Review of Foreign Real Estate Purchases in US Remains Limited, but Maybe Not for Long, Lawyers Say
Only a small percentage of foreign real estate purchases are reviewed by the Committee on Foreign Investment in the United States, but that may change given an uptick in concern, lawyers at Morgan Lewis said in an Aug. 29 blog post.
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
Since the passage of the the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) in 2018, CFIUS has had "limited" jurisdiction to review foreign real estate acquisitions in close proximity to sensitive facilities such as military installations and ports. Growing numbers of real estate acquisitions made by foreigners have sparked debate over whether the jurisdiction should be expanded. Currently, real estate deals constitute a very small portion of overall CFIUS activity, said Giovanna Cinelli, Kenneth Nunnenkamp and David Plotinsky, all of Morgan Lewis.
The recent acquisition of 370 acres of land in Grand Forks, North Dakota, by the Fufeng Group of Shandong, China, has led to calls by politicians for increased CFIUS reviews. "Across the national security apparatus and Congress, discussions are beginning to focus on foreign acquisitions of US lands," the post noted. Interest is particularly focused on the agricultural sector with its importance to U.S. food security. This growing greater awareness of potential security threats has increased the likelihood of CFIUS receiving an increased review scope in the future.
A base officer produced a report that raised concerns over covert surveillance and the U.S.-China Economic and Security Review Commission noted that the location is ideal for monitoring air traffic in and out of the base. Several politicians have called on CFIUS to review the deal including Sens. John Hoeven and Kevin Cramer of North Dakota and Marco Rubio of Florida, all Republicans.
The North Dakota purchase is one example of a "continuing uptick in U.S. land holdings by foreign persons," the blog post said. Foreign ownership of real estate increased more than 60% in the last decade, most notably in the purchase of Smithfield Foods, one of the U.S.’s largest farming operations, by a Chinese company. Smithfield then reportedly ended its contract with the largest farmer-owned grain cooperative in the U.S. and its longtime feed provider while simultaneously increasing exports to China.
There have also been concerns voiced surrounding the acquisition of "premier properties" in the U.S. by Russian oligarchs, often without disclosure, the lawyers said. The blog notes that the "vast majority" of these purchases are not, and were not, subject to CFIUS review.
The limited scope of CFIUS's review ability leaves "significant gaps" in the ability to review foreign investment and protect national security, argues the blog post, especially in the areas of food security. Congress is considering numerous proposals to expand CFIUS jurisdiction and if there is any expansion in the near future, it seems likely real estate transactions will be an area for which broader reviews occur, the lawyers said.