Erica Levy is a contributor to this article.

The U.S. government has made it clear that foreign companies investing in and/or purchasing U.S. real estate can present a national security risk. It is imperative that foreign investors develop an internal and  robust CFIUS[1] strategy and process, to ensure the approval of these transactions. Through the execution of a tailored CFIUS strategy to proactively demonstrate a commitment to transparency and compliance with the U.S. government, foreign investors can more effectively navigate the intricacies of U.S. national security regulations.

Increased Real Estate Focus

Growing national security concerns about foreign investment into the U.S. have heightened the role of CFIUS. Congress significantly expanded transactions that CFIUS has authority to review, including investment into U.S. real estate. The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) expanded CFIUS’ jurisdiction to specifically include certain real estate transactions near sensitive government facilities purchased by foreign nationals. While FIRRMA does not specifically single out any specific country, it is largely understood that the real estate provisions were included because of concern about Chinese backed investors acquiring U.S. real estate near sensitive government facilities. There has also been a recognition that Chinese investment may not be readily apparent.  Foreign investors with Chinese partners, investors, business ties or other associations can expect a higher level of scrutiny of real estate transactions that could jeopardize a transaction, business, or overall U.S. investment strategy.

President Biden’s Executive Order

Underscoring this increased attention is President Biden’s recent executive order blocking a Chinese-backed cryptocurrency mining firm from purchasing real estate located near a Wyoming Air Force base. On May 13, 2024, President Biden issued an order to block MineOne Partners Ltd. (MineOne), a firm that is majority owned by Chinese nationals, from owning land within one mile of Wyoming’s Francis E. Warren Air Force Base (Warren AFB). MineOne purchased the land in 2022 and made improvements to use the real estate for cryptocurrency mining operations. The transaction was not filed with CFIUS, but was reported through the public tip line. CFIUS conducted an investigation and identified national security risks related to the property’s close proximity to Warren AFB and the utilization onsite of foreign-sourced equipment that could not be mitigated by monitoring.

From the date of the order, MineOne had 120 days to divest all legal and beneficial ownership interests and rights, and 90 days to remove all equipment and improvements installed or undertaken. This is the first time President Biden has blocked a transaction under CFIUS’ implementing statute, and only the eighth instance of a presidential block in CFIUS’ history.

CFIUS’ History with Real Estate

Prior to FIRRMA, CFIUS’ review authority was limited to foreign investments in U.S. real estate resulting in foreign control over a U.S. business. FIRRMA broadened CFIUS’ and the President’s authority to review specific transactions involving certain U.S. real estate by foreign entities without an associated investment in a U.S. business. The CFIUS Real Estate Instructions are detailed at , and the CFIUS Part 802  identifies government installations in the U.S. near an address that the user types into the online tool. The tool is available to aide in the consideration of whether the submission of a voluntary notice or declaration to CFIUS is appropriate.

There have been significant cases involving CFIUS and related Presidential authority over real estate transactions in the years leading up to FIRRMA:

• Ralls Corporation/Wind Farm: In 2012, Ralls Corporation, owned by two Chinese nationals, acquired interests in four wind farm project companies in Oregon, which included sites that overlapped with restricted airspace. The transaction was not voluntarily disclosed to CFIUS. Ralls was invited to file a notice with CFIUS, which then determined that there were national security risks related to the transaction. President Obama issued an order prohibiting the acquisition and ownership of the companies and gave Ralls 90 days to divest all interests. In a first: Ralls challenged CFIUS’ and the President’s authority, losing in the U.S. District Court for the District of Columbia and subsequently appealing the decision. In 2014, the S. Court of Appeals for the District of Columbia Circuit ruled that the President’s order lacked due process under the law, as Ralls was not properly notified or given the chance to rebut evidence. The Circuit Court reversed and remanded to the district court, but in 2015, Ralls announced a settlement with the U.S. government ultimately resulting in the sale of the disputed assets. Ralls did win a pyric victory in the courts. The court did rule that CFIUS was obligated to provide an “unclassified” explanation for their decision, akin to requiring a baker to make chocolate chip cookies without the chocolate chips.
• Anbang Insurance Group/Waldorf Astoria: Another example of CFIUS’ scrutiny of a real estate transaction where national security risks are not readily apparent can be seen in CFIUS’ review of Anbang Insurance Group’s 2014 acquisition of the Waldorf Astoria Hotel in New York. Even under continued management by Hilton Worldwide, CFIUS’ concerns arose due to renovation plans by Anbang, a Chinese company. CFIUS was concerned about the potential for cyberespionage and eavesdropping given that the hotel was the residence of the U.S. ambassador to the United Nations and frequently hosted U.S. diplomats, the President, foreign heads of state, and government officials. CFIUS reviewed the transaction and ultimately approved the acquisition in 2015, making it the largest real estate acquisition by a Chinese company in the U.S. at that time.

For decades, CFIUS largely only reviewed transactions that were voluntarily submitted to CFIUS via a notice or declaration. With the passing of FIRRMA, CFIUS was provided additional resources, and a team was formed dedicated to investigating non-notified transactions. There is an understanding that this team focuses on strategically important industries with increased attention on Chinese and Russian investors. Member agencies review public and private data, filings, press releases, and other sources to identify transactions that may trigger national security concerns. CFIUS may also learn of transactions from other agencies or tips[2] from the public, as it did with the aforementioned MineOne transaction, that resulted in the President’s executive order to block the transaction. Due to the visibility and public attention from this decision, it is anticipated that the government will see an increase in public tips regarding Chinese and other transactions that may require review.

State and Local Real Estate and National Security Initiatives

Providing additional complexity to foreign investors is that on top of CFIUS’ oversight at the federal level, several states, cities, and counties in the U.S. have begun implementing their own restrictions and reporting requirements to address national security concerns and safeguard national security interests in real estate transactions. There are numerous recent examples of this, including:

• In 2022, California legislators passed a bill banning the sale of agricultural land to foreign governments beginning on January 1, 2023.
• In 2023, a local government in Beavercreek, Ohio incorporated CFIUS reviews into its local zoning regulations by requiring the review of any land uses requests by a foreign person either by CFIUS or the commander of the nearby Wright-Patterson Air Force Base. The final decision by the local government considers the outcome or input by CFIUS or the commander.
• A 2020 decision by CFIUS found that there were no national security risks identified by a Chinese-owned company building a wind farm in Texas near an Air Force pilot training base. However, local and military officials were wary of possible foreign espionage. Senator Ted Cruz and colleagues introduced a bill in 2021 and 2023 to stop adversaries, specifically China, Russia, Iran, and North Korea, from acquiring land near U.S. military installations. He also introduced an amendment to the 2021 National Defense Authorization Act (NDAA) empowering the Site Clearing House to conduct more thorough reviews of wind farm construction near military bases.
• A final example of city intervention into a real estate transaction by foreign companies is when Fufeng USA, a Chinese food manufacturer, announced plans to build a corn mill processing plant near the Grand Forks Air Force Base in North Dakota. CFIUS lacked jurisdiction due to the base’s exclusion from their lists of sensitive installations, but the Grand Forks City Council voted to block the project in 2022. Although the city lacked the authority to force Fufeng to sell the land, it essentially halted the project by denying building permits and infrastructure access.

Spotlight on China

There have been numerous indicators in recent years of concern over Chinese investments in the U.S. both by the government and public. Several U.S. allies have also expressed concern and have strengthened or created foreign direct investment (FDI) review regimes of their own. The U.S. Select Committee on the Strategic Competition Between the U.S. and the Chinese Communist Party (“CCP”) issued its year-end report in 2023 stating the CCP has pursued a campaign of economic aggression and manipulation against the U.S. and its allies, and that the U.S. must put its national and economic security at the core of the relationship going forward.

This is not the only recent public statement sharing these strong sentiments. CFIUS’ 2022 Annual Report stated explicitly that it found that China is a significant threat to the U.S. due to its use of economic, industrial, and cyber espionage to threaten U.S. security and prosperity. It was also reported in 2018 that all acquisitions blocked by CFIUS since its establishment involved Chinese investors, a good indicator that Chinese investment has always been a primary concern and faces higher hurdles than investors from other countries.

As a result of this aggressive approach by the U.S. and the enactment of FIRRMA, Chinese investments requiring a CFIUS review dropped from an average of 57 cases per year from 2016-2018 to just 22 in 2020. 2021 and 2022 saw an increase in Chinese filings back up to 45 and 41, respectively. The filings were primarily in the form of long-form notices rather the short-form declarations, indicating that in the four years following FIRRMA, investments with Chinese involvement require a better understanding of what types of transactions are more likely to be approved by CFIUS.

Other countries have shown a similar wariness regarding Chinese acquisitions. Members of the European Union (EU) have blocked Chinese companies from purchases of energy and manufacturing companies, and some European countries now require state approval for most foreign investments. Chinese mergers and acquisitions investments in Europe fell by 58% in 2023 to EUR 1.48 billion, the lowest it has been since 2009 during the global financial crisis.

Strategies to Win Approval of Real Estate Transactions

Foreign investors based in the EU, Canada, Japan, South Korea, Singapore, the Philippines, and other countries friendly with the U.S., who are looking to engage in real estate transactions need to understand their national security risk profile. Such a profile should focus on any connections and relationships with China and Chinese entities and how the U.S. would view those connections. Investors would be wise to develop a strategy, where possible, to separate themselves from Chinese connections and the resultant heavy scrutiny by CFIUS.

With this increased attention on China, one method foreign investors use to minimize the chance of CFIUS identifying national security risks for a transaction is by separating their businesses from Chinese influence. Investors should ensure that the ultimate parent of the company interested in U.S. real estate investments and the country of that parent, as well as who holds a majority interest in the company, are not Chinese. If the parent or majority interest holder is Chinese, the company can then take steps to restructure the company so that it is a distinct legal entity with its own ownership and management structures, as well as complete financial independence from China.

Foreign investors should have a CFIUS strategy and process to implement pre-transaction Such reviews should include consideration of relevant country and local government regulations that may impact a transaction or transactions.  We recommend what elements should comprise a CFIUS strategy and process below:

1. Anticipate Mitigation or National Security Concerns
   • Assess your deal from a national security perspective and anticipate concerns before negotiations begin.
   • Prepare for potential restrictions on operating your U.S. asset due to national security concerns.
   • Use the CFIUS Part 802 Geographic Reference Tool to identify whether the real estate being targeted is near any sensitive installations.

2. Check Compliance
   • Conduct a thorough compliance self-assessment including a review of export controls, cybersecurity, and other relevant areas before the CFIUS process begins.
   • Have a comprehensive narrative and ensure that any prior compliance issues or failures were remediated and will not be repeated.

3. Anticipate Additional Costs
   • Factor costs for additional security and oversight requirements into your deal assessment and post-closing financial targets.

4. Identify Key People
   • Educate key personnel about the deal strategy and its benefits to the customer.
   • Identify well-connected project managers on relevant government projects who can assist in effectively selling the deal to concerned regulators.

5. Identify Potential Board Members
   • Select independent board members with the necessary skills and who align with your company’s culture and goals early in the process.
   • Recognize their potential role in running and making critical decisions for the company to assist in selecting sensible, informed candidates.

6. Budget for Increased Security and Related Costs
   • As cybersecurity is a major concern, ensure that additional resources are allocated for enhanced IT security measures, in addition to physical security.
   • Ensure the company’s Chief of Security has adequate technical expertise and reports directly to top management.

7. Comply With Mitigation
   • Once implemented, adhere to mitigation agreements to avoid penalties.
   • Build a good team to enforce effective security policies and procedures, and maintain a culture of compliance within the company.

8. Company-Wide Training
   • Provide training with knowledge testing to all employees, including board members, as well as contractors and vendors who often engage with the company.

9. View Mitigation From Customer Perspective
   • Emphasize mitigation terms and better security as competitive advantages to customers.

Concluding Insights

These cases show that it is critical for foreign investors to understand the regulations and business atmosphere at the federal, state, and local levels in the U.S. as each of these tiers of government becomes more involved in investment decisions. After decoupling their businesses from Chinese influence, investors should implement their established CFIUS strategy when considering transactions that involve the purchase, lease, or concession of real estate. Finally, file a notice or declaration with CFIUS, if appropriate, to help ensure that the transaction is protected by CFIUS’s safe harbor provisions and will ultimately succeed.

If you have any questions or would like to discuss this article, please contact Scott Boylan.

[1] CFIUS is The Committee on Foreign Investment in the United States.
[2] The public can report a tip about a potential foreign investment implicating national security to CFIUS.tips@treasury.gov or by calling (202) 622-1860.