The New CFIUS ‘Geographic Reference Tool’ – Handle With Care

Released last month by the Committee on Foreign Investment in the United States, the Geographic Reference Tool is a useful starting point in determining what constitutes covered real estate transactions, but does not provide definitive answers and should be approached with caution.

Late March saw the release of the Committee on Foreign Investment in the United States’s (CFIUS’s) new tool, designed to assist parties with determining whether a real estate transaction that includes foreign purchasers involves a “covered real estate” within the meaning of the CFIUS real estate regulations – “Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States” 31 CFR part 802 (the Real Estate Regulations). This determination is essential to the CFIUS analysis for real estate transactions, and one that presents some of the biggest challenges under the Real Estate Regulations. The tool is one of several references CFIUS provides to help parties and their counsel navigate the complexities of the Real Estate Regulations. As useful as the tool is, however, it does not, and was not meant to, provide definitive answers with respect to covered real estate transactions. Therefore, the tool should be approached with caution, especially by those unfamiliar with the Real Estate Regulations, and with CFIUS practice in particular.

Prior to the enactment of the Foreign Investment Risk Review Modernization Act (FIRRMA), CFIUS reviewed real estate transactions only if the real estate was part of or constituted a US business within the meaning of 31 CFR part 800. FIRRMA, however, expanded CFIUS jurisdiction to include certain real estate transactions where there is no US business. In February 2020, the regulations with respect to covered real estate transactions became final, and part 802 became effective. Now, consistent with FIRRMA’s mandate, CFIUS can review transactions that involve the purchase or lease by, or a concession to, a foreign person of “covered real estate” in the United States. Covered real estate transactions are therefore subject to CFIUS review even when there is no “US business” under the traditional scope of CFIUS jurisdiction.

The Real Estate Regulations define “covered real estate” as real estate that:

1. is, is located within, or will function as part of, a covered port;
2. is located within “close proximity” of any military installation described in Section 802.227(b) to (o) of the regulations, or a facility or property of the US government, as defined in the list at part 1 or part 2 of appendix A to part 802;
3. is located within the extended range of any military installation described in Section 802.227(h), (k), or (m), and as identified in the list at part 2 of appendix A to part 802;
4. is located within any county or other geographic area identified in connection with any military installation described in Section 802.227(a), as identified in part 3 of appendix A to part 802; or
5. is located within any part of a military installation described in Section 802.227(p), as identified at part 4 of appendix A to part 802, to the extent located within the limits of the territorial sea of the United States.

A “covered port” is defined according to corresponding definitions used by the various agencies that regulate those facilities, including the Federal Aviation Administration (FAA) and other US Department of Transportation functions. The details are described at Section 800.210 of the Real Estate Regulations.

Both the covered ports and the covered military installations contain a significant amount of detailed restrictions and qualifications regarding when a port or military installation is covered and when it is not, each also depending upon varying levels of “proximity” to those facilities. In other words, the regulations establish a fairly complex matrix analysis that must be conducted to determine whether the transaction includes “covered real estate.”

If the transaction involves covered real estate, it may be a covered transaction if it also meets the remaining criteria of the Real Estate Regulations. For example, as a general rule the transaction must result in the foreign party having at least three of four enunciated rights listed in Section 800.233. Thus, the transaction will be covered if the foreign party obtains the right to

1. physically access the real estate;
2. exclude others from physically accessing the real estate;
3. improve or develop the real estate; or
4. attach fixed or immovable structures or objects to the real estate.

The new Geographic Reference Tool, while providing parties with useful information concerning whether the property involved in a transaction falls within these proximity ranges as set forth in the Real Estate Regulations, is not, however, a one-stop shop for making final determinations. CFIUS recognizes this in its announcement and in the tool’s instructions, which include the following disclaimer:

The CFIUS Part 802 Geographic Reference Tool may be a helpful resource to locate specific real estate in relation to these military installations [referring to military installations associated with part 802]. This mapping tool allows users to input an address and determine the distance to certain military installations.” (emphasis added).

Thus, the tool does not, and is not intended to, include every military installation relevant and applicable to the part 802 analysis. While it is elegant in some respects and has a modern-day plug and play feel, it does not obviate the need for critical thinking and analysis, as CFIUS warns, when it says clearly that this tool will not displace a full understanding of part 802.

Nonetheless, the tool assists with and automates certain parts of the covered real estate analysis, by providing a convenient (though nonbinding) means for determining, in the first instance, whether

1. there is a covered US military installation located in close proximity or extended range (1-100 miles) of any Public Land Survey System identifier, street address, or coordinates; and
2. the real estate is within the required proximity to any “urbanized area” or “urban cluster” that is partially exempt from the Real Estate Regulations.

Emphasizing that the tool does not provide “answers” to the covered real estate question, the instructions on the tool’s front page include several disclaimers:

1. The tool is “for general reference only” and, in keeping with Executive Order 13891, the tool is neither “guidance” nor does it provide “an advisory opinion” by CFIUS with respect to a particular transaction.
2. Although the tool includes information concerning urbanized areas and urban clusters, CFIUS warns that the actual Census Bureau lists should be reviewed independently of the CFIUS tool.
3. The information in the data set contains “a publicly available dataset of US Department of Defense properties, which includes, among other sites, the military installations identified in parts 1 to 3 of appendix A to part 802.” However, “not all of the Department of Defense properties displayed through the tool are relevant to part 802.”
4. Using this tool to identify some important features in and around a specific geographic location may help those who are considering whether to submit a voluntary notice or declaration to CFIUS. But it is not the only factor that could apply.
5. The tool does not display the offshore areas identified in part 4 of appendix A to part 802, nor the covered air and maritime ports relevant to a part 802 analysis and jurisdictional determination. Relevant information on the offshore areas and covered ports are available through other US government websites. (See below for links to relevant port information, also provided on the CFIUS website).
6. The tool uses a publicly available dataset of Department of Defense properties, and therefore, intentionally, the tool’s identification and boundary information “are intended only for general reference in connection with part 802, and do not necessarily represent the legal or surveyed land parcel boundaries.”

While the tool provides a useful starting point for the CFIUS part 802 analysis, and in some cases may allow for a quicker determination whether the real estate involved in a transaction meets the covered real estate definition, its limitations caution against placing too much reliance on the information and results it provides.

The complexity of determining fully whether a transaction involves covered real estate, is demonstrated in part by the other reference tools on the CFIUS website with respect to the Real Estate Regulations. For example, CFIUS provides extensive resources for determining whether a port or military installation is covered. Since the regulations differ dramatically based on the type of installation and the “proximity” to that installation, parties must ensure that they survey all of the relevant data before reaching a conclusion.

Relevant Ports

Although the Geographic Reference Tool provides one part of the picture, CFIUS has provided a list of links to sites that assist with identifying the air and maritime ports covered by the regulations. These sites are not nearly as dynamic, but they provide the relevant information in a more traditional fashion (and in some cases further links) to help parties and counsel find the relevant information. None of the data provided is a complete list of every relevant site (whether located on land or contiguous to US shores), but CFIUS has collected a solid set of data that can be used at the outset to determine whether a transaction is covered.

• Large hub airports “Enplanements at All Commercial Service Airports (by Rank)” (large hub airports are identified with an “L” under the column heading “Hub”)
• All-cargo airports > 1.24 billion pounds Under “All-Cargo Airports by Landed Weight”
• Joint use airports 
• Strategic seaports
• Top 25 tonnage, container, or dry bulk port

Military Installations Listed in Part 4 of Appendix A

A second item not included in the tool also can be found linked to the CFIUS website—the military installations primarily located offshore that are listed in part 4 of Appendix A. The offshore military installations covered by this part of the regulations – Section 802.211 — while not specifically listed, are “findable” via a separate tool, Marine Cadastre National Viewer, which CFIUS describes as “a helpful resource.” This resource is particularly helpful for port and wind energy transactions, and could be relevant to a variety of other transactions where the acquired business operates in or around these areas.

These additional references are essential to the analysis because the tool does not identify, for military installations designated as sensitive, whether the one-mile or 100-mile proximity threshold applies. Thus, while the tool provides certain data, that information must be checked against the relevant appendices to determine whether the property is covered real estate.

Conclusion

Tools, like checklists, present useful analytical starting points but should be approached with caution. The allure of using a checklist or tool to conduct a critical analysis – especially when that analysis is driven by a number of factors not included in either the tool or the checklist – presents special challenges. While the Geographic Reference Tool is useful for helping with part of the analysis, it is only a starting point. The danger, of course, is that parties unfamiliar with the regulations will rely on the tool as providing definitive answers. Thus, it must be approached with caution and an understanding of its limitations.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors or any of the following Morgan Lewis lawyers:

Washington, DC
Kenneth J. Nunnenkamp
Giovanna M. Cinelli
Ulises R. Pin

Boston
Carl A. Valenstein