22 by both the Senate Banking Committee and the House Financial Services Committee.

The Senate Banking Committee will mark up S. 2098 – the  Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA)  – on Tuesday, May 22.  The revised real estate provision appears on page nine of the committee’s amended  legislative discussion draft .   

  • The legislation (S. 2098) is intended to modernize and strengthen the process by which the Committee on Foreign Investment in the United States (CFIUS) reviews acquisitions, mergers, and other foreign investments in the United States for national security risks.
  • The Senate Banking Committee will mark up S. 2098 – the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA) – on Tuesday, May 22.  The revised real estate provision appears on page nine of the committee’s amended legislative discussion draft.  
  • The original Senate legislative draft raised concerns about the implications for real estate investment in urban areas that may be in close proximity to “sensitive U.S. military installations or other U.S. government facilities”.  As a result of industry discussions with Senate and Treasury staff, the new draft Manager’s Amendment includes the addition of a definition that would exempt real estate in ‘urbanized areas’ – as defined by the U.S. Census Bureau – from the criteria of a “covered” transaction.  The Census Bureau identifies two types of urban areas: (1) Urbanized Areas (UAs) of 50,000 or more people; and (2) Urban Clusters (UCs) of at least 2,500 and less than 50,000 people).
  • The Hill reports that the House Financial Services Committee will also mark up a CFIUS bill next week.  (The Hill, May 16, House Panel Will Consider Bill to Boost Foreign Investment Review Powers Next Week)
  • According to Bloomberg Law, The House committee will take up a modified bill from the original (H.R. 4311) on May 22. “I think that we’ll hopefully have a bill that’s broadly supported on both sides of the aisle,” Hensarling said. “We’ll see what happens on Tuesday.” (Bloomberg Law, May 17, Foreign Investment Bill to Get Votes in House, Senate Panels, subscription only)

“The revised bill, according to drafts reviewed by The Wall Street Journal, would have the government vet domestic and overseas transactions through separate processes. The proposed legislation spells out CFIUS’s authority to vet the purchase or lease of real estate near sensitive U.S. facilities, and its right to review any deal structured to evade its jurisdiction such as transactions that use shell companies to obfuscate the would-be buyer’s ownership.  Both the Senate Banking Committee and the House Financial Services Committee … now plan to mark up the bill’s text as soon as next week after reaching the compromise.”  (The Wall Street Journal, May 17, Legislation to Curb Chinese Deals Moves Through Congress)