King & Spalding's Jennifer Morgan Notes New CFIUS Rules on Foreign Investment in U.S. Real Estate

Jennifer Morgan

 

 NEW YORK, NY -- Jennifer Morgan, a real estate partner with New York, NY-based King & Spalding law firm, alerts foreign investors in U.S. real estate to new rules recently announced by the Committee on Foreign Investment in the United States (CFIUS).

The new rules could extend the recent decline of foreign appetite for US real estate assets, especially from China, suggests Morgan.

Empowered by the Treasury and Commerce Departments, CFIUS has authority to review transactions involving foreign investments in the U.S. Some deals are subject to a mandatory filing requirement, while others only require voluntary filings.

                                            Trump Tower Hotel, New York, NY

The Business Rule, which became effective on February 13, expands CFIUS’ jurisdiction to review non-controlling foreign investments in U.S. businesses involving critical technology, critical infrastructure, and sensitive personal data.

The other rule  - the Real Estate Rule - expands CFIUS’ jurisdiction to review foreign investments in U.S. properties.

Morgan points out that unlike transactions under the Business Rule, real estate transactions are not subject to a mandatory filing requirement. 

Yet, she recommends that foreign real estate buyers and investors should consider whether a voluntary filing is appropriate, especially for property located near military installations, ports or other governmental sites – that could trigger a CFIUS review.

“Parties should consider the rules when identifying deal partners, structuring transactions, raising capital and forming funds, and determining whether CFIUS filings are required or advisable,” says Morgan.

The new rules spell out specific instances when investors are required to file for review or should consider a voluntary filing.

While rare, CFIUS has the power to unwind deals after the fact, but Morgan suggests that if a voluntary filing is done, the committee would be more likely to provide mitigation factors.

Morgan cites an example of a foreign investor that acquired interest in a midtown office building. CFIUS unwound the transaction after it had closed because the building was across the street from the police precinct that monitors Trump Tower.

While this example is extreme, Morgan says that the threat of action by CFIUS has had a chilling effect on real estate investment from some foreign players. However, the rules that just went into effect provide the ground rules that make things clearer.

For more detail on the new CFIUS rules, Morgan suggests reviewing  the King & Spalding client alert issued last week - https://www.kslaw.com/news-and-insights/cfius-finalizes-rules-reforming-foreign-investment-reviews

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John Garger jgarger@rippmedia.com 212-262-7484

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