Influx of State Statutes Regulating Foreign Ownership of U.S. Real Estate

At a Glance

• The 2022 Committee on Foreign Investment in the U.S. (CFIUS) determination that it did not have proper jurisdiction to review the acquisition of property near the Grand Forks Air Force Base by a company with Chinese ownership sparked many states to propose and, in at least 15 cases, enact new legislation regulating or restricting foreign ownership of U.S. real estate.
• During 2023, Alabama, Arkansas, Florida, Idaho, Indiana, Louisiana, Mississippi, Montana, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia and Virginia enacted new legislation regulating foreign ownership of U.S. real estate, and an additional 20 states had bills introduced that would regulate, or restrict altogether, foreign ownership of U.S. real estate.
• While many states enacted or proposed new laws on foreign ownership of U.S. real estate, the regulations and restrictions contained in each vary.

As we enter the new year, it is a good time to reflect on and consider trends and developments from 2023. One such development that we find important and will be keeping an eye on in 2024 is the proliferation of state legislation regarding foreign ownership of U.S. real estate.

While seemingly a matter for international policy only, these state regulations have important implications for members of the insurance industry that are involved in the commercial real estate lending and acquisition arenas. Principally, these new laws may add to commercial real estate lenders’ underwriting requirements as well restrict the availability of real estate financing for other industry participants. For these reasons and more, we would like to spend a few moments highlighting a few pieces of legislation passed in 2023 that are representative of the types of restrictions being placed on foreign ownership of U.S. real estate by states.

A prime example of many of the new laws passed in 2023, Florida’s Senate Bill 264¹ took effect on July 1, 2023, and: (i) prohibits foreign principals from owning or acquiring agricultural land located in Florida; (ii) prohibits foreign principals from owning or acquiring any interest in real property within 10 miles of military installations or critical infrastructure located in Florida; and (iii) prohibits China, the Chinese Communist Party or other Chinese political party officials or members, Chinese business organizations, and persons domiciled in China (but who are not citizens or lawful permanent residents of the U.S.) from acquiring any interest in real property located in Florida. Bill 264 does provide one limited exception for the purchase of a residential property that is not located on or within five miles of any military installation.

While Bill 264 places broad prohibitions on foreign ownership of real estate in Florida, other state regulations are more narrowly tailored. For example, Utah’s House Bill 186 prohibits ownership only by certain restricted foreign entities, including certain Chinese companies identified by the U.S. Department of Defense as Chinese military companies. Whereas, Alabama House Bill No. 379 prohibits ownership of any agricultural or forest property and any real property within 10 miles of any military installation or critical infrastructure by certain individuals domiciled in certain countries, certain foreign countries or governmental entities, and any person, country or government identified on a sanctions list of the Office of Foreign Assets Control.²

It is likely that we will continue to see challenges to these statutes; however, the likelihood that these laws will be found either to be unconstitutional or preempted by federal law is uncertain.

Given that these state regulations widely vary, both as to whom and as to what type of property the regulations apply, participants in the commercial real estate lending and acquisition arenas should review these regulations on a state-by-state basis to ensure that participants are not prohibited from owning the real estate being financed or acquired. Additionally, lenders should consider whether new requirements and documentation should be added to their underwriting process to ensure compliance with such state regulations.

As 2024 progresses, it is likely that we will continue to see new legislation regulating foreign ownership of real estate be introduced, making it important for industry stakeholders to continue to monitor new developments in this area. As we monitor the ongoing changes to state and federal regulations regarding foreign ownership of U.S. real estate, stay tuned for further updates.