U.S. Senators Raise National Security Concerns About Foreign Investment in U.S. Real Estate

U.S. Senators Ask GAO to Assess CFIUS' Approach to Foreign Investment in U.S. Real Estate

Senators Seek Review of CFIUS’ Capacity and Approach to “Full Range of National Security Issues” Posed by Foreign Investment in U.S. Real Estate

On May 17, 2017, U.S. Senators Ron Wyden (D-OR), Claire McCaskill (D-MO), and Sherrod Brown (D-OH)—respectively ranking members of the Senate Finance; Homeland Security and Government Affairs; and Banking, Housing, and Urban Affairs Committees of the U.S. Senate—asked the Government Accountability Office (GAO) to review the approach taken by the Committee on Foreign Investment in the United States (CFIUS) to foreign investment in U.S. real estate and to “assess whether and how CFIUS addresses the full range of national security challenges such transactions may pose.” (The Senators’ letter to the GAO is below).

Specifically, the Senators have asked the GAO to examine a number of issues aimed at assessing the extent to which applicable regulations and the CFIUS process capture real estate transactions, the percentage of foreign acquisitions of U.S. real estate that have “filed” for CFIUS review, and the information and processes used by CFIUS to assess national security issues raised by foreign acquisitions of U.S. real estate.

Three Categories of Concern Framed as “National Security” Issues

The Senators identified the following three categories of national security concerns that arise or could arise from foreign acquisitions (and ownership) of U.S. real estate.

Lack of Beneficial Ownership Transparency
    • Foreign-Owned Real Estate Near Sensitive Sites or Leased for “High Security” Use
      • Real estate located in close proximity to sensitive properties (e.g., military bases) and the leasing by the U.S. government and others of “high-security space” owned (partially or wholly) by foreign parties. (Note that in foreign acquisitions of U.S. firms that are not primarily real estate transactions, the proximity of to-be-acquired real property to sensitive properties can trigger CFIUS national security reviews (as discussed, e.g., here)).
    • Trump Administration Members’ “Significant Real Estate” Holdings and Potential for Foreign Acquisition
      • National security risks posed by the fact that several members of the Trump Administration, including the President himself, have “significant real estate holdings” that could become the subjects of foreign real estate acquisitions.
Congress Members’ National Security-Based Concerns About Foreign Investment in Recent Years

As discussed in previous MassPoint publications (see related publications below) and elsewhere, members of Congress have in the last few years become increasingly active in seeking an expansion of the scope of CFIUS’ “national security” ambit, both in the context of specific transactions (often involving Chinese acquirers) and generally (e.g., where agriculture or other key U.S. sectors and assets are concerned).  This recent letter is a continuation of that pattern.

GAO Response to Senators’ Request May be Forthcoming Soon

If a recent example of the GAO’s response to Congress members’ requests for GAO reviews of the CFIUS process are any indication, a decision from the GAO as to whether it will conduct a review in response to the Senators’ letter may be forthcoming soon. For example, the GAO responded on September 30, 2016 to a September 15 2016 bipartisan request for a review of the CFIUS process as it relates to, inter alia, investment in strategic sectors of the U.S. economy (especially by Chinese entities and particularly state-owned enterprises). (It is worth noting here that the September 30, 2016 request, submitted by Congressman Pittinger (R-NC), was signed by 16 House members, including Rep. Pittinger and, again, was bipartisan).

Real Estate Sector Participants, Foreign Investors, and Finance Providers Take Note

Real estate sector participants, foreign investors, finance providers and other relevant parties should take note of the links drawn by Senators Wyden, McCaskill, and Brown between beneficial ownership and the CFIUS national security review process.


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For more information or to learn more about MassPoint’s related services, please contact the author, Hdeel Abdelhady, at habdelhady@masspointpllc.com or +1 202 630 2512.