Type
Issues
Issues
Capital and Credit
May 24, 2024
Roundtable Weekly
Federal Regulators Signal Significant Changes for Proposed Bank Capital Hikes
Basel III Capital and Credit Restoring Liquidity in CRE Markets and Protecting Capital Formation The Fed
Proposed regulations that would dramatically hike capital requirements for the nation's largest banks may undergo significant changes, which could include a 50 percent reduction in the current mandated increase, according to sources cited by The Wall Street Journal on May 19. Proposed Capital Requirements Top officials from the Fed are working with regulators from the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) on “negotiating substantive and technical revisions” to the current proposal, known as the “Basel III Endgame.” (WSJ, May 19) The Real Estate Roundtable strongly opposes the current proposal, which would hike capital requirements by approximately 19 percent for banks with at least $100 billion in assets. (Roundtable Weekly, March 29) Barclay estimates the proposal, if approved without changes, would require eight U.S. global systemically important banks to hold approximately $150 billion more in capital. (WSJ, May 23) Roundtable Response Roundtable President and CEO Jeffrey DeBoer testified this month before a House subcommittee on the health of CRE markets and offered Roundtable policy recommendations, which included rejection of the Basel III Endgame—along with other pro-cyclical regulatory measures that would restrict credit and capital formation. (Roundtable Weekly, May 3 | DeBoer’s oral statement and written testimony) Additionally, a Jan. 12 Roundtable letter and Jan. 16 industry coalition letter urged federal banking regulators to withdraw the proposed rule, emphasizing its potential negative impact on available credit capacity for commercial real estate transactions, market liquidity, and economic growth. (Roundtable Weekly, Jan. 19) Policymakers Signal Adjustments The proposal has been met by internal disagreement and concerns among the seven-member Fed Board. (Roundtable Weekly, March 29) Michael Barr, the Fed’s Vice Chair for Supervision, said in a May 20 speech that the central bank is exploring “targeted adjustments” to bank liquidity rules, including Basel III.  In March, Fed Chairman Jerome Powell testified before congressional committees that he expects regulators to “make broad and material changes” to the Basel III proposal. (PoliticoPro, May 20 and Roundtable Weekly, March 8) Barr also testified last week before a House Financial Services Committee hearing on May 15 about risks to the banking system. Committee Vice Chairman French Hill (R-AK) questioned Barr and regulators from the FDIC and OCC on the Basel III proposal, stating that the agencies should withdraw and re-propose Basel III. (Video of the exchange on X | Barr testimony) The Roundtable’s all-member Annual Meeting on June 20-21 in Washington, DC will address Basel III Endgame and other capital and credit issues impacting CRE. #  #  #
Roundtable Leadership
May 24, 2024
Roundtable Weekly
Commerce Department Announces Voluntary Industry Pledge to Increase Women in Construction Workforce
Jeffrey DeBoer John Fish Labor Policy Roundtable Leadership
RER Chairman and Suffolk CEO John Fish, above, convened a meeting this week of leading construction company CEOS to sign on to the “Million Women in Construction Community Pledge,” led by U.S. Commerce Department Secretary Gina Raimondo. (UPI, May 21 and ConstructionDive, May 22) Committed to Workforce Expansion Fish said, “The construction industry continues to face significant labor challenges due to the aging workforce and dwindling number of young people entering the construction field. There is a critical need to attract more talent and diversify our workforce to ensure we have the resources to build our cities and grow our economy.” (Commerce Department news release) He added, “Suffolk is honored and privileged to be one of the first companies to commit to Secretary Raimondo’s inspiring Million Women in Construction Pledge. As an organization that has long been committed to rebuilding the ratio of women in the construction industry, we are proud to play a leadership role in inspiring other organizations to commit to this effort and help position our American workforce for future growth and success.” The Million Women in Construction Community Pledge is a nationwide call to action for the construction industry to commit to bold steps aimed at increasing the number of women in the construction workforce. Secretary Raimondo launched the initiative after participating in The Real Estate Roundtable’s Spring 2023 Meeting. (Roundtable Weekly, April 28, 2023) In addition to Suffolk, other leading construction companies committed to the Pledge include Baker Construction, Gilbane Building Company, McKissack & McKissack, Mortenson, Power Design, and Shawmut Design and Construction. Call for Greater Industry Participation Left to Right: RER Chairman John Fish, Commerce Sec. Raimondo, RER President & CEO Jeffrey DeBoer Secretary Raimondo is seeking more industry companies, unions, and training organizations to sign the Pledge. She emphasized the need for the industry to recruit, train, hire, and retain thousands of new and non-traditional workers as the next generation of skilled laborers and leaders—and prepare them to rebuild U.S. infrastructure and supply chains to complement the Federal government’s investment. Secretary Raimondo said, “President Biden’s Investing in America agenda is creating a construction boom all over the country, and with that boom comes a huge increase in jobs and opportunities for workers in construction and the trades. But right now, women make up less than 11% of jobs in construction and only 4% in skilled trades.” She added, “Many of these are good-paying, quality jobs you can get without a college degree, and women deserve equal opportunity for these jobs. I’m calling on everyone—contractors, labor unions, training organizations—to join our Community Pledge to commit to solutions and support proven strategies that help overcome barriers faced by women and underserved communities in construction and the trades.” For questions about the program or to pledge, email WomenInConstruction@doc.gov #  #  #
Q2 Sentiment Index
May 24, 2024
Roundtable Weekly
CRE Executives Express Tempered Optimism Despite High Interest Rates and Tight Liquidity
CRE Trends Q2 Sentiment Index Quarterly Sentiment Index
Commercial real estate executives expressed tempered optimism about property markets in The Real Estate Roundtable’s Q2 2024 Sentiment Index as high interest rates and liquidity challenges linger. The Q2 Sentiment Index registered the same overall score of 61 from the previous quarter as uncertainty persists about future asset values and availability of capital. The Roundtable’s Current Sentiment Index registered 55, a 2-point increase over Q1 2024. The Future Index posted a score of 66 points, a decrease of 4 points from the previous quarter. Any score over 50 is viewed as positive. ­­­­The Overall Index this quarter of 61—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of the Current and Future Indices.­­­­ The Q2 Sentiment Index topline findings also include: Evolving market trends continue to shape the real estate landscape. A majority (66%) of Q2 survey participants expect general market conditions to show improvement one year from now. Additionally, 45% of respondents said conditions are better now compared to this time last year. Only 11% of Q2 participants expect general market conditions to be somewhat worse in a year, a slight increase from 6% in Q1. Class B office properties are facing ongoing challenges attributed to an ongoing “flight to quality.” Industrial and multifamily sectors show tempered growth, yet their underlying fundamentals remain robust. Retail sectors are healthy, propelled by consumer spending, while interest in data centers continues to ascend. [The healthy momentum of the retail sector was affirmed by ICSC CEO and President Tom McGee, above left, this week during an interview with DLC Management. He stated that the demand for physical retail is incredibly strong, but the supply of net new construction is constrained because of the cost of capital and construction. “Retailers are just not using stores for conventional shopping purposes but also increasingly using them as fulfillment centers, so the demand for space is quite high.” (DLC Management on X, May 23)] A significant 75% of Q2 survey participants expressed optimism that asset values will be higher (44%) or the same (31%) one year from now, indicating some semblance of expected stability. The real estate capital markets landscape remains challenging. For the current quarter, 65% believe the availability of equity capital will improve in one year, while 64% said the availability of debt capital will improve in one year. The 36% of participants who said the availability of debt capital would be worse in one year is an increase from 24% in Q1 who voiced the same expectation. Regarding sentiment on the availability of equity capital, 65% of survey respondents expect conditions to improve, compared to 26% who stated that the availability of equity capital was better a year ago. Data for the Q2 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in April. See the full Q2 report. # #  #
Housing and Energy Policy
May 24, 2024
Roundtable Weekly
Roundtable to House Committee: Balance Housing and Energy Efficiency Priorities
Affordable Housing building codes Building Performance Standards Building Performance Standards BPS Energy and Climate Policy Housing and Energy Policy
The Real Estate Roundtable asked House lawmakers on Wednesday to direct the U.S. Department of Housing and Urban Development (HUD) to reconsider a recent federal energy codes rule because it does not adequately consider impacts on affordable housing. (Roundtable Statement, May 22 for House Hearing) HUD’s Energy Codes Rule Last month, HUD and the U.S. Department of Agriculture (USDA) issued a joint rule that applies the most recent, stringent—and costly—model energy code standards to new residential construction receiving the agencies’ financial support. (Roundtable Weekly, May 3) The rule would apply to both single- and multifamily homes covered by HUD and USDA programs, including homes backed with federal mortgage insurance. HUD itself estimated the rule would add at least $7,229 to the cost of building a new single-family home. (HUD’s rule | House subcommittee memo) The May 22 House hearing considered how HUD’s rule and other green building policies impact homeownership, price buyers out of the market, and burden renters. The National Association of Home Builders testified at the hearing, and the National Multifamily Housing Council and National Apartment Association submitted a joint statement. (Subcommittee hearing YouTube video) Roundtable Recommendations The Roundtable’s statement explained that policymakers must prioritize both the climate crisis and our nation’s housing crisis, but that HUD’s federal codes rule is not balanced and should be re-considered. The new nationwide rule imposing the highest energy efficiency standards, currently adopted by only a handful of states, must be assessed in light of the Biden-Harris administration’s goals to address the serious U.S. housing shortage and create two million affordable units. (Biden Administration Affordable Housing Policy Fact Sheet, March 7) RER’s letter also explained how the new federal codes rule adds yet another layer to a stacked mix of stringent government rules and other headwinds that have made single- and multifamily housing construction a “hyper-regulated business.” Reducing buildings’ energy use and climate emissions are critical policies, but the Administration should not pass new regulations that “make the housing crisis worse,” The Roundtable explained. A more balanced re-assessment of HUD’s and USDA’s action is warranted. This week’s hearing follows House testimony recently delivered by Roundtable President and CEO Jeff DeBoer, who reinforced the messages that the health of commercial and residential real estate markets are intertwined—and excessive regulations that make housing prices and rents unaffordable for working-class families must be avoided. (DeBoer’s April 30 oral statement and written testimony | Roundtable Weekly, April 30) #  #  #
News, News Release, RER Quarterly Sentiment Index
May 23, 2024
Press Release
CRE Executives Express Tempered Optimism Despite High Interest Rates and Tight Liquidity
Quarterly Sentiment Index
(WASHINGTON, D.C.) — Commercial real estate executives expressed tempered optimism about property markets in The Real Estate Roundtable’s Q2 2024 Sentiment Index as high interest rates and liquidity challenges linger. The Q2 Sentiment Index registered the same overall score of 61 from the previous quarter as uncertainty persists about future asset values and availability of capital. The Roundtable’s Current Sentiment Index registered 55, a 2-point increase over Q1 2024. The Future Index posted a score of 66 points, a decrease of 4 points from the previous quarter. Any score over 50 is viewed as positive. ­­­­The Overall Index this quarter of 61—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of the Current and Future Indices.­­­­ The Q2 Sentiment Index topline findings also include: Evolving market trends continue to shape the real estate landscape. A majority (66%) of Q2 survey participants expect general market conditions to show improvement one year from now. Additionally, 45% of respondents said conditions are better now compared to this time last year. Only 11% of Q2 participants expect general market conditions to be somewhat worse in a year, a slight increase from 6% in Q1. Class B office properties are facing ongoing challenges, attributed to an ongoing “flight to quality.” Industrial and multifamily sectors show tempered growth, yet their underlying fundamentals remain robust. Retail sectors are healthy, propelled by consumer spending, while interest in data centers continues to ascend. A significant 75% of Q2 survey participants expressed optimism that asset values will be higher (44%) or the same (31%) one year from now, indicating some semblance of expected stability. The real estate capital markets landscape remains challenging. For the current quarter, 65% believe the availability of equity capital will improve in one year, while 64% said the availability of debt capital will improve in one year. The 36% of participants who said the availability of debt capital would be worse in one year is an increase from 24% in Q1 who voiced the same expectation. Regarding sentiment on the availability of equity capital, 65% of survey respondents expect conditions to improve, compared to 26% who stated that availability of equity capital was better a year ago. Some sample responses from participants in the Sentiment Index’s Q2 survey include: “Real estate fundamentals are shaping up to be very strong in one to two years. Companies that have a long-term perspective and can be patient will benefit from strong employment growth, demographic shifts, and stable occupancies.” “The mom-and-pop investors who own class B office are hurting the most. The institutional investors are diversified, so they are faring better.” “Stability in asset values isn’t just about reaching pre-2022 levels; it’s about establishing a new norm based on sustainable growth.” Data for the Q2 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in April. See the full Q2 report. The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.
Affordable Housing
May 17, 2024
Roundtable Weekly
House Committee Passes Roundtable-Supported Yes in My Backyard (YIMBY) Act
Affordable Housing Yes In My Backyard YIMBY YIMBY
Yesterday, the House Financial Services Committee passed the bipartisan Yes in My Backyard (YIMBY) Act, which would help eliminate discriminatory land use policies and remove barriers to production of affordable housing. The Roundtable and 17 other national organizations submitted a letter of strong support for the bill the day before the committee mark-up. (Coalition letter, May 15 | Committee news release and video of committee mark-up, May 16) Affordable Housing The YIMBY Act (H.R. 3507) requires recipients of certain federal grants to submit public reports about their implementation of certain land-use policies, such as policies for expanding high-density single-family and multifamily zoning. The reports must detail how federal grant recipients are removing discriminatory land use policies and other barriers to constructing affordable housing, while promoting inclusive and affordable housing. The YIMBY bill, introduced by Rep. Derek Kilmer (D-WA), advanced to the full House for consideration by a vote of 48-0. The House Financial Services Committee passed it yesterday as an amendment in the nature of a substitute offered by Rep. Mike Flood (R-NE). [Watch Rep. Flood’s remarks in support of the bipartisan bill] Committee Chairman Patrick McHenry (R-NC) expressed his support for the legislation during the May 16 mark-up. Previously, the YIMBY Act passed the House without opposition in 2020 but stalled in the Senate (S. 1688). Roundtable Support The Real Estate Roundtable and 21 other national organizations also expressed their strong support for the bipartisan bill in February to the House Financial Services Committee (Coalition letter, Feb. 20, 2024) The Roundtable joined another coalition of 285 housing, business, and municipal organizations last year in a letter of support when the YIMBY Act was reintroduced. (Roundtable Weekly, May 26, 2023 and coalition letter) Separately, the Wall Street Journal (Feb. 20, 2024) reported that community opposition to new projects is not just restricted to housing developments. E-Commerce hubs are also “increasingly contending with a headache” of NIMBY sentiments, as developers of warehouse and logistics properties face the conundrum of siting projects that are necessary to deliver goods to residents and consumers. (“Don’t Build That E-Commerce Warehouse in My Backyard, More Communities Say”)    Next week, a House Energy Subcommittee will hold a hearing on “Green Building Policies: Jeopardizing the American Dream of Homeownership.” The May 22 hearing will focus on excessive regulations that constrict housing supply, including a recent Biden administration “final determination” that all new single- and multifamily homes financed with federal mortgages must be built to stringent “model energy codes.”  (Roundtable Weekly, May 3) #  #  #
Energy And Climate Policy
May 17, 2024
Roundtable Weekly
EPA Seeks Building Owners’ Input on Whole-Building Energy Data
Building Performance Standards Building Performance Standards BPS Climate and Energy Policy Climate Policy Energy amp Climate Energy and Climate Policy Energy Policy EPA
A new Environmental Protection Agency (EPA) campaign seeks to assist building owners in obtaining data from utilities on energy used by tenants in leased spaces. Stakeholders are encouraged to complete EPA’s brief Whole-Building Energy Data survey by Friday, June 7. Access to Whole-Building Data is Critical A challenge shared by owners and managers across the CRE industry is obtaining leased space energy data particularly where tenants operate under “triple-net” (NNN) leases and pay their electricity, gas, and other power bills directly to utilities. Difficulties accessing whole-building energy data are acute in multifamily, offices, retail, logistics, life sciences, and any building type that leases spaces to numerous tenants. Nonetheless, owners are expected to capture data on tenants’ energy use as a simple matter of proper building management, and for myriad policy and regulatory reasons such as: Reports to investors and lenders, including disclosures to the US-SEC and state agencies; Compliance with mandatory state or local Building Performance Standards (BPS); Attaining voluntary certifications such as EPA’s ENERGY STAR and NextGen building “labels”; and Qualifying for the 179D tax deduction for building retrofits enacted by the Inflation Reduction Act (IRA) of 2022. [Roundtable Weekly, Jan. 20, 2023 and  IRA fact sheet, July 31, 2023] Roundtable Advocacy The Roundtable supported a Jan. 18 open letter from leaders of the EPA, Department of Housing and Urban Development (HUD), and Department of Energy (DOE) to utilities and their regulatory commissions about the national importance of obtaining tenant-level consumption data. The Roundtable also submitted comments to EPA on Jan. 20 that emphasized how utilities should be eligible for EPA grants to develop technologies that provide owners of multi-tenant assets with whole-building energy data. EPA’s Campaign EPA has posted online tools including a “Multitenant Buildings and Federal Incentives” fact sheet. This resource explains the importance of whole-building data to building owners (with a focus on federal funding opportunities requiring this data), as well as solutions available to utilities to provide the data. More than 90% of utilities currently do not provide whole-building energy use data. (See EPA’s data access map.) The EPA campaign aims to: Gather input from building owners and others on where they need this data most and why, via the survey. Create resources that support building owners in engaging utilities nationwide, including a summary of the survey’s input. Organize meetings between utilities and building owners in priority locations to facilitate discussion. EPA will support utilities that are interested in providing the data in line with industry best practices. EPA’s campaign will be among the topics discussed during The Roundtable’s Sustainability Policy Advisory Committee (SPAC) Meeting on June 21 in Washington, D.C., held in conjunction with the RER’s all-member Annual Meeting on June 20. #  #  #
Roundtable Leadership
May 17, 2024
Roundtable Weekly
Roundtable Members Featured in Commercial Observer’s “Power 100” List of 2024 Most Influential Leaders in CRE
Jeffrey DeBoer Kathleen McCarthy Roundtable Leadership
This week, the publication Commercial Observer released their “Power 100” list of prominent industry influencers, which includes Real Estate Roundtable Chair-Elect Kathleen McCarthy (Global Co-Head of Blackstone Real Estate, Blackstone), Chairman Emeritus (2015-2018) William C. Rudin (Co-Executive Chairman, Rudin), Roundtable President and CEO Jeffrey DeBoer, and nearly 30 other Roundtable members. (Power 100 2024 – Commercial Observer) CRE Industry Leadership Commercial Observer notes that the industry has been through a great deal of turbulence this year. "For better or worse, the biggest cliché that seeped into the commercial real estate conversation over the last year was: ‘Survive until ’25.’ This year’s honorees have shown the pluck, the determination, and the fortitude to make their ways onto this list.” (Power 100 2024 – Commercial Observer) The article also notes how The Roundtable effectively represents the industry while partnering with 18 national trade associations to educate Washington, D.C. policymakers on national issues impacting the industry. The Roundtable’s Role DeBoer comments within his profile, “Helping federal regulators understand the whiplash of very quickly moving from the historically long period of artificially low interest rates to a much higher interest rate environment was critical to the flexibility they ultimately provided to banks to modify or extend a great deal of the roughly $1 trillion in maturing commercial real estate loans.” He also notes that significant stress on CRE remains, especially the pressures of remote work. Yet, “a systemic crisis for the banking industry and real estate markets seems to have been averted,” DeBoer states. (See DeBoer’s listing) #  #  #
Policy Landscape
May 10, 2024
Roundtable Weekly
Roundtable’s William C. Rudin Discusses Public Policies to Strengthen CRE and the Economy
Bill Rudin CRE Federal Reserve Jeffrey DeBoer Liquidity Property Conversions Remote Work testimony Workplace Return
Real Estate Roundtable Chairman Emeritus (2015-2018) William C. Rudin (Co-Executive Chairman, Rudin) discussed commercial real estate conditions on CNBC’s Squawk Box this morning, emphasizing how public policies could help the industry meet significant challenges as it faces a wave of looming maturities in a high-interest rate environment. Federal Action Needed Rudin noted that unless a property owner has a top-tier asset with a stable long-term lease, liquidity is a major issue. “The federal government and the Federal Reserve have to keep giving the banks flexibility to be able to restructure some of the loans.” (Watch Rudin’s comments) Rudin added, “The federal government should support legislation to help incentivize owners to convert obsolete office buildings to residential—and the federal government should be getting their employees back into the office space.” (Entire Rudin interview) Rudin referenced recent testimony by Roundtable President and CEO Jeffrey DeBoer that addressed these issues during a House subcommitteeon the “Health of the Commercial Real Estate Markets and Removing Regulatory Hurdles to Ensure Continued Strength.” (Roundtable Weekly, May 3 and video of DeBoer’s testimony) Roundtable Recommendations The Roundtable’s testimony last week addressed a wide swath of concerns for owners, lenders, and local communities. DeBoer discussed specific issues with House policymakers, including market liquidity, the state of the office sector, remote work, affordable housing, and property conversions. (DeBoer’s oral statement and written testimony) DeBoer also commended efforts by House Oversight Committee Chairman James Comer (R-KY) to bring federal workers back as the lead sponsor of the Stopping Home Office Work’s Unproductive Problems (SHOW UP) Act (H.R. 139). (See GlobeSt, May 2 and the WorkPlace Return story below) A key Roundtable recommendation was the need to encourage banks and loan servicers to extend maturing loans and restructure maturing loans with new equity—effectively making “cash-in refinances”—by converting non-performing and criticized loans to new performing loans. (Watch select video clips of DeBoer’s comments) DeBoer also emphasized the need for lawmakers to stimulate the production of affordable housing by converting obsolete buildings into housing, increasing the Low Income Housing Tax Credit volume caps, incentivizing local zoning and permitting reforms, increasing efficiency in the Section 8 housing voucher program, and more. (Roundtable Weekly, May 3) Separately, The Roundtable and a broad real estate coalition submitted a set of specific policy recommendations last week to Congress detailing a host of pending legislative and regulatory actions that would help provide housing to more Americans. (Roundtable Weekly, May 3) The Roundtable’s all-member Annual Meeting on June 20-21 in Washington, DC will include speakers and policy advisor committee meetings focused on many of these topics. #  #  #
Workplace Return
May 10, 2024
Roundtable Weekly
Bipartisan Senate Bill Would Set Limit on Federal Employees Telework
Remote Work Workplace Return
This week, Sens. Mitt Romney (R-UT) and Joe Manchin (D-WV) introduced the Back to Work Act of 2024 (S. 4266), which would require federal employees to spend 60% of their work hours in the office, a slight increase from the 50% in-office policies at many agencies. The Roundtable supports various efforts by policymakers to enact workplace return policies for federal workers. (Romney-Manchin news release and The Register-Herald) Senate Bills The bipartisan Senate bill, in addition to the40% cap on remote work within a federal employee’s pay period, would also require agencies to report on the productivity and potential negative effects of their employees’ telework arrangements. (Government Executive, April 30) A separate bipartisan Senate bill introduced on April 3 would increase oversight of federal telework policies after a recent report showed government agency headquarters in Washington, DC are using an average of 12% of their office space. (Senate Committee news release and Public Buildings Reform Board report). The Telework Transparency Act (S. 4043) from Sens. Joni Ernst (R-IA) and Gary Peters (D-MI), chairman of the Homeland Security and Governmental Affairs Committee, would require agencies to gather information on how telework impacts agency performance and federal property decisions. (Government Executive, April 8 and Federal News Network, April 3) House Efforts House Oversight and Accountablity Committee Chairman James Comer (R-KY) A Biden administration official testified last week before the House Oversight and Accountability Committee that federal agency workers should spend at least half of their working hours at their office sites. (Committee hearing, April 30) “[For] office workers, the place where there is consistency across agencies, we’ve been clear that our expectation is for agencies to be achieving at least 50% [in-person work], while giving them flexibility for how best to deliver based on their diverse mission space. That’s consistent with where the private sector is, and we’ll continue to adjust as needed,” said Office of Management and Budget Deputy Director for Management Jason Miller. ( Government Executive, April 30 and Miller’s written testimony) Committee Chairman James Comer (R-KY) responded, “At the onset of the COVID pandemic, massive federal employee telework was a justifiable necessity, but that necessity ended a long time ago.” (Committee hearing, April 30) Rep. Comer is the lead sponsor in the House of the Stopping Home Office Work’s Unproductive Problems (SHOW UP) Act (H.R. 139), a bill that requires each executive agency to reinstate the pre-pandemic telework policies. The Roundtable View Roundtable President and CEO Jeffrey DeBoer, above, commended the efforts of Chairman Comer before a House subcommittee hearing last week, noting that the SHOW UP Act passed over a year ago and should be enacted into law. (Roundtable Weekly, Oct. 20 and Feb. 3, 2023) DeBoer emphasized during the April 30 hearing that a return to in-person work is critical for the health of our cities, local economies, tax bases, and small businesses. “While private sector office occupancy is slowly picking up, the federal office workforce is behaving as if the pandemic still exists. This is despite President Biden’s call for agencies to return to pre-pandemic workplace practices,” DeBoer testified. (Roundtable Weekly, May 3) The Real Estate Roundtable has also urged members of the Senate and President Biden to end the “active encouragement of remote working for federal employees” and for federal agencies to return to their pre-pandemic workplace practices. (RER letter to the Senate, April 12, 2023 and RER letter to President Biden, Dec. 12, 2022) The Roundtable will discuss the evolving remote work issue during its all-member June 20-21 Annual Meeting in Washington, DC. #  #  #
Beneficial Ownership
May 10, 2024
Roundtable Weekly
Roundtable and More Than 100 Business Organizations Support Legislation to Repeal the Corporate Transparency Act
Beneficial Ownership Beneficial Ownership amp the Corporate Transparency Act Capital and Credit Corporate Transparency Act CTA
The Real Estate Roundtable and more than 100 business organizations recently expressed strong support for bicameral legislation that would repeal the Corporate Transparency Act (CTA) and its onerous beneficial ownership burdens, which took effect on Jan. 1. The Roundtable has consistently opposed the CTA’s beneficial ownership rules. (Coalition letter, April 29) CTA Overreach The Repealing Big Brother Overreach Act, introduced on April 30 by Sen. Tommy Tuberville (R-AL) and Rep. Warren Davidson (R-OH), would provide relief for small business owners from the CTA’s burdensome reporting requirements and excessive penalties. (Rep. Davidson news release, April 30) Sen. Tuberville also authored an April 29 op-ed in Newsweek about the need to repeal the CTA. The coalition’s letter noted how the CTA was designed to help law enforcement prevent money laundering by requiring shell companies to report “beneficial owners information” (BOI) to the Department of the Treasury. The law defines a shell company as any legal entity with 20 or fewer employees or $5 million or less in revenues—nearly every small business in the United States. The broad concept of beneficial owner includes owners, senior management, members of the board, and any employee or outside consultant exerting significant control over the businesses’ operations. Penalties Under the CTA, covered entities must report and regularly update BOI to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) or face significant fines and jail time. Last month, the District Court for the Northern District of Alabama ruled the CTA as unconstitutional. However, the resulting injunction applies only to the plaintiffs in the case—members of the National Small Business Association. (Roundtable Weekly, March 8) A subsequent notice from FinCEN made clear that all other covered entities are still required to file their BOI reports by the end of the year. (FinCEN’s current requirements) Initial filings under the CTA began more than two months ago in accordance with the new law, yet fewer than two percent of covered entities have submitted their required information to FinCEN. One reason for this low compliance rate is that most business owners are ignorant of the new law The Roundtable also joined more than 120 other national business organizations in a March 22 letter that urged Senate Banking Committee leaders to support a one-year filing delay for the new CTA beneficial ownership regulation requirements. (Coalition letter, March 19) The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor developments related to beneficial ownership requirements and legal outcomes. #  #  #
Policy Landscape
May 3, 2024
Roundtable Weekly
Roundtable Testifies on Health of CRE Markets and Recommended Policies
Affordable Housing Capital and Credit Halting ProCyclical Policy Measures and Increases in Regulatory Capital Jeffrey DeBoer Liquidity Restoring Liquidity in CRE Markets and Protecting Capital Formation Statement Jeffrey DeBoer testimony
Click to watch a compilation of select testimony by Roundtable President and CEO Jeffrey DeBoer Roundtable President and CEO Jeffrey DeBoer testified this week before a House subcommittee on the “Health of the Commercial Real Estate Markets and Removing Regulatory Hurdles to Ensure Continued Strength.” (Videos of DeBoer’s testimony | Entire hearing | Select clips from the subcommittee’s wrap-up) CRE Issues The April 30 hearing before the House Oversight and Accountability Subcommittee on Health Care and Financial Services included The Roundtable’s views on market liquidity, the state of the office sector, remote work, affordable housing, and property conversions. (DeBoer’s oral statement and written testimony) DeBoer emphasized that all stakeholders in the regulatory and private sectors should work together to ensure real estate continues to be a leading driver of the economy—and a primary way cities grow, business needs are met, and housing challenges are solved. (Transcript of entire hearing) DeBoer also clarified, “The commercial real estate industry is not seeking a bailout of any sort.” (MarketWatch, April 30) Subcommittee members heard testimony on how liquidity in CRE markets, particularly office, is an overriding industry concern. As nearly half the value of the $4.7 trillion property debt market is scheduled to mature by 2027, base interest rates have risen nearly 500 basis points in 24 months while lenders are considering reductions in their CRE portfolios. (RER’s written testimony and Mortgage Bankers Association testimony) DeBoer urged policymakers and regulators to acknowledge that not all CRE is the same. “In the office market, there are notable differences. Some individual owners are facing considerable pressure, potentially leading to increases in mortgage defaults, foreclosures and large losses of equity. Many top-tier modern office buildings with strong ownership and workspace amenities are currently weathering the storm. There needs to be a better distinction and not a monolithic treatment of commercial real estate.” DeBoer added that pressures within certain segments of the office sector are creating a “slow-moving train wreck.” (Watch select video clips of DeBoer’s comments) Policy Solutions The Roundtable’s policy recommendations submitted to the subcommittee address a wide swath of concerns for owners, lenders, and local communities, including: Ensure federal employees return to the workplace. DeBoer testified, “The federal government should lead by example by highlighting the value of in-office work” as it is critical for the health of cities, local economies, tax bases, and small businesses. (GlobeSt, May 2)He also commended efforts by House Oversight Committee Chairman James Comer (R-KY) to bring federal workers back as the lead sponsor of the Stopping Home Office Work’s Unproductive Problems (SHOW UP) Act (H.R. 139). “This bill passed the House over a year ago and should be enacted into law,” Deboer said. (Roundtable Weekly, Oct. 20 and Feb. 3, 2023) Encourage banks and loan servicers to extend maturing loans and restructure maturing loans with new equity—effectively making “cash-in refinances”—by converting non-performing and criticized loans to new performing loans. Encourage foreign capital investment in U.S. real estate by amending or repealing the outdated Foreign Investment in Real Property Tax Act (FIRPTA). Reject pro-cyclical measures such as the Basel III Endgame and other regulatory measures that will restrict credit and capital formation. Stimulate the production of affordable housing. The Roundtable and a broad real estate coalition submitted a set of specific policy recommendations this week to Congress detailing a host of pending legislative and regulatory actions that would help provide housing to more Americans. DeBoer informed the subcommittee that these solutions include converting obsolete buildings into housing, increasing the Low Income Housing Tax Credit volume caps, incentivizing local zoning and permitting reforms, increasing efficiency in the Section 8 housing voucher program, and more. (see Affordable Housing story below) House Oversight Subcommittee Chairwoman Lisa McClain (R-MI), right, and Ranking Member Katie Porter (D-CA), center, with Jeffrey DeBoer He added, “Rent control and eviction moratoriums are on first blush appealing concepts, but they've proven time and again, that they're counterproductive to addressing the housing shortfall.” Congress should also enact a time-limited tax incentive to convert older, underutilized commercial buildings to housing that would help revitalize America’s cities, accelerate the economic recovery of office buildings, and create new supplies of housing in close proximity to jobs. Property Conversions Separately, The Roundtable provided a list of specific agency actions to accelerate property conversion projects in a recent letter to Jared Bernstein, Chair of the White House Council of Economic Advisers. (Roundtable Weekly, April 19) During this week's hearing, subcommittee witness Doug Turner, above, senior fellow for Housing at the Center for American Progress, endorsed The Roundtable’s April 15 recommendations on conversions. Turner stated in his written testimony and oral comments, “I want to compliment The Real Estate Roundtable for a second. They sent a letter to the Council of Economic Advisers in April and offered some very specific suggestions on how to improve the conversion process. Many of these are sensible. And they could help direct what is an evolving policy. We haven't seen an attempt to convert this much real estate in a short period of time.” (Video clip of Turner’s full comment, or click on photo above) The Roundtable’s all-member Annual Meeting on June 20-21 in Washington, DC will include speakers and policy advisor committee meetings focused on many of the topics discussed during this week’s House hearing.  #  #  #
Affordable Housing
May 3, 2024
Roundtable Weekly
Roundtable and Industry Coalition Urge Congress to Enact Affordable Housing Policies and Incentives
Affordable Housing Housing Low Income Housing Tax Credit LIHTC Opportunity Zones Yes In My Backyard YIMBY
This week, The Real Estate Roundtable and a broad real estate industry coalition encouraged lawmakers to pursue bipartisan solutions that would increase the supply of affordable and market-rate housing through specific policies and programs to help communities meet their housing challenges. (Coalition letter, April 29) Legislation and Programs The coalition letter to Congress and the Biden administration detailed policy solutions to help develop and preserve housing at all price points by enacting industry-supported bills in the House and Senate, encouraging incentive-based programs, streamlining regulatory burdens, and supporting public-private partnerships. The specific proposals detailed in the letter will work best when paired with state and local government policies to meet the demand for rental homes. Specific policies outlined in the letter would streamline and fast-track the entitlement and approval process; provide density bonuses and other incentives for developers to include workforce units in their properties; and enable “by-right” zoning and create more fully entitled parcels. Other programs and bills defer taxes and other fees for a set period of time; lower construction costs by contributing underutilized buildings and raw land; create incentives to encourage higher density development near job and transportation hubs; and expand and strengthen the Low-Income Housing Tax Credit (LIHTC) program. Legislation would also encourage Yes In My Backyard (YIMBY) policies to remove discriminatory land use policies and other barriers that depress housing production. Among the key bills strongly supported by the coalition are the Affordable Housing Credit Improvement Act (S.1557 & H.R.3238), Workforce Housing Tax Credit Act (S.3425 & H.R.6686), and Revitalizing Downtowns Act (S. 2511 & H.R.419).  The coalition expects the Opportunity Zones program to spur the production of new multifamily housing, but to maximize its effectiveness, the industry groups recommend Congress revitalize and enhance Opportunity Zones to incentivize rehabilitation of housing units. Biden Administration Proposals The coalition described the Biden Administration’s Housing Supply Action Plan as a thoughtful proposal that rightly acknowledges that there is no single solution to the housing shortage. The letter also expressed support for several proposals included in the President’s FY25 federal budget proposal, including proposals to expand and enhance the LIHTC, the Neighborhood Homes Credit, and increased funding for the HOME Investment Partnerships Program. However, the coalition also urged Congress to reject certain tax proposals included in the administration’s FY25 budget, such as increases in the capital gains rate. These policies would directly impact the operations of housing providers, as most are structured as “flow-through” entities where earnings are passed through to owners who pay taxes at the individual level. The tax increases under consideration would reduce real estate investment and inhibit the capital flows that are so critical to the development and preservation of critically needed housing.  It is unlikely that new housing or tax-related legislation will be enacted before the November presidential election. Proposals now under consideration may have better opportunities for advancement in a post-election lame-duck session or during a new Congress in 2025. #  #  #
Energy And Climate Policy
May 3, 2024
Roundtable Weekly
Biden Administration Determines Federally-Financed Housing Construction Must Comply with Costly "Model Energy Codes"
ASHRAE code building codes Energy and Climate Policy Energy Policy HUD Housing and Urban Development agency IECC code Zero Emissions Buildings ZEB
The Biden administration recently issued a “final determination” that all new single- and multifamily homes financed with federal mortgages must be built to stringent “model energy codes.” The Department of Housing and Urban Development (HUD) estimates this federal mandate on residential construction will add at least $7,229 to the cost of building a new single-family home, effectively establishing a disincentive to increase the supply of affordable housing—a federal policy strongly opposed by The Roundtable. (Bloomberg, April 25 and National Association of Home Builders (NAHB), April 26) Federal Compliance The Roundtable believes this new federal regulation will reduce the supply of housing, increase home prices and rents, and make it more difficult for buyers to assemble a down payment. The “final determination” from HUD and the Department of Agriculture (USDA) is, in effect, a new federal-level building energy code that could impact approximately 150,000 units per year. Although the energy code update technically takes effect May 28, the dates for “compliance” are May 2025 for multifamily, Nov. 2025 for single-family homes, and May 2026 for homes in “persistent poverty rural areas.” (NAHB, April 26) This action stands in stark contrast to a set of policy recommendations submitted this week by The Roundtable and a broad real estate coalition aimed at broadening housing supply and lowering costs. (Coalition letter to House policymakers, April 29 and Affordable Housing story, above) Additionally, Roundtable President and CEO Jeffrey DeBoer testified on April 30 before a House Oversight Subcommittee on the need to “create more effective incentives and programs to stimulate the production of affordable housing.” (see Policy Landscape story, above) Varying Energy Standards The HUD-USDA notice may also conflict directly with local energy codes in jurisdictions throughout the country. The federal action will require all HUD- and USDA-financed new single-family construction housing to be built to the 2021 International Energy Conservation Code (IECC). All HUD-financed multifamily housing must be built to 2021 IECC or ASHRAE 90.1-2019. NAHB cites studies that show building to the 2021 IECC can add up to $31,000 to the price of a new home and take up to 90 years for a home buyer to realize a payback on the added cost of the home. Zero Emissions Buildings (ZEB) As Bloomberg reported, the Biden administration also issued this latest update as part of a larger effort to modernize building codes to reach its climate goals. Earlier this year, the Biden administration issued a draft of a federal definition for a Zero Emissions Buildings (ZEB). (Roundtable Weekly, Jan. 5) RER and Nareit submitted comments on Feb. 2 to the U.S. Department of Energy (DOE) on the draft ZEB definition, which would impose no federal mandates. (Joint comments' cover letter and addendum | Roundtable ZEB Fact Sheet, Jan. 18 | Roundtable Weekly, Jan. 5) The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will discuss the repercussions of the HUD-USDA rule during its next meeting on June 21 in Washington, DC. #  #  #
Policy Landscape
April 26, 2024
Roundtable Weekly
Roundtable Congressional Testimony on April 30 Will Focus on Policy Actions to Strengthen CRE Markets
hearing Jeffrey DeBoer Roundtable testimony
Real Estate Roundtable President and CEO Jeffrey DeBoer will testify next week before the House Oversight Subcommittee on Health Care and Financial Services about the “Health of the Commercial Real Estate Markets and Removing Regulatory Hurdles to Ensure Continued Strength.” (Watch hearing here at 2pm EST on Tuesday, April 30 | Update: Written testimony here) CRE Market Conditions & Solutions Subcommittee Chairwoman Lisa McClain (R-MI), commented on April 23 that the hearing will explore solutions to strengthen businesses that continue to struggle from the impact of pandemic-related government policies. She stated, “These businesses – including medical centers, warehouses, and offices – are crucial to our local economies and communities.” (McClain news release) House Oversight Committee Chairman James Comer (R-KY)—the lead sponsor of the House-passed Stopping Home Office Work’s Unproductive Problems (SHOW UP) Act (H.R. 139)—said it is urgent that federal employees return to their offices. (Roundtable Weekly, Feb. 3, 2023 and Comer news release) DeBoer’s testimony will recommend a range of policy actions that lawmakers and regulators should enact to strengthen CRE markets and encourage overall economic growth. The testimony will be available via the RER website and posted on the subcommittee website. The other hearing witness will be Jeffrey Weidell (CEO, NorthMarq), chairman of the Mortgage Bankers Association's (MBA) Commercial Real Estate/Multifamily Finance Board of Governors. (MBA news release, Oct. 15, 2023) MBA released a report on April 23 that details recent levels of commercial real estate mortgage borrowing and lending. The 2023 Commercial Real Estate/Multifamily Finance Annual Origination Volume Summation estimates that $429 billion of CRE mortgage borrowing and lending transpired last year. That total represents a 47% decrease from $816 billion in 2022, and a 52% decrease from the record $891 billion in 2021. (Report order information, MBA) The Roundtable’s all-member June 20-21 Annual Meeting will include a Joint Research Committee and Real Estate Capital Policy Advisory Committee Meeting to drill down on specific CRE capital and credit market trends and issues. #  #  #
Tax Policy
April 26, 2024
Roundtable Weekly
Final Treasury Rules Expand Reach of FIRPTA Tax Regime
FIRPTA Jeffrey DeBoer LookThrough Rule FIRPTA Tax Policy Tax Policy Advisory Committee TPAC Treasury Department
The Treasury Department issued final regulations this week that redefine what constitutes a domestically controlled REIT exempt from tax under the Foreign Investment in Real Property Tax Act (FIRPTA). The regulations create a new look-through rule that extends the reach of the discriminatory FIRPTA regime to common investment structures. (Final Regulations | Tax Notes, April 25 and Bloomberg Law, April 24) New Look-Through Rule By looking through a domestic C corporation to its shareholders, the new FIRPTA rules run counter to general tax principles, past IRS guidance, and historic precedent.  Moreover, the final regulations do not provide relief to widely held U.S. real estate funds with dispersed foreign ownership, even if the foreign investors are far removed and separate from the management and control of the U.S. funds’ activities.  While the final rules increased the total percentage of foreign ownership of a C corp. necessary to trigger look-through treatment, the change offers little practical relief since participating U.S. investors typically will only invest in U.S. real estate through other channels (e.g., directly, through a partnership, or through a REIT). Transition relief in the final regulations may offer some respite to certain foreign investors, depending on their facts and circumstances. The new look-through rule does not apply to preexisting business arrangements—but only if the entity does not acquire a significant amount of new real estate interests or undergo a significant change in its ownership during the 10-year transition period. Roundtable Response Roundtable President and CEO Jeffrey DeBoer responded to the Treasury rules. “Foreign capital is badly needed to supplement domestically sourced capital in cities and downtowns that continue struggling to recover from the pandemic. The wide spread adoption of remote work, coupled with today’s high interest rates and decreased lending by banks is fueling a reinforcing cycle of declining investment, property values, and tax revenues that can only be countered through additional investment capital.” “Unfortunately, the final Treasury rules on FIRPTA and domestically controlled REITs raise new barriers to passive foreign investment in U.S. real estate, including affordable housing and the conversion of underutilized office buildings,” DeBoer said. The Real Estate Roundtable and some members of Congress had advocated for the withdrawal of the proposed regulations or significant changes. House Ways and Means Committee Members Darin LaHood (R-IL) and Carol Miller (R-WV) urged Treasury Secretary Janet Yellen to drop the FIRPTA proposal. (Letter to Yellen, July 28, 2023 and real estate industry coalition letter, March 1, 2023 | Roundtable Weekly: Jan. 6, March 4 and Aug. 4, 2023)  A Roundtable Tax Policy Advisory Committee (TPAC) working group is reviewing the most recent changes and considering potential policy and tax planning strategies going forward. The next TPAC meeting will be held on June 21 in conjunction with the all-member Roundtable Annual Meeting in Washington, DC. #  #  #
Energy and Tax Policy
April 26, 2024
Roundtable Weekly
IRS Regulations Clarify Rules for Transferring Energy Tax Credits
Energy Policy Energy Tax Credit Transfers Inflation Reduction Act Tax Policy
On Thursday, the IRS issued a package of final regulations on the transferability of tax credits for rooftop solar and other clean energy investments under the Inflation Reduction Act (IRA). (Final regulations and IRS news release, April 25) Transferability The final rules relate to the transferability of qualifying credits to third-party credit purchasers in the context of partnerships and pass-throughs, as well as potential credit recapture events and penalties for excessive credit transfers. (PoliticoPro, April 25 and Tax Notes, April 26) Treasury has also provided guidance on the implementation and application of the IRA’s prevailing wage and apprenticeship requirements. (Roundtable Fact Sheet | Roundtable comments to Treasury and Roundtable Weekly, July 28, 2023) The ability to transfer clean energy credits allows REITs to participate in the new IRA tax incentive regime. The final regulations address several concerns raised by The Roundtable in its July 2023 comment letter, particularly in the context of REIT investments. For example, the regulations clarify that as-yet-untransferred credits are disregarded for purposes of the REIT 75% asset test. Unfortunately, the final regulations did not reverse the Biden administration’s prior guidance that generally limits the ability of mixed real estate partnerships (taxable and tax-exempt partners) to maximize their credit benefits through a combination of credit transfers and direct payments.  Mixed partnerships can still claim the new tax credits, but may lose some of the financial value due to the specific tax attributes of the individual partners.  Treasury indicated additional guidance is likely to help taxpayers meet the cumbersome credit registration requirements and ensure taxpayers can qualify for the underlying incentives. The IRS also updated its FAQs on tax credit transfers on April 25.   The Roundtable's Energy Credit Transferability/Direct Pay Working Group is analyzing the regulations and assessing their impact on CRE. #  #  #
Financial Stability
April 26, 2024
Roundtable Weekly
Fed Report Cites Office Loans as Potential Economic Vulnerability
Capital and Credit Office Markets Remote Work Return to Office The Fed Wave of Maturing CRE Debt Workplace Return
Potential losses from certain office real estate loans are an economic vulnerability within the U.S. financial system—yet considered less of a threat than last year, according to the Federal Reserve Board’s semiannual Financial Stability Report. The Fed report noted that if inflation persists and higher interest rates linger during the ongoing, post-pandemic adjustment to remote work, a wave of maturing loans could pose CRE refinancing risks for regional U.S. banks. (Fed report | Bloomberg and Reuters, April 19) Office Sector Risk The financial stability report focused on four areas of risk, including asset valuations. CRE stress was the third most cited risk, moving down from second in last October’s survey. (KPMG, April 22, 2024 and Roundtable Weekly, Oct. 27, 2023) This month’s Fed report also acknowledged unique strains on CRE, especially in the office sector, “where vulnerabilities have mounted in the post-pandemic period.” The report added that continued economic pressures could reduce investor risk appetite and lead to a “more pronounced correction in commercial property prices.” This, in turn, could “reduce the willingness of financial intermediaries to supply credit to the economy” and further weigh on overall economic activity. Despite ongoing concerns about CRE, the Fed survey also found that the issuance of non-agency securities started to recover in the first three months of 2024. A separate report from DoubleLine shows signs of improvement for the commercial mortgage-backed securities market and other capital markets and notes that borrowers in some sectors, including office, are finding access to credit. (Bloomberg, April 24) The Roundtable’s all-member June 20-21 Annual Meeting will include a Joint Research Committee and Real Estate Capital Policy Advisory Committee Meeting to drill down into specific CRE capital and credit market trends and issues. #  #  #
Roundtable Meeting
April 19, 2024
Roundtable Weekly
House Democratic Leader and Other Policymakers Discuss Economic and CRE Market Issues
Roundtable Meeting
This week’s Real Estate Roundtable meeting focused on national policies impacting commercial real estate, with an emphasis on the economy, the need for increased federal support for property conversions, and capital and credit issues. Guests such as House Democratic Leader Hakeem Jeffries (D-NY) and other prominent policymakers also discussed the housing crisis, return-to-office issues, and the upcoming elections. (The Roundtable’ Spring 2024 Policy Priorities and Executive Summary) Speakers & Policy Issues Democratic Leader Hakeem Jeffries (D-NY), center, with Roundtable Chair John Fish (Chairman & CEO, SUFFOLK), left, and Roundtable President and CEO Jeffrey DeBoer, right, discussed policymaking in the House, the need to balance geopolitical urgencies with pressing domestic priorities, and finding bipartisan paths to solve the nation’s problems. House Financial Services Committee Member French Hill (R-AR), right, engaged in a discussion moderated by Michelle Herrick (Head of Real Estate Banking, J.P. Morgan), left, that addressed the wave of maturing CRE loans and the future of a regulatory proposal to hike bank capital requirements known as “Basel III.” (Roundtable Weekly, March 8) White House Council of Economic Advisers Chair Jared Bernstein, above, emphasized that affordable housing is a high-priority focus of the Biden administration—and welcomed a series of recommendations by The Roundtable on how the Biden administration could further support commercial-to-residential property conversions. He also discussed inflation’s role in credit and capital markets. (See story below) Enice Thomas (Deputy Comptroller for Credit Risk Policy, Office of the Comptroller of the Currency), above, focused on economic risk for regional banks that service specific property types and locations within office and multifamily sectors. Thomas clarified that the OCC encourages bankers to work with borrowers early if any stress indicator arises in their portfolio. He added federal banking regulators are monitoring office markets closely as a wave of loan maturities looms.  Kevin Palmer (Head of Multifamily, Freddie Mac)—above right, with Roundtable Board Member Matt Rocco (President, Colliers Mortgage), left—spoke with Roundtable members about Freddie's role in the industry. He noted that the CMBS market is “humming” and added that planning for a significant refinance opportunity is important, although exceeding Freddie's caps is an FHFA issue. Next on The Roundtable's meeting calendar is the all-member Annual Meeting on June 20-21 in Washington, DC, which will also feature meetings of RER’s Policy Advisory Committees. #  #  #
Property Conversions
April 19, 2024
Roundtable Weekly
Roundtable Recommends Agency Actions to Accelerate Property Conversions
Council of Economic Advisers CEA CRE Conversions Jared Bernstein President Biden Property Conversions
Jared Bernstein, chair of the White House Council of Economic Advisors, right, and Roundtable President and CEO Jeffrey DeBoer The Real Estate Roundtable urged the Biden administration to take a series of actions to support commercial-to-residential property conversions in an April 15 letter to Jared Bernstein, chair of the White House Council of Economic Advisors. (see Meeting story above) Improving Agency Resources The Roundtable’s letter aims to harness various federal loan programs and tax incentives to provide financial support for CRE conversions. A “Commercial to Residential Conversions” guidebook released by The White House last year catalogued various federal resources that could support adaptive re-use projects. (White House fact sheet and Roundtable Weekly, Oct. 27, 2023) These programs, enhanced by President Biden’s Bipartisan Infrastructure Law and Inflation Reduction Act, can ideally be tailored to accelerate projects that transform underutilized assets into housing.  RER’s letter states, “The Federal Guidebook’s featured programs have not lived up to their promise—yet.” The Roundtable’s suggestions to improve these U.S. agency resources support goals to increase housing supply, revitalize urban downtowns, and cut carbon emissions. Roundtable Recommendations The April 15 letter urges agency actions to streamline environmental reviews, hasten the federal loan underwriting process, and layer various agency loan platforms to help finance housing conversions. The letter recommends specific improvements to the Department of Transportation’s loan programs for transit-oriented development, which can also resonate for resources offered by HUD, DOE and EPA. The Roundtable letter also details changes to the tax code and exisiting incentives that can increase energy efficiency and renewable energy investments in commercial-to-residential building conversions. The Roundtable will continue to coordinate with White House staff and encourage modifications to federal regulations and laws that can improve CRE conversion projects. #  #  #
Tax Policy
April 19, 2024
Roundtable Weekly
Senate Democrats Reintroduce Legislation to Tax Carried Interest at Ordinary Income Rates
Carried Interest Tax Policy
A group of Senate Democrats introduced legislation this week that would tax carried interest capital gains income at ordinary income tax rates of up to 40.8%. (Bloomberg Tax April 16) Carried Interest Proposals The Carried Interest Fairness Act was introduced on April 15 by Senate Banking Committee Chairman Sherrod Brown (D-OH) along with Sens. Tammy Baldwin (D-WI), Joe Manchin (WV), and several other Democratic co-sponsors. According to Sen. Brown, the change would raise $6.5 billion in revenue over 10 years. The Senators introduced a similar bill in 2021. (Sen. Brown news release; Crain Currency, April 16) This week’s carried interest bill is part of a broader effort by congressional Democrats to position legislative changes in anticipation of the expiration of 2017 Tax Cuts and Jobs Act provisions at the end of 2025. The approaching expiration of those individual provisionsis likely to drive tax negotiations next year into what some policymakers have referred to as the “Super Bowl of Tax.” (Bloomberg Tax, Jan. 4 and Axios, Feb. 16) Democratic Proposals President Biden’s 2025 budget also proposes taxing all carried interest as ordinary income. Most of the Biden tax agenda is carried over from his prior budgets. (Roundtable Weekly, March 15 and March 8 | White House Fact Sheet, March 11) Senate Finance Chair Ron Wyden (D-OR) introduced legislation last year to treat the grant of carried interest as deemed compensation in the form of an interest-free loan from the limited partners to the general partner (GP). (Bloomberg Tax, Nov. 15, 2023) The Roundtable has consistently opposed these and similar proposals since 2007 for failing to recognize that carried interest is actually granted for the value a General Partner adds beyond routine services, such as business acumen, experience, and relationships.  Carried interest also reflects a recognition of the risks the GP takes with respect to the partnership’s liabilities—e.g., funding predevelopment costs, guaranteeing construction budgets, and potential litigation. Carried interest changes would also harm small businesses, stifle entrepreneurs and sweat equity, and threaten future improvements and infrastructure in neglected areas. They would increase the cost of building or improving infrastructure, workforce housing, and other socially desirable projects. The Tax Cuts and Jobs Act of 2017 created a three-year holding period requirement for carried interest to qualify for the reduced 20% long-term capital gains rate. #  #  #
Energy And Climate Policy
April 19, 2024
Roundtable Weekly
GOP Resolutions Aim to Overturn SEC’s Climate Rule
Climate Risk Reporting Energy and Climate Policy Reporting on Climate Risks SEC Securities and Exchange Commission
Dual Republican House and Senate resolutions introduced this week take aim at the recent climate risk disclosure rule from the U.S. Securities and Exchange Commission (SEC). As the 2024 election season gets underway, the resolutions delineate the parties’ different views on climate policy and their clashing perspectives on the scope of agencies’ regulatory authority. (Senate and House resolutions | PoliticoPro, April 17)   Political Differences The partisan effort to overturn the SEC’s rule will not garner significant support from Democrats and the resolution is unlikely to pass the Senate. However, the resolutions have rallied Republicans to advance their message that the Biden administration’s SEC frequently steps outside the bounds of its regulatory authority. (The Hill and Bloomberg Law, April 17) Banking Committee Ranking Member Tim Scott (R-SC) leads the effort in the Senate. “The SEC’s mission is to regulate our capital markets and ensure all Americans can safely share in their economic success — not to force a partisan climate agenda on American businesses,” he said in a statement. Scott’s resolution has the support of 33 Republicans. Sen. Joe Manchin (D-WV) is the lone Democrat co-sponsor. (PoliticoPro, April 17). Democratic support for the SEC’s rule includes Senate Banking Committee Chairman Sherrod Brown (D-OH). “I applaud the SEC for acting to address climate risks to protect workers, investors, and our economy,” Brown said after the SEC rule was released last March. (Senate Banking news release) On the House side, Financial Services Committee Republicans advanced a similar resolution along a party-line vote on April 17. Committee Member Bill Huizenga (R-MI) introduced the House resolution. (Climate Wire, April 18) Legal Pause in Effect Numerous lawsuits challenging the SEC’s rule are now consolidated in federal court. The SEC agreed to stay its climate rule while litigation is pending. (Climate Wire, April 5) House Financial Services Committee Chairman Patrick McHenry (R-SC) said “[t]he SEC’s stay of the rule is not enough” and that congressional action is warranted, crystallizing the political nature of the issue. If the SEC’s rule eventually takes effect, registered companies would have to include certain climate-related disclosures in annual Form 10-Ks. Notably, the final SEC rule did not include Scope 3 disclosures, which affirmed a position strongly advocated by The Roundtable. (Roundtable Fact Sheet, March 12 and Roundtable Weekly, March 8) #  #  #
Tax Policy
April 12, 2024
Roundtable Weekly
Broad Coalition Urges Congressional Tax Writers to Support Like-Kind Exchange Rules
LikeKind Exchanges LKEs Tax Policy
This week, The Real Estate Roundtable and 35 other national business organizations urged leaders of the Senate and House tax-writing committees to preserve long-standing tax rules governing like-kind exchanges (LKEs). The April 10 letter encouraged policymakers to reject proposals, such as those in President Biden's budget, to restrict the use of LKEs. (Coalition letter, April 10) Value of LKEs The letter, sent to the chairs and ranking members of the House Ways and Means and Senate Finance Committees, details the importance of LKEs to the health, recovery, and realignment of U.S. commercial real estate in the post-pandemic economy.   Exchanges have helped offset reduced transaction activity associated with high interest rates and other sources of economic uncertainty.  Without LKEs, many properties would languish—underutilized and underinvested—because of the tax burden that would apply to an outright sale.    The letter notes how LKEs increase economic mobility for cash-poor small business owners, farmers, and entrepreneurs—including minorities, women, and veterans—while contributing to environmental conservation efforts, housing affordability, and redevelopment in economically struggling cities and towns. Widespread Use Academic and other economic research has repeatedly demonstrated the positive economic contribution of LKE. Research by Professors David Ling (University of Florida) and Milena Petrova (Syracuse University) estimates that 10 to 20 percent of commercial real estate transactions involve a like-kind exchange.  A recent Marcus & Millichap analysis demonstrates the value of LKEs to the health and financing of the commercial real estate industry, particularly during market corrections and liquidity shortages. (Roundtable Weekly, Dec. 1, 2023) House Tax Hearings Separately, congressional hearings in the House this week considered tax provisions scheduled to expire at the end of 2025 that were enacted in the 2017 Tax Cuts and Jobs Act (TCJA). On April 10, a House Small Business Committee hearing focused on a Roundtable-supported provision within the TCJA that may be subject to reform in 2025—the 20 percent section 199A pass-through deduction. (Tax Notes, April 11 and Roundtable Weekly, May 19, 2023) During an April 11 House Ways and Means Committee hearing, Chairman Jason Smith (R-MO) stated, “With the expiration of the 199A small business deduction, we will see even more ‘closed for business’ signs up and down Main street when their federal tax rate jumps to over 40 percent.” Chairman Smith added that strong bipartisan support for key TCJA provisions exists in the House after passage earlier this year of the Tax Relief for American Families and Workers Act (H.R. 7024) by a vote of 357-70. (Roundtable Weekly, Feb. 2) The $79 billion tax package passed by the House includes Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC), but continues to face hurdles in the Senate. The Roundtable and 21 other industry organizations that comprise the Housing Affordability Coalition urged the Senate on Feb. 15 to pass the tax package.
Workplace Return
April 12, 2024
Roundtable Weekly
Senate Bill Calls for More Federal Telework Data as Study Shows DC Agencies Using 12 Percent of Office Space
Remote Work Telework Workplace Return
A bipartisan Senate bill introduced on April 3 would increase oversight of federal telework policies after a recent report showed government agency headquarters in Washington, DC are using an average of 12% of their office space. (Committee news release and Public Buildings Reform Board report) Congressional Push The Telework Transparency Act (S. 4043) from Sens. Joni Ernst (R-IA) and Gary Peters (D-MI), chairman of the Homeland Security and Governmental Affairs Committee, would require agencies to gather information on how telework impacts agency performance and federal property decisions. (Government Executive, April 8 and Federal News Network, April 3) Last month’s report from the Public Buildings Reform Board (PBRB) concludes that the “massive scale” of underutilized federal property creates an “outsized opportunity to save money and improve outcomes through property disposals and smarter real estate decisions.” (GlobeSt, April 9 and Bisnow, April 3) A Government Accountability Office (GAO) report last summer said a majority of government agencies were using 25% or less of the HQ capacity of 17 government agencies in 39 buildings encompassing more than 21M SF. (GlobeSt, April 9) Roundtable Efforts The Real Estate Roundtable wrote to members of the Senate about the need for the federal government to end its “active encouragement of remote working for federal employees” and for federal agencies to return to their pre-pandemic workplace practices. (RER letter to the Senate, April 12, 2023 and Commercial Observer, April 14, 2023) Roundtable President and CEO Jeffrey DeBoer, above, sent a similar request to President Biden, noting that federal telework policies were ignoring “the negative impacts of remote work on cities and communities, labor productivity, and U.S. economic competitiveness, as well as the quality of government services.” (RER letter to President Biden, Dec. 12, 2022) The economic impact of remote work in the public and private sectors will be discussed next week during The Roundtable’s Spring Meeting in Washington, DC. (Roundtable-level members only).   Policymaker guests will include House Minority Leader Hakeem Jeffries (D-NY), House Financial Services Committee Member Rep. French Hill (R-AR), and Jared Bernstein, chairman of the White House Council of Economic Advisers. #  #  #
Energy And Climate Policy
April 12, 2024
Roundtable Weekly
States May Tap Into Federal Funds to Help CRE Owners Comply With City Climate Laws
Building Performance Standards BPS Energy and Climate Policy Zero Emissions Buildings ZEB
The U.S. Department of Energy (DOE) announced a new financing program this week for states to access federal funds that could help real estate owners meet state, city, and county building performance standards (BPS). State Energy Financing Institutions An April 9 webinar hosted by the White House and DOE’s Loan Programs Office provided information on plans to make federal money available to state energy financing institutions (SEFIs). Federal funds deployed under the SEFI program will be channeled through state agencies, which in turn will provide loans and grants to qualified building owners. SEFIs that receive federal DOE “certification” will assist compliance with building emissions and energy efficiency limits set by a growing number of states and localities.  The LPO has released a SEFI Toolkit that describes the contours of the program. The Roundtable supports non-binding federal guidelines that bring national consistency to the conflicting patchwork of local BPS mandates.(DOE “blueprint” to decarbonize buildings; Roundtable Weekly, Sept. 15) Funding Criteria States will establish eligibility financing criteria under federal guidelines. They will likely prioritize disbursements to buildings in low-income areas and low-income housing. SEFI funds could be deployed to support commercial-to-residential property conversions in jurisdictions with BPS laws. To scale the program, DOE stated on the webinar that federal funds channeled through the states will be geared to support energy work on a portfolio of buildings rather than single projects. The agency also stated that DOE-sourced funds will aim to support assets that strive to meet the forthcoming national definition for a Zero Emissions Building (“ZEB”). (Roundtable Fact Sheet on ZEB, Jan. 18) The Roundtable’s Sustainability Policy Advisory Committee (SPAC) continues to work closely with the White House and DOE on climate initiatives impacting commercial real estate. #  #  #
In Memoriam
April 12, 2024
Roundtable Weekly
Ray Torto, Pioneer of Real Estate Research and Former Roundtable Research Committee Chairman
In Memoriam Ray Torto
Real estate industry research pioneer Ray Torto passed on April 7 after an accomplished professional career spanning roles in academia, government, and the private sector that included service as chairman of The Real Estate Roundtable’s Research Committee. (Torto obituary) Roundtable President and CEO Jeffrey DeBoer said, “Ray was well-known throughout the industry for decades as an astute leader who offered original insights about the important role of data in real estate markets and its application to national policy. The Roundtable will always remember his valuable guidance leading our Research Committee, and we will miss him.” In 1982, Ray partnered with Bill Wheaton of MIT to start Torto-Wheaton Research (TWR, now CBRE Econometric Advisors). TWR was among the first to bring data analysis and econometrics to the real estate industry, paving the way for increased institutional capital investment. See an appreciation by current Roundtable Research Committee Chair Spencer Levy, CBRE Global Client Strategist and Senior Economic Advisor. After Ray retired from CBRE, he returned to the classroom to become a lecturer at the Harvard Graduate School of Design. Reflecting on his career in an interview in 2014, Ray said that his favorite part of the real estate industry was the many people he worked with over the years. An additional interview from 2017 is available from The Counselors of Real Estate (CRE). #  #  #
Capital and Credit
April 5, 2024
Roundtable Weekly
Fed Cautions About Office Sector as Vacancies Climb and Loan Modifications Surge
Capital and Credit CRE Conversions Kathleen McCarthy Loan Modifications Office Markets Remote Work Return to Office The Fed
Recent reports show U.S. office vacancies climbed to nearly 20% during Q1 2024 after loan modifications more than doubled last year compared to 2023. Meanwhile, Federal Reserve Board Vice Chair for Supervision Michael Barr cautioned this week that federal regulators are “looking carefully at banks with heavy concentrations in office commercial real estate where there are significant, expected price declines.” (Moody’s Analytics, April 2 | CRED iQ, March 28 | (C-SPAN video, April 3) Office Sector Preliminary data from Moody’s Analytics reinforces the long-term, negative ramifications of hybrid work models. The Q1 2024 office vacancy rate set a new record at 19.8%, up from 19.6% in the prior quarter, and beating two historic peaks of 19.3% in 1986 and 1991. (Bloomberg, April 2 | Quartz, April 3 | CRE Daily, April 4) “The office stress isn’t quite done yet,” said Thomas LaSalvia, Moody’s head of commercial real estate economics and an author of the report. He added, “This is part of a longer-term evolution where we are seeing obsolete buildings in obsolete neighborhoods.” (Bloomberg, April 2) Brookfield’s Feb. 14 report, “The Misunderstood U.S. Office Market,” emphasizes that high vacancy rates are due to an excess of dated, functionally obsolete office buildings and an undersupply of offices that satisfy tenants’ changing needs. To counter economic pressure on some sectors of CRE, borrowers worked with lenders in 2023 to achieve a surge of loan extensions and other alterations to their loan covenants, according to CRED iQ’s “The Wall of Maturities Morphs into the Wave of Modifications.” A Roundtable-led coalition of 16 national real estate organizations urged the expansion of a 20 percent tax credit for qualified property conversion expenditures in an Oct. 12, 2022 letter to policymakers. The recommended enhancements included expanding the category of properties eligible for the credit to various types of commercial buildings such as shopping centers and hotels. (Roundtable Weekly, Nov. 11, 2022) Fed Oversight & CRE Sectors The Fed’s top market supervisor told the National Community Reinvestment Coalition on April 3 that CRE refinancing deals will “take some time to work through” as the Fed closely monitors office sector conditions. (C-Span | BGov, April 3 | Roundtable Weekly, March 8) Barr said, “This is the kind of thing where it is likely a slow-moving train as the financial sector and commercial real estate market move forward. Over the next two to three years, we are going to see how properties deal with refinancing in a higher interest rate environment. Occupancy rates have lowered because of work-from-home, so for some categories of office CRE they are more exposed to risk.” Kathleen McCarthy, global co-head of Blackstone Real Estate and chair-elect of The Real Estate Roundtable, commented to CNBC’s “Closing Bell Overtime” on April 3 that the office sector is different from other CRE investment areas that have performed well. “We do feel like there's a bottoming happening. There’s no V-shaped recovery … but we do see the cost of capital coming down, we’re seeing more liquidity in markets, and perhaps more importantly for the long term, we’re seeing a sharp decline in new supply," she said. Barron’s recognized McCarthy this week as one of the 100 Most Influential Woman in Finance. She commented on her upcoming role as Roundtable Chair: “To bring together my interest in policy and have a position to help our whole industry in Washington is really exciting.” (Barron’s, April 4) Commercial and multifamily market conditions will be discussed during RER’s April 15-16 Spring Meeting in Washington DC (Roundtable-level members only) with guests including White House Council of Economic Advisers Chairman Jared Bernstein,  House Democratic Leader Hakeem Jeffries (D-NY), and House Financial Services Member French Hill (R-AK).  #  #  #
Energy And Climate Policy
April 5, 2024
Roundtable Weekly
Biden Administration Outlines Options to Cut Building Emissions
Building Emissions Energy and Climate Policy EPAs ENERGY STAR Certification for Buildings
Reducing greenhouse gas (GHG) emissions from buildings is the focus of a “national strategy document” released this week by the Biden administration. The Department of Energy (DOE) “blueprint” has no regulatory impact on private sector assets, but it articulates aspirational goals to reduce building-related emissions 65% by 2035 and 90% by 2050. (Department of Energy (DOE) news release, April 2 and Politico EnergyWire, April 3) Four Pathways “Decarbonizing the U.S. Economy by 2050: A National Blueprint for the Buildings Sector” outlines four action categories: Increase Building Energy EfficiencyDOE acknowledges the value of federal tools that help building owners and jurisdictions benchmark, track, and improve efficiency (e.g., ENERGY STAR Portfolio Manager, Portfolio Manager Data Explorer)—all supported by The Real Estate Roundtable. (Roundtable Weekly, March 22) Reduce On-site EmissionsDOE notes that building electrification with heat pumps is a primary strategy for reducing on-site, fossil-fuel fired building emissions. DOE’s goal also includes reducing on-site emissions from fluorinated gas (including equipment refrigerant leakage), foam-blowing agents, and fire suppressants. (DOE document pages 26-28) Transform the “Grid Edge”Federal efforts could help buildings better connect with the power grid through storage methods, on-site renewable generation, and EV charging. (DOE document pages 28-30) Minimize Embodied Life Cycle EmissionsThe document lists strategies to reduce embodied emissions, including repurposing existing buildings, new construction methods, and reducing emissions intensity of construction materials. (DOE document pages 31-32) Noteworthy Recommendations The Biden administration framework acknowledges the need for CRE owners to access whole-building utility data. Metrics on building energy usage can be used to complete requirements for benchmarking and building performance disclosures. State regulators and local governments could support emission reduction goals by requiring utility companies to provide customers with access to tenant-meter data. (DOE document page 52) The blueprint recognizes the need for government-sponsored low-interest loans and tax credits to support clean power projects at buildings. (DOE document page 40 and Table 5, page 43) The blueprint also encourages federal-level resources to help city and state governments implement building performance standards (BPS). The Roundtable supports non-binding federal guidelines that bring order and national consistency to the conflicting patchwork of local BPS mandates. (DOE document pages 24-25 and 50-51 | Roundtable Weekly, Sept. 15) DOE plans to vet these recommendations for federal actions to reduce building emissions in the future with a wide range of stakeholders, track progress on their implementation, and amend the document as needed. #   #   # 
Capital and Credit
March 29, 2024
Roundtable Weekly
Fed Signals Significant Changes Ahead for Basel III Endgame Proposal
Basel III Capital and Credit Halting ProCyclical Policy Measures and Increases in Regulatory Capital The Fed
Federal Reserve Board Vice Chair for Supervision Michael Barr said in a recent speech that he is working with other regulators on “broad and material changes” to a sweeping banking proposal known as the “Basel III Endgame.” The proposal, opposed by The Roundtable, would hike capital requirements for banks with at least $100 billion in assets by approximately 19 percent. (Bloomberg, March 22, 2024 and Congressional Research Service, Nov. 30, 2023) Fed Statements Barr said during his March 22 University of Michigan remarks, “I am working very closely with (Fed) Chair (Jerome) Powell and other members of our Federal Reserve board to try to reach a broad consensus” on revisions to the proposal. After an enormous private sector response to the proposal, Powell testified during a March 7 Senate Banking Committee hearing, “We do hear the concerns and I do expect that there will be broad and material changes.” He also told a March 6 House Financial Services Committee hearing that a rewrite of the proposal is a “very plausible option.”  (Roundtable Weekly, March 8 and JD Supra, March 18) The Fed, Office of the Comptroller of the Currency (OCC), and Federal Deposit Insurance Corporation (FDIC) approved the 1,100-page proposed rulemaking last July by an unusually close 4-2 vote.  See Interagency Overview of the Notice of Proposed Rulemaking for Amendments to the Regulatory Capital Rule, July 27. (Roundtable Weekly, July 28, 2023) Powell voted for the original rulemaking proposal but noted a significant tone of caution. Statements by Fed Governors Michelle W. Bowman and Christopher J. Waller bolstered their opposition to the proposal. Basel III and CRE The Federal Reserve Building in Washington DC The Real Estate Roundtable urged federal regulators to withdraw the proposed rulemaking in a Jan. 12 letter that raised industry concerns about its negative impact. The comments outlined how the proposal would decrease real estate credit availability, increase commercial and multifamily properties' borrowing costs, and negatively impact the U.S. economy. Real Estate Roundtable President and CEO Jeffrey DeBoer also stated in a March 2023 comment letter to Barr and other key regulators, "At this critical time, it is important that the agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values.” The Mortgage Bankers Association (MBA) reported last month that 20 percent ($929 billion) of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024. That represents a 28 percent increase from the $729 billion that matured in 2023, according to MBA’s Commercial Real Estate Survey of Loan Maturity Volumes. The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will respond to any further changes to the Basel III proposal or other federal policies impacting capital and credit issues. #   #   #
Remote Work
March 29, 2024
Roundtable Weekly
Office Vacancy Rates Rise as Remote Work Arrangements Linger
CRE Conversions CRE Trends Remote Work Workplace ReEntry
Recent media reports show the U.S. commercial real estate office market continues to adapt to pressures from remote work, increased vacancy rates, and difficulties with price discovery. Building Value and Rent On March 26, the Wall Street Journal cited CoStar data showing that average U.S. asking office rents rose despite lower office demand and more empty space. David Bitner, the head of global research for Newmark told the Journal that if rents were cut to fill empty space, it “would significantly reduce the appraised values of their buildings. This in turn could lead to a covenant default on their loans or at minimum would make it harder for them to refinance.”  The Journal noted that the value of office buildings will reset after owners and lenders manage to restructure mortgages or sell distressed properties. Another major influence on office rental rates is the adoption of new hybrid workplace arrangements by businesses that require less space. (Article: “The Office Market Is in Turmoil. So Why Are Rents More Expensive?”) According to an MSCI index, the average value of office buildings in central business districts fell nearly 41% from July 2022 to the beginning of this year. (Wall Street Journal, March 26) The New York Times reported on March 14 about the options facing municipal officials as nearly $3 trillion of outstanding commercial real estate debt is coming due by 2028 while tax revenues from commercial properties drop. The consequences of remote work and a post-pandemic shift in the use of the built environment are leading city officials to assess lower tax revenue assessments and consider policy changes to incentivize commercial-to-residential conversions, cutbacks to local services, or raise taxes. Vacancy Rates Increase Commercial Edge’s National Office Report reported on March 22 that there was a noticeable adjustment in demand for office spaces in the first two months of this year, partly due to the ongoing shift towards remote and hybrid work models. These challenges were exacerbated by higher interest rates and ongoing economic uncertainties that put pressure on upcoming maturing loans. The report also shows that the national office vacancy rate is 17.9 percent, up 140 basis points year-over-year. It also stated that San Francisco’s vacancy rate climbed 480 basis points year-over-year to 23.4 percent. Government Remote Work Real Estate Roundtable President and CEO Jeffrey DeBoer spoke at the PREA conference last week. For public buildings, the influence of return-to-office trends on federal employees was reflected in the $1.2 trillion government funding package recently signed by President Biden. (Reuters, March 23 | Roundtable Weekly, March 22) The fiscal 2024 measure included six new requirements for agencies to report data about federal telework, return-to-office trends, and use of federal office space. (Federal News Network, March 21) Roundtable President and CEO Jeffrey DeBoer has consistently emphasized that federal policies promoting remote work undermine the health of cities, local tax bases, and small businesses. The Real Estate Roundtable has urged President Biden and national policymakers to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 2022; RER letter to Senate, April 2023) Mr DeBoer, speaking last week in Nashville at the Pension Real Estate Association (PREA) conference, noted that office vacancy rates are a bit misleading given the significant number of aging and obsolete building that do not functionally meet modern tenant demands. The Roundtable continues to urge incentives to encourage the conversion of these buildings to much-needed housing.   #   #   #
Policy Landscape
March 22, 2024
Roundtable Weekly
Policymakers Aim to Pass $1.2 Trillion Budget, Avoid Shutdown
Budget Congress
Lawmakers pushed a sprawling $1.2 trillion legislative package through Congress today that would avoid a government shutdown at midnight by funding more than half the government through Sept. 30. After the House passed the funding measure today, the Senate will likely approve the package and send it to President Biden for his signature. (Bloomberg and Forbes, March 22) Minibus Faces Fiscal Cliff If the Senate debate goes past the midnight “fiscal cliff,” the White House budget office can delay a shutdown order before Monday. Congress is aiming to pass the budget before departing Washington for their two-week Easter break. (Washington Post, March 20 and AP, March 22) The 1,012-page, six-bill “minibus” (H.R. 2882) includes funding for the IRS, Pentagon, Department of Homeland Security, and foreign aid. Five and a half months after FY2024 began on Oct. 1, 2023, the government has operated on temporary funding extensions. (PBS, March 22) The Congressional Budget Office listed a detailed breakdown of this week’s funding bundle on March 21. The other half of the government’s budget was enacted earlier this month under a two-tiered congressional agreement. (NBC News, March 9 and Roundtable Weekly, March 1) House Republicans Rep. Marjorie Taylor Greene (R-GA) filed a motion (H. Res. 2203) to remove House Speaker Mike Johnson (R-LA), above, from his leadership post in protest over the legislation. Since the motion was filed but not brought up for a vote, no immediate action will be taken. “This is more of a warning than a pink slip,” she said. (Wall Street Journal, March 22) Speaker Johnson’s House Republican caucus is about to drop to a one-vote majority, as retiring Rep. Mike Gallagher (R-WI) will exit the House as soon as next month. (Politico, March 22) #  #  #
Housing Policy
March 22, 2024
Roundtable Weekly
White House Recommends Policies to Increase Affordable Housing
Affordable Housing Housing Low Income Housing Tax Credit LIHTC President Biden Property Conversions
The White House Council of Economic Advisers released a report yesterday on policies to boost the supply of affordable rental and ownership units—proposals that could form the foundation of a housing push during a second Biden term. (2024 Economic Report of the President and New York Times, March 21) Zoning Reform, LIHTC The Annual Report of the Council of Economic Advisers provides that public funds could be used to encourage zoning reforms at the local level, reduce financing constraints, and support workforce training to support housing construction. (See Chapter 4, “Increasing the Supply of Affordable Housing: Economic Insights and Federal Policy Solutions”) The report explains that the federal government could reduce exclusionary zoning via grants and other spending, and directly subsidize affordable unit construction through programs like the low-income housing tax credit (LIHTC). The report adds, “Ultimately, meaningful change will require State and local governments to reevaluate the land-use regulations that reduce the housing supply.” Addressing Equity The Council’s report addresses how increasing the housing supply could increase access and equity for groups with few financial resources, increase overall wealth, and reduce disparities across groups. (Page 163 of the Annual Report of the Council of Economic Advisers) The report notes that exclusionary zoning policies, such as prohibitions on multifamily homes, are a “subset of local land-use regulations that can constrain the housing supply and thus decrease affordability.” This week, President Biden also spoke in Las Vegas about his plans to “establish an innovative program to help communities build and renovate housing or convert housing from empty office spaces into housing, empty hotels into housing.” (White House remarks, March 19 and Roundtable Weekly, March 15) #  #  #
Energy And Climate Policy
March 22, 2024
Roundtable Weekly
EPA Releases “NextGen” Criteria for Low-Carbon Buildings
Anthony Malkin Energy and Climate Policy EPA EPAs NextGen Building Label SPAC Sustainability Policy Advisory Committee
The Environmental Protection Agency (EPA) released long-awaited final criteria on Tuesday for ENERGY STAR’s voluntary “NextGen” certification to recognize buildings with reduced carbon footprints. Three Criteria NextGen builds upon ENERGY STAR’s popular “label” for highly efficient buildings. The new label has three criteria that must be independently verified to: Demonstrate Superior Energy PerformanceThe building must achieve an ENERGY STAR score of 75 or higher and meet all criteria associated with ENERGY STAR certification. Use Renewable EnergyAt least 30 percent of a building’s total energy used onsite must derive from renewable sources. Market-based measures like power purchase agreements (PPAs) and renewable energy certificates (RECs) can qualify as long as they meet certain quality control criteria (e.g., Green-e certified). Meet a Direct Emissions TargetThe building must meet a GHG intensity target for its property type, which adjusts to account for days of extra heating required in colder climates. CRE Recognition “NextGen highlights RER’s constructive engagement with decision makers who translate policy to action,” said Tony Malkin, above, (Chairman, President and Chief Executive Officer, Empire State Realty Trust, Inc.), chair of The Roundtable’s Sustainability Policy Advisory (SPAC) Committee. He added, “The NextGen voluntary standard provides specific metrics-based criteria to recognize the very best performers who increase efficiency, reduce emissions, and help expand the nation’s supply of renewable energy. This new framework allows our members to urge cities and states to look to these researched and logical federal standards rather than create their own unduly complicated and punitive mandates.” “Our work with EPA is not done,” Malkin continued. “Our next project with our EPA partners is to recognize inefficient buildings which will never reach ENERGY STAR levels and still take steps to reduce materially energy use in common areas and tenant spaces.”       Planning Considerations Companies can apply online to EPA for the NextGen label starting in Sept. 2024. EPA’s response to public comments noted the agency will explore “separate recognition” for inefficient buildings that significantly improve energy performance. In February, RER and Nareit urged that EPA’s NextGen label should be considered a critical intermediate step for an asset to show it is “on a path” to meet the Energy Department’s yet-to-be-released, voluntary Zero Emissions Building (ZEB) definition. Building owners may report to investors about assets certified with the NextGen label. Information on green-labeled buildings could be within the scope of disclosure requirements released earlier this month by the U.S. Securities and Exchange Commission (SEC) and passed last year in California. (See RER’s facts sheets on the SEC and California requirements). Court challenges are currently underway against both the SEC and California corporate climate reporting rules. The SEC’s rule has been stayed at least temporarily by a federal appeals court. (POLITICOPro, March 20 and Roundtable Weekly, March 15). EPA staff overseeing the NextGen program will participate on SPAC’s next Zoom meeting on April 11 to field questions on the new building label. #   #   #
Beneficial Ownership
March 22, 2024
Roundtable Weekly
Business Coalition Urges Congress to Delay Implementation of Beneficial Ownership Rules
Beneficial Ownership Beneficial Ownership amp the Corporate Transparency Act Capital and Credit
The Real Estate Roundtable joined more than 120 other national business organizations in a letter this week that urged Senate Banking Committee leaders to support a one-year filing delay for new beneficial ownership regulation requirements, which took effect Jan. 1 under the Corporate Transparency Act (CTA). (Coalition letter, March 19) CTA Delay Bills The CTA impacts more than 32 million existing entities and an additional 5 million newly created entities every year. These companies and other legal entities face increased paperwork, privacy risks, and potentially devastating fines and prison terms. (New York Times, March 4) The coalition’s March 19 letter expressed strong support for passage of the Protect Small Business and Prevent Illicit Financial Activity Act (S. 3625), introduced by Banking Committee Ranking Member Tim Scott (R-SC), which would extend the deadline for companies to report beneficial ownership information to the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). [FinCEN’s current requirements] Companion legislation in the House (H.R. 5119), introduced by Reps. Zach Nunn (R-IA) and Joyce Beatty (D-OH), passed by a vote of 420-1 on December 12, 2023. Initial filings under the CTA began more than two months ago in accordance with the new law, yet fewer than 2 percent of covered entities have submitted their required information to FinCEN. One reason for this low compliance rate is that most business owners are ignorant of the new law. A one-year delay would provide the business community and FinCEN additional time to educate millions of small business owners about the new reporting requirements and its onerous penalties. Legal Challenge The U.S. District Court for the Northern District of Alabama This week’s coalition letter also explains that a one-year delay would accommodate the time it will take for a March 1 District court decision, which ruled the CTA regulations as unconstitutional, to work its way through Appellate and Supreme Courts. (Roundtable Weekly, March 8) The ruling earlier this month from the District Court for the Northern District of Alabama was narrow, applying only to National Small Business Association (NSBA) member plaintiffs named in the case. As a result, non-NSBA firms should continue to comply with the CTA pending further developments. (FinCEN’s current requirements)  The March 19 letter to the Senate Banking Committee states, “It is obvious more time is needed. Congress did not enact the CTA in order to turn millions of law-abiding small business owners into felons.” The Roundtable has consistently opposed the beneficial ownership rules. We continue to work with policymakers to identify a balanced position that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry. (Coalition letter, Nov. 2023) The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor legislative and legal developments as they impact beneficial ownership requirements. #  #  #
Policy Landscape
March 15, 2024
Roundtable Weekly
President Biden’s FY2025 Budget Calls for $4.9 Trillion in Tax Increases
Budget Capital Gains Congress President Biden Tax Policy
The Biden administration this week released its $7.3 trillion FY2025 budget request, which includes $4.9 trillion in tax increases and several tax proposals impacting capital gains. The Treasury Department also released its "Green Book," which provides detailed descriptions of the budget’s tax proposals and associated revenue estimates. (White House budget and Treasury news release, March 11) Capital Gains Focus The White House’s annual budget represents the economic policy agenda of the Biden administration. While it is a wish list with no immediate impact, it sets a marker for upcoming debates on spending and fiscal priorities in Congress and throughout the upcoming election. This week’s budget document includes many of the same tax proposals in President Biden’s previous budgets and policies outlined during his State of the Union address last week. (Roundtable Weekly, March 8 and White House Fact Sheet on the Budget, March 11) The FY2025 Green Book repeats the administration’s proposal to tax capital gains at ordinary income rates—nearly doubling the capital gains rate from 20% to 39.6%.  The budget would also increase the net investment income tax from 3.8% to 5% and extend the tax to all pass-through business income, effectively ending the exception for real estate professionals active in the business. As a result, the top combined tax rate on real estate capital gains and rental income would rise to 44.6%. Other tax proposals in the budget would create a 25% minimum tax on the unrealized gains and income of individuals with more than $100 million in wealth, recapture depreciation deductions at ordinary income rates when real estate is sold, and raise the top personal income tax rate from 37% to 39.6% for those making more than $400,000. The president also proposes to raise the corporate tax rate from 21% to 28%. (The Hill, March 13) Biden’s 2025 budget would largely eliminate the deferral of capital gain through like-kind exchanges (section 1031) and tax all carried interest as ordinary income. (White House Fact Sheet, March 11) Tax Debates Begin Treasury Secretary Janet Yellen will testify on the administration’s budget and tax proposals before the Senate Finance Committee March 21 and during an upcoming House Ways and Means Committee hearing. The Green Book will serve as a reference for congressional Democrats who develop large-scale tax legislation for the next Congress in anticipation of the expiration of 2017 Tax Cuts and Jobs Act provisions at the end of 2025. As the FY2025 budget proposals spark a wide-ranging tax debate, a current $79 billion tax package—passed by the House and supported by The Roundtable—is pending in the Senate. (CQ News | Politico Pro | Tax Notes, March 15). Additional proposals in the budget impact housing policy—see story below. Joint Employer Rule Struck Separately, a federal court on March 8 blocked the National Labor Relations Board’s (NLRB) final joint-employment standard rule. The decision from the U.S. District Court for the Eastern District of Texas addressed whether the expansive definition has the potential to expose broad swaths of employers to liability for labor law violations committed by contractors or franchisees. The court vacated the NLRB rule, stating the joint-employment standard interpretation is too broad. (Politico Weekly Shift, March 11, 2024 and Roundtable Weekly, Jan. 17, 2020) As an appeal from NLRB is expected, employers should continue to comply with the current joint-employer rule adopted in 2020. (JD Supra, March 14) #  #  #
Housing Policy
March 15, 2024
Roundtable Weekly
White House Focuses on Affordable Housing Policy Proposals
Affordable Housing Housing Low Income Housing Tax Credit LIHTC President Biden
This week President Biden and his top economic advisor previewed a new Housing Innovation Fund and forthcoming proposals to encourage additional housing development. The White House’s focus on affordable housing confirmed it will be a top administration priority as the presidential election season picks up momentum. (Politico, March 14) Administration’s Housing Remarks Following his March 6 State of the Union address, which addressed new tax incentives for homebuyers and an expansion of the Low-Income Housing Tax Credit (LIHTC), President Biden spoke this week about other aspects of his housing plan. (Roundtable Weekly, March 8 | White House Fact Sheets: Budget, March 11 and Housing, March 7) Biden stated during comments at the National League of Cities, “The federal budget that I’m releasing today has a plan for 2 million more affordable homes, including housing — a housing innovation fund to help communities like yours build housing, renovate housing, and convert empty office space and hotels into housing. The bottom line is we have to build, build, build. That’s how we bring housing costs down for good.” (White House transcript and C-Span video, March 11) New Initiatives White House National Economic Advisor Lael Brainard, above, also addressed the president’s housing proposals this week. “While tax credits are a proven way to boost supply, it is also vital to support the efforts of governors, county executives, and mayors who are pioneering new approaches that can be scaled. That’s why the president is proposing a new $20 billion Innovation Fund for Housing Expansion to help communities expand their housing supply,” Brainard remarked. (White House transcript, March 12) Brainard also previewed forthcoming administration housing policies. “In the months ahead, we will take further action– from supporting communities in identifying and removing barriers to housing production to promoting the use of federal resources for conversions from office to residential,” Brainard said. (Urban Institute video of speech and interview, March 12) She confirmed that “the centerpiece of the president’s Plan is an expansion of the Low Income Housing Tax Credit (LIHTC) that would produce or preserve 1.2 million affordable units over the next decade.” (HousingWire, March 12) During a Senate Banking hearing on March 12 on Housing Affordability, Availability, and Other Community Needs, bipartisan support was also expressed for expanding the LIHTC—a policy strongly supported by The Roundtable. (Roundtable Weekly, March 1 and Feb. 16) #   #   #
Office Markets
March 15, 2024
Roundtable Weekly
Industry Leaders Discuss Office Market Pressures, Challenges, Opportunities
CRE Conversions Office Markets Property Conversions
The ramifications of declining values for certain office properties were the focus of several national media interviews this week with industry leaders. The pressures, challenges, and opportunities of the current office market are the consequence of remote work and a post-pandemic shift in the use of the built environment—realities that are leading city officials to assess lower tax revenue assessments and consider policy changes to incentivize commercial-to-residential conversions, cutbacks to local services, or raising taxes. (New York Times, March 14) Office Conversions The New York Times reported this week on the options facing municipal officials as nearly $3 trillion of outstanding commercial real estate debt is coming due by 2028 while tax revenue from commercial properties drops. Refinancing certain office assets at reduced values remains difficult during a period of high interest rates and heightened regulatory concern about regional banks' office loan concentrations. (Trepp, Dec. 21, 2023 and Roundtable Weekly, March 8) Roundtable Chairman Emeritus Bill Rudin, above, (Co-Chairman and CEO, Rudin Management Co.) discussed positive options for office property conversions today on CNBC’s Money Movers. Rudin offered examples in New York City of successful office reuse. He also emphasized how other cities need to convert obsolete office buildings to residential use by changing multiple dwelling laws, zoning statutes, and a providing a robust tax abatement to incentivize capital into the marketplace for conversions.   “It’s a public-private partnership. The capital will come to those projects with the right structure that start creating housing on all levels: affordable, workforce, market rate,” Rudin said. Evolving Opportunities Roundtable Member Hessam Nadji (President and CEO, Marcus & Millichap) spoke with CNBC’s Worldwide Exchange today about the bifurcated office market. He added that investors are exploring opportunities in shopping centers and high-quality offices in suburban markets. “(We are) hearing from various institutional investors that it’s the time to buy. Prices have adjusted. There’s record capital on the sidelines. And when you combine those two with confidence that the economy is going to hold up pretty well, you’re going to see capital come back,” Nadji said. Blackstone President and Chief Operating Officer Jon Gray discussed investor opportunities in commercial real estate yesterday with Bloomberg Television. “As investors, sometimes, one of the risks is that you miss it by being overly cautious and I think now is probably a good time before rates come down. There are definitely assets that were financed in a different era, particularly in commercial real estate because there has been a more profound impact in the office sector—and that will create opportunities,” Gray said. On the public buildings front, the Biden administration’s 2025 budget plan proposes $425 million for the General Services Administration to reduce the federal footprint and long-term costs through a new “optimization program.” (Federal News Network, March 11) #  #  #
Energy And Climate Policy
March 15, 2024
Roundtable Weekly
Lawsuits Mount Against SEC Climate Rules
Climate Policy Climate Risk Reporting Energy and Climate Policy Reporting on Climate Risks Scope 3 reporting Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) headquarters in Washington, DC. Almost two dozen Republican-led states have sued the U.S. Securities and Exchange Commission (SEC) over its climate corporate disclosure rules released last week. (Bloomberg Law, March 12 – paywall | Roundtable Weekly, March 8) Litigation Gauntlet GOP attorneys general in 22 states allege the SEC acted beyond its authority by requiring companies to report certain GHG emissions and costs related to extreme weather. The U.S. Chamber of Commerce joined the “legal salvo” against the SEC. (POLITICO, March 15). An SEC spokesperson stated the agency will “vigorously defend” petitions filed in the federal appeals courts for the Fifth, Eighth, and Eleventh Circuits. (Bloomberg Law, March 12) These suits will likely rely on the “major questions” doctrine, raised in a 2022 U.S. Supreme Court decision that curtailed EPA’s authority to fight climate change. The doctrine provides that a federal agency must have “clear” authority from Congress to regulate issues of “vast economic and political significance.” (E&E News ClimateWire, March 11) Meanwhile, environmental groups filed their own counter-suit in the D.C. Circuit. They claim that the SEC’s rules are too “water[ed] down” and fail to provide investors with “material” information on a company’s financial exposure to climate risks. (Newsweek, March 14). It will take months for the SEC to run this court gauntlet. The November elections could shape the legal outcome before the suits are resolved, depending on which party controls Congress or the White House. RER “Fact Sheet” Assuming the SEC’s rules are not delayed, the largest public companies must comply with climate-related disclosures in Form 10-Ks filed during fiscal year 2025. (SEC fact sheet, March 6) The Real Estate Roundtable has issued its own fact sheet summarizing “What CRE Should Know” about the SEC’s final climate disclosure rules. (RER Fact Sheet, updated March 12). The Roundtable’s Sustainability Policy Advisory Committee (SPAC) continues to study the new SEC regulations and plans to hold educational sessions at its June 21 meeting in Washington as part of RER’s annual meeting. #  #  #
Policy Landscape
March 8, 2024
Roundtable Weekly
President Biden Proposes New Housing Incentives, Increased Taxes on Wealthy Individuals and Public Corporations
Affordable Housing Low Income Housing Tax Credit LIHTC President Biden Tax Policy TCJA
President Joe Biden’s State of the Union address last night included proposals to levy a 25 percent minimum tax on wealthy individuals, increase the corporate tax rate from 21 to 28 percent, and raise the alternative minimum tax on large corporations from 15 to 21 percent. He also called on Congress to pass legislation to support the construction or rehabilitation of more than 2 million homes and rolled out new tax incentives for homebuyers. (Biden’s Remarks | White House Fact Sheets on Taxes and Housing, March 7) Proposed Tax Increases Biden proposed to levy a 25 percent minimum tax on those with wealth of more than $100 million. He committed to not raising taxes on those making $400,000 or less while heavily criticizing the 2017 Tax Cuts and Jobs Act (TCJA) as a $2 trillion giveaway to high-income households and corporations. (Tax Policy Center | Forbes, March 8) Most of the Biden tax agenda is carried over from his prior budgets and includes provisions that he was unable to pass when Democrats controlled both chambers of Congress. While not detailed in his speech, the White House’s upcoming 2025 budget could include past proposals to raise taxes on real estate like-kind exchanges and carried interest income. (Roundtable Weekly, March 10, 2023) Many provisions from the 2017 tax bill will expire at the end of 2025, including the 20 percent deduction for pass-through business income, the cap on the deductibility of state and local taxes, and the reduction in the top individual tax rate from 39.6 to 37 percent. The approaching expiration of the individual provisions creates a tax “cliff” that is likely to drive tax negotiations next year. Housing Plan Real estate coalition response to President Biden's SOTU housing proposals. The White House’s Fact Sheet on housing describes the administration’s plans to establish new tax credits for first-time homebuyers and individuals who sell their starter homes. The tax credit for home sellers seeks to address the “lock-in” effect associated with current high interest rates.The president would also increase spending on affordable housing by Federal Home Loan Banks. (PoliticoPro and White House Fact Sheet on Housing, March 7) The White House Fact Sheet also includes an expansion of the low-income housing tax credit (LIHTC) to support an additional 1.2 million affordable rental units and a new Neighborhood Homes Tax Credit to encourage the construction or preservation of over 400,000 affordable, owner-occupied homes. Bipartisan legislation to expand LIHTC passed the House in January and is pending in the Senate. The National Multifamily Housing Council (NMHC) and nine industry groups responded to the negative aspects of Biden’s housing plan. A coalition letter explained how proposals to limit fee for service arrangements would hurt renters by undermining the administration’s objectives of lowering housing costs, driving new housing development, and creating more affordable rental housing. President Biden has also supported Department of Justice and Federal Trade Commission investigations into rental rate fixing—investigations that many in the industry believe are highly questionable. (NMHC statement and real estate coalition letter, March 7) Funding Watch After the House passed a spending package this week to fund several federal agencies through September, the Senate has until midnight tonight to pass the bill and avoid a partial government shutdown. Approval from all 100 senators is necessary to fast track the process. The consideration of multiple amendments could delay a final vote until Saturday, necessitating a temporary funding extension to avoid disruption and get the final bill to President Biden for his signature. (The Hill, March 8) The next government funding deadline is March 22, which requires a new spending package to fund the Pentagon, Health and Human Services, Labor, and other agencies. Policymakers agreed on this two-tiered stopgap funding plan (March 8 and 22) to buy time to negotiate a full-year appropriations bill. (Roundtable Weekly, March 1) #  #  #
Capital and Credit
March 8, 2024
Roundtable Weekly
Fed Chairman Testifies on Regional Bank Loan Concentrations in CRE, Basel III Proposal Changes
Basel III Capital and Credit CRE Debra Cafaro Ventas Federal Reserve Restoring Liquidity in CRE Markets and Protecting Capital Formation The Fed
Fed Chair Jerome Powell addressed CRE concerns in an exchange with Sen. Catherine Cortez Masto (D-NV) Federal Reserve Chair Jerome Powell testified before congressional committees this week about the risks posed by commercial real estate loans to regional banks—and that he expects “broad and material changes” to a regulatory proposal to hike bank capital requirements known as “Basel III.” (The Hill, March 7 and Reuters, March 6) CRE Concerns & Banking The Senate and House hearings focused on the Fed’s March 1 Monetary Policy Report to Congress. The publication stated, “Credit quality at banks remained strong, although the quality of CRE loans backed by office, retail, and multifamily buildings continued its decline, a result of the lower demand for downtown real estate prompted by the shift toward telework.” The report also noted, “Low levels of transactions in the office sector likely indicated that prices had not yet fully reflected the sector’s weaker fundamentals.” During a March 7 Senate Banking Committee hearing, Fed Chair Powell responded to questions from Sen. Catherine Cortez Masto (D-NV) that he expects some smaller banks with high commercial real estate office concentrations will fail, but that risks posed by these loans are “manageable.” (Watch a video clip of the exchange, above) Similar concerns were raised by policymakers with Powell during a March 6 House Financial Services Committee hearing. The Fed chair addressed why he expects manageable bank losses and added, “We've had a secular change in the economy, which has left office demand significantly lower, at least temporarily, and perhaps for a long time. The same is true in some downtown retail (properties) associated with office workers. So it's a shock to the system.” Basel III Changes The committees also heard Powell state that the “Basel III” regulatory proposal, which would significantly increase capital requirements for banks with at least $100 billion in assets, is likely to be overhauled after an enormous private sector response. He commented to the Senate panel, “We do hear the concerns and I do expect that there will be broad and material changes to the proposal.” He told House lawmakers that a rewrite of the proposal is a “very plausible option.” (Fortune and GlobeSt, March 7 | Bloomberg and PolitcoPro, March 6) The Real Estate Roundtable raised industry concerns about the negative impact of the Basel III proposal in a Jan. 12 letter to the Fed and other agencies. The comments outlined how the proposal would decrease real estate credit availability, increase borrowing costs for commercial and multifamily real estate properties, and negatively impact the U.S. economy—and urged federal regulators to withdraw their proposed rulemaking. The New York Times DealBook reported this week that Basel III could crimp lending as some banks struggle with office portfolios and a looming “maturity wall” of $1.5 trillion in CRE loans come due over the next two years. (New York Times, Feb. 7) Industry Views On March 6, Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told CNBC’s Squawkbox that high interest rates, price discovery, and the amount of maturing CRE loans have resulted in a “slow-moving train wreck” for regional banks. Rechler, a member of the New York Fed’s Board of Directors, said, “There’s a balance. The longer rates stay higher, there’s more distress. For the industry, there’s enough imbalance right now that some level of rates moderating will help ease this transition.  Capital structures are upside down. They’re going to need to be re-equitized, there’s going to be write-offs. So if you can bring down (interest rates), it can create some transaction activity.” (Squawkbox, March 6) Squawkbox also featured Roundtable Member Marty Burger (Infinity Global Real Estate Partners CEO and former Silverstein Properties CEO) on Feb. 28 to discuss office-to-residential conversion opportunities in the current CRE environment. (CNBC, Feb. 28) Today, RER’s Immediate Past Chair Debra Cafaro (Chairman and Chief Executive Officer, Ventas, Inc.) discussed the CRE market with a focus on the senior housing sector on Bloomberg Markets. “For the commercial real estate sector writ large, those tightening financial conditions are having an impact, particularly in sectors like office, where you have the demand fall off. There will be an impact on the smaller lenders. It is something the system will have to absorb over time with $1 trillion of real estate loans coming due in 2024. It is having an effect. The best elixir for that might be lower rates,” Cafaro said. #  #  #
Energy And Climate Policy
March 8, 2024
Roundtable Weekly
SEC Releases Climate Disclosure Rules
climate Climate Risk Reporting Energy and Climate Policy Reporting on Climate Risks Scope 3 reporting SEC Securities and Exchange Commission
On March 6, the U.S. Securities and Exchange Commission (SEC) released long-awaited final “Climate Disclosure Rules” that establish federal regulations for registered companies to disclose climate-related financial risks and opportunities. The Real Estate Roundtable has prepared a fact sheet summarizing “What CRE Should Know” about the new SEC rules. Overview of the SEC Rules The rules require certain registrants to report “material” financial impacts to address storms, wildfires, sea level rise, and other events attributable to climate change (SEC news release, March 6) Certain climate-related expenses and costs must be quantified and disclosed in audited financial statements filed annually as part of Form 10-K. The rules also expand disclosures in narrative “items” included in a 10-K, such as descriptions of “physical” and “transition” risks from extreme weather and related events. Required disclosures include third-party assured calculations of Scope 1 “direct” emissions and Scope 2 emissions attributable to the purchase of electricity, steam, and gas to power buildings. The SEC’s final rules impose no requirements to report Scope 3 emissions from sources in a company’s “value chain” – following the position advocated by the Roundtable in 2022 comments. (Roundtable Weekly, June 10, 2022) “The SEC’s decision to drop proposed Scope 3 reporting was the right move,” said Roundtable President and CEO, Jeff DeBoer. “It would have imposed onerous financial and paperwork burdens for commercial real estate owners and failed to produce reliable and useful emission information for investors.” The Climate Disclosure Rules phase-in and ramp-up over time. The largest companies (in terms of the amount of shares held by public investors) must start complying in 2025. (RER Fact Sheet) Impacts on CRE  The Roundtable's Fact Sheet on the SEC's Climate Disclosure Rules CRE registrants should become familiar with the new rules if they voluntarily set corporate “targets” to reduce emissions in their buildings or portfolios, or own assets located in cities or states with building performance mandates. Companies that purchase renewable energy certificates (RECs) or carbon offsets may also be subject to SEC disclosures. CRE owners and financial firms with “lifecycle” cap ex investment plans for building electrification may also be subject to new reporting. The SEC’s rules do not preempt similar state requirements. For example, companies regulated by California’s climate disclosure laws passed in 2022 must satisfy those rules in addition to SEC rules. (Roundtable summary of the California legislation and Roundtable Weekly, Sept. 22) The courts may ultimately decide the legality of the SEC’s actions. Institutional investors might move the market toward the SEC’s rules even if they are stalled or struck in court. The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will continue to assess the implications of the SEC’s rules and convene our members to develop industry standards and practices for compliance. #  #  #
Beneficial Ownership
March 8, 2024
Roundtable Weekly
Treasury Collection of Beneficial Ownership Information is Ruled Unconstitutional by Federal District Court Judge
Beneficial Ownership Beneficial Ownership amp the Corporate Transparency Act Capital and Credit Corporate Transparency Act CTA FinCEN
The U.S. District Court for the Northern District of Alabama Beneficial ownership regulations that took effect Jan. 1 under the Corporate Transparency Act (CTA) were ruled unconstitutional on March 1 by a federal District Court judge, who sided with claims by the National Small Business Association against the U.S. Treasury Department. The Roundtable has strongly supported NSBA’s legal challenge. (NSBA v. Janet Yellen ruling and NSBA’s website on the CTA | Industry coalition support of NSBA law suit, Dec. 7, 2022) Impact of Ruling Alabama Judge Liles Burke’s ruling applies only to the NSBA and its members, although the court’s decision likely paves the way for further challenges to the CTA. FinCEN issued a statement on March 4 that it will “comply with the court’s order for as long as it remains in effect” and will not enforce the CTA against the named plaintiffs in the case. What goes unsaid is that FinCEN intends to continue enforcement of the CTA against non-parties while the case works its way through the federal court system. As a result, firms should continue to comply with the CTA absent further developments. (See FinCEN’s current requirements)  NSBA President and CEO Todd McCracken on March 5 stated, “FinCEN should immediately reverse course and suspend enforcement of the CTA for all until these issues are finally resolved.” Appeals of the NASB ruling could take months or years. (BGov, March 5)  CTA’s Onerous Requirements The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about “beneficial owners” who own at least 25% of an entity or indirectly exercise “substantial control” over it. (Roundtable Weekly, Sept. 15, 2023) The CTA authorized the Treasury's Financial Crimes Enforcement Network (FinCEN) to collect and disclose beneficial ownership information to authorized government authorities and financial institutions. The statute also mandated the submission of regular reports by the end of 2024 that includea litany of sensitive personal identifiers of the owners, senior employees, and/or advisors of covered entities. (FinCEN’s current requirements)    The law directly impacts more than 32 million existing entities and an additional 5 million newly created entities every year. These companies and other legal entities face increased paperwork, privacy risks, and potentially devastating fines and prison terms. (New York Times, March 4) The CTA rules subject many real estate businesses to a heavier compliance burden at a time when the industry faces economic challenges from decreasing office usage and diminishing credit capacity.  Roundtable Opposition The Roundtable has consistently opposed the beneficial ownership rules. In Nov. 2023, The Roundtable and a broad coalition of approximately 70 business groups urged Congress to pass a one-year delay in implementing the burdensome reporting requirements. (Coalition letter and PoliticoPro, Nov. 16) In Feb. 2022, The Roundtable joined nine other national real estate industry organizations in detailed comments to FinCEN about the negative impact of the proposed beneficial ownership regulations on real estate transactions.   The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor developments related to beneficial ownership requirements and legal outcomes. #  #  #
Policy Landscape
March 1, 2024
Roundtable Weekly
Congress Punts Funding Deadlines … SEC to Vote March 6 on Climate Disclosures … Roundtable Urges EB-5 Guidance Correction
Climate Risk Reporting Congress EB5 Foreign Investment Scope 3 reporting SEC Securities and Exchange Commission
A bill passed by both chambers of Congress yesterday and signed by President Biden today punts a set of government funding deadlines to March 8 and 22, thereby preventing a partial government shutdown that was scheduled to start at midnight. (ABC News, March 1 | House bill text) New Stopgap Goals The new two-tiered stopgap bill gives policymakers some time to negotiate a full-year appropriations bill as a House-passed tax package is under consideration in the Senate. (See tax story below). On Wednesday, congressional leaders announced the deal, which extends funding for the departments of Housing and Urban Development, Commerce, Energy, Transportation, and others from March 1 through March 8. The bill also extends funding for the Pentagon, Health and Human Services, Labor, and other agencies from March 8 through March 22. SEC to Vote March 6 on Climate Rule The U.S. Securities and Exchange Commission (SEC) announced a vote next week on whether it will adopt final rules requiring companies to provide certain climate-related information in their registration statements and annual reports. The SEC’s “open meeting” to consider the climate rule will take place on Wednesday, March 6 at 9:45 am and will be webcast at www.sec.gov. PoliticoPro cited confidential sources claiming that SEC’s anticipated final rule may scale back on corporate reporting requirements that were more aggressive in its 2022 proposal regarding Scopes 1, 2, and 3 “value chain” emissions. RER’s 2022 comments to the SEC urged the Commission to drop its “back door mandate” for Scope 3 disclosures. (Roundtable Weekly, Feb. 16, 2024 and June 10, 2022) Roundtable Urges Congress to Correct EB-5 Guidance The Real Estate Roundtable urged the leaders of the Senate and House Judiciary Committees this week to correct defective “guidance” enacted by the U.S. Citizenship and Immigration Services (USCIS) that is undermining the EB-5 Reform and Integrity Act of 2022 (RIA). [Roundtable EB-5 letter, Feb. 28, 2024] The USCIS’s arbitrary guidance states that EB-5 investments made after RIA’s enactment must “remain invested for at least two years.” This position contradicts regulations kept by USCIS on its rulebooks for decades. RER’s letter also explains that USCIS’s defective guidance exacerbates CRE’s current liquidity issues. For example, the agency’s position effectively eliminates the availability of EB-5 investment capital to help finance projects to convert underutilized commercial buildings to multifamily housing.   The Roundtable is calling on Congress to correct the error with a short statutory change that codifies the long-standing regulatory approach, which couples the periods for EB-5 capital sustainment and conditional residency. #  #  #
Tax Policy
March 1, 2024
Roundtable Weekly
Senate Republicans Seek Changes to House-Passed Tax Package
Low Income Housing Tax Credit LIHTC Tax Policy
Senate Finance Committee Chairman Ron Wyden (D-OR), left, and Ranking Member Mike Crapo (R-ID), right. The Senate Finance Committee’s top Republican made it clear this week that he wants changes to a House-passed $78 billion tax package, which includes Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC). [Roundtable Weekly, Feb. 2 | PoliticoPro and Tax Notes, Feb. 29] Senate Republicans Concerns The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) passed the House on Jan. 31 by an overwhelming 357-70 vote. House Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) are pressing Senators to support its passage. (Axios, Feb. 16) Senate Republicans considering the House tax package have called for an amendment process that could be time consuming. (The Hill, Feb. 2) Finance Committee Ranking Member Mike Crapo (R-ID) laid out the changes he would like to see in the bill in a Feb. 28 news release. A major issue for Sen. Crapo is a reform to the Child Tax Credit (CTC) that allows taxpayers to rely on income from prior years when determining their eligibility for the refundable credit. (Fiscal Times, Feb. 29) Sen. Crapo added in comments to Tax Notes this week that “There's just a lot of separate issues that need to get sorted out. Everything from traditional extenders to LIHTC to SECURE 2.0.” Congressional Timing Sen. Crapo also stated in his news release that “… with each week that has passed, (Republican) members have strongly voiced additional calls for numerous modifications, and there are also increasing concerns about making 2023 changes this far into the IRS tax filing season.” The Senator said he is “committed to seeking a bipartisan resolution that a majority of Senate Republicans can support.” (Tax Notes, Feb. 29) Sen. Wyden and senior congressional staff discussed the tax package with Roundtable members during The Roundtable’s all-member 2024 State of the Industry Meeting in Washington. (Roundtable Weekly, Jan. 26) Additionally, The Roundtable and 21 other industry organizations that comprise the Housing Affordability Coalition urged the Senate on Feb. 15 to pass the tax package. The coalition’s letter emphasized the importance of advancing provisions in (H.R. 7024) that strengthen the low-income housing tax credit (LIHTC)—along with various real estate investment measures that would benefit communities and the broader economy. (Coalition letter, Feb. 15) The best chances for enacting the tax package may be in combination with a government funding bill later in March. (See story above). #  #  #
Roundtable Leadership
March 1, 2024
Roundtable Weekly
Real Estate Roundtable Leaders Discuss Market Conditions, Policy Issues Facing CRE
Jeffrey DeBoer John Fish Roundtable Leadership
Real Estate Roundtable Chair John Fish (Chairman & CEO, Suffolk) on Bloomberg’s Wall Street Week. This week, Real Estate Roundtable Chair John Fish (Chairman & CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer discussed market conditions and policy issues impacting commercial real estate with Bloomberg’s Wall Street Week and the American College of Real Estate Lawyers (ACREL). Markets and Federal Actions Roundtable Chair John Fish addressed how current economic challenges facing commercial real estate, cities, communities, businesses and individuals have led to a somewhat “somber” mood in his Feb. 26 Wall Street Week interview. Fish emphasized the importance of CRE to the overall economy and the need for policymakers to work with the industry to ensure a soft landing. He also discussed the wave of maturing CRE debt coming due at higher interest rates as remote-work continues to press the industry—and the ramifications of a large number of environmental regulations moving forward in a compressed time period. The Roundtable’s chair noted, “Back in June of 2023, the Federal Reserve, the FDIC in the OCC issued forward guidance on working with borrowers, and that was credit worthy borrowers. I would encourage them to continue with their policy and reinforce that policy. It's extremely important to the industry as a whole because creditworthy borrowers should not get hurt through this process.” (Roundtable Weekly, June 30, 2023) He added, “We need the Federal government to work with us on interest rates. We also need the federal government to ask workers to come back to work. That's one of the reasons why some of our buildings in downtown urban areas are 25, 30 percent vacant today. As an industry, we need to work together, collaborating with the government to try to solve these problems.” (Bloomberg’s Wall Street Week) The Roundtable’s Policy Role Roundtable President and CEO Jeffrey DeBoer, right, with Jay Epstein, former president of the American College of Real Estate Lawyers, left. Roundtable President and CEO Jeffrey DeBoer spoke with Jay Epstein, former president of the American College of Real Estate Lawyers on the Feb. 26 edition of the ACREL Files podcast about The Roundtable’s policy advocacy role in Washington and compelling issues now facing the industry.  DeBoer explained that The Roundtable is a unifier between industry and lawmakers on policies that benefit the economy and communities by using a non-partisan, data-centric, asset-based approach. DeBoer also said the industry is at an inflection point as issues—including post-pandemic remote work and CRE needs, office-to-residential property conversions, affordable housing, building energy usage, insurance costs, and xenophobic attitudes to foreign real estate ownership—are “all rushing forward on top of the market challenges.” (ACREL Files podcast) “By and large, the industry has stepped up to challenges, met them, and helped the economy and the country move forward.” He added, “Today there are other problems with financing and remote work, but I have no doubt the industry will overcome those challenges and emerge stronger.” #  #  #
Policy Landscape
February 23, 2024
Roundtable Weekly
Government Shutdown Looms … Coalition Supports YIMBY Bill … SEC Scope 3 Emissions Rule
Congress Scope 3 reporting Tax Policy Yes In My Backyard YIMBY
Congress returns next week to address an imminent government shutdown. Unless the House and Senate pass a long-term budget or short-term stopgap by March 1, 20 percent of funding for the current fiscal year will expire – with remaining federal operations potentially ceasing on March 8.  (Forbes | (Politico, Feb. 21) Funding Negotiations Policy riders on issues such as abortion, gender-affirming care, and medical research remain contentious issues. Axios reported this week that House Republicans expect some version of a shutdown before passing a new funding bill. Congress has approved three continuing resolutions since Sept. 30 to keep the government open with current funding in place, as a full budget for the fiscal year ending Sept. 30 remains elusive. (Committee for a Responsible Budget, Feb. 13) Congress must also take into account a key date of April 30, when a 1 percent cut in all federal funding (including Pentagon programs) will take effect without passage of fiscal legislation. (Federal News Network, Dec. 26, 2023) Pending Tax Package House Ways and Means Committee Chair Jason Smith [R-MO] A bipartisan $79 billion tax package that was overwhelmingly approved by the House on Jan. 31faces potential hurdles in the Senate. The bill contains Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC). (Roundtable Weekly, Feb. 2 and Jan. 19) Leading congressional tax writers are considering adding the House-passed tax package to a potential spending bill. House Ways and Means Committee Chair Jason Smith [R-MO] recently told Axios that he is meeting with Republican senators to pass the limited tax extenders package as a prelude to next year’s effort on whether to extend tax cuts passed in 2017 as part of the Tax Cuts and Jobs Act. (TaxNotes Talk podcast, Feb. 21) Smith commented, "For one it breaks the dam. There has not been any kind of even a small extenders package passed in three years and let alone in divided government. And so 2025 is the Super Bowl of tax." (Axios, Feb. 16) “Yes in My Backyard” Coalition This week, The Real Estate Roundtable and 21 other national organizations expressed their strong support for the bipartisan Yes in My Backyard Act (YIMBY) in their latest letter to the House Financial Services Committee (Coalition letter, Feb. 20) H.R. 3057, introduced by Congressmen Mike Flood (R-NE) and Derek Kilmer (D-WA), would help promote development of affordable housing by requiring local governments that receive certain federal grants to report on their practices to support high-density development. Separately, the Wall Street Journal (Feb. 20) highlighted that community opposition to new projects is not just restricted to housing developments. E-Commerce hubs are also “increasingly contending with a headache” of NIMBY sentiments, as developers of warehouse and logistics properties face the conundrum of siting projects that are necessary to deliver goods to residents and consumers.      SEC & Scope 3 Disclosure Reuters (Feb 23) reports that the U.S. Securities and Exchange Commission (SEC) plans to eliminate requirements for companies to report on Scope 3 “value chain” emissions in its imminent climate risk disclosure rule. (Roundtable Weekly, Feb. 16). RER’s 2022 comments in fact urged the Commission to drop its “back door mandate” for Scope 3 disclosures. (Roundtable Weekly, June 10, 2022) The SEC must still vote on the final regulation before its release. Progressive Democrats in Congress will likely object to any rule that relieves registered companies from Scope 3 reporting. #  #  #
Quarterly Sentiment Index
February 23, 2024
Roundtable Weekly
Despite Ongoing Market Challenges, Industry Leaders Expect Improvements in 2024
Quarterly Sentiment Index Wave of Maturing CRE Debt
Real Estate Roundtable President and CEO Jeffrey DeBoer The Real Estate Roundtable’s Q1 2024 Sentiment Index confirms that commercial real estate property markets continue to experience significant challenges. At the same time, in the coming year industry executives expect monetary policy action reflecting lower inflation to bring greater stability in asset pricing and expanded availability of debt and equity capital.  Cautious Optimism Roundtable President and CEO Jeffrey DeBoer said, “Our current Sentiment Index shows improved optimism by industry leaders, compared with previous surveys that highlighted significant market concerns. The Q1 sentiment continues to note challenges presented by ongoing tight capital markets, increased operating expenses, and the continuing uncertainty of post-pandemic, in-office work. However, as the interest rate environment appears to have settled somewhat, executives are now expressing increased optimism that values and capital availability will improve in 2024.” He added, “As we look at the current and future landscape of commercial real estate, it's clear that we are at a pivotal moment. With nearly $3 trillion of commercial real estate loans maturing in the next four years, it remains very crucial that lenders continue to work constructively with borrowers to reflect both current and expected economic growth. Markets and asset values continue to adjust and stabilize as office use, interest rates, and inflation begin to normalize.” All indices of The Roundtable’s Q1 Index are up, compared to the previous quarter and one year ago. The Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Economic Sentiment Indices.­­­­ Any score over 50 is viewed as positive. ­­­­ Topline Findings The Q1 2024 Real Estate Roundtable Sentiment Index registered an overall score of 61, an increase of 17 points from the previous quarter. The Current Index registered 53, a 21-point increase over Q4 2023, and the Future Index posted a score of 70 points, an increase of 13 points from the previous quarter. These increases point to cautious optimism in the real estate market. There continue to be variations among asset classes and within specific property types as the real estate market rapidly changes. Industrial and multifamily are starting to soften, but retail and hospitality asset classes were identified as being surprisingly resilient. While many office properties have experienced a significant erosion in value, Class A offices continue to outperform. An overwhelming 79% of survey participants indicate that asset values have decreased compared to the previous year. However, the potential end to interest rate hikes has instilled some industry optimism, with nearly 80% of survey participants expecting asset values to be the same or higher a year from now. Survey participants continue to emphasize the challenging capital markets landscape, with 86% and 85% of survey participants suggesting that the availability of equity and debt capital, respectively, is the same or worse than a year ago. That said, 67% and 76% believe the availability of equity and debt capital, respectively, will improve a year from now.  Data for the Q1 survey was gathered in January. See the full Q1 report. #  #  #
Capital and Credit
February 16, 2024
Roundtable Weekly
Federal Reserve Supervisors Focused on Banks’ CRE Lending Risk
Capital and Credit The Fed Wave of Maturing CRE Debt
Federal banking regulators are closely monitoring risk factors in commercial real estate bank lending throughout the United States, according to comments today from Federal Reserve Board Vice Chair for Supervision Michael Barr. This week, the Fed also released scenarios for its annual stress test for large banks that includes a 40 percent decline in commercial real estate prices—one of several hypothetical risks designed to assess the resilience of the banking system in the event of a severe recession. (Barr speech, Feb. 16 and Fed stress test, Feb. 15) Managing CRE Risks Barr stated today, “Let me turn to supervision of a specific risk: commercial real estate. The reduced demand for office space and higher interest rates have put pressure on some CRE valuations, particularly in the office sector.” Barr noted that Fed supervisors are “closely focused on banks’ CRE lending in several ways.” He explained that regulators analyze how banks measure and report their risk, what steps they have taken to mitigate the risk of losses on CRE loans, and whether they have sufficient capital to buffer against potential CRE loan losses. (Barr speech, Feb. 16) He also stated that today’s heightened financial risk environment has led the Fed to downgrade firms' supervisory ratings at a higher rate in the past year and increase its issuance of enforcement actions. Barr said, “We continue to evaluate whether we should temporarily require additional capital or liquidity beyond regulatory requirements where the firm has trouble in managing its risks.” (PoliticoPro, Feb. 16) Bloomberg reported that regulators determined that 22 regional banks late last year had CRE loan portfolios that merit greater scrutiny. (Connect CRE, Feb. 15) Wave of CRE Refinance Meets Price Discovery Bloomberg also reported this week that commercial property deals in the U.S. are starting to pick up at deep discounts, forcing lenders to brace for increased pressure on maturing loans. (Bloomberg, Feb. 14) Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told Bloomberg that as more transactions add price discovery to the market, investors will have to recapitalize loans to reflect lower values. Rechler said, “In 2024, we’re at that fifth stage of grief. People are now in acceptance.” He also commented on falling property values: “You can’t ignore that anymore. Depending on the severity of it, we’ll see who has actually marked appropriately and who hasn’t.” RXR’s CEO told CNBC last week that “if you're a borrower who's willing to invest money, banks are willing to reduce their loan balances to reflect the current environment.” (CNBC, Feb. 6 and Roundtable Weekly, Feb. 9) The Wall Street Journal reported this week that investors are starting to show interest in properties where building owners are unable to extend their loans. The article cites Trepp data that shows more than $2.2 trillion in commercial mortgages are scheduled to mature between now and the end of 2027. (WSJ, Feb. 12) The Mortgage Bankers Association (MBA) reported this week that 20 percent ($929 billion) of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024. That represents a 28 percent increase from the $729 billion that matured in 2023, according to MBA’s Commercial Real Estate Survey of Loan Maturity Volumes. #  #  #
Tax Policy
February 16, 2024
Roundtable Weekly
Roundtable and Housing Affordability Coalition Urge Senate to Pass Tax Package
Affordable Housing bonus depreciation Business Interest Deduction deductibility of business interest Low Income Housing Tax Credit LIHTC small business expensing Tax Policy
This week, The Real Estate Roundtable and 21 other industry organizations urged the Senate to pass a tax package that was approved by the House in an overwhelming bipartisan vote (357-70) on Jan. 31. (Coalition letter, Feb. 15) Tax Provisions in the Senate The Housing Affordability Coalition’s letter to all Senators emphasized the importance of advancing provisions in The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) that strengthen the low-income housing tax credit (LIHTC)—along with various real estate investment measures that would benefit families, workers, and the national economy. The coalition noted how the bill would increase the supply of housing as a positive response to the nation’s housing affordability crisis. It would also suspend certain tax increases on business investment that took effect in 2022 and 2023.  The Feb. 15 letter focused on details of the bill’s provisions that positively impact the LIHTC, deductibility of business interest, bonus depreciation, and small business expensing. The Roundtable also joined the National Multifamily Housing Council (NMHC) and a large coalition of housing and other real estate groups in a Jan. 26 letter to Congress in support of the tax package. That letter also focused on the bill’s important improvements to the LIHTC, which will significantly increase the construction and rehabilitation of affordable housing over the next three years. Congressional Timing Senate Republicans considering the House tax package have called for an amendment process that would be time consuming. (The Hill, Feb. 2) With Congress in recess until the last week of February, there will be limited legislative vehicles available the bill could ride on, just days before a set of government funding deadlines hit on March 1 and 8. The best chances the package could have for inclusion in other legislation include a potential funding bill to prevent an early March government shutdown or a bill to reauthorize the Federal Aviation Administration on March 8. If the tax package is pushed beyond March, it may not be considered until a lame duck session after what is expected to be a contentious election season. SALT Reform Pinched On Feb. 14, a procedural rule to advance the SALT Marriage Penalty Elimination Act (H.R. 7160) to a floor vote in the House fell short of a majority vote needed to pass. The effort by House lawmakers to double the $10,000 cap on state-and-local tax deductions (SALT) for married couples earning up to $500,000 failed by a vote of 195-225. (RollCall and CQ, Feb. 14) The tax package (H.R. 7024) passed by the House last month did not address the SALT cap, which led to this week’s consideration of a separate reform measure. The current SALT cap is scheduled to expire at the end of 2025, along with many other measures passed as part of the Tax Cuts and Jobs Act (TCJA) of 2017. #  #  #
Energy And Climate Policy
February 16, 2024
Roundtable Weekly
Federal Initiatives on Buildings, Climate Gaining Momentum Ahead of 2024 Elections
Anthony Malkin Clean Energy Tax Incentives Climate Policy Energy and Climate Policy Energy Policy ENERGY STAR EPAs NextGen Building Label Scope 3 reporting SEC Securities and Exchange Commission
The Biden-Harris administration is accelerating actions at the intersection of climate and real estate policy in the lead-up to November’s elections to implement its signature clean energy legislation passed during its first years in office. RER’s Sustainability Policy Advisory Committee (SPAC) remains engaged with policymakers on a variety of initiatives coalescing in 2024 that include the following: Climate-Related Financial Risk The U.S. Securities and Exchange Commission (SEC) is expected to issue a final rule this spring for registered companies to disclose financial risks from climate change.(RER fact sheet and Roundtable Weekly, March 10, 2023). Scope 3 “indirect” emissions from sources in a company’s supply chain are controversial elements of the anticipated SEC rule. RER’s 2022 comments urged the Commission to drop its “back door mandate” for Scope 3 disclosures. (Roundtable Weekly, June 10, 2022) Litigation against the SEC’s imminent rule is widely expected. A recent lawsuit filed by industry groups against a California disclosure package passed last summer (modeled after the SEC’s proposal) signals similar claims that the federal government might face in court. (Wall Street Journal, Jan. 30 and RER fact sheet) Additionally, the U.S. Commodity Futures Trading Commission (CFTC) plans to finalize a proposal establishing standards for verified carbon offsets that companies may pursue to mitigate GHG emissions they cannot avoid.  Voluntary Frameworks The Environmental Protection Agency (EPA) will accept applications for its NextGen building label starting in September. (EPA slides to SPAC, Jan 24) ENERGY STAR assets will be NextGen-eligible if they also meet an emissions “target” and source 30 percent of energy use to renewable power. (RER fact sheet) NextGen certification may serve as an “intermediate step” for buildings that strive for a voluntary Zero Emissions Building (“ZEB”) definition coming from the U.S. Energy Department. Recent comments from RER and Nareit maintain that the federal ZEB definition can lend consistency to the confusing state-local regulatory patchwork of building performance standards. (Roundtable Weekly, Feb 2.) EPA is acting on requests to update Portfolio Manager, CRE’s standard tool to measure metrics for building efficiency and emissions. Portfolio Manager upgrades announced at last month’s SPAC meeting will help real estate companies strive for NextGen or ZEB status. (Coalition letter, Sept. 14, 2023) This spring, the influential GHG Protocol—an international framework heavily relied upon by the SEC, EPA, DOE, and institutional investors—will undertake its first revisions since 2015 to its guidance for companies to account for emissions from electricity use. RER will participate in the upcoming Scope 2 guidance public comment process. Tax Incentives Roundtable Sustainability Policy Advisory Committee Chair Tony Malkin, right, andVice Chair Ben Myers The Internal Revenue Service (IRS) has issued dozens of proposed rules and notices to implement clean energy tax incentives available to real estate and other sectors since Congress passed the Inflation Reduction Act (IRA) in 2022. (RER fact sheet) The IRS is expected to release final rules before November on topics such as the ability of REITs to transfer certain tax credits, proposed rules on non-urban census tracts eligible for EV charging station credits, and the 179D deduction for building retrofits. RER has submitted comments on these and other topics in response to initial IRS notices and will continue to provide feedback as opportunities arise. (RER letters Oct. 30 and July 28, 2023;  Nov. 4 and Dec. 2, 2022) The Roundtable’s SPAC—led by Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust) and Vice Chair Ben Myers (Senior Vice President of Sustainability, BXP)—will press forward with RER’s climate and energy priorities for the remainder of the current administration and into the next. #  #  #
Capital and Credit
February 16, 2024
Roundtable Weekly
Treasury Testifies on New Rules for Investment Advisors to Combat Illicit Finance
Beneficial Ownership Capital and Credit FinCEN Treasury Department
The director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) appeared before the House Financial Services Committee this week to address recent regulatory proposals for investment advisors to combat illicit finance activity and money laundering in U.S. residential real estate. Director Andrea Gacki testified, “We are also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector.” (Committee hearing and Gacki’s statement, Feb. 14) FinCEN’s Business Regulatory Proposals The hearing on Wednesday followed a new FinCEN proposal that would require investment advisors to report suspected money laundering to the U.S. government. (Wall Street Journal, Feb. 13) A fact sheet on the proposal explains that although FinCEN is not proposing an obligation for investment advisers to collect beneficial ownership information at this time, it anticipates it will do so in the future. (FinCEN Proposal and Fact Sheet, Feb. 13 | Treasury’s 2024 Investment Adviser Risk Assessment) Last week, FinCEN proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals.  (Roundtable Weekly, Feb. 9 | Reuters and AP, Feb. 7) Another set of regulations that took effect on Jan. 1, 2024 is expected to collect personal information from owners of at least 32 million U.S. businesses into a beneficial ownership registry managed by the government.  A beneficial owner is described as individual who owns at least 25 percent of a company or enough to exert significant control over it. (Final Rule | Fact Sheet | RER background on beneficial ownership) FinCEN Director Gacki told the House Committee that more than 430,000 businesses have submitted reports to the registry so far. (PoliticoPro, Feb. 14) Concerns About Beneficial Ownership Registry In his opening statement, Committee Chairman Patrick McHenry (R-NC), above, was critical of Treasury’s ongoing proposals and its beneficial ownership regulations affecting small businesses. McHenry added, “Until FinCEN can show Congress it can do its current job and appropriately use its existing authorities, I’m skeptical of providing greater authorities and resources.” (FinCEN’s background information and FAQs on beneficial ownership reporting) McHenry added, “The administration has transformed what was a simple and direct program into Frankenstein’s monster of complexity. We now have a new, overly complex and less secure access regime." On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of the burdensome reporting requirements. (Coalition letter | Roundtable Weekly, Oct. 20 and Sept. 30) #  #  #
Office Loan Concentrations
February 9, 2024
Roundtable Weekly
Key Regulators View Banks’ Office Loan Concentrations as Manageable Risk
Capital and Credit The Fed Treasury Department
Fed Chair Jerome Powell and Treasury Secretary Janet Yellen this week said that federal regulators are closely monitoring bank loan concentrations in office properties for heightened economic risk but view the CRE sector’s financial challenges as manageable. (60 Minutes’ Powell transcript, Feb. 3 and Bloomberg video of Yellen testimony, Feb. 6) Regulators Focus on CRE Chair Powell told CBS’ 60 Minutes, “We looked at the larger banks' balance sheets, and it appears to be a manageable problem. It's a secular change in the use of downtown real estate. And the result will be losses for the owners and for the lenders, but it should be manageable.” Secretary Yellen also said economic pressures on office properties are “manageable” before the House Financial Services Committee on Feb. 6 and the Senate Banking, Housing and Urban Affairs Committee on Feb. 8.  Her testimony included a summary of findings from the Financial Stability Oversight Council’s annual report, which noted, “Elevated interest rates, high costs, and potential structural changes in demand for CRE have heightened concerns about CRE.” CNBC’s Squawkbox interviewed Minneapolis Fed Pres. Neel Kashkari on Feb. 7 about the regulators’ CRE concerns. “It really is focused on the office sector. Many other segments within commercial real estate seem to be doing very well, so I think that delineation is important. And we think it’s going to be on a bank-by-bank basis where we see pressures flare up. Our bank supervisors are in very close contact with others around the country,” Kashkari said. CRE Markets Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told CNBC’s Squawkbox on Feb. 6 that commercial real estate markets in 2023 were "a little bit paralyzed" but that “if you're a borrower who's willing to invest money, banks are willing to reduce their loan balances to reflect the current environment." (CNBC, Feb. 6) A recent CRED iQ report found that more borrowers are modifying CRE loans. The report covers 441 loans with a total value of $13.6 billion (GlobeSt. Jan. 25) CNBC’s Last Call interviewed House Financial Services Committee Member French Hill (R-AR) about capital and credit pressures on CRE on Feb. 1. Rep. Hill addressed the negative impacts of interest rates, fiscal policy, and inflation on the economy and the office sector—and the problems posed by the regulatory agencies’ Basel III “Endgame” proposal. Separately, The Federal Reserve Board recently announced that its Bank Term Funding Program will cease making new loans on March 11. The program remains available as an additional source of liquidity for eligible institutions until that date. (Fed news release, Jan. 24) #  #  #
Foreign Investment & CRE
February 9, 2024
Roundtable Weekly
U.S. Appeals Court Blocks Law Restricting Foreign Investment in Florida Real Estate
Florida SB264 Foreign Investment Restrictions on Foreign Investment in US Real Estate
A federal appeals court recently blocked enforcement of a Florida law that could have negative consequences for foreign investment in U.S. property and agriculture land. The Real Estate Roundtable has urged Florida officials for months to consider changes to the interpretation of the law’s broad language. As currently written, the measure could prevent U.S.-managed funds from pursuing investment opportunities in the state if there is any level of investor participation in the fund from “countries of concern.” (Roundtable Weekly, Feb. 2 and Dec. 15 | Reuters and WFTV, Feb. 2) Foreign Investment in U.S. Property The outcome of the case (Shen v Simpson) involving the Florida law (SB 264) could have national ramifications. At least 15 other states enacted similar legislation restricting foreign investment in U.S. real estate during the first six months of 2023. An additional 20 states are considering the issue. (Congressional Research Service, July 2023 and Gibson Dunn, Sept. 2023) On Feb. 5, BisNow quoted a Sept. letter from Real Estate Roundtable President and CEO Jeffrey DeBoer to the Florida Real Estate Commission. The letter emphasized that non-U.S. investors may include small investors from China, who routinely subscribe to funds controlled or advised by regulated U.S. asset managers. Third-party, passive investors ordinarily invest as limited partners in the partnership, and do not have the right to participate in the partnership's management, or exercise control over its underlying investments. “Our concern with the new law is that these U.S.-managed investment funds, which are controlled and managed by U.S. nationals, may now be precluded from pursuing investment opportunities in Florida if there is any level of investor participation in the fund from countries of concern like China,” DeBoer wrote. (Roundtable letter, Sept. 5, 2023) The Roundtable also submitted a comment letter on Jan. 30 to the Florida Department of Agriculture and Consumer Services, which is considering implementing SB 264 measures addressing foreign investment in Florida’s agricultural land. The Roundtable’s letter raised concerns about the unintended and negative consequences for investment in Florida and future economic growth. (Roundtable letter and Roundtable Weekly, Feb. 2) SB 264 & FIRRMA The 11th U.S. Circuit Court of Appeals, above, considered a ban authorized by SB 264 restricting certain Chinese citizens from owning homes or land in the state. The U.S. Department of Justice filed a “statement of interest” in the case, noting that SB 264 violates federal law and the U.S. Constitution. (Politico and NBC News, Feb. 2) The appeals court's Feb. 1 order stated the Florida law is “preempted” by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which is implemented by the U.S. Committee on Foreign Investment in the United States (CFIUS). (Appeals Court order) CFIUS is an interagency federal committee authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons. Roundtable Chairman John Fish (Chairman & CEO, Suffolk) was quoted in Bloomberg about Florida’s SB 264, stating, “The law is far-reaching, very, very confusing, and the unintended consequences would be very, very detrimental.” (Bloomberg, Dec. 11 | Bisnow and Inman, Dec. 12) Oral arguments in Shen v Simpson are scheduled for this April. (Appeals Court order) #  #  #
Beneficial Ownership
February 9, 2024
Roundtable Weekly
Treasury Regulators Propose Beneficial Ownership Rule for All-Cash Residential Transactions
Beneficial Ownership Corporate Transparency Act CTA Treasury Department
This week, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals. (Reuters and AP, Feb. 7) FinCEN’s Initiatives FinCEN’s 132-page notice of proposed rulemaking describes the circumstances that would require a report, who must file, what information must be provided, and when a report about the transaction would be due. (FinCEN news release, Feb. 7) The proposed rule would require reporting on various types of residential real property transfers. Exceptions would apply for highly regulated types of entities and trusts that are less likely to be used by illicit actors to launder money through residential real property. (FinCEN Fact Sheet on NPRM, Feb. 6) FinCEN expects that the obligation to file Real Estate Reports would generally apply to settlement agents, title insurance agents, escrow agents, and attorneys.  Comments about the Notice of Proposed Rulemaking will be accepted for 60 days following publication in the Federal Register. Small Business Registry Treasury has also pursued the development of a new small business ownership database called the beneficial ownership registry, which is expected to include personal information on the owners of at least 32 million U.S. businesses. (AP, Feb. 7 | FinCEN’s background information and FAQs on reporting) The registry requires millions of companies to report information about persons who own at least 25% of a company or exert significant authority over it to the Financial Crimes Enforcement Network (FinCEN).These beneficial ownership regulations took effect on Jan. 1, 2024 under the Corporate Transparency Act (CTA). (Final Rule | Fact Sheet | Wall Street Journal and Bloomberg Law, Sept. 29)  On Jan. 8, Treasury Secretary Janet Yellen announced that 100,000 businesses have registered for the new database. (AP, Jan. 8) Industry Response Ten national real estate industry organizations and The Roundtable submitted detailed comments to FinCEN on Feb. 21, 2022 about the proposed anti-money laundering regulations affecting real estate transactions. (Roundtable Weekly, Feb. 25, 2022) On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of these burdensome reporting requirements. (Coalition letter | Roundtable Weekly, Oct. 20 and Sept. 30) The Roundtable also signed onto a letter with approximately 70 business groups on Nov. 16, 2023 that urged Congress to pass a one-year delay in implementing the rules. #  #  #
Tax Policy
February 2, 2024
Roundtable Weekly
Bipartisan Tax Package with LIHTC and Business Provisions Passes House; Senate Challenges Ahead
Business Interest Deduction Low Income Housing Tax Credit LIHTC Tax Policy
A bipartisan $79 billion tax package overwhelmingly approved this week by the House still faces potential hurdles in the Senate. The bill contains Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC).  (Associated Press, and Wall Street Journal, Jan. 31 | The Hill, Feb. 2) Industry Support for House Bill On Wednesday, the House voted 357-70 to pass the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). House GOP leaders gained additional support for the bill by allowing a floor vote next week on the SALT Marriage Penalty Elimination Act (H.R. 7160), which would increase the cap on state and local tax deductions to $20,000 from $10,000 for married couples. (PoliticoPro and TaxNotes, Feb. 2) House Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) negotiated the larger tax package. Sen. Wyden and senior congressional staff discussed the legislation last week with Roundtable members during The Roundtable’s all-member 2024 State of the Industry Meeting in Washington. (Roundtable Weekly, Jan. 26) Last Friday, The Roundtable joined the National Multifamily Housing Council (NMHC) and a large coalition of housing and other real estate groups in a letter to Congress in support of the tax bill.  The letter focused on the bill’s important improvements to the low-income housing tax credit, which will significantly increase the construction and rehabilitation of affordable housing over the next 3 years. (Coalition letter, Jan. 26) Tax Measures Face Senate Scrutiny In the Senate, the House-passed tax bill faces an uncertain path forward. Senate Finance Committee Ranking Member Sen. Mike Crapo (R-ID) and other Republican Senators have raised concerns regarding the lack of a work requirement for the child credit, the cost, the proposed pay-for, and other aspects of the bill. Senate Minority Whip John Thune (R-SD) added the bill would not be able to clear a possible Senate filibuster without amendment votes. (The Hill, Feb. 2) Provisions in the House tax bill affecting real estate include: Low-Income Housing Tax CreditA Roundtable-supported three-year extension (2023–2025) of the 12.5 percent increase in LIHTC allocations to states. The bill also reforms LIHTC's tax-exempt bond financing requirement, which will allow more affordable housing projects to receive LIHTC allocations outside of the state cap. Business Interest DeductibilityA retroactive, four-year extension (2022–2025) of the taxpayer-favorable EBITDA standard for measuring the amount of business interest deductible under section 163(j). The changes do not alter the exception to the interest limitation that applies to interest attributable to a real estate business. Bonus Depreciation Extension of 100 percent bonus depreciation through the end of 2025. As under current law, leasehold and other qualifying interior improvements are eligible for bonus depreciation. In 2026, bonus depreciation would fall to 20 percent and expire altogether after 2026.   Other provisions in the agreement include reforms to the child tax credit, the expensing of R&D costs, disaster tax relief, a double-taxation tax agreement with Taiwan, and a large pay-for that creates significant new penalties for abuse of the employee retention tax credit (ERTC) rules and accelerates the expiration of the ERTC. #  #  #
Climate Policy
February 2, 2024
Roundtable Weekly
Roundtable and Nareit Comment on National Definition for a “Zero Emissions Building”
Climate Policy Zero Emissions Buildings ZEB
The Real Estate Roundtable (RER) and Nareit submitted comments today to the U.S. Department of Energy (DOE) on its draft definition for Zero Emissions Buildings (ZEB). DOE’s initiative would impose no federal mandates while showing U.S. leadership on climate policy. (Joint comments cover letter and addendum | Roundtable Weekly, Jan. 5) A “Path to ZEB” The ZEB national definition aims to set voluntary criteria that could help building owners provide auditable, consistent statements to investors, tenants, and policy makers about long-term aspirations for a building's decarbonization. (DOE announcement | National Definition Draft) The RER/Nareit comments emphasize that few buildings today could meet zero emissions status. Rather, the ZEB definition can be a guideline to support lifecycle investments when boilers, water heaters, and other systems reliant on fossil fuels reach the end of their lives after years of use. (Joint comments cover letter and addendum) Concrete actions that owners can take now to show an asset is “on the path” to zero emissions status are key to ZEB’s success as a long-term goal. The joint comments urge DOE to recognize “NextGen”—the imminent label for low-carbon buildings from the Environmental Protection Agency (EPA)—as the intermediate step for a building that aspires to reach ZEB status.   EPA plans to make NextGen building certifications available later this year. EPA unveiled final NextGen criteria, also voluntary, at a meeting of RER’s Sustainability Policy Advisory Committee (SPAC) last week in Washington, D.C. (Roundtable Weekly, Jan. 26 and EPA’s Presentation on NextGen to SPAC)   Comments on the National ZEB Definition Topline points from the RER/Nareit comments (cover letter and addendum) include: ZEB should provide ambitious but attainable policy for individual buildings and portfolios, residential and commercial, across product types. DOE’s national definition should be leveraged to bring consistency and uniformity to the patchwork of building related climate programs, which are imposed by state and local performance standards and pushed by international frameworks. (Roundtable Weekly, Sept. 15 and RER’s Climate and Energy Priorities, Jan. 2024) DOE should not re-invent the wheel. It should align the ZEB definition with the ecosystem of federal data, methods, and guides that already pertain to buildings. ZEB’s general nationwide definition must consider regional variables such as the climate and electric grid conditions pertinent to where a building is located. The definition’s success depends on consistent methods for building owners to measure energy use and emissions. ZEB must reflect metrics tracked in Portfolio Manager, EPA’s free online software. (Roundtable Weekly, Sept. 15 and EPA’s Portfolio Manager Upgrade Project) A “zero” emissions standard requires a reasonable exclusion of emissions from emergency power generators. This exclusion to protect health and safety is necessary for building operations to continue when the electric grid fails. Many buildings have physical and regulatory restrictions that preclude onsite solar panels, wind turbines, and battery storage. DOE’s draft correctly permits valid and credible “market-based” measures, such as the purchase of renewable energy certificates (“RECs”), to meet the definition’s renewable energy criteria. A final ZEB definition is expected later this year. The real estate sector also awaits final climate risk corporate disclosure rules this spring from the U.S. Securities and Exchange Commission. (Roundtable Weekly, Jan. 12) #  #  #
Foreign Investment & CRE
February 2, 2024
Roundtable Weekly
Roundtable Recommends Changes to Implementation of Florida Law Limiting Certain Foreign Investments in Real Estate
Florida SB264 Foreign Investment
On Jan. 30, The Real Estate Roundtable urged the Florida Department of Agriculture and Consumer Services to consider several recommendations on implementing a new law that could have negative consequences for foreign real estate investment in the state. Twenty states have enacted restrictions on foreign investors in real estate or agricultural land, eight states are considering similar measures, and others are exploring the issue. (Roundtable letter) Restrictions on Foreign Investment in U.S. Real Estate The Florida agency is considering various aspects of the proposed rule, published on Sept. 21, which implements State Senate Bill 264 (SB 264). The law aims to limit and regulate the sale and purchase of certain Florida real property by “Foreign Principals” from “Foreign Countries of Concern.” The Roundtable’s Jan. 30 letter commended the national security intentions of the Florida measure yet emphasized that the technical language of SB 264 is much broader in scope than the publicly stated intent of the law. The Roundtable also offered several recommendations to help achieve the law’s stated goals without discouraging U.S.-managed investment funds from pursuing investment opportunities in Florida. Real estate and agricultural land are a critical element of Florida’s economy, with state property taxes contributing over 18% of its overall tax revenue. If legal language in SB 264 is not corrected, implementation of the law could have unintended and negative consequences for investment in Florida and the state’s economy. Roundtable Recommendations Real Estate Roundtable President and CEOJeffrey DeBoer The Real Estate Roundtable’s concerns with Section 204 (692.202) of SB 264 include: The new law may prevent U.S. investment funds, controlled and managed by U.S. nationals, from pursuing investment opportunities in Florida if there is any level of investor participation in the fund from countries of concern like China. Non-U.S. investors routinely subscribe for small, generally passive minority interests in these funds. These third-party investors do not have the right to participate in the management of the funds in any way or exercise control over the partnership or its underlying investments. A certain interpretation of a de minimis exception available for investment funds controlled by U.S. registered investment advisers could nullify the exception’s application to many different types of private funds controlled by U.S. asset managers that invest in Florida real estate. Clarification is needed about the definition of a “controlling interest” that impacts exceptions to the law based on an investor’s meaningful ownership or influence. (SB 264 text). In September 2023, the Florida Department of Commerce proposed a positive clarification to a different section of the foreign investment law in response to a previous Roundtable request. RER is hopeful that its current request for further clarification of Section 204 will also be considered during the rulemaking process. (See highlighted areas in the Notice of Proposed Rule) This week’s letter from Roundtable President and CEO Jeffrey DeBoer urged the Florida agency to consider the impact of their interpretation and implementation effort carefully, so that they do not inadvertently prohibit major U.S. investments that are safe from control by foreign countries of concern. Clear legal clarifications to SB 264 can continue to promote safe real estate investment that encourages economic growth without sacrificing the security or economic interests of Florida. #  #  #
Capital and Credit
February 2, 2024
Roundtable Weekly
Key House Democrats Urge SEC to Exempt Real Estate from Proposed Safeguarding Advisory Client Rule
Capital and Credit Safeguarding Advisory Client Proposed Rule Securities and Exchange Commission
A group of seven key Democrats from the House Appropriations Committee on Jan. 22 urged Securities and Exchange Commission (SEC) Chair Gary Gensler to exempt real estate assets from a proposed “Custody” rule. The proposal would fundamentally change the ownership and transfer rights of real estate, and impose severe investment limitations on advisory clients. The congressional letter supports The Roundtable’s strong opposition to the rule. (Congressional letter) Proposed “Qualified Custodian” Layer  The SEC’s Safeguarding Advisory Client proposal would inject significant confusion into well-established transaction protections, rules, and procedures governing real estate transactions by imposing a new layer of unclear and unnecessary oversight. (SEC Rule proposal) Current law (the “Custody Rule”) under the Investment Advisers Act of 1940 requires an investment adviser to maintain clients’ funds and securities with a qualified custodian. The new proposed SEC rule would expand this requirement to maintain all advisory client assets with a qualified custodian. It is not possible to maintain other physical investments such as real estate with a qualified custodian. The letter, led by Rep. Joseph Morelle (D-NY), noted the SEC has acknowledged that real estate assets may not be easily subject to theft or loss and therefore may not need safeguarding protections. Additionally, the letter states, “The ownership of a real estate asset is tracked by mortgages and deeds recorded by municipalities, further decreasing the likelihood of theft.” The House Democrats also emphasized that the SEC’s proposal would materially inhibit investors’ access to real estate investment strategies through an advisor. The additional layer of unnecessary oversight would also compound pressures on residential and commercial real estate markets, which are currently constrained by a lack of affordable housing, high interest rates, and increased office vacancies. Real Estate Exemption The Appropriations Committee members’ letter requested “the Commission exclude real estate from the scope of any final rule.” They also stated that the Commission should not place additional pressure on residential and commercial real estate markets. An Oct. 30, 2023 letter from Real Estate Roundtable President and CEO Jeffrey DeBoer to the SEC reiterated the current legal protections that promote the safe-keeping of real estate assets held in advisory accounts or funds. DeBoer urged the SEC “… in the strongest possible terms to exclude real estate from the scope of any final [Safeguarding] rule,” citing the ample set of existing protections that prevent real estate assets from fraudulent transfer.  (Roundtable Weekly, Nov. 3, 2023) The Roundtable and a diverse group of 25 trade associations previously wrote to SEC Chair Gary Gensler on Sept. 12, 2023 to oppose the Custody Rule proposal and explain the negative impacts it would have on investors, market participants, and the financial markets.  Fed and OCC Voice Concerns Federal Reserve Chair Jerome Powell and acting Comptroller of the Currency Michael Hsu recently expressed concerns over the SEC's proposed expansion of existing custody regulations. (PoliticoPro, Feb. 2) Powell and Hsu responded to a Nov. 1 inquiry from Rep. Andy Barr (R-KY), who chairs the House Financial Services Committee Subcommittee on Financial Institutions and Monetary Policy. The Fed and OCC leaders stated that extending the SEC custody proposal to assets beyond "funds and securities" would require a significant change in custody practices at depository institutions. Both regulators said their agencies are engaged with the SEC about the proposal. (Letters from Powell and Hsu via PoliticoPro) The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Custody Rule Working Group met with the SEC’s Division of Investment Management last November about the proposal and developed The Roundtable’s comments. Details about RECPAC’s next meeting this spring in New York City are forthcoming. #  #  #
2024 State of the Industry Meeting
January 26, 2024
Roundtable Weekly
Senator Joe Manchin and Financier Michael Milken Among Roundtable’s SOI Meeting Guests
2024 State of the Industry Meeting Jeffrey DeBoer John Fish
Roundtable Chair John Fish, right, (Chairman and CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer, left, launched this week’s Real Estate Roundtable 2024 State of the Industry (SOI) meeting, which focused on many of RER’s 2024 Policy Priorities. (See Executive Summary and the SOI meeting agenda) The meeting featured a discussion with Sen. Joe Manchin (D-WV) and Financier Michael Milken on America’s leadership role in the world. Additional presentations by prominent policymakers and industry leaders focused on issues of importance to commercial real estate, including updates on select market conditions by Roundtable members. (See below) Economic Leadership & Future Challenges Sen. Manchin, left, and Mr. Milken, right, discussed the need to preserve American economic leadership; the crucial, long-term importance of an educated workforce; and global demographic trends that pose new challenges to U.S. strength. Sen. Manchin noted that he is retiring from the Senate at the end of this Congress but not retiring from his efforts to encourage bipartisan policy solutions to America’s big challenges such as immigration, the national debt and deficit, and electoral system issues. An international financier and philanthropist, Mr. Milken discussed a variety of his successful initiatives in access to capital, medical research, education, and public health. He leads a new DC-based initiative called the Milken Center for Advancing the American Dream while spearheading the Milken Institute, a nonpartisan think tank focused on financial, physical, mental, and environmental health issues affecting critical global issues. Three additional U.S. Senators and other guests at the Jan. 23-24 SOI meeting addressed a variety of other policy issues, including affordable housing, tax policy, banking and climate regulations, evolving security threats, and the current election cycle. (RER’s 2024 SOI meeting agenda and stories below). Next on The Roundtable's 2024 meeting calendar is the Spring Meeting on April 15-16. The upcoming meeting is restricted to Roundtable-level members only.  #  #  #
Capital and Credit
January 26, 2024
Roundtable Weekly
Roundtable SOI Meeting Spotlights Monetary Policy, Liquidity, and Capital
2024 State of the Industry Meeting Capital and Credit Chip Rodgers Debra Cafaro Ventas State of the Industry Meeting SOI The Fed
The Roundtable’s State of the Industry (SOI) meeting this week explored monetary policy, international capital flows, commercial real estate market sector updates, and other national capital and credit issues included in RER’s 2024 Capital and Credit Policy Priorities. Policy and CRE Markets Debra Cafaro (Chairman & CEO, Ventas, Inc. | Immediate Past Chair, The Real Estate Roundtable) led a policy discussion with former Fed Vice Chairman Randal Quarles (Chairman, The Cynosure Group) on the “Basel III Endgame“ regulatory proposal to increase banks’ capital requirements; CRE loan exposure to the financial system; and the importance of retaining Fed independence from the political landscape. CRE industry leaders offered market sector reports, including Roundtable Board Member Jodie McLean (Chief Executive Officer, EDENS) on retail; Thomas Toomey (Chairman and CEO, UDR) on multifamily; Dan Letter (President, Prologis) on industrial; Roundtable Board Member Owen Thomas (Chairman & CEO, BXP) on office; and Michael Lowe (Co-CEO, Lowe) on hospitality. Roundtable members also discussed market liquidity and international investment in U.S. real estate, including the negative impact of the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980. A panel of experts included (left to right) David Friedline (Partner, Deloitte Tax LLP); Steve Hason (Managing Director, Head of Americas Real Assets, APG Asset Management US Inc.); Adam Gallistel (Managing Director, GIC Real Estate); and Max O’Neill (Managing Director, Blackstone).  A presentation by Roundtable Senior Vice President Clifton E. (Chip) Rodgers, Jr. about the major capital and credit issues facing the industry can be downloaded here. The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) plans to meet next in New York this spring.  Details on date, time and venue will be provided soon. #  #  #
Housing Policy
January 26, 2024
Roundtable Weekly
Policymakers Emphasize Affordable Housing Incentives, Increasing Supply 
2024 State of the Industry Meeting Affordable Housing Housing Kathleen McCarthy Low Income Housing Tax Credit LIHTC Senator Ron Wyden
Three U.S. Senators discussed national housing policy with industry leaders and Roundtable members during this week’s State of the Industry (SOI) meeting. (See Meeting agenda) Need for Housing Incentives Senate Finance Committee Chairman Ron Wyden (D-OR) discussed the importance of expanding and extending the Low-Income Housing Tax Credit (LIHTC), which was included in a tax package advanced by the House Ways and Means Committee last week by a vote of 40-3. Sen. Wyden negotiated the $77 billion bill with Ways and Means Chairman Jason Smith (R-MO) and commended the overwhelming margin of bipartisan support in the committee vote. (Roundtable Weekly, Jan. 19) Sen. Maggie Hassan (D-NH), center, discussed what can be done to address U.S. housing challenges with Kathleen McCarthy, left, (Chair-Elect, The Real Estate Roundtable | Global Co-Head of Real Estate, Blackstone), and Shaun Donovan, right, (CEO and President, Enterprise Community Partners |former HUD Secretary and OMB Director). Sen. Hassan spoke about the urgent need for national policy to encourage development of more workforce housing, while Mr. Donovan noted the congressional tax bill under consideration would create 200,000 new affordable housing units. Sen. Debbie Stabenow (D-MI)– introduced by Roundtable Chair Emeritus (2012-2015) Robert Taubman (Chairman, President & CEO, Taubman Centers, Inc.) – spoke about legislative efforts to revitalize downtowns. Sen. Stabenow referred to the recent tax package as an encouraging development for affordable housing, yet noted how more is needed to incentivize conversions of commercial properties to multifamily use. Stabenow is an original co-sponsor of the Revitalizing Downtowns Act (H.R. 4759) to encourage adaptive use of older buildings. Housing policy and incentives advocated by The Roundtable to encourage more affordable housing supply are topics weaved throughout RER’s 2024 Policy Priorities. (See Executive Summary) #   #  #
Tax Policy
January 26, 2024
Roundtable Weekly
Congressional Tax Package and Supreme Court Case Focal Points at Roundtable Meeting
Don Susswein Jeffrey DeBoer Moore v United States Ryan McCormick Senator Ron Wyden Tax Policy Tax Policy Advisory Committee TPAC
Tax policy issues impacting commercial real estate were front and center during This Roundtable’s Jan. 23 State of the Industry (SOI) meeting as policy discussions with congressional tax writers, issue experts, and Roundtable members ranged from specific measures in a recently approved tax package by the House Ways and Means Committee to a landmark Supreme Court case. Tax: What Lies Ahead Senate Finance Committee Chairman Ron Wyden (D-OR), right with The Roundtable's Jeffrey DeBoer, discussed the recent tax package passed by the House Ways and Means Committee and its uncertain path in the Senate. In addition to an expansion of the low-income housing tax credit, the $77 billion bill includes a retroactive, four-year extension (2022–2025) of the taxpayer-favorable EBITDA standard for measuring the amount of business interest deductible under section 163(j). It also contains an extension of 100% bonus depreciation through the end of 2025. (Roundtable Weekly, Jan. 19) “What’s in Front of Congressional Tax Writers: 2024 and Beyond” was explored by (left to right) Roundtable Senior Vice President and Counsel Ryan McCormick; Mark Roman, (Staff Director, Republican Majority House Ways and Means Committee); and Joshua Sheinkman (Staff Director, Democrat Majority Senate Finance Committee).  The congressional tax experts discussed measures in the recent tax package and noted the scheduled expiration of Tax Cuts and Jobs Act (TCJA) incentives at the end of 2025—and what proposals may emerge to extend them. McCormick also offered a Tax Policy Issues presentation based on and The Roundtable’s 2024 Tax Policy Priorities. Supreme Court Challenge Roundtable Tax Policy Advisory Committee (TPAC) member Don Susswein (Principal, RSM US LLP) presented an overview of an important Supreme Court case (Moore v. United States) that challenges the federal government’s constitutional authority to tax unrealized income. (Roundtable Weekly, Dec. 8) TPAC holds monthly Zoom calls on timely, compelling tax policy issues affecting CRE. If you are interested in joining, contact The Roundtable’s Ryan McCormick. #  #  #
Sustainability and Homeland Security Issues
January 26, 2024
Roundtable Weekly
Roundtable Policy Advisory Committees Drill Into Sustainability and Security Issues at 2024 SOI Meeting
Better Buildings Initiative Dept of Energy Climate Policy ENERGY STAR EPA Homeland Security RERs Homeland Security Task Force HSTF SPAC Sustainability Policy Advisory Committee Zero Emissions Buildings ZEB
National policies and agency actions related to climate, environmental, and energy issues were among the many topics on The Roundtable’s Sustainability Policy Advisory Committee (SPAC) agenda at the SOI meeting. Additionally, The Roundtable’s Homeland Security Task Force (HSTF) and Risk Management Working Group (RMWG) met to discuss evolving security threats impacting CRE. SPAC’s agenda included an update by White House officials on an expected national definition of voluntary “Zero Emissions Building,” along with implementation of the Inflation Reduction Act’s (IRA) measures affecting embodied carbon strategy initiatives. In addition, Environmental Protection Agency (EPA) staff discussed their NextGen ENERGY STAR Certification for buildings and a Department of Energy director gave an update on their Better Climate Challenge/Better Buildings Initiative. (Roundtable 2024 Energy and Climate Priorities) SPAC members also attended a special session with EPA staff where Roundtable members provided detailed industry feedback about the first major enhancements in a decade that are under consideration for EPA’s ENERGY STAR Portfolio Manager benchmarking tool. The Roundtable’s HSTF and RMWG joint meeting on Jan. 24 addressed China’s espionage efforts impacting American corporations; the emerging use of Artificial Intelligence as a new risk vector; and the current dynamic in pricing and coverage in commercial insurance markets. (HSTF & RMWG joint agenda | Roundtable 2024 Homeland Security Priorities) Next on The Roundtable's 2024 meeting calendar is the Spring Meeting on April 15-16. This upcoming meeting is restricted to Roundtable-level members only.  #  #  #
Policy Landscape
January 19, 2024
Roundtable Weekly
Congress Extends Government Funding Until March, House Ways & Means Approves Tax Package with LIHTC and Business Provisions
Budget Congress House Ways and Means Committee Low Income Housing Tax Credit LIHTC Policy Landscape Tax Policy
President Biden signed legislation today that averts a partial federal government shutdown by extending federal funding to March 1 and 8. The stopgap, passed by Congress yesterday, gives policymakers limited time to negotiate 12 additional bills at an agreed-upon $1.59 trillion limit to fund the government through the end of its fiscal year on Sept. 30. (Associated Press, Jan. 19 | (Politico and The Hill, Jan. 18) Stopgap Funding Today’s stopgap is the third “continuing resolution” Congress has cleared since the start of the current fiscal year on Oct. 1. Intense opposition from members of the conservative House Freedom Caucus led Speaker Mike Johnson (R-LA) to reach an agreement with Democrats to support the measure. (Wall Street Journal, Jan. 18) A similar short-term spending bill last October led to the ouster of former Speaker Kevin McCarthy (R-CA) by House conservatives. (Wall Street Journal, Jan. 8) Bipartisan Tax Package Advances Meanwhile, the House Ways and Means Committee today marked up the $77 billion Tax Relief for American Families and Workers Act of 2024 negotiated by Senate Finance Committee Chairman Ron Wyden (D-OR) and Ways and Means Chairman Jason Smith (R-MO). (National Public Radio, Jan. 16) No amendments were adopted, and the bill passed overwhelmingly by a vote of 40-3. See Chairman Jason Smith’s (R-MO) opening statement and video of the markup. Provisions in the tax bill affecting real estate include: Low-Income Housing Tax CreditA Roundtable-supported three-year extension (2023–2025) of the 12.5 percent increase in LIHTC allocations to states. Even more importantly, the agreement reforms LIHTC's tax-exempt bond financing requirement, which will allow more affordable housing projects to receive LIHTC allocations outside of the state cap, and without requiring projects be financed with 50% tax-exempt bonds.  Business Interest DeductibilityA retroactive, four-year extension (2022–2025) of the taxpayer-favorable EBITDA standard for measuring the amount of business interest deductible under section 163(j). The changes do not alter the exception to the interest limitation that applies to interest attributable to a real estate business. Bonus Depreciation Extension of 100 percent bonus depreciation through the end of 2025. As under current law, leasehold and other qualifying interior improvements are eligible for bonus depreciation. In 2026, bonus depreciation would fall to 20 percent and expire altogether after 2026.   Other provisions in the agreement include reforms to the child tax credit, the expensing of R&D costs, disaster tax relief, a double-taxation tax agreement with Taiwan, and a large pay-for that creates significant new penalties for abuse of the employee retention tax credit (ERTC) rules and accelerates the expiration of the ERTC. Sen. Wyden and senior congressional staff will discuss tax legislation with Roundtable members during The Roundtable’s all-member 2024 State of the Industry Meeting in Washington next week. #  #  #
Capital and Credit
January 19, 2024
Roundtable Weekly
Roundtable and Industry Coalition Raise Concerns About Negative Impact of Basel III Endgame Proposal
Basel III Capital and Credit Halting ProCyclical Policy Measures and Increases in Regulatory Capital Regulators The Fed
The Real Estate Roundtable has raised concerns about the negative impact that the “Basel III Endgame” regulatory proposal would have on real estate credit and capital markets, urging federal banking regulators to withdraw their proposed rulemaking to increase capital requirements for banks with at least $100 billion in assets. The Roundtable’s letter Jan. 12 outlines how the proposal would decrease real estate credit availability, increase costs to commercial and multifamily real estate borrowers, and negatively impact the U.S. economy. (Roundtable comment letter) Industry Opposition The Roundtable letter states, “The largest U.S. banks’ capital and liquidity levels have grown dramatically since the original Basel III standards were implemented in 2013 in response to the 2008 Global Financial Crisis. So it is not clear what problem regulators are trying to solve with this proposed capital hike.” The letter also noted that raising capital levels at the largest U.S. banks will only limit credit and feed a downward spiral that will put additional pressure on the financial system. Additionally, The Roundtable filed a Jan. 16 letter, along with a coalition of nine national industry trade groups in opposition to the proposal, citing its potential negative impact on available credit capacity for commercial real estate transactions, market liquidity, and economic growth. (Industry coalition letter) Fed Weighing Possible Changes Federal Reserve officials are considering possible adjustments to key parts of the proposal, “including operational risk calculations and potential offsets for mortgage servicing,” according to the Federal Reserve’s Vice Chair for Supervision Michael Barr. “The public comment(s) that we're getting on this is really critical for us getting it right. We take it very, very seriously," Barr said. (Reuters and PoliticoPro, Jan. 9) In Oct. 2023, the Federal Reserve, FDIC, and OCC extended the comment period on the 1,100-page proposed Basel III rulemaking to Jan. 16, 2024. (Roundtable Weekly, Oct. 27) The Roundtable joined a coalition of 17 national trade associations in a letter to the Federal Reserve to oppose the proposal on Nov. 14. (U.S. Chamber of Commerce-led coalition letter, Nov. 14 and Axios, Nov. 16) Real Estate Roundtable President and CEO Jeffrey DeBoer also stated in a March 2023 comment letter to Barr and other key regulators, "At this critical time, it is important that the agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values.” Wave of Impending CRE Maturities This month’s Roundtable and industry coalition letters emphasize the banking proposal’s negative impact on real estate. The regulators estimate their own proposal would raise capital on the target institutions by 16% on average, which could have a profoundly negative impact on the availability of credit for commercial and multifamily real estate development—especially as interest rates remain high and the need for more affordable housing continues to grow. The coalition letter also notes that the commercial and multifamily real estate industry is a $20 trillion dollar market supported by $5.82 trillion of commercial real estate debt, of which 50% is held by commercial banks. Of that total debt, more than $2 trillion of CRE loans are maturing over the next four years. The letters address how the risks of raising capital levels at the largest U.S. banks would limit credit and exert downward pressure on the financial system. National Media Reports Focus on CRE Pressures This week, The Wall Street Journal reported on the impending wave of commercial real estate debt, which increases “the prospect of a surge in defaults as property owners are forced to refinance at higher rates.” The article also cited Trepp data showing that $602 billion in total debt backed by office buildings and other commercial real estate comes due in 2027. (WSJ, Jan. 16) Additionally, CBS’ 60 Minutes on Jan. 14 televised a report on the pressures facing CRE that featured Roundtable Board Member Scott Rechler (Chairman and CEO, RXR), above left. "This post-COVID world of higher interest rates, the changing nature of how people work and live, we're not going back to where we were," Rechler said. "And it's going to be turbulent.” The CRE industry’s concerns about the wave of maturing debt was addressed in a Dec. 18 op-ed in the Urban Land Institute’s UrbanLand by Roundtable Senior Vice President Clifton E. Rodgers, Jr. (“Finding Liquidity: Regulatory Agencies Should Exercise Caution to Prevent a Perfect Storm”) Capital and credit issues facing CRE will be a focus of discussion at next week’s all-member Roundtable State of the Industry meeting on Jan. 23-24 in Washington, DC. #  #  #
Policy Landscape
January 12, 2024
Roundtable Weekly
Congress Struggles to Assemble Stopgap Funding Measure as Policymakers Negotiate Elements of Potential Tax Package
Congress Policy Landscape Tax Policy
House and Senate lawmakers are discussing a short-term stopgap measure aimed at avoiding government shutdown deadlines on Jan. 19 and Feb. 2, which would also buy time to negotiate additional funding through the end of the fiscal year on Sept. 30. Meanwhile, with tax filing season slated to begin Jan. 29, congressional tax writers reported making progress this week on a potential tax package that includes measures on business interest deductibility, bonus depreciation, and the child tax credit. (CQ | PoliticoPro | TaxNotes, Jan. 11) Funding Challenge Sen. John Thune (R-SD), the second-ranking Republican in the Senate, said on Tuesday that a stopgap bill with funding until March might be necessary. “What that looks like next week, and where it originates, House or Senate, remains to be seen.” Thune said. (Roll Call, Jan. 9 and PunchBowl News, Jan. 10) Sen. Majority Leader Chuck Schumer (D-NY) announced yesterday that the Senate will consider a “continuing resolution” to keep the government open. “A shutdown is looming over us, starting on Jan. 19, about a week away. Unfortunately, it has become crystal clear that it will take more than a week to finish the appropriations process.” (CBS News and CQ, Jan. 11) In the House, Speaker Mike Johnson (R-LA) is struggling to obtain the approval of conservative Republicans on a spending agreement announced on Sunday for a $1.66 trillion spending plan for the federal government. (The Hill, Jan. 11 and AP, Jan. 8)) Republicans currently hold a 220-seat majority in the House while Democrats control 213, which means Johnson can afford to lose only three votes in his caucus for the GOP to pass legislation in the lower chamber by party-line vote. (AP, Jan 11 | CNN, Jan. 9 | AlterNet, Jan. 2) Tax Package Negotiations On Wednesday, Senate Finance Committee Chairman Ron Wyden (D-OR) and House Ways and Means Committee Chairman Jason Smith (R-MO), above, presented their members with an outline of a potential, three-year $70 billion tax package.  Disagreements continue over the scope of a potential child tax credit and low-income housing tax credit in exchange for partial restorations of business tax credits such as business interest deductibility and bonus depreciation. (MarketWatch and PunchBowl, Jan. 11 | PoliticoPro and Wall Street Journal, Jan. 10) Issues that remain under consideration include a Roundtable-supported expansion of the low-income housing tax credit and the deductibility of state and local taxes (SALT). Sen. Wyden and senior congressional staff will discuss tax legislation with Roundtable members during The Roundtable’s all-member 2024 State of the Industry Meeting on Jan. 23-24. Preview of Coming Tax Battles Current discussions among congressional tax negotiators are a precursor for a much larger challenge next year, when 23 different provisions in the 2017 Tax Cuts and Jobs Act (TCJA) will change or expire at the end of 2025, including the deduction for pass-through business income and the cap on the SALT deduction. (Roundtable Weekly, May 26) PWC emphasized the stakes in next year’s tax negotiations in its “2024 Tax Policy Outlook” released yesterday. PwC’s National Tax Services Co-Leader Rohit Kumar told PoliticoPro that the current tax package under consideration would amount to only a “rounding error” when compared to the value of all the TCJA provisions. Today’s Wall Street Journal estimated there are $6 trillion in taxes at stake in this year’s elections. Policymakers’ efforts to pass government funding and negotiate a tax package come as office vacancies hit a record high in the fourth quarter of last year, according to a Moody’s Analytics released Jan. 8. The Moody’s report shows the national office vacancy rate rose 40 bps to a record-breaking 19.6 percent. The new record shatters the previous rate of 19.3% set twice previously—and reflects changing trends in business needs and the recent shift towards in remote work arrangements. (Wall Street Journal and ConnectCRE, Jan. 8) #  #  #
Climate Policy
January 12, 2024
Roundtable Weekly
Building Emissions Policies Picking Up Steam in 2024
179D Building Performance Standards BPS Chevron Deference climate Climate Policy Scope 3 reporting SEC Securities and Exchange Commission Supreme Court Zero Emissions Buildings ZEB
A confluence of mandatory rules and voluntary guidelines pertaining to real estate’s climate impacts—including a first-ever U.S. definition for the term Zero Emissions Building (“ZEB”) and an imminent Securities and Exchange Commission (SEC) greenhouse gas disclosure rule—will be a key focus of policy makers in 2024. ZEB Definition On Jan. 9, GlobeSt reported that The Roundtable supports the direction of the Biden administration’s recently released voluntary ZEB draft definition pertinent to private sector existing buildings and new construction. (Roundtable Weekly, Jan. 5) The ZEB definition proposes voluntary criteria for buildings to be highly energy efficient and powered solely by clean energy sources to attain zero emissions status. The Roundtable’s Sustainability Policy Advisory Committee (SPAC) is working on comments (due Feb. 5) in response to the Energy Department’s draft. SEC & Scope 3 The SEC is expected to release its long-anticipated climate risk disclosure rule this spring. (Roundtable Weekly, March 10, 2023) On Jan. 11, Bisnow quoted Roundtable Senior Vice President and Counsel Duane Desiderio about the SEC’s impending rule and its impact on CRE and other industries.  Desiderio explained to Bisnow, “Let’s hope the SEC delivers some workable rules and brings rationality to this space, especially regarding Scope 3 indirect emissions” that cover sources in a company’s supply chain beyond its immediate control. Desiderio added, “The market is certainly moving in the direction of the SEC rule.” (RER Fact Sheets: SEC’s Proposed Rule and California’s Climate Disclosure bills) 179D & BPS Another federal rule expected in the coming weeks concerns the section 179D tax deduction for energy efficient buildings, substantially revamped by the Inflation Reduction Act (IRA). (Roundtable Weekly, Dec. 1).The Internal Revenue Service will propose a regulation for comment that addresses how existing building retrofits may qualify for this incentive. Axios (Jan. 9) reported this week about trends at the local level to enact building performance standards (BPS) such as LL 97 in New York City. While Congress has not granted authority for a national emissions mandate on buildings, more cities and states are expected to run with these efforts in 2024. (Roundtable Weekly, Sept. 15). A report from the Rhodium Group this week shows U.S. GHG emissions decreased nearly 2 percent year-on-year in 2023. The report also notes that emissions from commercial and residential buildings dropped by 4 percent, which the researchers attributed primarily to a mild winter. (PoliticoPro and The Hill, Jan. 10)   SCOTUS to Consider Federal Agency “Deference” A wild card in the effectiveness and durability of federal regulations—not just in the climate arena, but from any U.S. agency—will be at the fore this spring when SCOTUS renders a decision in Loper Bright Enterprises v. Raimondo. Loper will consider whether an administrative law doctrine from 1984 known as “Chevron deference,” which grants wide latitude to federal agencies when crafting rules to implement laws passed by Congress, should be overruled. (SCOTUS Blog, May 1, 2023) The Department of Commerce stated in their brief that overruling Chevron “would be a convulsive shock to the legal system.” Oral argument will take place next Wednesday, with a decision expected by early summer. (SCOTUS Blog, Jan. 8, 2024) Officials from the White House, the Environmental Protection Agency, the Energy Department and leading non-governmental organizations will address issues at the nexus of buildings and climate policy on January 24 at the Roundtable’s all-member 2024 State of the Industry Meeting. #  #  #
Policy Landscape
January 5, 2024
Roundtable Weekly
Congress Faces Shutdown Deadlines as Domestic Funding and Foreign Aid Priorities Dominate Early 2024 Agenda
Congress Regulators Tax Policy
Congress faces a looming set of government shutdown deadlines early in the New Year as pressure builds on lawmakers to balance government funding with increased emergency aid requests for the southern border, Ukraine, and Israel. A stopgap bill passed late last year established the first funding deadline on Jan. 19, which could shutter parts of the government—while the second deadline on Feb. 2 could bring a total shutdown, including military operations. (Punchbowl News, Jan. 5 | The Hill, Jan. 1 | Politico, Jan. 2 and Dec. 28) Tax Legislation Congressional focus on immediate funding priorities adds a degree of uncertainty to an additional tax package that may seek to hitch a ride on any new spending bill early in the year. (Tax Notes and Politico, Jan. 2) Recent discussions between Senate and House tax writers have focused on a package in the $90-100 billion range that would include measures on business interest deductibility, bonus depreciation, and an increase in the child tax credit for low-income families. (Roundtable Weekly, Nov. 17) The Roundtable continues to encourage policymakers to include real estate-related tax measures in any tax package. Specific proposals include cancellation of indebtedness tax relief for commercial real estate loan restructurings; a tax credit for converting older office and other commercial buildings to housing; an increase in the equity interest that REITs can take in struggling retail tenants; an expansion of the low-income housing tax credit; and an extension of deadlines for Opportunity Zone investments. Senate Finance Committee Chair Ron Wyden (D-OR) is scheduled to discuss funding priorities and tax issues during The Roundtable’s all-member 2024 State of the Industry Meeting on Jan. 23. Additionally, senior congressional staff from both Senate Finance and the House Ways and Means Committees will discuss the outlook for tax, trade, and other economic legislation in 2024 and beyond with Roundtable members. Congressional Review Act On the regulatory front, the Congressional Review Act (CRA) is a tool a new Congress can use to overturn certain federal agency rules completed during the last 60 session days of the previous Congress. This “lookback” threat of CRA reversal may come to fruition if Republicans win control of Congress and the White House in the November elections. (PoliticoPro, Jan. 2 and Congressional Research Service.) Pending regulations impacting commercial real estate include the Securities and Exchange Commission’s imminent climate disclosure rules; expected guidance from the IRS on the section 179D deduction for energy-efficient buildings; and federal banking agencies’ proposed “Basel III” increased capital requirements. A CRA initiative could impact Biden administration regulations completed this summer, but an exact date for when new rules would be clear of the CRA “lookback” is unknown at this time. (PoliticoPro, Jan. 2) #   #   #
Climate and Energy Policy
January 5, 2024
Roundtable Weekly
Biden Administration Requests Comments on Draft Definition for “Zero Emissions Buildings”
Climate and Energy Policy Climate Policy Energy Policy SPAC Sustainability Policy Advisory Committee Zero Emissions Buildings ZEB
The Biden administration on Wednesday issued a draft definition for the term “Zero Emissions Buildings.” The voluntary guideline would apply to non-federal, existing buildings and new construction. The U.S. Department of Energy (DOE) requested comments by Feb. 5 from industry and other stakeholders about Part 1 of the draft “ZEB” language, which is focused on “zero operating emissions.” (DOE announcement | National Definition Draft Criteria | Comments Form) Draft Criteria An eventual, final ZEB definition would be the first federal government guideline providing voluntary criteria for buildings that aspire to zero emissions status. DOE’s proposed draft defines a zero emissions building through three (3) criteria: Highly energy efficient Free of on-site emissions from energy use, and Powered solely from clean energy DOE will hold two public listening sessions on the draft definition. Registration is capped at the first 100 attendees: Thursday, January 11, 2024 @ 10 a.m. ET – Register Tuesday, January 30, 2024 @ 10:30 a.m. ET – Register DOE’s request for information will consider stakeholder responses by Feb. 5 before version 1.00 of Part 1 of a ZEB definition is finalized. (DOE’s Building Technologies Office bulletin, Jan. 3). Future parts of a national ZEB definition will likely address embodied carbon, refrigerant, and other key elements. National ZEB Definition RER plans to submit comments about the draft proposal. A federal definition for ZEB could bring much-needed consistency to help CRE owners and investors establish long-term emissions goals for buildings. (Roundtable Weekly, Sept. 29, 2023) The Roundtable and a coalition of real estate organizations sent a Sept. 14 letter to US-EPA supporting development of standard methods and metrics for buildings and tenants to quantify their emissions. Federal standards, definitions, and tools “are the North Star though which local governments can inform their law-making, and this helps bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs,” said The Roundtable’s Sustainability Policy Advisory Committee (SPAC) Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust). (Roundtable Weekly, Sept. 15) Roundtable Senior VP and Counsel Duane Desiderio was quoted on Sept. 28 in the Washington Post about how CRE companies may welcome the idea of a single federal standard. “A workable, usable federal definition of zero-emission buildings can bring some desperately needed uniformity and consistency to a chaotic regulatory landscape,” Desiderio said. (Roundtable Weekly, Sept. 15) Executive branch officials from the White House, federal agencies, and leading non-governmental organizations will discuss the national ZEB definition on Jan. 24 during sessions on sustainability issues at The Roundtable’s all-member 2024 State of the Industry Meeting.  #  #  #
Capital & Credit
December 22, 2023
Roundtable Weekly
FSOC Sees CRE Among Risks to U.S. Economy in 2024
Capital Credit
Last week, the Financial Stability Oversight Council (FSOC) released its 2023 Annual Report, identifying commercial real estate among the major financial risks to the U.S. economy in 2024. (FSOC 2023 Annual Report). Report Findings Developed by the FSOC, the report reviews financial market developments, describes emerging threats to U.S. financial stability, identifies vulnerabilities in the financial system, and makes recommendations to mitigate threats and vulnerabilities. Citing the almost $6 trillion of commercial real estate loans outstanding in the second quarter of 2023, roughly half of which are held by U.S. banks, the report raises concerns about  “a substantial volume” of these loans that are set to mature in the next few years. (Marketwatch, Dec. 14) The report states, “Elevated interest rates, high costs, and potential structural changes in demand for CRE have heightened concerns about CRE. Maturing loans and expiring leases amid weak demand for office space have the potential to strain office sector conditions further, which could cause stress to spread beyond this segment of the CRE market.” The report also cites the July 2023 policy statement by the banking agencies on Prudent Commercial Real Estate Loan Accommodations and Workouts, as requested in the Roundtable’s March comment letter, and notes that accommodations and workouts are often in the best interest of borrowers and lenders. The FSOC recommends that supervisors, financial institutions, and investors continue to monitor CRE exposures and concentrations closely and track market conditions. (U.S. Department of Treasury Press Release, Dec. 14) Looking Ahead This week, The Roundtable’s Clifton E. Rodgers, Jr. discussed the CRE industry’s concerns about the wave of maturing commercial real estate debt, restoring liquidity, and the challenging economic environment ahead in 2024 in an op-ed for Urban Land Institute,Finding Liquidity: Regulatory Agencies Should Exercise Caution to Prevent a Perfect Storm. In the op-ed, Rodgers stated, “To help rebalance these maturing loans, it is important to advance measures that will encourage additional capital formation. To that end, it is essential to bring more foreign capital into U.S. real estate by lifting legal barriers to investment, as well as to repeal or reform the archaic Foreign Investment in Real Property Tax Act (FIRPTA). Importantly, policymakers must not hike the tax rate on capital gains, end carried interest, or alter the 1031 like-kind exchange provisions.” (ULI Op-ed Dec. 18) A recent paper published by four economists at the National Bureau of Economic Research found that 14 percent of the $2.7 trillion commercial real estate loan market and 44 percent of office loans currently carry outstanding loan balances higher than property values and are at risk of default. (Commercial Observer, Dec. 18) The paper also cited that around one-third of all loans, and the majority of office loans, may encounter substantial cash flow problems and refinancing challenges. RER board member Scott Rechler (RXR) was quoted in the Wall Street Journal this week discussing the outlook for 2024. “In 2024, it’s game time. Owners and lenders are going to have to come to terms as to where values are, where debt needs to be, and right-sizing capital structures for these buildings to be successful.” The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will discuss many of these issues at our State of the Industry Meeting on January 23, 2024. # # #
Tax Policy
December 22, 2023
Roundtable Weekly
Roundup: Lawmakers Seek Action on Affordable Housing Incentives, Senators Push Treasury for EV Recharging Station Guidance, and Joint Tax Committee Releases Long-Awaited “Bluebook”
Affordable Housing Inflation Reduction Act Infrastructure Incentives
House Ways and Means Committee members sent a bipartisan letter to House Leadership last Friday urging consideration of the Affordable Housing Credit Improvement Act (H.R. 3238) in any potential tax legislation brought to the floor in 2024. (Letter, Dec. 15) AHCIA Provisions Since the introduction of H.R. 3238 in May, the bill has garnered strong bipartisan support with 200 cosponsors—100 Republicans and 100 Democrats. (summary of AHCIA) Representatives Darin LaHood (R-IL), Suzan DelBene (D-WA) and others wrote to House leadership urging inclusion of two key changes to the low-income housing tax credit (LIHTC) in any tax legislation that emerges (Tax Notes, Dec. 15): Restoring the 12.5% increase in state allocation of housing credits that expired at the end of 2021, and Lowering the threshold of private activity bond financing (currently 50%) that a project must meet in order to qualify for the maximum amount of 4% housing credits.  The competitive and over-subscribed LIHTC program is a critical federal tool for addressing the widespread lack of affordable rental housing. The arbitrary 50% bond financing requirement creates a barrier to affordable housing production, especially for the growing number of states that fully utilize their private activity bond cap. (Roundtable Weekly, May 19) Senators Push Treasury to Finalize Rules for EV Recharging Infrastructure Incentives Fourteen Senators wrote to Treasury Secretary Yellen on December 15 asking for final rules implementing the alternative fuel vehicle refueling property tax credit.  The Roundtable previously submitted detailed comments seeking guidance requesting greater clarity for real estate owners and others contemplating new investments in EV recharging stations. The Inflation Reduction Act generally limits the credit to facilities installed in rural or low-income census tracts. The letter encourages Treasury to adopt an inclusive definition that effectively covers any tract if 10 percent or more of the “census blocks” inside the tract are rural.  The Senators’ letter includes other requests that align with the Roundtable’s comments and aims to help the administration realize its goal of deploying 500,000 chargers by 2030. For example, the Senators urge that the rules treat each port at a refueling property as a “single item” that effectively qualifies for its own credit. Joint Tax Committee Releases “Bluebook” Describing Recent Tax Laws On Friday, Congress’s nonpartisan Joint Committee on Taxation released its long-awaited explanation of recently enacted tax laws. The General Explanation of Tax Legislation Enacted in the 117th Congress covers eight tax laws and nearly 200 tax provisions enacted or modified in 2021 and 2022, including the employee retention tax credit, the corporate alternative minimum tax, and the revamped energy tax incentives.  The so-called “JCT Bluebook” is often relied upon by Treasury officials and federal courts when implementing and interpreting tax statutes.  Congress reconvenes in Washington the week of January 8, where they will face a fast-approaching deadline for fiscal year 2024 spending bills and additional priorities, including a tax package. # # #
Affordable Housing
December 15, 2023
Roundtable Weekly
Senate Finance Committee Chair Aims to Include Workforce Housing Tax Incentive in 2024 Tax Package
Affordable Housing Low Income Housing Tax Credit LIHTC Tax Policy Workforce Housing Tax Credit Act WHTC
The Roundtable and 12 other national real estate organizations wrote to congressional tax writers on Dec. 8 in strong support of the Workforce Housing Tax Credit (WHTC) Act (S. 3436), which would create a new tax incentive aimed at increasing the supply of moderate-income rental housing. The Senate’s top tax writer, Finance Committee Chair Ron Wyden (D-OR), above, said this week that there is a “real window of opportunity” to pass bipartisan housing legislation in the coming months that could be folded into a possible 2024 tax package. (WHTC bill summary, Dec. 7 | Coalition letter, Dec. 8 | Wyden’s Senate floor remarks, Dec. 12 | Tax Notes, Dec. 13) Affordable Housing Tax Credits Sen. Wyden told Tax Notes that housing tax credits “will be part of the discussions we’ll have to have” with House Ways and Means Chairman Jason Smith (R-MO) as they discuss elements for a possible tax package in the new year. The Senate Finance Committee Chairman also commented on the Senate floor about his introduction last week of the WHTC Act (S. 3436) with Sen. Dan Sullivan (R-AL), Rep. Jimmy Panetta (D-CA) and Rep. Mike Carey (R-OH). “Our bipartisan proposal, based largely on the success of the Low Income Housing Tax Credit (LIHTC) would help spur a juggernaut of new housing construction,” Wyden said. (Video of floor remarks | Roundtable Weekly, Dec. 8) Led by the National Multifamily Housing Council, the Dec. 8 industry coalition letter stated, “We believe that the Workforce Housing Tax Credit Act will only serve to complement the LIHTC.” The organizations emphasized that the WHTC would spur the development of housing targeted to renter households who face affordability challenges yet are ineligible for federal subsidies. WHTC & LIHTC The WHTC would build on the successful LIHTC by enabling state housing agencies to issue similar tax credits to developers for the construction or rehabilitation of income-capped rental housing. (One-page Senate Finance Committee summary and WHTC bill text) WHTC credits could be used to build affordable housing for tenants between 60% and 100% of the area median income, or transferred to the State’s LIHTC allocation for housing aimed at lower-income tenants (generally below 60% of area median income). (Congressional Research Service summary of the LIHTC, April 26) Roundtable President and CEO Jeffrey DeBoer stated, “Tax policy should support and encourage private sector investment that boosts the supply of affordable and workforce housing. The Workforce Housing Tax Credit Act would build on time-tested tax incentives like the low-income housing tax credit and further facilitate the conversion of underutilized, existing buildings to housing. We welcome this positive step forward for our nation’s housing supply.” (Roundtable Weekly, Dec. 8) In the House this week, Rep. Jimmy Gomez, D-CA), reintroduced the Rent Relief Act of 2023, which would create a new tax credit for renters of a personal residence to cover part of the gap between 30 percent of their income and actual rent. Tax Notes, Dec. 13) Rep. Gomez told Tax Notes this week that House tax writers hope to include the rent relief bill, along with Gomez’ Revitalizing Downtowns Act (H.R. 419) in bipartisan discussions about a potential tax package. H.R. 419 would provide an investment tax credit for 20 percent of the cost of converting office buildings to other uses.  (Rep. Gomez news releases, July 28 and Dec. 12 | news release, Dec. 12 | Roundtable Weekly, Aug. 11) #  #  #
Foreign Investment & CRE
December 15, 2023
Roundtable Weekly
Roundtable Chairman Raises Concerns About Florida Law Impacting Foreign Investments in Real Estate 
Florida SB264 Jeffrey DeBoer John Fish Restrictions on Foreign Investment in US Real Estate
Roundtable Chairman John Fish (Chairman & CEO, Suffolk), above, was quoted in media articles this week raising concerns about certain aspects of a new Florida law that would limit and regulate the sale and purchase of certain Florida real property by “foreign principals” from “foreign countries of concern.” Foreign Investment in Florida Property Fish commented to Bloomberg about Florida’s SB 264, stating, “The law is far-reaching, very, very confusing, and the unintended consequences would be very, very detrimental.” (Bloomberg, Dec. 11 | Bisnow and Inman, Dec. 12) The Real Estate Roundtable urged the Florida Real Estate Commission on Sept. 5 to consider specific concerns about implementing the state law, which could impair capital formation and hinder the important role legitimate foreign investment plays in U.S. real estate, the broader economy, and job growth. (Roundtable Weekly, Sept. 8) Need for Clarifications In response, the Florida Department of Commerce on Sept. 21 proposed a positive clarification to one section of the law, which could have implications for similar laws in other states. Montana and Alabama have also passed legislation with similar restrictions to Florida’s that ban the sale or lease of agricultural land, critical infrastructure, and properties near military bases to “foreign adversaries,” including China. (Inman, Dec. 12) Broader prohibitions in another area of Florida’s SB 264—Section 204—generally preclude Chinese investors from acquiring “any interest”in any Florida real property anywhere in the state. The Roundtable is hopeful that Section 204 will be subject to clarification during the rulemaking process. (See highlighted areas in the Notice of Proposed Rule) Roundtable President and CEO Jeffrey DeBoer noted in his Sept. 5 letter, “Our concern with the new law is that U.S.-managed investment funds, which are controlled and managed by U.S. nationals, may now be precluded from pursuing investment opportunities in Florida if there is any level of investor participation in the fund from countries of concern like China.” The Roundtable is seeking a technical clarification that would permit U.S.-managed investment funds, which may include passive investor participation from investors across the globe to continue to pursue investment opportunities in Florida. Non-U.S. investors routinely subscribe for small, generally passive minority interests in these funds. These investors exercise no control over the investments or the operation of the assets. Importantly, the investment decisions are made by the U.S.-managed funds, not by passive investors who simply commit capital for a return, not to control the underlying investments. Florida Gov. Ron DeSantis has launched the SecureFlorida Portal, where foreign principals from foreign countries of concern like China must register property. #  #  #
Tax Policy
December 15, 2023
Roundtable Weekly
Bipartisan Legislation to Improve REITs’ Flexibility and Competitiveness Gains Traction in the House
Nareit REITs Ron Wyden Tax Policy
A bill to increase the limit on the amount of assets a REIT can own through a fully taxable subsidiary is gaining momentum in the House. The bipartisan measure has picked up 18 additional cosponsors from the tax-writing Ways and Means Committee since its introduction in late August by Representatives Mike Kelly (R-PA) and Brian Higgins (D-NY). (Legislative text of H.R. 5275) Taxable REIT Subsidiaries In 1999, Congress authorized REITs to create taxable subsidiaries (C corporations) that can engage in activities not otherwise allowed at the REIT level. Common activities undertaken by taxable REIT subsidiaries (TRSs) include services such as landscaping, cleaning, concierge, childcare, and catering, among others. As professional real estate management evolved, the change was necessary to ensure REITs could compete with other full-service real estate businesses. H.R. 5275 would raise the limit on a REIT’s assets attributable to its taxable subsidiary from 20 to 25 percent. The legislation would not change the longstanding REIT income rules requiring that at least 75 percent of the REIT’s total income come from sources like real property rents and interest from real estate mortgages. Similarly, the legislation would not change the REIT asset test, which requires that at least 75 percent of the value of the REIT’s assets consist of real estate, cash, cash items, and government securities. The Roundtable supports the legislation to raise the TRS limitation. The issue is also a tax priority for Nareit, which is leading the outreach effort on Capitol Hill. The current 20 percent limit has created particular challenges for REITs seeking to expand and acquire assets outside the United States, such as digital infrastructure. Raising the threshold to 25 percent would restore the limit to its prior level and allow U.S.-based businesses to continue growing in competitive foreign markets. The Roundtable and its Tax Policy Advisory Committee (TPAC) will continue working closely with Nareit and other industry partners in support of H.R. 5275 as deliberations continue on tax legislation. #  #  #
Affordable Housing
December 8, 2023
Roundtable Weekly
Senate, House Bills Introduced to Spur Workforce Housing Development
Affordable Housing Housing Low Income Housing Tax Credit LIHTC Ron Wyden
Bills introduced yesterday in the Senate and House would create a new tax incentive aimed at increasing the supply of moderate-income rental housing. The legislation seeks to expand the construction and rehabilitation of housing for middle-class families and young people starting their careers, while enabling workers to live in communities where they are employed. (Senate Finance Committee news release and bill summary, Dec. 7) Workforce Housing Tax Credit Senate Finance Committee Chair Ron Wyden, (D-OR) and Sen. Dan Sullivan (R-AL), along with Reps. Jimmy Panetta (D-CA) and Mike Carey (R-OH), introduced the bipartisan Workforce Housing Tax Credit (WHTC) Act to build on the successful Low-Income Housing Tax Credit (LIHTC) by enabling state housing agencies to issue tax credits to developers, which would subsequently be sold to investors. (1-page Senate Finance committee summary and WHTC bill text) WHTC credits could be used to build affordable housing for tenants between 60% and 100% of area median income, or transferred to LIHTC for tenants generally below 60% of area median income. (Congressional Research Service summary of the LIHTC, April 26) State housing finance agencies could allocate WHTC credits to developers through a competitive process. The tax credits could also be provided to developers with a 15-year compliance period and 30-year extended commitment.  (Committee summary) Sen. Wyden’s committee previously held a March hearing on “Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families” focused on the need to expand affordable housing for working families. Roundtable Support The Roundtable strongly supports the WHTC. Roundtable President and CEO Jeffrey DeBoer stated, “Tax policy should support and encourage private sector investment that boosts the supply of affordable and workforce housing. The Workforce Housing Tax Credit Act would build on time-tested tax incentives like the low-income housing tax credit and further facilitate the conversion of underutilized, existing buildings to housing. We welcome this positive step forward for our nation’s housing supply.” The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) has formed an Affordable Housing Working Group, which is working with the Research Committee to develop proposals on expanding the nation’s housing infrastructure. #  #  #
Tax Policy
December 8, 2023
Roundtable Weekly
Taxation of Unrealized Gains is Focus of Senate Democratic Bill and Supreme Court Case
Supreme Court Tax Policy Unrealized Gains Billionaire Tax
Senate Finance Committee Chairman Ron Wyden (D-OR), above, and 15 of his Senate colleagues recently introduced the Billionaires Income Tax Act (S.3367), which would tax the appreciation of wealthy individuals’ assets. On Tuesday, the Supreme Court heard oral arguments in Moore v. United States, a case challenging the federal government’s authority to tax unrealized gains under the 16th Amendment. Billionaires Income Tax Act (BITA) Under BITA, tradable, liquid assets would be marked-to-market and taxed annually on their appreciation, while illiquid assets would be subject to a “deferral recapture” tax when sold—or if certain other currently nontaxable events occur, such as death, a transfer to a trust, or a like-kind exchange. (One-page summary; section-by-section summary). (CQ, Nov. 30) As drafted, the bill would apply to taxpayers with more than $100 million in annual income or more than $1 billion in assets for at least three consecutive years. (Tax Notes, Nov. 30). The legislation is not limited to future appreciation of assets. It would reach back in time and apply the tax to accumulated, unrealized gains at the time of enactment.  The tax on built-in gains could be paid over a five-year period. Mark-to-market losses could be carried back for three years and applied against taxable market-to-market gains. The appreciation of partnership assets (including built-in gains) and gains or losses from partnership transactions would flow through and taken into account at the partner level. Related legislation was introduced in the House by Reps. Steve Cohen (D-TN) and Don Beyer (D-VA).  Roundtable Position and Outlook Real Estate Roundtable President and CEO Jeffrey DeBoer said, “Taxes rarely remain targeted, and like the income tax, this targeted proposal could be revised and expanded over time to apply to everyone. Moreover, taxing unrealized gains would upend over 100 years of federal taxation, require an unprecedented IRS intrusion into household finances, and create unknown and potentially unintended consequences at a time of economic uncertainty. Deferring the taxation of gains until an asset is sold supports entrepreneurs while encouraging the type of patient, long-term investing and productive risk-taking that drives our economy forward.” He added, “These proposals lack robust policy support, are ill-timed, and carry considerable risk. They should be rejected.” (See also RER Policy Priorities – Taxing Unrealized Gains – Billionaire Tax) In the last Congress, efforts to enact a mark-to-market regime were unsuccessful when they ran into resistance from moderate Democrats. Sen. Wyden (D-OR) acknowledged that his bill, which lacks bipartisan support, would not be part of any year-end tax legislation. (CQ, Nov. 30) Moore v. United States On Tuesday, the Supreme Court heard oral arguments in Moore v. United States, which challenges the federal government’s constitutional authority to tax unrealized income. The petitioners in Moore argue that the mandatory repatriation tax in the Tax Cuts and Jobs Act exceeds Congress’s authority under the 16th Amendment to lay and collect taxes on incomes. They argue that because the tax is based on the accumulated, undistributed earnings of a foreign corporation, there is no income realization event for the Moores, who are a non-controlling minority shareholder of the corporation. (Roundtable Weekly, Oct.13) Depending on the outcome and the scope of the decision, the Moore case could have implications for other forms of taxing unrealized gains, such as the appreciated value of real estate and other assets directly owned by a taxpayer. A majority of the justices signaled they are hesitant to weigh into the broader debate of how to define income for tax purposes. A decision in Moore is not expected until June 2024. (USA Today and PoliticoPro, Dec. 5 | Tax Foundation, Aug. 30) #   #   #
Remote Work
December 8, 2023
Roundtable Weekly
GAO Reports All Federal Agencies at Less Than 50 Percent Occupancy
Remote Work Workplace Return
More than half of the federal workforce is not working in their agency offices, according to the Government Accountability Office (GAO). Sen. Joni Ernst (R-IA) released a list this week based on the GAO data that shows federal space utilization percentages range from a low of 7% to 49% with most agencies using less than 30%. (Agency list | Sen. Ernst news release | DailyMail, Dec. 6) Federal Employees’ Return to Office The GAO statistics released by Sen. Ernst, the Ranking Member of the Senate Small Business & Entrepreneurship Committee, covers 24 agencies for one week between January and March 2023. Sen. Ernst told Federal News Network this week that she is pushing the federal government to get workers back to their offices or sell their unused space. In August, Ernst demanded investigations into federal departments and agencies to determine the impact of telework on the delivery and response times of government services. That same month, White House Chief of Staff Jeff Zients directed cabinet officials to increase the return of federal employees to their offices. (Federal News Network, Nov. 30 | (Government Executive, Aug. 7 | Roundtable Weekly, Aug. 11) Since the pandemic, Congress has held multiple hearings and introduced legislation in both the House and Senate about the government’s remote work policies. (Roundtable Weekly, Dec. 1) The General Services Administration’s (GSA) Robin Carnahan recently told the House Committee on Oversight and Accountability that her agency sees an opportunity to reduce the government’s real-estate footprint by up to 30% in the coming years. (Federal News Network, Nov. 14) Roundtable Response RER Chair John Fish (Chairman & CEO, Suffolk), above, expressed the industry’s concern about government employees’ reluctant return to their offices in last week’s Wall Street Journal. “Other parts of the country with large federal workforces are also struggling to bring back workers. Whether you’re talking about downtown Boston, or Denver or Northern Virginia, occupancy is down substantially,” said Fish. (WSJ, Nov. 28) Roundtable President and CEO Jeffrey DeBoer has consistently emphasized that federal policies promoting remote work undermine the health of cities, local tax bases, and small businesses. The Real Estate Roundtable has urged President Biden and national policymakers to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 2022; RER letter to Senate, April 2023) #  #  #
Climate Policy
December 8, 2023
Roundtable Weekly
U.S. Joins Global Push to Slash Building Emissions
Climate Policy
The United States joined China, the UK, and the larger European Union this week in an international initiative to accelerate the buildings sector’s ability to reach “near zero” emissions by 2030. (United Nations press release, Dec. 6) The “Buildings Breakthrough,” launched at the United Nations COP 28 climate meeting in Dubai, is a voluntary partnership that covers new construction and major renovation projects. (Recorded launch and USGBC blog post, Dec. 6) The initiative is a pledge by countries to cut emissions from building operations and construction materials down or close to zero. A Buildings and Climate Global Forum scheduled for March in Paris will flesh-out details. The Biden-Harris administration’s imminent release of a proposed zero emissions building (“ZEB”) definition aligns with this international effort. The ZEB definition will be the first federal government guideline providing voluntary criteria for buildings that aspire to zero emissions status. (Roundtable Weekly, Sept. 29) SBTi The Science Based Targets Initiative (SBTi), an organization with significant global influence, recently updated its “pilot” guidance for the building sector. (Ramboll, Dec. 4) SBTi’s latest guidance includes important revisions urged by The Roundtable and Nareit in joint comments submitted last summer. (Roundtable Weekly, July 14). Notably, SBTi changed course from its original proposal and will allow companies to set science-based emissions targets based on “market-based” solutions such as purchases of renewable energy certificates (RECs). Real estate companies can apply to participate in SBTi’s pilot program through December 10. (SBTi Call for Applicants) CFTC Guidelines and EPA’s Portfolio Manager On Monday, the Commodity Futures Trading Commission (CFTC) proposed first-ever federal guidelines to improve the transparency, quality, and pricing of “carbon offset” projects (such as tree planting and GHG sequestration). Comments are due by February 16, 2024. (CFTC news release | Reuters | Financial Times, Dec. 4) The Environmental Protection Agency (EPA) is holding a workshop session for Real Estate Roundtable members on improvements to its ENERGY STAR Portfolio Manager benchmarking tool. The workshop will take place on January 24, 2024 as part of The Roundtable’s State of the Industry meeting in Washington, DC. (Contact RER Meetings about registration) EPA’s improvements to its free online Portfolio Manager tool, used by nearly 25% of U.S. building space to measure energy use and GHG emissions, is widely supported by the CRE industry. (Coalition letter to EPA, Sept. 14 and Roundtable Weekly, Sept. 15) #  #  #
Roundtable Advocacy
December 8, 2023
Roundtable Weekly
The Roundtable’s Jeffrey DeBoer Recognized as a "Top Lobbyist" for 2023
Jeffrey DeBoer
Real Estate Roundtable President and CEO Jeffrey DeBoer, above, is one of the "Top Lobbyists" in Washington, DC for 2023, according to the widely-read Capitol Hill publication, The Hill.  This is the sixth consecutive year that DeBoer has earned the recognition. (The Hill, Dec. 6) The Top Lobbyists 2023 list includes “impactful advocates (who) stand out for the results they’ve delivered for their clients, companies, trade associations and advocacy groups in the nation’s capital.” The Hill also noted that after pandemic restrictions were lifted, “these top lobbyists had to navigate a divided Congress—and not just the traditional Republican and Democratic divisions” as a flood of regulatory activity flowed from the Biden administration. DeBoer commented, “I am honored to lead The Real Estate Roundtable’s policy advocacy efforts and very humbled to be included on The Hill’s top lobbyist list. This personal recognition by The Hill reflects the collective efforts of the Roundtable membership, leadership, and staff. Together we work very hard to deliver non-partisan, data-based policy positions, guided by what is good for communities, job creation, and the economy. This has always been the foundation of our organization’s effectiveness, and it has proven to be even more critical given today’s increasingly challenging policy environment.” # # #
Property Conversions
December 1, 2023
Roundtable Weekly
White House Holds Property Conversions Briefing for Roundtable Members
179D Clean Energy Tax Incentives Inflation Reduction Act Property Conversions
Last week, the White House hosted a virtual briefing for Roundtable members to discuss federal loan and guarantee programs at the federal departments of Energy, Housing, Transportation and the General Services Administration that may assist with financing commercial-to-residential conversion projects. Property Conversions Briefing In October, the administration announced a suite of federal resources—including low-interest loans—across various agencies to assist conversion projects aimed at increasing the housing supply, revitalizing urban downtowns, and cutting climate pollution. (Roundtable Weekly, Oct. 27; White House Commercial to Residential Conversions Guidebook) The briefing last week provided members with a high-level overview of the administration’s conversion work and focused on the Transportation Department’s Transportation Infrastructure Finance and Innovation (TIFIA) and Railroad Rehabilitation and Improvement (RRIF) financing programs. (See FAQs) White House staff also announced upcoming workshops with the Department of Transportation’s Build America Bureau to learn more about how TIFIA and RRIF financing can be used for transit-oriented development (“TOD”) that takes the form of adaptive reuse. Upcoming Workshops - Federal Resources to Support Commercial-to-Residential Conversions General Services Administration Dec 5, 2023 02:00 PM Register: https://pitc.zoomgov.com/meeting/register/vJIsfuGhrDMoEtl2b6hWEl0SV4B4K1g3xXo Department of Transportation Dec 6, 2023 12:30 PM Register: https://pitc.zoomgov.com/meeting/register/vJIsdOmprDwtGEouaConZYQHY_1sOdNkRjQ Department of Energy Dec 14, 2023 02:00 PM Register: https://pitc.zoomgov.com/meeting/register/vJIsduGhqjkpH-F53_dFQvvXcu6On0_rzC4 IRA Tax Incentives – 179D White House staff on the property conversions briefing mentioned that green tax incentives enacted by the Inflation Reduction Act (IRA) may be layered with other federal loan, guarantee, and grant programs to support a project.  (See RER fact sheet, “Clean Energy Tax Incentives Relevant to U.S Real Estate) Roundtable Senior Vice President & Counsel Duane Desiderio was quoted this week in Tax Notes on the deduction in section 179D for energy-efficient commercial buildings. “The IRA’s changes to section 179D are good policy, but more changes need to be made for the deduction to reach its full potential,” said Desiderio.” (Tax Notes, Nov. 28). He explained that Congress should make 179D “transferable” by REITs and other private sector owners. The Roundtable’s Property Conversions Working Group will continue to serve as a conduit between our members and the administration to help design impactful policies that can assist with office-to-residential conversions. Please contact Roundtable SVPs Duane Desiderio (ddesiderio@rer.org) or Ryan McCormick (rmccormick@rer.org) for more information. #  #  #
Workplace Return
December 1, 2023
Roundtable Weekly
The Administration and Congress Continue to Urge Federal Agencies to Return to the Office
Workplace Return
Although the Biden administration and Congress continue to urge federal agencies to end pandemic-era telework policies, officials acknowledge they have yet to reach their return-to-office objectives, with only about half of cabinet agencies having achieved the goal of workplace return by January. (Axios, Nov. 30) Congressional and Administration Efforts On Wednesday, a subcommittee of the House Committee on Oversight and Accountability held a hearing titled, “Oversight of Federal Agencies’ Post-Pandemic Telework Policies,” to discuss the current status of telework policies within various federal agencies. Subcommittee Chairman Pete Sessions (R-TX) reiterated the goal to ensure federal agencies are measuring the impact of telework, as it remains at elevated levels even with President Biden’s call for federal employees to return to the office. (Government Operations and the Federal Workforce Subcommittee Chairman Sessions’ Remarks, Nov. 29) White House Chief of Staff Jeff Zients has been privately urging cabinet secretaries to address the significant number of federal workers who continue to work remotely, encouraging a shift away from persistent work-from-home practices. (Axios, Nov. 30) RER Chair John Fish (SUFFOLK) (above) was quoted in the Wall Street Journal, voicing the industry’s concern for stalled return to the workplace. “Other parts of the country with large federal workforces are also struggling to bring back workers. “Whether you’re talking about downtown Boston, or Denver or Northern Virginia, occupancy is down substantially,” said Fish. (WSJ, Nov. 28) Unions representing federal workers strongly support work from home and have pushed back against the Biden administration’s workplace return goals. (BGov, Sept. 14; Federal Times, Aug. 7) Since the pandemic, Congress has held multiple hearings and introduced legislation in both the House and Senate aimed at solidifying official government definitions of remote work and enhancing the accountability and transparency of federal telework policies. (Roundtable Weekly, Oct. 20) Roundtable Advocacy The Real Estate Roundtable has urged President Biden and national policymakers for months to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 2022; RER letter to Senate, April 2023) In August, the White House ordered cabinet officials to increase the return of federal employees to their offices. (Roundtable Weekly,Aug. 11) Roundtable President and CEO Jeffrey DeBoer has repeatedly emphasized that remote working by federal employees is undermining the health of cities, local tax bases, and small businesses. #  #  #
Policy Landscape
November 17, 2023
Roundtable Weekly
Lawmakers Extend Government Funding Into Early 2024; Outlook Uncertain for Tax Policy and Other Priorities
Clean Energy Tax Incentives Congress Inflation Reduction Act Tax Policy
The latest threat of a government shutdown eased this week after President Biden signed two continuing resolutions, funding some agencies until Jan. 19 and others until Feb. 2, giving Congress a chance to pass full-year appropriations bills in early 2024, and leaving the Biden administration’s $106 billion supplemental foreign aid request unresolved. (AP, Nov. 17 |Wall Street Journal | Washington Post | NBC News, Nov. 15) Window Narrowing for Other Policy Priorities Congress’ focus on the funding measures leave policymakers looking for a potential legislative vehicle that could support a separate, expensive tax package. Conversations among tax policy writers are ongoing, according to Ways and Means Ranking Member Richard Neal (D-MA). (BGov, Nov. 16) Senate Finance Committee Chair Ron Wyden (D-OR) and House Ways and Means Committee Chairman Jason Smith (R-MO) are discussing a package in the $90-100 billion range that would include measures on business interest deductibility and bonus depreciation, as well as an increase in the child tax credit for low-income families. (Roundtable Weekly, June 16) The Roundtable is encouraging policymakers to include real estate-related tax measures in any tax package. Specific proposals include cancellation of indebtedness tax relief for commercial real estate loan restructurings; a tax credit for converting older office and other commercial buildings to housing; an increase in the equity interest that REITs can take in struggling retail tenants; an expansion of the low-income housing tax credit; and an extension of deadlines for Opportunity Zone investments. IRA Tax Incentives On the regulatory front, Roundtable Senior Vice President Ryan McCormick was quoted this week in Tax Notes on the Inflation Reduction Act’s (IRA) rules affecting clean energy credits—and the need to ensure incentives extend equitably to “mixed partnerships” that include both taxable and tax-exempt investors. “Tax-exempt investors in mixed real estate partnerships include pension funds, educational endowments, private foundations, and public charities,” said McCormick, noting that these entities have invested over $900 billion in commercial real estate. The issue of proposed and temporary tax rules affecting the transferability and direct payment of the IRA credits was the subject of a July Roundtable policy comment letter to the Treasury Department and IRS. (Roundtable Weekly, July 28) The Tax Notes article also addressed problems posed by IRA prevailing wage and apprenticeship rules that were the focus of an Oct. 30 Roundtable comment letter. The letter quantified the large compliance costs and recommended allowing contractors to self-certify their compliance with the wage and apprenticeship requirements. (Roundtable Weekly, Nov. 3) The Roundtable’s Tax and Sustainability Policy Advisory Committees will remain engaged with policymakers as the IRA rules affecting CRE are finalized and implemented. These issues will be discussed during The Roundtable’s State of the Industry Meeting on January 23-24, 2024 in Washington.  #  #  #
Capital and Credit
November 17, 2023
Roundtable Weekly
The Roundtable and Coalition Request Reproposal of Basel III Capital Rulemaking as Banking Regulators Face Bipartisan Congressional Opposition
Basel III Capital and Credit Halting ProCyclical Policy Measures and Increases in Regulatory Capital Liquidity Regulators The Fed
The Real Estate Roundtable joined a coalition of 17 national trade associations in a Nov. 14 letter to the Federal Reserve, urging regulators to repropose a sweeping set of proposed rules—known as the “Basel III Endgame”—that would increase capital requirements for the nation's largest banks. Meanwhile, the nation’s top federal banking regulators testified this week before congressional committees, where they faced stiff bipartisan opposition to the proposal. (U.S. Chamber of Commerce-led coalition letter, Nov. 14 and Axios, Nov. 16) Bipartisan Opposition In July, the regulators jointly approved the 1,100-page proposed Basel III rulemaking, which aims to guard against potential risk by increasing capital requirements for banks with at least $100 billion in assets. The proposal could have a significant impact on available credit capacity for commercial real estate transactions, as well as undermine liquidity and economic growth. (Roundtable Weekly, Nov. 10 and CQ, Nov. 15) Democrats and Republicans challenged the regulators during a Nov. 14 Senate Banking Committee hearing and a Nov. 15 House Financial Services Committee hearing, warning the proposed capital requirements lacked quantitative economic analysis and would harm the economy. Sen. Chris Van Hollen (D-MD) stated that higher capital standards could impede investment in clean energy while Sen. Bob Menendez (D-NJ) emphasized that higher capital requirements pose a risk for mortgage loans to low-income and minority buyers. (Axios, Nov. 14) Before the hearings, Senate Banking Committee Ranking Member Tim Scott (R-SC) led 38 of his colleagues in a Nov. 13 letter to the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) to withdraw the Basel III Endgame proposal. House Financial Services Committee Chairman Patrick McHenry (R-NC) and Subcommittee on Financial Institutions and Monetary Policy Chairman Andy Barr (R-KY) also sent letters to the regulators on Nov. 14, claiming the Basel III regulations would put the nation’s financial system at a competitive disadvantage. More Feedback for Basel III During the hearings, the Fed’s Vice Chair for Supervision Michael Barr defended the proposals, yet responded that regulators are “quite open to comment, and we want to improve the rule before we get to a final rule.” On Oct. 20, the Federal Reserve, FDIC, and OCC announced an extension of the comment period on the Basel capital proposal from Nov. 30, 2023 to Jan. 16, 2024. The agencies also launched a quantitative impact study to clarify the estimated effects of the proposal, with the data collection deadline also due Jan. 16. Since the deadline for stakeholder comments is the same day as the impact study’s final data collection deadline, there is broad concern that the regulators’ failed to provide industry participants with an opportunity to assess and comment on any of the Agencies’ collected data.  (Roundtable Weekly, Oct. 27) The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) discussed the capital requirements proposal during its Nov. 8 meeting in New York. RECPAC welcomes Roundtable membership input as it works on a Basel III comment letter due in January. (Contact Roundtable Senior Vice President Chip Rodgers) #  #  #
Joint Employer
November 17, 2023
Roundtable Weekly
Business Coalition Urges Congress to Nullify Expansive Joint Employer Rule
Joint Employer Labor Policy
The Real Estate Roundtable and a coalition of major business groups sent a letter to all members of Congress last week in support of a joint resolution that would nullify a final rule of the National Labor Relations Board (NLRB). The NLRB “joint employer” rule—scheduled to go into effect on Dec. 26—would render employers vulnerable to claims by “indirect” workers who are not immediate hires. The policy has significant implications that could subject parent-level hotel and restaurant companies, other franchise-model businesses, and companies that hire contractors and subs to expansive joint employer liability. (Coalition letter, Nov. 9 and AP, Nov. 13) Potential Impact The NLRB rule overturns Trump-era policy and returns to an Obama-era position that makes employers liable to workers they do not directly hire or manage. It also holds joint employers liable for workplace issues they do not control, which range from collective bargaining to workplace safety conditions. The Obama-era version—in place from 2015 to 2017—cost small business franchise operators $33 billion per year, according to the International Franchise Association (IFA). It resulted in 376,000 lost job opportunities and led to 93% more lawsuits against these businesses. The Roundtable joined the coalition letter led by IFA and the U.S. Chamber of Commerce. Other real estate group signatories include the American Hotel and Lodging Association (AH&LA), the National Association of Home Builders, the National Multifamily Housing Council, and national general contracting organizations.   Party Lines in Congress On Nov. 9, a group of 10 Senate and House Republican leaders introduced a joint Congressional Review Act resolution (H.J.Res.98/S.J.Res.49) to overturn the final rule. (Senate news release, Oct. 9 and PoliticoPro, Nov. 9) The measure could pass the House but is not expected to advance in the Democratically-controlled Senate. The U.S. Chamber and other business organizations who are signatories on the coalition letter sent last week also filed a lawsuit challenging the joint employer rule on Nov. 9. Unions groups will likely seek to intervene to defend the NRLB rule. (U.S. Chamber case updates) #  #  #
Beneficial Ownership
November 17, 2023
Roundtable Weekly
The Roundtable and Broad Business Coalition Urge Congress to Pass One-Year Delay to Beneficial Ownership Rules
Beneficial Ownership Corporate Transparency Act CTA
The Roundtable signed onto a letter yesterday with approximately 70 business groups that urges Congress to pass a one-year delay in implementing burdensome “beneficial ownership” reporting requirements. (Coalition letter and PoliticoPro, Nov. 16) FinCEN Enforcement The new regulations—scheduled to take effect on Jan. 1, 2024 under the Corporate Transparency Act (CTA)—would be implemented by Treasury’s Financial Crimes Enforcement Network (FinCEN). The CTA requires the submission of regular reports to the federal government identifying the beneficial owners of businesses and other legal entities. The new law defines the targeted entities as those having 20 or fewer employees and under $5 million in revenue, which would impact nearly every small business in the nation. The CTA includes civil and criminal penalties of up to $10,000 and two years of jail time for failing to comply. The scope of the data collection is expansive. Covered entities will be required to provide the personal information of owners, board members, senior employees, attorneys, and more, then monitor the information and report all changes. FinCEN expects to receive more than 32 million separate reports in 2024, with an additional five to six million filings each year thereafter. The coalition letter states, “A year’s delay will provide FinCEN and the business community with more time to educate owners of their new obligations. It will also give Congress and FinCEN time to review the new rules to ensure they are successful.” AICPA & Updated FAQs This week’s letter also notes that the American Institute of Certified Public Accountants (AICPA) recently requested a one-year delay from FinCEN. (AICPA coalition letter, Oct. 30) AICPA noted in its letter that FinCEN significantly underestimated the cost burdens associated with the new reporting regime, relied on vague and arbitrary standards in laying out the criminal and civil penalties under the statute, and implemented filing deadlines for newly-formed entities that in some cases are impossible to meet. On Oct. 13, The Real Estate Roundtable and a coalition of eight other national real estate groups urged Treasury Secretary Janet Yellen to delay implementation of the new beneficial ownership rule. (Roundtable Weekly, Oct. 20 and Industry coalition letter) Yesterday, FinCEN issued updates to its beneficial ownership “frequently asked questions.” The FAQs include new information about the reporting process, reporting companies, beneficial owners, company applicants, reporting requirements, initial reports, and reporting company exemptions. It also includes new resources related to beneficial owners, initial reports, FinCEN identifiers, and third-party service providers. (.pdf version of the FAQs) #  #  #
Policy Landscape
November 9, 2023
Roundtable Weekly
Congress Aims for Continuing Resolution by Nov. 18 Funding Deadline
Congress Jeffrey DeBoer Quarterly Sentiment Index
Congress needs to pass a continuing resolution (CR) by next Saturday, Nov. 18 to avoid a partial government shutdown if appropriations bills are not enacted for the fiscal year that began Oct. 1. (CQ and The Hill, Nov. 9) CR vs Shutdown New House Speaker Mike Johnson (R-LA) may introduce a funding bill early next week, giving only days for Congress to agree on a CR or risk a partial government shutdown. House Republican leaders have signaled they still may pursue a “laddered” approach—with several spending bills to last until December and the remainder in January. By contrast, The Senate is considering a short-term CR to fund the government until mid-December. (Punchbowl News, Nov. 9) Another major consideration is a White House $106 billion supplemental request that includes aid for Ukraine and Israel. Republicans have voiced opposition to the package unless President Biden includes policy changes on border security. Today, Biden commented today that he was "open to discussions about the border" on the tarmac before boarding Air Force One. The administration has also requested another $56 billion for domestic policies that include childcare, broadband subsidies, and disaster relief. (Roll Call, Nov. 7) CRE Conditions Real Estate Roundtable Chairman Emeritus Bill Rudin, above, (Co-Chairman and CEO, Rudin Management Co.) this week discussed challenges facing CRE on CNBC’s Squawk on the Street, including a massive wave of loans that need to be refinanced over the next few years and the need for property conversions. Rudin emphasized that each CRE sector, and region, is different, noting that multifamily properties and high-quality commercial buildings may be doing well while certain office assets face significant challenges. The Roundtable’s Q4 Sentiment Index released last week reflects these conditions, which include higher financing costs, increased illiquidity, and uncertain post-pandemic user demand. (Roundtable Weekly, Nov. 3 and GlobeSt, Nov. 7) Roundtable President and CEO Jeffrey DeBoer said, “Various CRE markets and asset classes need more time to adapt to the new preferences of clients; more flexibility to restructure their asset financing; and patience while adjusting to the evolving valuation landscape. In addition to conversion activities, The Roundtable continues to urge the federal government to return to the workplace and support measures to assist loan modifications and increase liquidity available to all asset classes and their owners. We also remain opposed to regulatory proposals that impede capital formation.” (Roundtable news release, Nov. 3) #  #  #
Climate Risk Reporting
November 9, 2023
Roundtable Weekly
SEC Commissioner and Key Senators Support Further Analysis of Climate Disclosure Proposal
Climate Policy Climate Risk Reporting Energy and Climate Policy Scope 3 reporting SEC Securities and Exchange Commission The Fed
One of the commissioners from the Securities and Exchange Commission (SEC) and two U.S. Senators suggested this week that further analysis may be needed for a highly anticipated SEC rule on climate reporting, which includes a proposal for sweeping disclosures on Scope 3 GHG emissions. (Bloomberg Law, Nov. 7 | SEC headquarters in Washington, DC, above) Stakeholder Comments Given that the SEC has received more than 16,000 stakeholder comments on the proposal, Republican SEC Commissioner Mark Uyeda said, “Before the Commission adopts any final rule that significantly deviates from the proposal, it should seriously consider re-proposing the rule with revised rule text and an updated economic analysis.” (Ayuda’s comments, Nov. 7 and The Hill, April 6) SEC Chair Chair Gary Gensler indicated in March that the agency’s climate-related reporting rule may be scaled back. (CNBC, March 7 and Roundtable Weekly, March 10) Senators Support Additional Feedback Sen. Bill Hagerty (R-TN), left, and Roundtable Board Member Geordy Johnson (CEO, The Johnson Group) at The Roundtable’s 2023 Annual Meeting in June. Sens. Bill Hagerty (R-TN) and Joe Manchin (D-WV) also expressed support this week for obtaining additional feedback about the SEC’s proposed rule. Sen. Manchin chairs the Senate Energy and Natural Resources Committee and Sen. Hagerty serves on the Senate Banking Committee. (Hagerty-Manchin letter and PoliticoPro, Nov. 9) The lawmakers wrote to SEC Chairman Gary Gensler about recent California state laws that require companies to disclose their emissions, which beat the SEC to the punch on releasing final climate reporting rules. (Roundtable Weekly, Sept. 22 and The Real Estate Roundtable’s summary of the California legislation.) The Senators’ letter states, “The interconnectedness of the California requirements and the SEC’s proposal is undeniable: thousands of businesses would end up being subject to both the California requirements and the SEC’s rule, if finalized. However, key differences between the two raise significant compliance questions that the SEC should thoroughly review.” Roundtable Comments on Scope 3 Scope 3 refers to indirect emissions that are part of an organization’s value chain but not owned or controlled by the reporting company. The 2022 SEC proposal would require corporate issuers of securities to estimate and report Scope 3 emissions “if material” in 10-Ks and other filings. (SEC News Release, March 22, 2022) Roundtable comments submitted in June 2022 emphasized that the SEC’s proposed directive, which would mandate that companies report on Scope 3 emissions “only if material,” is a “back-door mandate” that should be dropped. The comment letter added, “No registrant should be effectively required to report on indirect emissions beyond its organizational or operational boundaries.” (Roundtable Weekly, June 10, 2022), The Roundtable’s Sustainability Policy Advisory Committee (SPAC) plans to respond to any further developments on the SEC’s proposed climate disclosure rule or other climate-related regulatory proposals affecting CRE. #  #  #
Capital and Credit
November 9, 2023
Roundtable Weekly
Policymakers Address Basel III Endgame’s Capital Requirements Proposal
Basel III Capital and Credit Liquidity Restoring Liquidity in CRE Markets and Protecting Capital Formation The Fed
This week, policymakers addressed proposed regulations to increase capital requirements for the nation's largest banks, known as the “Basel III Endgame,” which could have a significant impact on available credit capacity for commercial real estate transactions, as well as undermine liquidity and economic growth. Congressional Hearings The House Financial Services Subcommittee on Financial Institutions and Monetary Policy, chaired by Rep. Andy Barr (R-KY), held a Nov. 7 hearing focused on an array of federal financial regulations, including the Basel III proposal. Chairman Barr stated that U.S. financial regulators have increasingly ceded portions of their authority to international and domestic intergovernmental organizations, which has decreased transparency in development of U.S. regulatory frameworks and reduced regulators’ accountability. (Barr’s opening remarks, Nov. 7 and Committee memo, Nov. 2) House Financial Services Committee Chairman Patrick McHenry (R-NC) and Subcommittee Chairman Barr recently requested the Government Accountability Office (GAO) to examine the role U.S. federal banking agencies played in developing the recent international Basel proposal. (McHenry-Barr Letter, Oct 20) The Senate Banking Committee announced that top U.S. financial regulators will testify on Nov. 14 about their sweeping plan to increase bank capital requirements. Views from the Regulators Federal banking regulators announced last month an extension of the comment period on the Basel capital proposal from Nov. 30, 2023 to Jan. 16, 2024. Additionally, the agencies announced a quantitative impact study to clarify the estimated effects of the proposal, with data collection due the same date as the comments—Jan. 16. (Fed news releases, Oct 20) While the quantitative impact study is a positive development, the timing of the study fails to provide industry participants with the opportunity to assess its results or comment on the collected data before the Jan. 16 deadline. Regulators often grant the public ample time (120 days) to analyze and comment on such an impact study after it is released. (Roundtable Weekly, Oct. 27) This week, Fed Governor Michelle Bowman criticized the scope of the Basel proposal in two speeches. On Nov. 7 and today, Governor Bowman stated, “While the capital proposal reflects elements of the agreed upon Basel standards, it is not a mere implementation of the Basel standards. In this proposal, the calibration—with a large increase in capital requirements for U.S. firms—far exceeds the Basel standards mandate. There has been growing support for improving the proposal's quantitative, analytical foundations, including the need for and impact of capital increases of this scale.” The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) met in New York City yesterday to discuss the Basel proposal, other federal policies impacting capital and credit issues, and market conditions. RECPAC has established a working group on Basel III to develop comments, due by Nov. 30, on the Basel III Endgame proposal. #  #  #
Q4 Sentiment Index
November 3, 2023
Roundtable Weekly
CRE Executives Report Ongoing Financing and Liquidity Issues Causing Price Discovery Difficulties
Q4 Sentiment Index Quarterly Sentiment Index
Industry executives report commercial real estate asset classes continue to face a variety of challenges centered around higher financing costs, increased illiquidity, and uncertain post-pandemic user demand. Reduced transaction volume has also contributed to difficult price discovery, according to The Real Estate Roundtable’s Q4 2023 Sentiment Index. (RER news release, Nov. 3)  Pressures on CRE Assets Roundtable President and CEO Jeffrey DeBoer said, “Commercial real estate is at the front line of change in how people use the built environment in a post-pandemic society. Steep interest rate increases and diminished liquidity caused by regulatory pressures have led to much lower transaction volume and continued uncertainty in price discovery. The challenges facing different asset classes in the broad, complex CRE landscape is reflected in our Q4 Sentiment Index.” The Roundtable’s Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Sentiment Indices.­­­­ Any score over 50 is viewed as positive. ­­­­ The Q4 Index comes days after the Federal Reserve left its benchmark interest rate unchanged at a 22-year high of 5.4% and stated it remains open to future increases. "The good news is we're making progress," Chair Jerome Powell said." (Associated Press, Fed press release and Fed news conference video, Nov. 1) Q4 Sentiment Index Topline Findings: The Q4 2023 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of two points from the previous quarter. The Current Index registered 32, a one-point decrease from Q3 2023, and the Future Index posted a score of 57 points, a decrease of two points from the previous quarter. These stable indices highlight the persistent challenges faced by participants in the real estate market. Although there are variations among asset classes and even within specific property types, ongoing uncertainty within the broader commercial real estate industry persists due to concerns about liquidity, capital availability, interest rates, and remote work. Bright spots exist in smaller classes, such as data centers, outlet malls, and hotels, while multifamily and industrial continue to attract interest.  Within the office sector, class “A” properties with top-of-the-line amenities are the lone high performers. An overwhelming 92% of survey participants indicate that asset values have decreased compared to the previous year. The valuation process has been challenging due to limited transactions, and the combination of current cap rates and fluctuating interest rates has further complicated pricing, ultimately leading to a view that asset values have decreased relative to one year ago. Survey participants express ongoing concerns about the capital markets landscape, with 70% indicating that the availability of equity capital has worsened compared to a year ago, and 86% believing the availability of debt capital is also worse. DeBoer, above, added, “We welcome efforts at all levels of government to incentivize conversions of commercial use to residential use. Yet various CRE markets and asset classes need more time to adapt to the new preferences of clients; more flexibility to restructure their asset financing; and patience while adjusting to the evolving valuation landscape. In addition to conversion activities, The Roundtable continues to urge the federal government to return to the workplace and support measures to assist loan modifications and increase liquidity available to all asset classes and their owners. We also remain opposed to regulatory proposals that impede capital formation.” Some sample responses from participants in the Sentiment Index’s Q4 Survey include: “Your perspective depends on what assets you hold and the strength of your balance sheet.” “The distribution of capital is highly dependent on specific sectors and asset quality.” “There will be a ‘great revaluation’ cycle with more real estate assets priced lower. There haven’t been enough transactions to collect good data, and the transactions that are happening are in the most dire of circumstances, which is driving erratic and less reliable market information.” Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on behalf of The Roundtable. See the full Q4 report. #  #  #
Energy and Tax Policy
November 3, 2023
Roundtable Weekly
Roundtable Recommends Solutions to Ease Compliance with Labor Rules for IRA Tax Incentives
Clean Energy Tax Incentives Energy Policy Inflation Reduction Act Prevailing Wage Tax Policy
The Real Estate Roundtable submitted comments this week encouraging the Treasury Department to provide a compliance “safe harbor” to streamline labor-related requirements necessary to seek “bonus” tax incentives for clean energy building projects under the Inflation Reduction Act (IRA). (Roundtable comment letter, Oct. 30) Prevailing Wage and Apprenticeship Compliance Burdens The IRA allows enhanced tax incentive “bonus rates” for clean energy building projects that pay “prevailing wages” to workers and meet apprenticeship targets. (See RER’s IRA Fact Sheet on Clean Energy Incentives) The Roundtable letter notes that the IRA’s objective to support retrofits and slash carbon emissions in the built environment will be undermined if the costs of labor compliance far exceed the incentives offered by Congress. The comments explain that wage and apprenticeship compliance burdens would dis-incentivize businesses and taxpayers’ to pursue the IRA’s clean energy bonuses, thereby rendering the bonus credits program illusory in many cases. The letter also emphasizes that a regulatory solution to ease the IRA’s paperwork burdens would spur more clean energy projects in buildings—and encourages Treasury/IRS to conduct its own thorough cost-benefit accounting of Prevailing Wage/Registered Apprenticeship (PW/RA) Requirements before issuing a final rule.  Contractor Compliance Certifications Sought The “safe harbor” recommendation by The Roundtable would allow building owners/developers to rely on written certifications provided by their General Contractors (GCs), or any other subcontractors (subs), would confirm and fulfill all PW/RA labor requirements. This streamlined approach would reduce the compliance burden and retain the fervor that IRA tax incentives could generate under the IRA. Real estate owners and developers are not the direct employers of electricians, plumbers, HVAC technicians, solar technicians, EV charging installers, or any others that construct or retrofit buildings. GCs and subs directly employ manual laborers. The Roundtable also recommends regulators develop “Recordkeeping Requirements” for PW/RA compliance that reflect the reality of how laborers, mechanics, and apprentices are employed on real estate projects, who is hired by whom, and how hours worked are tracked. Other targeted tax reforms that will help scale real estate’s transformation toward zero emissions are recommended in The Roundtable letter. These include expanding Section 48 of the Code to building electrification technologies; allowing private owner transfers to unrelated third parties under Sections 45L and 179D; and repealing a Section 179D rule that reduces a property’s basis by the amount of the claimed deduction. (Roundtable comment letter, Oct. 30) #  #  #
Capital and Credit
November 3, 2023
Roundtable Weekly
Roundtable Urges SEC to Exempt Real Estate from Proposed Safeguarding Advisory Client Rule
Capital and Credit Safeguarding Advisory Client Proposed Rule SEC Securities and Exchange Commission
The Real Estate Roundtable urged the Securities and Exchange Commission (SEC) this week to exempt real estate from a proposed Safeguarding Advisory Client Rule that could severely limit advisory clients’ ability to invest by fundamentally changing the ownership and transfer rights of real estate. The proposed rule currently includes a conditional exception for real estate assets, which would impose a new layer of unclear and unnecessary oversight—and inject significant confusion into well-established transaction protections, rules, and procedures governing real estate transactions. (Roundtable letter, Oct. 30 and SEC Proposed Rule) The “Proposing Release” The Oct. 30 letter from Real Estate Roundtable President and CEO Jeffrey DeBoer reiterated current legal protections that promote the safe-keeping of real estate assets held in advisory accounts or funds. DeBoer urged the SEC “… in the strongest possible terms to exclude real estate from the scope of any final [Safeguarding] rule,” citing the ample set of existing protections that prevent real estate assets from fraudulent transfer. The letter also emphasized that the SEC has not coherently explained how the Proposed Safeguarding Rule would apply to real estate. Current law (the “Custody Rule”) under the Investment Advisers Act of 1940 requires an investment adviser to maintain clients’ funds and securities with a qualified custodian. The new proposed SEC rule would expand this requirement to maintain all advisory client assets with a qualified custodian. Since it is not possible to maintain real estate and certain other physical investments with a qualified custodian, the proposal includes a conditional exception that includes the following language: “In the real estate context, a deed or similar indicia of ownership that could be used to transfer beneficial ownership of a property would not qualify for the exception, but the physical buildings or land would qualify.” The Roundtable’s letter challenges this “Proposing Release” as confusing, impractical, and unworkable for holding and transferring real estate deeds. It also conflicts with current state and country chain of custody legal requirements that govern real estate transactions. The letter also notes the SEC could chose to make the conditional exemption available to real property, because a physical asset cannot be maintained with a qualified custodian. Additionally, the requirement to maintain custody of deeds with a qualified custodian—compared to recording the interest with a governmental authority—serves no regulatory purpose. Existing Layers of Safeguards Other existing safeguards come into play. State laws currently require signature verifications, notarizations, and accompanying IDs that provide significant hurdles to an attempted fraudulent transfer. Modern real estate transactions in the United States also require buyers and lenders to obtain title insurance, which involves a title insurance company to engage in substantial due diligence of the chain of ownership. Real estate lawyers representing the buyer and/or seller represent yet another intermediary, since they are often involved in these asset transactions to provide yet another source of gatekeeper protections. The Roundtable letter states the SEC must explain how it would be possible to maintain title or deed with a qualified custodian since the “Proposed Rule would fundamentally change the ownership and transfer rights of real estate.” The letter states the SEC should avoid any final rule that would limit clients’ access to, or unduly burden, investment in the real estate asset class. The Proposing Release also contains no evaluation of any risk of loss for real estate assets—it only asserts such risk as a theoretical matter. The Roundtable and a diverse group of 25 trade associations previously wrote to SEC Chair Gary Gensler to oppose the Safeguarding Advisory Client Rule proposal and explain the negative impacts it would have on investors, market participants, and the financial markets. This week’s letter from The Roundtable focused exclusively on the proposal’s impact on real estate assets. (Roundtable Weekly, Sept. 15) The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Custody Rule Working Group developed this week’s comments and met today with the SEC’s Division of Investment Management about the proposal. RECPAC is scheduled to meet Nov. 8 in New York City. #  #  #
Q4 Sentiment Index
November 3, 2023
Press Release
NEWS: CRE Executives Report Ongoing Financing and Liquidity Issues Causing Price Discovery Difficulties
Q4 Sentiment Index
(WASHINGTON, D.C.) — Industry executives report commercial real estate asset classes continue to face a variety of challenges centered around higher financing costs, increased illiquidity, and uncertain post-pandemic user demand. Reduced transaction volume has also contributed to difficult price discovery, according to The Real Estate Roundtable’s Q4 2023 Sentiment Index. Roundtable President and CEO Jeffrey DeBoer said, “Commercial real estate is at the front line of change in how people use the built environment in a post-pandemic society. Steep interest rate increases and diminished liquidity caused by regulatory pressures have led to much lower transaction volume and continued uncertainty in price discovery. The challenges facing different asset classes in the broad, complex CRE landscape is reflected in our Q4 Sentiment Index.” The Roundtable’s Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Sentiment Indices. Any score over 50 is viewed as positive. The Q4 Sentiment Index topline findings include: • The Q4 2023 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of two points from the previous quarter. The Current Index registered 32, a one-point decrease from Q3 2023, and the Future Index posted a score of 57 points, a decrease of two points from the previous quarter. These stable indices highlight the persistent challenges faced by participants in the real estate market. • Although there are variations among asset classes and even within specific property types, ongoing uncertainty within the broader commercial real estate industry persists due to concerns about liquidity, capital availability, interest rates, and remote work. Bright spots exist in smaller classes, such as data centers, outlet malls, and hotels, while multifamily and industrial continue to attract interest. Within the office sector, class “A” properties with top of-the-line amenities are the lone high performers. • An overwhelming 92% of survey participants indicate that asset values have decreased compared to the previous year. The valuation process has been challenging due to limited transactions, and the combination of current cap rates and fluctuating interest rates has further complicated pricing, ultimately leading to a view that asset values have decreased relative to one year ago. • Survey participants express ongoing concerns about the capital markets landscape, with 70% indicating that the availability of equity capital has worsened compared to a year ago, and 86% believing the availability of debt capital is also worse. DeBoer added, “We welcome efforts at all levels of government to incentivize conversions of commercial use to residential use. Yet various CRE markets and asset classes need more time to adapt to the new preferences of clients; more flexibility to restructure their asset financing; and patience while adjusting to the evolving valuation landscape. In addition to conversion activities, The Roundtable continues to urge the federal government to return to the workplace and support measures to assist loan modifications and increase liquidity available to all asset classes and their owners. We also remain opposed to regulatory proposals that impede capital formation.” Some sample responses from participants in the Sentiment Index’s Q4 Survey include: “Your perspective depends on what assets you hold and the strength of your balance sheet.” “The distribution of capital is highly dependent on specific sectors and asset quality.” “There will be a ‘great revaluation’ cycle with more real estate assets priced lower. There haven’t been enough transactions to collect good data, and the transactions that are happening are in the most dire of circumstances, which is driving erratic and less reliable market information.” Responses by survey participants reflect recent, persistent challenges facing certain sectors and assets. In comparison to last quarter, sentiments on current conditions are down by 1 point, perceptions of future conditions are down by 2 points, and overall conditions are down by 2 points. Regarding sentiment on the state of current asset values, 92% of respondents believe they are lower than one year ago, 3% feel they are higher, and 5% believe asset values have remained the same compared to a year ago. This contrasts with the Sentiment Survey one year ago, when only 59% of participants expected asset values would be lower in this Q4 2023, indicating a steep decline in current perceptions of asset values. Survey participants also commented on the availability of equity capital, with 70% noting it is worse compared to one year ago, 3% stating it has improved, and 27% that the availability of equity remains the same. For the availability of debt capital, 86% of participants believe it is worse compared to one year ago, 2% feel it has improved, and 12% believe the availability of debt remains the same. Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on behalf of The Roundtable. See the full Q4 report. The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy. # # #
Roundtable Leadership
October 27, 2023
Roundtable Weekly
Roundtable Chair John Fish Honored at Annual Lamplighter Awards
Jeffrey DeBoer John Fish lamplighter award Roundtable Leadership Roundtable Statement Statement Jeffrey DeBoer
Roundtable Chair John Fish (Chairman and CEO, Suffolk), right, was honored this week with the Lamplighter Award from the American Friends of Lubavitch (Chabad), along with Senate Majority Leader Chuck Schumer (D-NY) and Kurt Newman, President and CEO of Children’s National Medical Center. (Photo: Mr. Fish with Rabbi Levi Shemtov, left. | Watch Mr. Fish’s powerful comments)   Lamplighters The American Friends of Lubavitch (Chabad) is a part of the largest network of Jewish educational, cultural and humanitarian institutions in the world, with branches in all 50 states and over 100 countries on six continents. The annual Lamplighter Awards honor exceptional communal, political, corporate and academic leaders. Several hundred people attended the Oct. 24 event reception and dinner, including 8-12 U.S. Senators; House Democratic Leader Hakeem Jeffries (D-NY) and several House members; 20 Ambassadors from foreign nations; and seven family members of hostages now held in Gaza.  Roundtable Leaders’ Comments Mr. Fish commented, “It pains me to discuss the reality that many of us have discussed here this evening. There is, unfortunately, a rise in anti-Semitism and hate in the world today. A reality that played out tragically several weeks ago.” The Roundtable issued an Oct. 13 statement condemning the violence and urging humanitarian aid. Roundtable President and CEO Jeffrey DeBoer, above, gave introductory remarks as the co-chair of the event, stating that each one of the three honorees exemplified a unique combination of leadership and optimism. DeBoer added that Mr. Fish is a selfless person who provides The Roundtable with steady guidance, positive advice, and consistent support in his role as Chairman of the organization. DeBoer asked the Lamplighter audience “… for a moment of silence to internally pledge that each of us will do our part, every minute, hour and day to reject evil, to help those in need, and to embrace the goodness of ethnic and religious diversity worldwide.” (Read DeBoer’s remarks and watch Mr. Fish’s comments) #  #  #
Property Conversions
October 27, 2023
Roundtable Weekly
Biden Administration Announces Support for Financing Commercial to Residential Property Conversions
Affordable Housing Cities amp Infrastructure Jeffrey DeBoer Property Conversions
The Biden administration today revealed a suite of federal resources—including low-interest loans—to assist commercial to residential conversions that increase housing supply, revitalize urban downtowns, and cut climate pollution. (White House fact sheet; Bloomberg, Oct. 27). Holistic Federal Strategy Roundtable President and CEO, Jeffrey D. DeBoer said, “The pandemic’s indelible impact on where Americans live and work continues to reverberate through the real estate industry, which is at the center of this societal transition. The Roundtable supports innovative policy that reimagines the adaptive reuse of CRE, rejuvenates affordable housing and urban downtowns, and addresses the climate crisis. The guidance released by the White House today checks all these boxes—and bolsters our agenda to improve the health of our cities, local tax bases, and small businesses.”    Among the actions announced today, conversion projects located near mass transit hubs would be eligible for low-interest financing under U.S. Department of Transportation programs. “TIFIA” and “RRIF” loans are pegged to US Treasuries at 5.03 percent interest (today’s rates). Transit-oriented projects supported by TIFIA and RRIF financing do not require affordable housing units—although they can be “stacked” with projects supported by low-income housing tax credits and local laws may have independent inclusionary zoning mandates. (FAQs on project eligibility) The White House announcement also directs the General Services Administration (GSA) to identify “surplus” federal properties that private developers may help to convert to housing. A fact sheet summarizing the administration’s actions indicates that training workshops will be held this fall for real estate owners, developers, and lenders on how to use federal programs included in the White House’s new “Commercial to Residential Conversions” guidebook, which describes how 20 programs across six federal agencies can be used to support adaptive re-use projects. The Administration’s guidebook also explains how mortgage insurance and grants from the Department of Housing and Urban Development (HUD) can leverage state, local, and private sector capital as layers in the capital stack to support adaptive reuse. Adaptive Reuse a “Win-Win” Real estate market conditions with high office vacancies “present[ ] an area of opportunity to increase housing supply while revitalizing Main Streets,” said National Economic Council Director Lael Brainerd. “It’s a win-win.” (POLITICOPro, Oct. 27) (WH Council of Economic Advisors blog post) White House efforts to assist property conversions lands as national office vacancy stands at nearly 18 percent—with some major metro areas experiencing vacancies higher than one-fifth of their entire inventory—according to a report from  analytics firm Yardi Matrix released on Thursday. (Commercial Observer, Oct. 26) Architectural firm Gensler released a report on Monday that estimates 25% of under-performing U.S. office properties are suitable candidates for conversion projects. The initiative builds on the Biden Administration’s announcement last July to boost the nation’s housing supply. (Roundtable Weekly, July 28).  The Roundtable will continue to serve as a conduit between our members and the Biden Administration to help design impactful policies that can assist with office to residential conversions. #   #   #  
Energy And Climate Policy
October 27, 2023
Roundtable Weekly
US-DOE Lauds CRE’s Efficiency Gains and Carbon Reductions
Better Buildings Initiative Dept of Energy Building Emissions Energy and Climate Policy Energy Efficiency
Roundtable members are among the commercial real estate partners recognized in the U.S. Department of Energy’s (DOE) Better Buildings Initiative 2023 progress report released on Monday. This voluntary public-private partnership with more than 900 participating organizations has collectively saved $18.5 billion through energy efficiency improvements, and cut carbon dioxide emissions by nearly 190 million metric tons, since its launch in 2011. (DOE’s Better Buildings Initiative Report and PoliticoPro, Oct. 23) DOE’s CRE Partners This week’s Progress Report from DOE shows that more than 165 partners from various industry sectors who participate in its separate Better Climate Challenge have committed to reducing greenhouse gas (GHG) emissions (scope 1 and 2) by at least 50% over 10 years without the use of offsets. The report’s outstanding GHG Emissions Reduction Goal Achievers include companies led by RER members. The Real Estate Roundtable and several of its partner real estate organizations—including the National Multifamily Housing Council (NMHC), American Hotel & Lodging Association (AHLA), Building Owners & Managers Association International (BOMA), Pension Real Estate Association (PREA), and Urban Land Institute (ULI)—are noted in the report as Industry Organization Partners. U.S. Secretary of Energy Jennifer M. Granholm said, “To meet President Biden’s ambitious climate goals, the public and private sector need practical pathways to reduce emissions while cutting costs—and that’s exactly what they get from DOE’s Better Building Initiative.” (DOE news release and the report’s Commercial Real Estate Sector Spotlight) Tools and Best Practices DOE’s partners represent almost every sector of the American economy: nearly 30 of the country’s Fortune 100 companies, nearly 20 of the top 50 U.S. employers, 14% of the U.S. manufacturing energy footprint, and 13% of total commercial building space, as well as more than 90 state and local governments. The DOE report also provides case studies for collaborations across sectors to access insights, strategies, and through the agency’s “Decarbonization Resource Hub.” DOE’s Better Buildings Initiative website provides extensive resources on the agency’s wide-ranging effort to partner with leaders in the public and private sectors to make the nation’s commercial buildings, industrial plants, and homes more energy-efficient by accelerating investment and sharing successful best practices. #  #  #
Capital and Credit
October 27, 2023
Roundtable Weekly
Federal Regulators Announce Extension of Comment Period and Quantitative Impact Study on Basel III Proposal
Basel III Capital and Credit Halting ProCyclical Policy Measures and Increases in Regulatory Capital Rep Patrick McHenry The Fed
U.S. banking regulators issued two announcements on Oct. 20 related to their sweeping set of proposed rules to increase capital requirements for the nation's largest banks, which could significantly affect liquidity available for commercial real estate transactions, impact asset values, and influence economic growth. The proposal, known as the “Basel III Endgame,” is the last major regulatory response designed to address failures from the global financial crisis of 2007-2008. (Bloomberg and Reuters, Oct. 20 | Roundtable Weekly, July 28) Stakeholder Comments The Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) announced an extension of the comment period on the Basel capital proposal from Nov. 30, 2023 to Jan. 16, 2024. Additionally, the agencies announced a quantitative impact study to clarify the estimated effects of the proposal, with data collection due the same date as the comments – Jan. 16. (Fed news releases, Oct 20) While the quantitative impact study is a positive development, the timing of the study fails to provide industry participants with the opportunity to assess its results or comment on the collected data before the Jan. 16 deadline. Regulators often grant the public ample time (120 days) to analyze and comment on such an impact study after it is released. The Basel proposal will be among the topics discussed at The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Nov. 8 meeting in New York. RECPAC welcomes membership input as it works on a comment letter on the announcements and proposal. (Contact Roundtable Senior Vice President Chip Rodgers) In July, the regulators jointly approved the 1,100-page proposed rulemaking, which would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more Real Estate Roundtable President and CEO Jeffrey DeBoer stated in a March 2023 comment letter to Fed Vice Chair Michael Barr and other key regulators, "At this critical time, it is important that the agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values. Congressional Opposition Last week, House Financial Services Committee Chairman Patrick McHenry (R-NC), above, and Financial Institutions and Monetary Policy Subcommittee Chairman Andy Barr (R-KY) requested the Government Accountability Office (GAO) to examine the role U.S. federal banking agencies played in developing the recent Basel proposal.  (McHenry-Barr Letter, Oct 20) Previously, McHenry and more than two dozen Republicans on the committee urged banking regulators to withdraw their proposal in a Sept. 13 letter sent in conjunction with the committee hearing, “Implementing Basel III: What’s the Fed’s Endgame?” The House Republicans’ letter claimed the scope and process of the banking regulators’ plan is flawed, and noted how the proposal was opposed by some members on the Federal Reserve and FDIC Boards. Their letter concluded, “Given those fatal problems with your Basel III Endgame proposal, we urge that it be withdrawn.” Goldman Sachs’ 10,000 Small Businesses Voices recently announced the launch of a multifaceted national media campaign that will urge the Federal Reserve to abandon the proposed Basel III Endgame regulation. The campaign will feature new survey data showing 87% of small business owners say it is important for their elected officials to weigh in with The Fed about the impact of new bank capital requirements. #  #  #
Financial Stability
October 27, 2023
Roundtable Weekly
Potential CRE Losses Cited as Major Economic Concern in Fed’s Financial Stability Report
Capital and Credit commercial real estate CRE Economic Growth amp CRE Return to Office The Fed Workplace Return
Elevated commercial real estate valuations are increasingly viewed as a near-term risk that could stress the U.S. financial system, according to the Federal Reserve’s October 2023 Financial Stability Report. The central bank’s semiannual report also cited inflationary pressures, interest rate increases, and global economic volatility as vulnerabilities—even though survey data was collected before the recent escalation of geopolitical tensions in the Middle East. (Fed’s Financial Stability Report, Oct. 2023) CRE Risk Emphasized Seventy-two percent of all participants in the Fed’s survey cited the potential for large losses on commercial real estate and residential real estate—along with persistent inflation and monetary tightening­—as major risks. The CRE asset valuation problem noted in the Fed Report is influenced by an ongoing lack of price discovery, which creates significant refinancing challenges. GlobeSt reported Oct 24 on the report, noting that “With transactions down and many sellers holding off, waiting for improved pricing while a lot of buyers look for bargains in distress, it’s hard to tell how much properties should be worth.” WorkPlace Return Pressure The Fed report warns, “If the economy were to slow unexpectedly … investor risk appetite and asset prices might decline, and valuations in the office building sector appear particularly vulnerable given the ongoing uncertainty surrounding post-pandemic norms regarding return to work. A correction in office property valuations accompanied by even a mild recession could result in significant losses for a range of financial institutions with sizable exposures, including some regional and community banks and insurance companies.” As workplace return concerns linger, The Wall Street Journal reported on Oct. 21 about how cities are developing proposals to recast office districts into neighborhoods where people live, work and raise families. (WSJ, “America’s Downtowns Are Empty. Fixing Them Will Be Expensive”) Additional risks that continued to feature prominently in the Fed survey were associated with the reemergence of banking-sector stress, market liquidity strains, and volatility. #  #  #
Fall Roundtable Meeting
October 20, 2023
Roundtable Weekly
Policymakers and Roundtable Members Discuss Domestic and Global Issues Impacting CRE
2023 Fall Roundtable Meeting Fall Roundtable Meeting Roundtable Meeting
This week’s Real Estate Roundtable Fall Meeting focused on financing and liquidity issues; housing shortages and the damaging impact that widespread remote work has on cities, small businesses and real estate markets. Additionally, mitigating policy initiatives were discussed, including: additional regulatory action on maturing loans; legislation to facilitate greater building conversions to housing; and technical tax proposal to address cancelled debt, extend opportunity zones and other matters. Regulations implementing last year’s “climate” related laws were also a topic. Photo: Roundtable Chair John Fish (Chairman & CEO, Suffolk) Overcoming the ongoing impasse regarding the election of a new Speaker of the House of Representatives was frequently cited as crucial to advancing any legislation, including funding the government and providing assistance to Israel and Ukraine. (The Roundtable’s Oct. 13 Statement on the recent violence in Israel and its Fall 2023 Policy Priorities and Executive Summary, Oct. 16) Speakers & Policy Issues Roundtable members engaged in policy issue discussions with the following guests: Tom Barkin, President and CEO, Federal Reserve Bank of RichmondRichmond Fed President Barkin (above, with Roundtable Board Secretary Jodi McLean, Chief Executive Officer, EDENS) acknowledged how rising interest rates have hit CRE hard as the Fed aggressively moves to fight inflation. He also suggested recent data shows consumer demand is weakening, which may help to fight inflation. (Reuters | MarketWatch | Wall Street Journal, Oct. 17) Sen. Mike Rounds (R-SD) As a member of the Senate Banking, Housing, and Urban Affairs Committee, Sen. Rounds (right, with Roundtable Board Member Ross Perot, Jr., Chairman, The Perot Companies and Hillwood) offered his insights into how capital and credit market volatility affects housing policy. He also discussed property insurance costs, supply side issues, and the rising national debt. Sen. Kevin Cramer (ND) Sen. Kramer also discussed capital liquidity issues and his serious concerns about foreign aid for Ukraine, Israel, and Taiwan amid turmoil in House leadership. Rep. Ritchie Torres (D-NY) Rep. Torres (D-NY), gesturing above, discussed the violent, murderous attack on Israel and its citizens. He also engaged in a panel discussion on affordable housing, transit-oriented development, and real estate markets with Roundtable Board Members Owen Thomas, left, (Chairman and CEO, BXP); Mark Parrell, 2nd from left, (President and Chief Executive Officer, Equity Residential); and Roundtable President and CEO Jeffrey DeBoer, right. (See The Roundtable’s Oct. 13 Statement on the recent attack) John Podesta, White House Senior Advisor for Clean Energy Innovation and Implementation [Photo: John Podesta, left, with Roundtable Board Member Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust and Chair of The Roundtable’s Sustainability Advisory Committee)]. Mr. Podesta spoke with Roundtable members about the implementation of the Inflation Reduction Act’s expansive clean energy and climate provisions. Gov. Kathy Hochul (D-NY) Gov. Hochul addressed real estate as a crucial economic force in New York State, noting the negative impact of remote work in New York City. She also discussed efforts to combat NIMBYism and the role of tax incentives and office conversions to jump-start affordable housing development. Next on The Roundtable's meeting calendar is the all-member Annual Meeting, whick will include policy advisory committee meetings, on January 23-24, 2024 in Washington, DC.  #  #  #
Roundtable Leadership
October 20, 2023
Roundtable Weekly
The Roundtable’s Board of Directors Announces Blackstone’s Kathleen McCarthy as Chair-Elect
Board of Directors Kathleen McCarthy Roundtable Leadership
The Real Estate Roundtable’s Board of Directors has elected Kathleen McCarthy (Global Co-Head of Blackstone Real Estate) as Chair-Elect to begin her three-year term as Roundtable Chair on July 1, 2024. Roundtable Chair-Elect Chair-Elect McCarthy will succeed Roundtable Chair John Fish (Chairman & Chief Executive Officer, Suffolk) on July 1. “The Real Estate Roundtable and its Board of Directors are thrilled to announce Kathleen McCarthy as our Chair-Elect,” said Mr. Fish. “Kathleen is an extraordinary leader in the real estate industry and has been a key contributor to The Roundtable’s mission as a member of our Board. Her extensive experience and expertise as co-head of the world’s largest real estate platform brings a unique and invaluable perspective to our policy discussions.” Mr. Fish added, “Kathleen’s fact-based approach and understanding of policies impacting commercial real estate will help advance policies that benefit communities, create jobs and accelerate economic growth. I am delighted that Kathleen will be the next Chair of The Real Estate Roundtable.” Ms. McCarthy stated, “I am deeply honored to have the opportunity to serve as Chair of the Real Estate Roundtable and build upon the important work being done by John, Jeff and the entire Roundtable team. The opportunities and challenges facing our industry require innovative approaches and strong engagement between the public and private sectors. Advocacy for policies in an industry that touches so many aspects of everyday life is crucial and I'm committed to advancing our sector for the benefit of communities across the nation." Blackstone Real Estate is the largest owner of commercial real estate globally with a $585 billion real estate portfolio and $333 billion in investor capital under management (as of June 30, 2023). Roundtable President and CEO Jeffrey D. DeBoer commented, “I am excited about our Board’s decision to select Kathleen McCarthy as our Chair-Elect, and look forward to working more extensively with her as we continue The Real Estate Roundtable’s solid track record of driving change in our industry for the benefit of all stakeholders.”#  #  #
Workplace Return
October 20, 2023
Roundtable Weekly
Senate Bill Introduced to Define Federal Remote Work Roles; GSA Inspector General to Investigate Agency Telework Policies
Remote Work Return to Office Telework Workplace Return
Sens. James Lankford (R-OK) and Kyrsten Sinema (I-AZ) recently introduced the Telework Reform Act to codify government definitions of remote work and improve the accountability and transparency of federal telework programs. Meanwhile, the Inspector General of the General Services Administration (GSA) confirmed an audit is underway that is focused on how the agency manages telework and remote positions for over one million federal workers. (Lankford news release, Oct. 12 | Senate bill S. 3015) | Washington Times, Oct. 18) Congressional Efforts The Senate legislation would require teleworking federal employees to return to their offices at least twice per two-week pay period. The bill also includes measures that would enforce annual reviews of telework agreements, mandate training for managers, and improve performance management, data accuracy, and cyber-security. (Government Executive, Oct. 13 and Federal News Network, Oct. 17) Separately, Sen. Joni Ernst (R-IA) is seeking to add an amendment to federal spending bills that would force agencies to provide details on the cost of telework. “There’s no better way to start paying off our nation’s over $33 trillion debt than a clearance sale on unused office space.” (Washington Times, Oct. 18 | BGov, Sept. 14) A recent letter from the GSA’s Inspector General to Sen. Ernst confirmed the IG's oversight investigation into the agency’s telework policies. (Washington Times, Oct. 18) As the largest landlord in the United States, GSA’s Public Buildings Service (PBS) owns and leases more than 8,800 assets and maintains an inventory of more than 370 million square feet of rentable workspace. (GSA Strategic Plan Fiscal Years 2022-2026) The Senate actions come as a House subcommittee announced it will hold a second hearing on federal agencies’ post-pandemic telework policies. (See Roundtable Weekly, Sept. 15 for coverage of the first hearing). Remote work legislation passed by the House in Feb. 2023—The Stopping Home Office Work’s Unproductive Problems Act (SHOW UP Act)—was introduced in the Senate (H.R. 139 and S. 1565) in May by Sen. Marsha Blackburn (R-TN). The companion bill would require agencies to “reinstate and apply the telework policies, practices and levels ... in effect on December 31, 2019” within 30 days of the bill’s enactment. (Blackburn news release, May 11 and Government Executive, May 16). Language similar to the SHOW UP Act is included in House-passed appropriations legislation. (Roundtable Weekly, Sept. 15) Roundtable Advocacy The Real Estate Roundtable has urged President Biden and national policymakers for months to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 2022; RER letter to Senate, April 2023) In April, the White House Office of Personnel Management announced it was ending its “maximum telework” directive to federal agencies (Roundtable Weekly, April 21) In August, the White House ordered Cabinet officials to increase the return of federal employees to their offices. (Roundtable Weekly, Aug. 11) Real Estate Roundtable President and CEO Jeffrey DeBoer, repeatedly has emphasized that remote working by federal employees is undermining the health of cities, local tax bases, and small businesses. (Commercial Observer and The Hill, April 14)  #  #  #
Beneficial Ownership
October 20, 2023
Roundtable Weekly
Roundtable and Industry Coalition Urge Treasury to Delay January Implementation of Beneficial Ownership Rules
Beneficial Ownership Beneficial Ownership amp the Corporate Transparency Act Capital and Credit
The Real Estate Roundtable and a coalition of eight other national real estate groups on Oct. 13 urged Treasury Secretary Janet Yellen to delay implementation of new “beneficial ownership” rules, which will significantly impact real estate. The new regulations—scheduled to take effect on Jan. 1, 2024 under the Corporate Transparency Act (CTA)—would be implemented by Treasury’s Financial Crimes Enforcement Network (FinCEN). (Coalition letter, Oct. 13) BOIR Proposal Many real estate businesses will face a heavier compliance burden at a time when the industry faces economic challenges from decreasing office usage, and diminishing credit capacity. The businesses impacted could include numerous legal entities that own and operate real property across all asset classes as domestic corporations, LLCs and similar entities, along with foreign entities registered to do business in the United States. FinCEN will be tasked with collecting and housing a centralized federal government database containing extensive, sensitive personal identifiers of the owners, senior employees, and/or advisors of certain businesses. Those entities will be required to report information about their “beneficial owners” who own at least 25% of the business or indirectly exercise “substantial control” over it. (Roundtable Weekly, Sept. 15) On Sept. 27, FinCEN proposed a minor change to the current 30-day deadline for filing an initial Beneficial Ownership Information Return (BOIR). The proposal would extend the deadline to 90 days for reporting companies that were created or registered on or after Jan. 1, 2024 and before Jan. 1, 2025. No other changes were made to the final beneficial ownership reporting rule (Holland & Knight Alert, Sept. 28) Opposition to CTA The real estate coalition’s Oct 13 letter echoes congressional opposition to the implementation of the CTA and its beneficial ownership rules. House Financial Services Committee Chairman Patrick McHenry (R-NC), above, has introduced legislation—the Protecting Small Business Information Act of 2023 (H.R. 4035)—that would delay when the CTA’s beneficial ownership reporting requirements would go into effect. (McHenry news release, June 12) The Roundtable and a broad coalition representing millions of businesses throughout the country wrote to Chairman McHenry last month in strong support of his legislation. (Coalition letter, Sept 12) The Roundtable is part of a broad coalition of business trade groups that supports a National Small Business Association legal challenge (NSBA v. Janet Yellen) on the constitutionality of the Corporate Transparency Act (CTA), which became law in Jan. 2021. (Coalition statement of support, Dec. 7, 2022 and NSBA’s website on the CTA)  #   #   #
Roundtable Leadership
October 19, 2023
Press Release
The Real Estate Roundtable’s Board of Directors Announces Blackstone’s Kathleen McCarthy as Chair-Elect
Board of Directors Kathleen McCarthy Roundtable Leadership
(WASHINGTON, D.C.) — The Real Estate Roundtable’s Board of Directors has elected Kathleen McCarthy (Global Co-Head of Blackstone Real Estate) as Chair-Elect, to begin her three-year term as Roundtable Chair on July 1, 2024. Chair-Elect McCarthy will succeed John Fish (Chairman & Chief Executive Officer, Suffolk) who has served as Roundtable Chair since 2021. “The Real Estate Roundtable and its Board of Directors are thrilled to announce Kathleen McCarthy as our Chair-Elect,” said Mr. Fish. “Kathleen is an extraordinary leader in the real estate industry and has been a key contributor to The Roundtable’s mission as a member of our Board. Her extensive experience and expertise as co-head of the world’s largest real estate platform brings a unique and invaluable perspective to our policy discussions.” Mr. Fish added, “Kathleen’s fact-based approach and understanding of policies impacting commercial real estate will help advance policies that benefit communities, create jobs and accelerate economic growth. I am delighted that Kathleen will be the next Chair of The Real Estate Roundtable.” Ms. McCarthy stated, “I am deeply honored to have the opportunity to serve as Chair of the Real Estate Roundtable and build upon the important work being done by John, Jeff and the entire Roundtable team. The opportunities and challenges facing our industry require innovative approaches and strong engagement between the public and private sectors. Advocacy for policies in an industry that touches so many aspects of everyday life is crucial and I'm committed to advancing our sector for the benefit of communities across the nation." Roundtable President and CEO, Jeffrey D. DeBoer commented, “I am excited about our Board’s decision to select Kathleen McCarthy as our Chair-Elect, and look forward to working more extensively with her as we continue The Real Estate Roundtable’s solid track record of driving change in our industry for the benefit of all stakeholders.” About Kathleen McCarthy Kathleen McCarthy is the Global Co-Head of Blackstone Real Estate. Blackstone is the largest owner of commercial real estate globally with a $585 billion real estate portfolio and $333 billion in investor capital under management (as of June 30, 2023). Blackstone Real Estate is an industry leader in opportunistic, core plus and debt investing across North America, Europe and Asia. Ms. McCarthy focuses on driving performance and growth for Blackstone’s Real Estate business. Ms. McCarthy previously served as Global Chief Operating Officer of Blackstone Real Estate. Before joining Blackstone in 2010, Ms. McCarthy worked at Goldman Sachs, where she focused on investments for the Real Estate Principal Investment Area. Ms. McCarthy began her career at Goldman Sachs in the Mergers & Acquisitions Group. Ms. McCarthy received a BA with Distinction from Yale University. She serves on the Boards of City Harvest, the Real Estate Roundtable, the PREA Foundation, and the Blackstone Charitable Foundation, and is the President of the Board of Trustees of The Nightingale-Bamford School. About John Fish The Real Estate Roundtable’s Board of Directors is chaired by John Fish, who is Chairman and CEO of Suffolk. Under his vision and leadership, Suffolk has grown into one of the leading privately held general building contractors in the country. With over $4.5 billion in annual revenue, Suffolk is currently ranked #23 on the Engineering News-Record national list of “Top 400 Contractors.” He serves on numerous Boards focused on improving the economy, strengthening business and creating jobs. He also serves on the Executive Committee of the Real Estate Board of New York and a member of the Partnership for New York City and New York Building Congress. Mr. Fish is a graduate of Bowdoin College in Brunswick, Maine with a Bachelor’s Degree in Political Science.  He received an Honorary Doctorate of Engineering Technology Degree from Wentworth Institute of Technology. He is also the recipient of an honorary degree from Regis College and Curry College About The Real Estate Roundtable The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with leaders of major national real estate trade organizations to jointly address key national policy issues relating to real estate and its important role in the global economy.  The collective value of assets held by Roundtable members exceeds $4 trillion. The Roundtable’s membership represents more than 3 million people working in real estate; 12 billion square feet of office, retail and industrial space; over 4 million apartments; and more than 5 million hotel rooms. It also includes the owners, managers, developers and financiers of senior, student, and manufactured housing—as well as medical offices, life science campuses, data centers, cell towers, and self-storage properties. The Roundtable’s policy news and more are available on The Roundtable website. #   #   #
Policy Landscape
October 13, 2023
Roundtable Weekly
House GOP Turmoil Continues; Roundtable Leaders Address Issues Facing CRE
Congress Policy Landscape
House Republicans continued their divided struggle this week to identify a new Speaker after removing Kevin McCarthy (R-CA) last week. Meanwhile, Congress faces increasing pressure to pass foreign aid for Israel and Ukraine, followed by a spending bill to avoid a partial government shutdown on Nov. 17. When House GOP leadership is eventually elected, pending real estate-related tax proposals in the lower chamber may depend on whether policymakers are able and willing to expand the scope of negotiations over a bill to fund the government. (Roundtable Weekly, Oct. 5) Speaker Search The House has been unable to pass legislation without a Speaker since Oct. 5. Today, House Republicans nominated Rep. Jim Jordan (R-Ohio) for Speaker, although he will need to be elected with 217 votes from all Representatives, included the divided GOP caucus. (The Hill, Oct. 13) Also today, four centrist Democrats offered to give Acting Speaker Patrick McHenry (R-NC) “temporary, expanded authorities” to bring urgent funding bills to the House floor for votes. The letter, led by Rep. Josh Gottheimer (D-N.J.), is an offer to Republicans who may also support empowering McHenry to act on spending bills. (Politico and Democrats’ letter to McHenry, Oct. 13) The letter proposes authorities for the Speaker Pro Tempore to introduce legislation on the following: Foreign aid emergency supplemental funding for Ukraine and Israel; Extending current continuing resolution through January 11, 2024, to prevent a looming government shutdown; and, Committee and floor consideration of remaining FY24 appropriations bills. CRE Issues Recent media interviews featured Roundtable leadership discussing industry challenges that will also be addressed by RER members, lawmakers and regulators during The Roundtable Fall Meeting in Washington next week. On Oct. 6, Roundtable Chair John Fish (Chairman & CEO, SUFFOLK) talked about developments in remote work, housing costs, interest rates, and construction supply on Bloomberg’s The Tape podcast. (Scroll to 30:00 to begin Fish interview) Roundtable Board Member Kathleen McCarthy (Blackstone Global Co-Head of Real Estate) appeared on CNBC’s Halftime Report 28 to discuss sector variation in commercial real estate, creating value in a dislocated environment, and more. "Different sectors are traveling at different speeds," said McCarthy, who addressed activity in data centers, logistics, and student housing. Roundtable President and CEO Jeffrey DeBoer discussed a range of policy issues facing the industry on Sept. 26 as part of a Marcus & Millichap webcast, “A Conversation with Lloyd Blankfein, Former Chairman and CEO of Goldman Sachs, on the Economy and Commercial Real Estate with Insights from Industry Leaders.” Marcus & Millichap President and CEO Hessam Nadji and former Chairman and CEO of Goldman Sachs Lloyd Blankfein led the webcast discussion on economic issues, including Federal Reserve policy impacting the commercial real estate market. CRE industry leaders Tom McGee, President and CEO of ICSC and Sharon Wilson Géno, President of NMHC also joined the conversation.
Tax Policy
October 13, 2023
Roundtable Weekly
Supreme Court Case Challenges Federal Taxation of Unrealized Income
Supreme Court Tax Policy Unrealized Gains Billionaire Tax
This week, the Supreme Court announced it will hear oral arguments on Dec. 5 in a case—Moore v. United States—challenging the federal government’s right to tax unrealized gains. (PoliticoPro, Oct. 12) Moore Consequences The question raised by the petitioners in Moore, and granted certiorari by the Supreme Court in June, is whether the 16th Amendment authorizes Congress to tax unrealized sums without apportionment among the states. Specifically, the case involves a Washington state couple with an interest in an India-based corporation who are challenging a 2017 mandatory repatriation tax on foreign earnings as an unconstitutional levy on unrealized gains. Outside legal and tax commentary and analysis have suggested the case could have far-reaching consequences for both the existing tax code and pending legislative proposals, depending on how the decision is drafted.  A recent report from the Urban-Brookings Tax Policy Center report estimates that a ruling in favor of the petitioners could result in tax revenue losses exceeding $100 billion annually. Estimates of revenue losses from the Tax Foundation range as low as $3.5 billion and as high as $5.7 trillion in the unlikely event the Supreme Court were to strike down taxes on all undistributed business earnings, whether earned domestically or from foreign sources. Policy Ramifications A Supreme Court decision in favor of the petitioners could also undercut President Biden’s proposal to tax the unrealized real estate and other gains of wealthy taxpayers. The President and influential lawmakers such as Senate Finance Chairman Ron Wyden (D-OR) have proposed new mark-to-market taxes on assets based on annual changes in asset values rather than specific realization events. (Roundtable Weekly, Sept. 19, 2019) The Real Estate Roundtable has consistently opposed the proposals to tax unrealized gains since they first emerged in 2019 (Sen. Wyden, Treat Wealth Like Wages, 2019). JCT Memo On Oct. 3, in a letter to House Ways and Means Ranking Democrat Richie Neal (D-MA), the Joint Committee on Taxation (JCT) provided an analysis of how a ruling for the petitioners in Moore could impact the tax code. JCT informed Rep. Neal that partnership taxes, taxation of shareholders of S corporations, and taxes on mark-to-market valuations also could be implicated in the outcome. The income of real estate mortgage investment conduits, or REMICs, also may be affected, according to JCT’s memo. Alternatively, notes JCT, the Court could rule that the mandatory repatriation tax is a tax on realized income, in which case it could “leave unanswered the question of whether the Constitution imposes a realization requirement.” (JCT memo, p. 2)
Tax Policy
October 6, 2023
Roundtable Weekly
Path Uncertain for Pending Tax Legislation as Implementation of Energy Tax Incentives Continues
Clean Energy Tax Incentives Tax Policy
The possibility of an end-of-year tax package faces an uncertain path and timeline as House GOP policymakers consider new leadership in the wake of this week’s historic vote to remove Kevin McCarthy (R-CA) as Speaker. Another layer of unpredictability is government funding, which is scheduled to expire Nov. 17 following last week’s passage of a continuing resolution to avert a partial government shutdown. House Measures In June, the House Ways and Means Committee approved a proposed tax legislative package along party lines that includes measures on business interest deductibility and bonus depreciation. The bill stalled due to differences in the GOP caucus over a boost in the $10,000 deduction cap on state and local taxes (SALT). (Roundtable Weekly, June 16) Prospects for the Ways and Means tax package, other expired provisions such as the expanded child tax credit, and pending real estate-related tax proposals may depend on whether Congressional leaders are able and willing to expand the scope of negotiations over a bill to fund the government. (Roundtable Weekly, Sept. 29) Real estate-related tax proposals under consideration and supported by The Roundtable include cancellation of indebtedness tax relief for commercial real estate loan restructurings; a tax credit for converting older office and other commercial buildings to housing; and an extension of deadlines for Opportunity Zone investments. Regulatory Implementation On Oct. 17, The Roundtable’s Fall Roundtable Meeting will feature a discussion on Inflation Reduction Act (IRA) incentives impacting CRE. (See Roundtable Clean Energy Tax Incentives Fact Sheet, July 31) Last week, Treasury issued new guidance that provides clarity for single and multifamily home builders seeking to qualify for the expanded energy efficient home credit (45L). (Treasury news release, Sept. 27 and Tax Notes, Sept. 28) Also last week, Treasury provided new information on the process for taxpayers to apply for bonus tax credits for solar and other renewable investments made in low-income communities or in low-income housing developments. (See The Roundtable’s chart, “Base” and “Bonus Rate” Amounts Relevant to Commercial and Multifamily Buildings, May 25). For more information on energy tax incentives available to real estate under the Inflation Reduction Act, see The Roundtable’s Clean Energy Tax Incentives Fact Sheet, July 31) #  #  #  
Property Conversions
October 6, 2023
Roundtable Weekly
Educational Institutions Increase Office Acquisitions; CRE Adaptive Reuse Rises
CRE Trends Property Conversions
Recent CRE research shows an increasing number of colleges and universities are acquiring office buildings for adaptive reuse. Meanwhile, an overall surge in U.S. office-conversion projects scheduled for completion this year represents more than double the average annual pace. Federal, state and local conversion-incentive programs could play an important role going forward. (New York Times, Oct. 3 and CBRE, Rise in Office Conversions May Help to Reinvigorate Cities, Sept. 27) Conversion Trends Data from JLL cited in this week’s New York Times article shows dozens of U.S. institutions of higher education have bought office buildings since 2018—including 49 four-year private schools and 16 four-year public institutions—often for conversion to academic use. Separately, CBRE research published Sept. 27 shows that a surge in office-conversion projects in major U.S. cities this year (nearly half of them in the multifamily sector) may help urban economies recover after the pandemic-induced shift to hybrid working. (Commercial Property Executive, Oct. 2 and GlobeSt, Sept. 29) The CBRE report shows that 60 million square feet of office conversions are planned or in progress in 40 U.S. markets, which represents 1.4 percent of the nation’s office inventory. The report also notes that, despite a variety of government incentive programs, adaptive reuse is not a panacea for problems facing the U.S. office market, especially in a high interest rate environment. Role of Policy An Oct. 16 discussion during The Roundtable’s Fall Meeting in Washington, DC will address policy initiatives impacting building conversions, and other challenges facing CRE, during The Roundtable’s Fall Meeting in Washington, DC. The Roundtable strongly supports policies that provide incentives for office-to-residential conversions. Last Dec, The Roundtable urged the Biden administration to support "legislation to facilitate the increased conversion of underutilized office and other commercial real estate to much-needed housing." (RER letter to President Biden, Dec. 12, 2022 and Roundtable Weekly, Aug. 11, 2023) This week, Roundtable Senior Vice President Chip Rodgers joined a group of business groups’ representatives to brief the staff of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, and the Subcommittee on Capital Markets. The Oct. 2 briefing emphasized the need for policymakers to address dislocations in the office market by 1) incentivizing the conversion of outmoded office properties to residential use to help meet the nation’s housing needs; and 2) requiring federal government workers return to their offices. Federal government programs will incentivize local jurisdictions to pursue office-to-residential conversions, according to CBRE. Federal incentives also aim to encourage financing mechanisms to build and preserve more housing, while reducing land-use and zoning restrictions for affordable and zero-emissions housing. (CBRE, Sept. 27) A Real Estate Roundtable property conversions working group has worked with lawmakers for several months on draft legislation to create a tax credit for converting older commercial buildings to housing. #  #  #
Capital and Credit
September 29, 2023
Roundtable Weekly
2023 Loan Extensions Increase as Lenders and Borrowers Seek Workouts
Capital and Credit Loan Modifications Restoring Liquidity in CRE Markets and Protecting Capital Formation The Fed
Approximately $5.65 billion in commercial real estate loans have been modified with extensions in 2023, with nearly 73% of the total from the office sector, according to a recent Trepp report. The rise in loan extensions—sparked by higher interest rates, lower valuations, and remote work—also come at a time when commercial mortgage-backed securities (CMBS) have been subdued. (Trepp CRE Research Report) Modification Trend Trepp reported that term increases of 1-12 months comprised the largest share (37%) of extensions. The largest quarter upon maturity came in Q2 2023, when $957 million in loans were extended. Office properties comprised 72.9% of the total $3.2 billion in loan extensions, or roughly $2.4 billion. Trepp stated, “Of all property types, the office sector faces the steepest refinancing challenges as office properties are struggling with occupancy and financial performance in the post-pandemic era.” (Trepp CRE Research Report) The increase in modifications follows a joint policy statement from federal regulators in June that encouraged financial institutions to work with borrowers on pending loan maturities. (Agencies’ joint statement, June 29 and National Law Review, July 9) Roundtable Advocacy In March, The Roundtable had originally requested that federal regulators accommodate commercial real estate borrowers and lenders as the industry continued to endure a difficult time of historic, post-pandemic transition—and enthusiastically welcomed the Agencies’ subsequent, joint action. (Roundtable Weekly, June 30 and Roundtable letter to regulators, March 17) During a Sept. 26 Marcus & Millichap webcast, Roundtable President and CEO Jeffrey (above) said, “We’re seeing some impact. Trepp put out a report about loan modifications and extensions. Time is the most important aspect for the most challenged part of our industry, office. We have to let time settle in and let businesses and employers determine how they want to use office space going forward.” Additionally, bipartisan legislation (H.R. 5580) introduced in the House last week would reduce the tax burden on a borrower that can arise when a troubled commercial real estate loan is modified as part of a debt workout. The Tenney-Higgins bill would build on existing tax provisions by effectively deferring cancellation of debt (COD) income. (Roundtable Weekly, Sept. 22) The legislation, introduced by Reps Claudia Tenney (R-NY) and Brian Higgins (D-NY), could help smooth the transition to a healthy and stable post-pandemic real estate market. The Roundtable’s DeBoer was quoted in support of the House legislation by GlobeSt, Connect CRE, and Commercial Observer. Capital and credit policy issues facing CRE, especially office assets, will be among the topics discussed during The Roundtable’s Oct. 16-17 Fall Meeting (Roundtable-level members only) in Washington. #  #  #
Policy Landscape
September 29, 2023
Roundtable Weekly
Partial Government Shutdown Would Impact Policies Important to CRE
Federal Government Shutdown National Flood Insurance Program NFIP Policy Landscape
A partial government shutdown looks likely to begin after midnight on Sept. 30 as House and Senate policymakers pursue different short-term funding bills amid hardened resistance from conservative Representatives to pass any continuing resolution (CR) without certain concessions. (The Hill’s live updates and ABC News Sept. 29) Lapse in Program Funding A lapse in funding could impact the industry by suspending the National Flood Insurance Program (NFIP), the Securities and Exchange Commission’s (SEC) rulemaking on climate disclosure, and the Treasury Department’s expected guidance on the energy efficient commercial buildings deduction under section 179D. (New York Times, Sept. 28 – “Government Shutdown May Hurt Home Sales in Flood-Prone Areas”) Additionally, Senior White House Adviser John Podesta on Sept. 26 said a shutdown would delay billions to implement the Inflation Reduction Act, including Treasury guidance on how to distribute the measure’s tax credits. (Bloomberg, Sept. 26 | Roundtable Clean Energy Tax Incentives Fact Sheet, July 31 | Roundtable Weekly, July 28) Shutdown Uncertainty Government agencies are preparing to furlough employees for an uncertain amount of time. The most recent shutdown lasted 34 days from December 2018 to January 2019, and cost the economy approximately $3 billion (equal to 0.02% of GDP) according to the Congressional Budget Office. (Government Executive, Sept. 29 and Reuters, Sept. 25) The shutdown would also come amidst a flurry of regulatory rulemakings impacting commercial real estate capital markets. During a House Financial Services Committee hearing on Sept. 27, Rep. Andy Barr (R-KT) questioned SEC Chairman Gary Gensler (above) on the “perfect storm of regulations” that could further impair liquidity for commercial real estate capital markets. (Watch 1:27 video clip of the exchange | Committee Hearing Memorandum, Sept. 22) The Roundtable’s Fall Meeting on Oct. 16-17 (Roundtable-level members only) will address numerous regulatory proposals impacting CRE, and assess the state of the economy and capital markets in the wake of a potential shutdown. #  #  #
Climate and Energy Policy
September 29, 2023
Roundtable Weekly
Biden Administration to Prepare Unifying, Voluntary Definition for “Zero Emissions Buildings”
climate Climate and Energy Policy ENERGY STAR EPA Zero Emissions Buildings ZEB
This week, the White House’s climate policy chief announced the imminent release of voluntary, uniform federal-level criteria for “Zero Emissions Buildings.” The “ZEB” definition could bring much-needed consistency to help CRE owners and investors establish long-term goals for buildings that align with varying climate programs adopted across numerous jurisdictions and international frameworks. (Washington Post, Sept. 28) Proposed ZEB Definition in October National Climate Advisor, Ali Zaidi, stated in yesterday’s keynote address at the Greenbuild 2023 conference in Washington, D.C. that the proposed federal ZEB definition will be released next month.  Zaidi noted The Real Estate Roundtable in his comments as an important group for addressing the need to transform buildings at scale. The White House invited members of The Roundtable’s Sustainability Policy Advisory Committee (SPAC) to a listening session following Zaidi’s remarks. When the U.S. Department of Energy (DOE) announces the proposed ZEB definition it will kick-off an anticipated 30-day public comment period. The Environmental Protection Agency (EPA) ENERGY STAR program is coordinating closely with DOE. A final ZEB definition could be published by the end of this year. Federal Consistency is Essential DOE’s ZEB definition would not be mandatory on the private sector. It will be a voluntary, aspirational guideline at the federal level. However, a definition from the U.S. government can finally build a uniform understanding of what it takes for a building to achieve “zero emissions” over time, along a realistic and achievable pathway.  Not all real estate assets will be able to reach a level of “zero emissions.” But an overarching and workable term—developed with feedback from industry and other stakeholders—can bring greater uniformity and consistency to: Related federal programs like EPA’s anticipated “NextGen” building label – to serve as a transition point toward ultimate zero emissions (Roundtable Weekly, March 3); Climate risk reporting and disclosure rules on companies like the one anticipated from the U.S. Securities and Exchange Commission, and recently enacted California measures (Roundtable Weekly, Sept. 22 and March 10); Myriad state and local building performance laws (Roundtable Weekly, Jan. 20 and Dec. 9, 2022); International NGO standards like the one offered by the Science-Based Targets Initiative (SBTi) (RER and Nareit August 25 and July 14 comments to SBTi) (Roundtable Weekly, July 14); and Net-zero emissions investment principles developed for and by asset managers, banks, sovereign wealth funds, and venture capital firms (Roundtable Weekly, Sept. 22). A CRE coalition of real estate organizations including The Roundtable sent a Sept. 14 letter to US-EPA supporting development of standard methods and metrics for buildings and tenants to quantify their emissions. Federal standards, definitions, and tools “are the North Star though which local governments can inform their law-making, and this helps bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs,” said Roundtable Sustainability Policy Advisory Committee (SPAC) Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust). (Roundtable Weekly, Sept. 15)    A Climate Priority for CRE Roundtable Senior VP and Counsel Duane Desiderio was quoted yesterday in the Washington Post and Popular Science about how CRE executives welcome the idea of a single federal standard. “A workable, usable federal definition of zero-emission buildings can bring some desperately needed uniformity and consistency to a chaotic regulatory landscape,” Desiderio said. (Roundtable Weekly, Sept. 15) Yesterday, The White House also released a National Climate Resilience Framework in anticipation of an eventual White House Climate Resilience Summit. The Framework identifies climate resilience principles and specific actions to expand and accelerate progress towards six objectives that includes, “Expand adoption of the latest consensus-based building and energy codes and high-performance standards.” (White House Fact Sheet, Sept. 28) The Roundtable will continue to work with our partner organizations and develop comments on the ZEB definition upon its anticipated release next month. #   #    #
Opportunity Zones
September 29, 2023
Roundtable Weekly
House Lawmakers Reintroduce Legislation to Extend and Reform Opportunity Zone Incentives
Opportunity Zones Tax Policy
Bipartisan legislation introduced this week by a group of House policymakers would update and amend the Opportunity Zones (OZs) program. The Roundtable-supported bill (H.R. 5761), if enacted, would extend the tax deferral date for OZ investments from the end of 2026 to the end of 2028, expand transparency and reporting requirements, and authorize investment structures that permit an Opportunity Fund to own and operate multiple real estate assets. (House OZ bill text) Roundtable Support Reps. Mike Kelly (R-PA), above, —chairman of the Ways and Means Subcommittee on Tax—along with Dan Kildee (D-MI), Carol Miller (R-WV), and Terri Sewell (D-AL) introduced the bill on Sept. 27. The bill is similar to legislation (H.R. 7467 and S. 4065) introduced in the last Congress. (Rep. Kelly news release, Sept. 29) Roundtable President and CEO Jeffrey DeBoer welcomed the Opportunity Zones Improvement, Transparency, and Extension Act. “Opportunity Zones have delivered on their promise to create new economic opportunities in low-income communities. Real estate developments spurred by the Opportunity Zone tax incentives are expanding the supply of affordable housing and creating vibrant commercial centers where small businesses can reside, jobs can grow, and the local tax base can expand.”  “Unfortunately, certain OZ incentives have already expired. The new legislation would strengthen the program's integrity and ensure Opportunity Zone investment continues into the future. Congress should act quickly to enact these measures,” said DeBoer. 2023 OZ Reforms The OZ program, created in the Tax Cuts and Jobs Act of 2017, designated low-income census tracts where qualifying investments are eligible for reduced capital gains taxes, channeling investment into areas prioritized by states and local communities. This week’s legislation includes a 2-year extension of the initial capital gains deferral period for prior gain that is rolled into an opportunity fund by an investor. (Legislative text for H.R. 5761 | Roundtable comment letters: Dec. 21, 2021 and May 14, 2020) The 2-year extension from the end of 2026 until the end of 2028 will allow OZ investors to benefit from a partial step-up in basis that reduces their tax liability on their prior gain if their opportunity fund investment is maintained for at least five years. Additionally, the bill would facilitate fund-of-fund investment structures that allow opportunity funds to own and operate efficiently more than one asset. Similar to traditional real estate funds, the structure would allow an opportunity fund to sell a property and reinvest the proceeds in another qualifying Opportunity Zone investment without triggering a taxable event for the fund’s underlying investors, provided the investors themselves have not disposed of their interest.   Other provisions would establish robust OZ reporting requirements, mandate Treasury to produce certain studies and reports on the OZ program, sunset high-income OZs, and create a new $1 billion fund for states to support business activities in OZs Prospects for the 2023 bill are uncertain, but the legislation is a likely candidate for consideration if, and when, House and Senate Leaders sit down to negotiate an end-of-year tax package that focuses on expired provisions—such as the expanded child tax credit, the expensing of R&D costs, and bonus depreciation.  #  #  #
Tax Policy
September 22, 2023
Roundtable Weekly
Bipartisan House Legislation Would Encourage Debt Workouts
Cancellation of Indebtedness COD Income COD
Bipartisan legislation (H.R. 5580) introduced in the House this week would reduce the tax burden on a borrower that can arise when a troubled commercial real estate loan is modified as part of a debt workout. The legislation, introduced by Reps Claudia Tenney (R-NY) and Brian Higgins (D-NY), could help smooth the transition to a healthy and stable post-pandemic real estate market.  Restructuring CRE Loans “From the tax law to banking regulation, housing policy, and other areas, public policy has always encouraged the restructuring of unsustainable loans to help businesses turnaround and help taxpayers get back on their feet,” said Real Estate Roundtable President and CEO Jeffrey DeBoer.  During the height of the pandemic, the federal government extended lifelines to businesses (PPP loans), suspended the repayment of federal debts, and imposed foreclosure moratoria on federally backed loans. Emergency legislation expressly excluded the forgiveness of federal loans from cancellation of debt (COD) income. “In the case of commercial real estate, the full economic consequences of the pandemic are still unfolding. Remote work and other challenges facing cities have put stress on certain real estate assets, such as office buildings. Debt workouts between lenders and borrowers are a critical part of the solution. Workouts can ensure that these properties continue supporting jobs and economic activity,” said DeBoer. “Congress, COVID, and COD” addressed the discharge of indebtedness issue in Tax Notes on July 27, 2020. The article was written by Roundtable Tax Policy Advisory Committee (TPAC) member Donald Susswein (Principal, RSM US LLP) and Roundtable Senior Vice President & Counsel Ryan McCormick. Cancellation of Debt (COD) Income The Tenney-Higgins bill would build on existing tax provisions by effectively deferring COD income. For over 30 years, a provision of the law (section 108(c)) has allowed noncorporate taxpayers to defer tax when a loan used to buy, construct, or improve real estate used in a trade or business is modified. To qualify for the provision, the taxpayer must have depreciable basis in the property. The taxpayer's basis is reduced by the amount of COD income, resulting in smaller depreciation deduction and larger capital gain when the property is eventually sold.  The Tenney-Higgins bill would expand on the current law COD income rules in the case of loans secured by nonresidential real property that were incurred before March 1, 2022 and are discharged in 2023-2026. The Roundtable commends the leadership of Reps. Tenney and Higgins, both members of the tax-writing House Ways and Means Committee, above. The bipartisan bill was cosponsored by Reps. Mike Lawler (R-NY) and Pat Ryan (D-NY). The Roundtable and its industry partners will continue working with House and Senate tax-writing committees to address gaps in the COD income rules and encourage loan restructurings that revitalize properties, save jobs and local tax bases, and strengthen the health and vitality of surrounding communities. Roundtable President and CEO Jeffrey DeBoer will discuss a range of policy issues facing the industry on Sept. 26 as part of a Marcus & Millichap webcast, “A Conversation with Lloyd Blankfein, Former Chairman and CEO of Goldman Sachs, on the Economy and Commercial Real Estate with Insights from Industry Leaders.” Marcus & Millichap President and CEO Hessam Nadji and former Chairman and CEO of Goldman Sachs Lloyd Blankfein will lead the live webcast discussion on economic factors, including Federal Reserve policy, impacting the commercial real estate market. DeBoer, Tom McGee, President and CEO of ICSC and Sharon Wilson Géno, President of NMHC will join the conversation as CRE industry leaders. (Register here)#  #  #
Climate Policy
September 22, 2023
Roundtable Weekly
California Passes Corporate Climate Disclosure Package; Biden Administration Releases Net-Zero Emissions Principles for Financial Institutions
Building Emissions California emissions law climate Climate Policy Corporate Disclosure Reporting on Climate Risks SEC Securities and Exchange Commission
Recent government actions amplify the increasing focus by policymakers on climate laws and guidelines—and their heightened impact on CRE. The California legislature recently passed first-of-its-kind state laws that require companies to disclose their emissions, beating to the punch anticipated federal climate reporting rules from the U.S. Securities and Exchange Commission (SEC). (Politico, Sept. 17) Meanwhile, the Biden administration issued voluntary principles this week for asset managers, banks, insurers, and venture capital companies with goals for “net zero” emissions investments, including real estate. (Treasury news release, Sept. 19) California’s Climate Risk Disclosure Package California’s legislature passed two bills (SB 253 and SB 261) last week requiring climate-related disclosures from certain companies doing business in the state. Most notably, the Climate Corporate Data Accountability Act (SB 253) would require entities with total annual global revenues greater than $1 billion to quantify and publicly report Scopes 1, 2, and 3 emissions. See The Real Estate Roundtable’s summary of the California legislation. SB 253 is estimated to regulate around 5,400 companies. Gov. Gavin Newsom (D) pledged to sign both bills, although he may request changes when the legislature reconvenes in January. The laws could be challenged in court before they take effect over the next several years. (Wall Street Journal, Sept. 20 and New York Times, Sept 17) The California legislature “leapfrog[ged]” the U.S. SEC (Bloomberg, Sept. 12), which has yet to release highly anticipated federal rules that are expected to require registered companies to report to investors on material climate-related financial risks in 10-Ks and other filings. (See RER’s 2022 comments on SEC proposal | Roundtable Weekly, March 10 and June 10, 2022) SEC Chair Gary Gensler testified last week before the Senate Banking Committee that final rules regarding disclosure of Scope 3 “indirect” emissions could be changed from what was proposed. “Really important issues have been raised around Scope 3,” he said. (Wall Street Journal, Sept. 12 and Roundtable Weekly, March 17). U.S. Treasury’s Net-Zero Emissions Investment PrinciplesThe Treasury Department’s Principles for Net-Zero Financing & Investment is focused on “financial institutions’ scope 3 financed and facilitated greenhouse gas (GHG) emissions.” It urges private sector financial institutions to align their GHG reduction efforts and net-zero goals with their “portfolio companies,” “portfolio of assets,” and “client base.” The document notes that clients and portfolio companies should provide to their financial institutions their own net-zero plans, including “metrics and targets” for Scopes 1, 2 and 3 emissions. Buildings and real estate assets have long been considered part of a financial institution’s Scope 3 emissions “value chain.”  The set of nine principles encourage greater adoption of emerging best practices for private sector financial institutions that have made net-zero commitments, while promoting consistent and credible implementation approaches. Treasury’s net-zero investing and financing guidelines elicited GOP criticism from Patrick McHenry (R-NC), chairman of the House Financial Services Committee. A Sept. 12 podcast featuring Roundtable Senior Vice President & Counsel Duane Desiderio, and Nareit’s Senior Vice President of Environmental Stewardship and Sustainability Jessica Long, discusses the imminent SEC rule and other real estate policy priorities in the energy and climate arena. (Listen to Nareit’s “Real Estate Roundtable says CRE Playing Key Role in Success of Federal Climate Programs”) #  #  #
Foreign Investment & CRE
September 22, 2023
Roundtable Weekly
Florida Proposes Positive Clarification to Law Impacting Foreign Investments in Real Estate
Capital and Credit Florida SB264 Foreign Investment Restrictions on Foreign Investment in US Real Estate
Yesterday, the Florida Department of Commerce proposed a positive clarification to a recently enacted law impacting foreign real estate investment, with implications for similar laws in several other states. The clarification responds to a Roundtable request on Sept. 5 urging the Florida Real Estate Commission to consider specific concerns before implementing the new state law, which could impair capital formation and hinder the important role that legitimate foreign investment plays in U.S. real estate, the broader economy and job growth. (Roundtable letter, Sept. 5 and Roundtable Weekly, Sept. 8) Section 203 The proposed rule published on Sept. 21 addresses the implementation of Florida Senate Bill 264 (SB 264), Section 203, signed into law on May 8. The new law aims to limit and regulate the sale and purchase of certain Florida real property by “foreign principals” from “foreign countries of concern.” The Florida Real Estate Commission will implement the new law. (SB 264 text). Section 203 of the bill prohibits investment in real property near military installations and critical infrastructure.  Importantly, the de minimis exemption has been re-drafted, which (1) fixes earlier drafting errors to the Registered Investment Advisor exemption, and (2) introduces a new category of de minimis interests that categorically exempts passive indirect investment. (See highlighted areas in the Notice of Proposed Rule) The proposed rule clarification remains subject to change during a 21-day public comment period and may include a formal hearing. Section 204 Broader prohibitions in another area of SB 264—Section 204—generally preclude Chinese investors from acquiring “any interest” in any Florida real property anywhere in the state. Since the de minimis language and relevant statutory text are almost identical across Sections 203 and 204, The Roundtable is hopeful that similar language will be adopted during the rulemaking process for Section 204.  The Sept. 5 letter from Roundtable President and CEO Jeffrey DeBoer notes that approximately $1.5 trillion of U.S. commercial real estate debt will come due in the next three years. Foreign equity investments in U.S. assets are often an important source of capital as commercial real estate owners seek to restructure, refinance or sell their properties. DeBoer urged the Commission to “carefully consider the impact of your agency’s interpretation and implementation efforts of this new law so that it does not prohibit major investments in the state, which are safe from control by foreign countries of concern and promote growth without sacrificing the security or economic interests of Florida.” (Roundtable letter, Sept. 5) #  #  #
Capital and Credit
September 22, 2023
Roundtable Weekly
House Republicans Urge Federal Regulators to Withdraw Capital Rules Proposal for Large Banks
Basel III Capital and Credit Halting ProCyclical Policy Measures and Increases in Regulatory Capital Rep Patrick McHenry The Fed
More than two dozen Republicans on the House Financial Services Committee, led by Chairman Patrick McHenry (NC), recently urged banking regulators to withdraw a sweeping set of proposed changes that would significantly increase capital requirements for large banks. The federal Agencies’ proposal—known as the “Basel III Endgame”—represents the final stages of the global regulatory response to the 2008-09 financial crisis. (Bloomberg Government, Sept. 14) Proposed Agencies’ Rulemaking In July, the Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) jointly approved the 1,100-page proposed rulemaking, which would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more. The Agencies’ proposal would have a long phase-in period and have not impact community banks. (CNBC, Fed news release, and Interagency Overview of the Notice of Proposed Rulemaking for Amendments to the Regulatory Capital Rule, July 27) Fed Chairman Jerome Powell voted for the proposal, but noted a significant tone of caution. Powell stated, “Raising capital requirements also increases the cost of, and reduces access to, credit … threatening a decline in liquidity in critical markets and a movement of some of these activities into the shadow banking sector. I look forward to hearing from all stakeholders on how best to strike that balance,” (Federal Reserve Board Chair Powell statement, July 27) The House Committee Republicans’ letter claims the scope and process of the banking regulators’ plan is flawed, while noting how the proposal was opposed by some members on the Federal Reserve and FDIC Boards. The letter concludes, “Given those fatal problems with your Basel III Endgame proposal, we urge that it be withdrawn. The proposal should be replaced with one based on sound, objective analysis supported by data.” The Sept. 13 letter was sent in conjunction with last week’s House Financial Services Committee hearing, “Implementing Basel III: What’s the Fed’s Endgame?” A subsequent hearing on Sept. 19 held by the House Financial Services Subcommittee on Financial Institutions and Monetary Policy—“A Holistic Review of Regulators: Regulatory Overreach and Economic Consequences”—explored the interaction and economic impact of recent federal regulatory proposals, including the Basel III Endgame, new and expanded long-term debt requirements, and changes to resolution plans. Subcommittee Member William Timmons (R-SC), expressed concern during the hearing about how the Basel III capital requirements may exacerbate the strain on bank capital availability. He emphasized “… the fact that billions of dollars of commercial real estate projects must be refinanced the next 36 months, and not all those projects will be profitable when their mortgage payments more than double and banks are prevented from extending additional credit due to increases in capital requirements and an unfavorable interest rate environment.” Rep. Timmons added, “That is the looming crisis that we need to be preparing for, not further restricting capital availability.” (CQ, hearing transcript) Impact on CRE The proposed changes would increase capital requirements for the nation's largest banks by as much as 20%, with far broader indirect impacts on bank counterparties and customers and the broader financial markets. The Agencies’ rulemaking could significantly affect available liquidity for commercial real estate transactions, impact asset values, and hinder economic growth. (Roundtable Weekly, July 28) Mortgage Bankers Association (MBA) President and CEO Robert Broeksmit testified during the Sept. 14 House Financial Services Committee hearing. “MBA strongly opposes certain provisions of the proposal that undermine the mortgage market and takes exception to the extremely scant economic analysis regarding how the changes will affect the economy, single-family housing market, and commercial real estate finance markets,” Broeksmit testified. (MBA Newslink, Sept. 19) Real Estate Roundtable President and CEO Jeffrey DeBoer stated in a March 2023 comment letter to Fed Vice Chair Michael Barr and other key regulators, "At this critical time, it is important that the Agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values. A deflationary spiral must be avoided at all costs. As recent events are only amplifying the contraction of credit, it is important for the Agencies to take measures to maintain sufficient liquidity levels and support positive economic activity." The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) has established a working group on Basel III that is developing comments, due by Nov. 30, on the Basel III Endgame proposal. #  #  #
September 15, 2023
John C. Cushman, III, Industry Legend, Roundtable Leader, and Iconic Pillar of Cushman & Wakefield
John C. Cushman, III—Cushman & Wakefield’s chairman of global transactions, real estate industry titan for 60 years, and one of the founding members of The Real Estate Roundtable—passed away yesterday.Industry IconReal Estate Roundtable Chair John Fish (Chairman and CEO, SUFFOLK) said, “As a founding member of The Roundtable, and later as a member of our Board of Directors, John Cushman consistently helped us with his knowledge, his relationships and his voice. John’s legacy will live on in the real estate industry and in the countless communities he touched.”“The loss of John Cushman is a sad day,” said Jeffrey DeBoer, Roundtable President and CEO. “John’s personable and passionate approach to life was unique and inspiring. His sharp focus on structuring real estate transactions to meet the needs of business tenants and building owners was unparalleled. Time and again he rallied the industry to support positive economic and job growth initiatives. He made an enormous contribution to the commercial real estate industry—and to The Real Estate Roundtable’s advocacy efforts. The Roundtable, and I personally, will deeply miss him. We will always remember him as a generous, kind, and thoughtful friend.”Cushman & Wakefield Executive Chairman Brett White said, “John was an extraordinary businessperson and global citizen who significantly impacted Cushman & Wakefield, the commercial real estate industry and broader community.”The Cushman family stated, “John’s successes in commercial real estate were extremely notable but his positive impact on so many careers are what mattered to him even more. John always valued the importance of giving back and was a staunch supporter of many philanthropic efforts. His contributions to so many organizations will contribute to his legacy.” (John Cushman’s community involvement)An Exemplary Career(John Cushman with Jeffrey DeBoer at a Real Estate Roundtable meeting)Over the course of his career, John Cushman played an essential role in advancing Cushman & Wakefield to its position as one of the top commercial real estate firms in the world. Prior to his becoming chairman of global transactions and co-chairman of the Board of Cushman & Wakefield, John was acknowledged as the top office-leasing broker in the United States. (List of clients and assignments)He began his career in 1963 in New York City with Cushman & Wakefield, founded by his grandfather John Clydesdale Cushman and his great uncle Bernard Wakefield. In 1967, he moved to Los Angeles to open Cushman & Wakefield’s first office in Southern California. In 1965, as President of the Western Region, he was responsible for 60% of Cushman & Wakefield’s offices in the United States.John and his twin brother, Louis B. Cushman, started their own firm in 1978, Cushman Corporation Realty, which they grew from two offices to operations in 11 US cities with over 200 employees. In September 2015, Cushman & Wakefield merged with DTZ, with the newly formed organization retaining the storied Cushman & Wakefield name. In 2017, John served as chairman of the Centennial Committee for Cushman & Wakefield’s 100th anniversary.Cushman & Wakefield is now among the largest real estate services firms with 52,000 employees in over 400 offices and approximately 60 countries. In 2022, the firm had revenue of $10.1 billion across core services of property, facilities and project management, leasing, capital markets, and valuation and other services.The Cushman family respectfully asks that individuals who would like to make a gesture in John’s honor visit a national park site or make a donation to the National Park Foundation on behalf of John C. Cushman, III.#  #  #
September 15, 2023
Roundtable and Business Coalition Weigh In on Legislation Requiring Ransomware Attack Reports
Bipartisan legislation that would require private sector companies to report ransomware attacks to federal authorities was advanced this week by the Senate Homeland Security and Governmental Affairs Committee. A broad, 37-member coalition that includes The Real Estate Roundtable on Oct. 4 provided detailed suggestions to Senate and House congressional committees about provisions that should be included in any bill that would impose a compulsory cyber incident notification program on the business community. (Cybersecurity coalition letter and Committee mark-up)Why It MattersThe Cyber Incident Reporting Act (S. 2875) – sponsored by Committee Chairman Gary Peters (D-MI) and Ranking Member Rob Portman (R-OH) – would require certain owners and operators of critical infrastructure operators to report hacks within 72 hours and ransom payments within 24 hours to the Cybersecurity and Infrastructure Security Agency (CISA).  Organizations failing to do so would potentially banned from doing business with the federal government. (The Hill, Set. 28 and PoliticoPro, Oct. 5)The committee also approved the Federal Information Security Modernization Act of 2021 (S. 2902), which would require agencies and contractors to report on cyberattacks.The congressional bills aim to update the Federal Information Security Modernization Act, signed into law in 2014. Sen. Portman noted two reports on issued by the Homeland Security Committee since 2019 that found massive cybersecurity shortcomings at several federal agencies. The Senate Homeland Security Committee’s leadership may seek to merge their legislation may with a bill (S. 2010) from the Senate Intelligence Committee. Sen. Peters said he may also seek to include S. 2875 in House-passed defense policy legislation (H.R. 4350), which also includes language requiring cyber incidents. (BGov and PoliticoPro, Oct. 5)Private Sector ConcernsThe business coalition’s Oct. 4 letter to the Senate Committees on Intelligence, Homeland Security and Government Affairs and the House Committee on Home  recommended several provisions that should be central to a mandatory reporting regime, including:Establish a prompt reporting timeline of not less than 72 hours. Legislation should reflect an appropriate, flexible standard for notifying government about significant cyber incidents.Attach reporting to confirmed cyber incidents. Businesses need clarity in reporting requirements, which should be targeted to well-defined and confirmed cyber incidents.Confine reports to significant and relevant incidents .A list should be limited in reach—particularly excluding small businesses using existing federal rules—and risk based.The business industry comments recommended that federal cybersecurity reporting legislation should also include robust liability protections; consistent federal reporting requirements; restrictive government use of reported data; and guarantee substantial input from industry to protect the rulemaking process. Identifying Critical InfrastructureIn the House, a separate bill that would identify systemically important infrastructure was introduced Oct. 5 by Homeland Security Committee Ranking Member John Katko (R-NY), Rep. Abigail Spanberger (D-VA) and Rep. Andrew Garbarino (R-NY). (Katko one-pager on the bill)The bill would authorize CISA to prioritize infrastructure operators considered so crucial to the U.S. economy, public health and national security that a disruption to their operations due to a cyberattack would be considered debilitating. (Katko news release, Oct. 5) The Roundtable’s Homeland Security Task Force continues to work with key law enforcement and intelligence agencies and the Real Estate Information Sharing and Analysis Center (RE-ISAC) on protective measures that businesses can take to create infrastructure resistant to physical damage and cyber breaches.  #  #  # 
September 15, 2023
Roundtable Urges Treasury to Clarify Tax Consequences of Transition Away from LIBOR as Reference Rate
The Real Estate Roundtable yesterday asked the U.S. Treasury Department and IRS to reduce the risk of market disruption by clarifying the tax treatment of financial contracts that replace the expiring London Inter-bank Offered Rate (LIBOR) with a substitute reference rate.  Over $200 trillion of LIBOR contracts are outstanding, including roughly $1.3 trillion of commercial real estate debt. (Roundtable LIBOR letter, June 6)The Real Estate Roundtable yesterday asked the U.S. Treasury Department and IRS to reduce the risk of market disruption by clarifying the tax treatment of financial contracts that replace the expiring London Inter-bank Offered Rate (LIBOR) with a substitute reference rate. (Roundtable LIBOR letter, June 6). The United Kingdom's Financial Conduct Authority (FCA), which regulates LIBOR, announced in 2017 that it is phasing out the global borrowing index by the end of 2021.  LIBOR will need to be replaced in both new agreements and innumerable existing legacy contracts.Several factors may necessitate or accelerate parties' adoption of alternative reference rates on existing contracts well before the end of 2021.  To facilitate the transition, the Federal Reserve Bank of New York in 2018 began publishing an alternative U.S. benchmark to work alongside LIBOR – the Secured Overnight Financing Rate (SOFR).  (See: A User's Guide to SOFR  and SOFR: A Year in Review)However, several issues may be contributing to the reluctance of market participants to use SOFR, including the absence of necessary internal infrastructure to support its accounting and trading, and the lack of tax guidance. Roundtable President and CEO Jeffrey DeBoer noted in the comment letter, "If the terms of a debt instrument are significantly modified, for Federal income tax purposes there is a deemed exchange of the old debt for a new (modified) debt instrument."  Without relief, this deemed exchange could trigger the recognition of taxable gain or loss for the lender, or debt discharge income for the borrower."Moreover, the tax consequences of the deemed exchange can arise without generating actual cash to pay any ensuing tax liability," wrote DeBoer.  Randal Quarles – the Fed's vice chairman in charge of financial regulation – reiterated the urgency of moving forward on the transition to SOFR. The Roundtable's June 6 comments recommend that a safe-harbor rule confirm that a replacement index or formula identified by regulators, broad industry groups, or similar objective sources-or by the parties themselves in good faith-is not considered an alteration or modification of the original instrument.  The Roundtable letter states, "Instead, the replacement should be treated for Federal tax purposes as a continuation of the instrument's original terms."This week, Randal Quarles – the Fed's vice chairman in charge of financial regulation – reiterated the urgency of moving forward on the transition to SOFR:  "I believe that the ARRC has chosen the most viable path forward and that most will benefit from following it, but regardless of how you choose to transition, beginning that transition now would be consistent with prudent risk management and the duty that you owe to your shareholders and clients .... With only two and a half years of further guaranteed stability for LIBOR, the transition should begin happening in earnest."  (Bloomberg, June 3)The Wall Street Journal reported last July that companies were adopting SOFR sparingly –  despite regulators urging banks and traders to stop launching new Libor-based contracts ahead of the 2021 deadline. (WSJ, July 12 and Roundtable Weekly, July 13, 2018) The Roundtable letter was developed by a task force that included Tax Policy Advisory Committee (TPAC) Chairman Frank Creamer Jr., TPAC member Don Susswein, and chair of the Real Estate Capital Policy Advisory Committee (RECPAC) Working Group on LIBOR, Joseph Philip Forte.  On June 11, at The Roundtable's Annual Meeting in Washington DC, Joseph Forte will lead a RECPAC discussion on real estate's concerns with the LIBOR transition. 
September 15, 2023
Roundtable Proposes Framework for Implementing the Real Estate Exception to the New Business Interest Deduction Limit
The Real Estate Roundtable on Wednesday wrote to Treasury Secretary Steven Mnuchin regarding the new limitation on business interest deductibility created in the Tax Cuts and Jobs Act, including rules that allow taxpayers to continue fully deducting interest related to commercial real estate debt. (Roundtable letter, Feb. 21) The Feb. 21 Roundtable letter urges that Treasury clarify that interest (other than investment interest) on debt that is allocable to an owner of an entity engaged in a real property trade or business is exempt from the new business interest limitation rule – if that trade or business has elected out of the rule. The exception for interest allocable to a real property trade or business reflects policymakers' understanding that limits on the deduction for interest expense could have enormous negative consequences for property values, real estate markets, and economic growth.  (Reference: Real Estate Forum, Jan/Feb 2018, Decoding The New Tax Bill)The Feb. 21 comment letter requests clarification to ensure the real estate exception operates as intended for common real estate ownership arrangements – focusing on the scope and application of the exception for an electing real property trade or business. The letter urges that Treasury clarify that interest (other than investment interest) on debt that is allocable to an owner of an entity engaged in a real property trade or business is exempt from the new business interest limitation rule – if that trade or business has elected out of the rule.  As relevant examples, the letter describes four common scenarios where the financing of a real property trade or business occurs through a tiered structure.  The letter demonstrates why treating the interest expense of an upper-tier entity as properly allocable to the real property trade or business of a lower-tier entity is consistent with the legislative intent and conforms with existing tax rules and principles.  The letter also addresses the allocation of indebtedness within entities, requesting that Treasury guidance apply the tracing rules found in existing authorities, which are already used for purposes of the passive loss rules.  During a Feb. 20 tax conference, both Treasury's Deputy Tax Legislative Counsel Krishna Vallabhaneni and Deputy Assistant Secretary for Tax Policy Dana Trier said a notice on language limiting interest expenses under the new tax law will be issued soon. (Bloomberg Law, Feb. 20).  This week's letter is a follow-up to a Jan. 18 Roundtable letter, which identified several areas where Treasury rulemaking would reduce uncertainty and facilitate continued investment. [Roundtable Weekly, Jan. 19]   As Treasury and Congress continue to focus on implementation and technical corrections to the new tax law, The Roundtable and TPAC will play an active role in seeking appropriate clarifications affecting the most significant changes to the tax code in more than three decades.
September 15, 2023
Roundtable Calls for Congress to Pass Cyber Security Bill, Increase Digital Competitiveness
The bipartisan Cyber Diplomacy Act (H.R. 3776) will advance America’s public and private efforts to safeguard cyberspace and enhance the nation’s economic competitiveness in a global digital economy.  That is the message sent by The Roundtable, U.S. Chamber of Commerce and five other national trade organizations in a joint letter last week to Senate Majority Leader Mitch McConnell (R-KY), Minority Leader Chuck Schumer (D-NY) and all other U.S. Senators. (Joint Letter, Sept. 26)The  Roundtable and six other national trade organizations sent a Sept. 26 joint letter on cybersecurity policy to all members of the U.S. Senate. (Joint Letter) The bill – introduced by House Foreign Affairs Committee Chairman Ed Royce (R-CA) – passed the House in January, was reported out of the Senate Committee on Foreign Relations in June and is currently under consideration by the Senate.H.R. 3776 would task the State Department with establishing a unified Office for Cyberspace and Digital Economy, which would consolidate efforts relating to international cybersecurity, internet access, internet freedom, digital economy, cybercrime, deterrence, and international responses to cyber threats.  (The Washington Times, Sept. 27)The Sept. 26 joint letter states, “We believe that a focused, centralized, and appropriately placed office led by an ambassador-rank official would aid U.S. cybersecurity and digital economy efforts. We believe that enactment of this bill would send a powerful message that the U.S. intends to preserve and protect a secure, reliable, and open internet.” The cybersecurity issue is a key focus of The Roundtable’s Homeland Security Task Force (HSTF), which encourages measures to address the global cyber threat and effective information sharing..The Roundtable’s Homeland Security Task Force will discuss cyber security and other issues affecting real estate during its upcoming meetings at FBI offices in New York (Oct. 18) and Washington, DC (Nov. 13). 
September 15, 2023
Roundtable Comments Support Proposed Implementation Rule for High Volatility Commercial Real Estate Loans
The Real Estate Roundtable's support for a federal proposal that would implement modified capital rules for High Volatility Commercial Real Estate (HVCRE) loan exposures is detailed in a  Nov. 26 comment letter to three banking agencies.  The Agencies — tasked with developing a rule consistent with Section 214 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) to clarify the capital treatment of HVCRE Acquisition, Development, or Construction (ADC) loans — invited comments on their Notice of Proposed Rulemaking. (Roundtable Weekly,  May 25)The  Real Estate Roundtable's support for a federal proposal that would implement modified capital rules for High Volatility Commercial Real Estate (HVCRE) loan exposures is detailed in a  Nov. 26 comment letter  to three banking agencies.. The Roundtable's comment letter to the Office of the Comptroller of the Currency; the Board of Governors of the Federal Reserve System; and the Federal Deposit Insurance Corporation states the current implementation proposal "more realistically aligns the requirements for HVCRE loans on commercial real estate projects with the actual periods of development or construction risk."  The letter also notes that when the final proposal is implemented, it "will aid economic growth and job creation, while maintaining adequate capital levels to manage the risks associated with ADC lending."  (Roundtable Comment Letter, Nov. 26)The changes to the capital rules address key deficiencies in the agencies' prior regulations governing the criteria for HVCRE or HVADC loans by providing the following modifications and clarifications:The 15% equity requirement would be revised to expressly include contributed land/property at the appreciated  land value as determined by a FIRREA appraisal and bank review (versus the cost basis under the current rule).Clarifies that loans made to acquire existing property with rental income and/or do cosmetic upgrades and other improvements don't trigger the capital penalty.A new exemption would be added to the HVCRE rule covering acquisition/refinancing loans for performing income producing properties.Allows borrowers to use internally generated capital in the project and, once the development/construction risk period has passed, outside the project, rather than forcing them to refinance the loan (possibly away from the original lender).All ADC loans made prior to January 2015 would be grandfathered and do not have to satisfy current HVCRE exemption criteria.Banks would able to withdraw HVCRE status prior to the end of an ADC loan's term.Roundtable President and CEO Jeffrey DeBoer also suggests in the letter that periodic industry forums be held on the implementation of the capital rules. "This feedback would allow the Agencies to appropriately address any possible unintended economic consequences resulting from the regulation by supervisory personnel or by the institutions they supervise that might threaten the soundness of the banking system or the stability of the real estate lending market," DeBoer added.The Roundtable's letter is supported by The American College of Real Estate Lawyers (ACREL) and The American College of Mortgage Attorneys (ACMA).  (Joint Letter of Support, Nov. 27)The Agencies' HVCRE proposal was one of the issues discussed at this week's meeting of The Roundtable's Real Estate Capital Advisory Committee (RECPAC).  Since 2015, The Roundtable's HVCRE Working Group and industry coalition partners have played a key role in advancing specific reforms to the HVCRE Rule.  (Roundtable HVCRE Comment Letter, March 2).
September 15, 2023
Roundtable Asks Treasury to Clarify Real Estate Exception to New Limit on Business Interest Deductibility
The Real Estate Roundtable on Tuesday wrote to the Treasury Department and IRS about the new limitation on business interest deductibility enacted in the Tax Cuts and Jobs Act of 2017 (TCJA).  The provision allows qualifying businesses to continue fully deducting interest related to commercial real estate debt.  (Roundtable comment letter, Feb. 26)The Roundtable's Feb. 26 letter on business interest deductibility. Roundtable President & CEO Jeffrey DeBoer sent the  detailed comments as Treasury officials work to finalize proposed regulations implementing TCJA's new section 163(j), which limits the deductibility of business interest to no more than 30% of modified, adjusted taxable income.  Section 163(j) includes a critical exception for real estate.On December 28, 2018 Treasury published proposed regulations clarifying that partner-level debt may qualify for the real estate exception-if the debt is allocable to a partnership engaged in a real property trade or business (RPTOB). DeBoer notes in The Roundtable's Feb. 26 letter, "In light of the clear legislative intent to enact a broad real estate exception and its importance to the health and stability of real estate markets, the final Treasury regulations should build on the proposed rules and not limit unnecessarily the ability of a real property trade or business (RPTOB) to elect out of the provisions of section 163(j)."DeBoer adds, "No issue in tax reform is more important to the health and stability of U.S. commercial real estate than the new rules related to the taxation of business-related borrowing.  U.S. commercial real estate is leveraged conservatively with roughly $14 trillion of total property value and $4 trillion of debt."The letter includes detailed comments on several 163(j) implementation issues and makes the following recommendations:The need to preserve the deduction for income-producing real estate was at the center of Jeffrey DeBoer's testimony and exchanges with Senate Finance Committee members before final passage of the 2017 tax overhaul law. (Roundtable Statement for the Record, Sept. 19, 2017 and video clips).   The real estate exception should extend through all "tiered" investment structures. The real estate exception should apply fully to non-rental activities. Treasury regulations should not "whipsaw" corporations/REITs through conflicting definitions of a "trade or business" that can effectively block their ability to use the real estate exception. Treasury regulations should modify the anti-abuse rule for related-party leases. The small business exception should not prevent otherwise eligible partners from qualifying for the real estate exception. Debt allocation rules should not undercount real estate assets for purposes of the real estate exception.Treasury regulations should confirm that senior housing constitutes a real property trade or business.The economic consequences of changes to the deductibility of business interest expense, and particularly the potential impact on real estate, was a central focus of lawmakers during consideration of the historic tax overhaul in 2017.  The need to preserve the deduction for income-producing real estate was at the center of DeBoer's testimony and exchanges with Senate Finance Committee Chairman Orrin Hatch – and other members of the committee – during the last congressional hearing on business tax reform prior to votes on the TCJA.  (Roundtable Statement for the Record, Sept. 19, 2017 and video clips).  
September 15, 2023
The Roundtable and 16 Real Estate, Insurance and Contracting Organizations Urge Passage of Infrastructure Expansion Act to Counter Inequities in “Scaffold Law”
The Real Estate Roundtable, Associated General Contractors, and 16 U.S. organizations representing the contracting, insurance and real estate sectors today urged the House Judiciary Committee and key congressional offices to swiftly pass the Infrastructure Expansion Act of 2017 (H.R. 3808), sponsored by Rep. John Faso (R-NY).  (Coalition Letter, Jan. 19) According to the  coalition letter  , the Infrastructure Expansion Act seeks to provide is a 21st century solution to ameliorate the harsh impact of an outdated 19th century law, which is restraining modern interstate commerce and economically burdening transportation projects that cross state lines. H.R. 3808 is a common sense tort reform effort aimed at correcting inequities from New York State's outdated "Scaffold Law."  Passed during the Industrial Revolution – long before the advent of Federal and state Occupational Safety and Health Administration and workers' compensation laws – the Law holds property owners, employers, and contractors fully liable for all fall-related injuries at building and infrastructure construction sites. As a result, courts have interpreted the New York law to subject property owners and contractors to "absolute liability."  Under this standard, the costs of injuries from commonplace painting, cleaning, remodeling, and construction activities are completely borne by property owners and contractors, even if they do not directly employ the injured worker.  The Scaffold Law also deems property owners and contractors as absolutely liable for height-related incidents, without regard to whether the worker caused the accident and intensified his or her own injuries.  Under this standard, even an inebriated worker who stumbles and falls at a project site is not held accountable to the extent his intoxicated state caused his own injuries.  (Roundtable Weekly, Oct. 27, 2017) The House bill counters the absolute liability standard by specifying that lawsuits against property owners and contractors for injuries associated with slips, falls, and "gravity-related risks" at Federally-assisted projects should instead be held to a "comparative negligence" standard.  When workers proximately cause their own injuries, comparative negligence factors such self-inflicted harm to proportionately limit damages awarded by judges and juries.  H.R. 3808 fosters the comparative negligence legal standard adopted by the overwhelming majority of courts, legislatures, and legal scholars across the United States. According to the coalition letter, the Infrastructure Expansion Act seeks to provide is a 21st century solution to ameliorate the harsh impact of an outdated 19th century law, which is restraining modern interstate commerce and economically burdening transportation projects that cross state lines.   Rep. John Faso (R-NY) introduced the  Infrastructure Expansion Act of 2017 (H.R. 3808)  , intended to counter New York State’s “Scaffold Law.” Among specific examples offered in the letter showing the economic impacts of the Scaffolding Law is  the Gateway Program, a Department of Transportation-assisted rail tunnel project of overwhelming national significance.  The New York law is estimated to drive-up costs by as much as 300 million dollars for this project, which will modernize the power grid, update a century-old tunnel inundated by Superstorm Sandy, and help eliminate a train "bottleneck" in the Northeast Corridor that contributes $50 billion to US GDP annually.  H.R. 3808 can help reduce the substantial added costs from insurance coverage, excessive litigation pay-outs, and project delays for interstate infrastructure construction like Gateway. "On the heels of a major federal infrastructure initiative, Rep. Faso's bill is welcome news – enacting it would drive down costs of proposed infrastructure projects like the vital Gateway tunnel project between New York and New Jersey, said John Banks, President of the Real Estate Board of New York.  (See REBNY Newsroom, Oct. 25, 2017).  Additionally, the Infrastructure Expansion Act of 2017 does not diminish or alter Federal or state OSHA obligations, nor does it foreclose "no-fault" workers' compensation. The coalition letter addressed to House Judiciary Committee Chairman Bob Goodlatte (R-VA) and Ranking Member Jerrold Nadler (D-NY) concludes that H.R. 3808 "… simply makes property owners, contractors, and workers accountable for their own choices and conduct at construction sites benefitting from Federal taxpayer dollars. We encourage swift passage of the 'Infrastructure Expansion Act.'"
September 15, 2023
Business Coalition Urges Treasury Secretary Mnuchin to Issue Guidance on Cost Recovery Period for Real Estate Improvements
A broad-based business coalition that includes The Real Estate Roundtable urged Treasury Secretary Steven Mnuchin on Wednesday to issue guidance clarifying certain provisions included in tax overhaul legislation enacted last year — including the cost recovery period for qualified improvement property (QIP).  ( Coalition letter , Aug. 22)A broad-based business coalition that includes The Real Estate Roundtable urged Treasury Secretary Steven Mnuchin on Wednesday to issue guidance clarifying certain provisions included in tax overhaul legislation enacted last year — including the cost recovery period for qualified improvement property (QIP).  (Coalition letter , Aug. 22)  An unintentional drafting mistake in the tax law has resulted in a significantly longer 39-year cost recovery period for new, qualified nonresidential interior improvements.  Congress intended to allow the immediate expensing of qualified improvements, or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest.  The drafting error affects leasehold improvements, expenditures made to improve common spaces in shopping centers and office buildings, and other interior improvements to nonresidential structures.  The longer cost recovery period effectively increases the after-tax cost of upgrading and improving commercial real estate.   ("Correcting the Drafting Error Involving the Expensing of Qualified Improvement Property " –  The Tax Foundation , May 30)     The August 22 letter includes 283 signatories, who state the delay in correcting the  QIP provision is delaying some store and restaurant remodeling projects, and causing some retailers to decline opportunities to purchase or lease new store locations that would require substantial improvements.  The coalition letter further explains, "These decisions not only deny communities the jobs associated with substantial construction projects, but also deny our communities the opportunity to bring new, permanent jobs to an otherwise abandoned store or to revitalize a declining mall. The delayed investment in remodeling projects is also causing a decline in sales by manufacturers that supply products used in remodels, like energy-efficient lighting and plumbing supplies."  The coalition urges Secretary Mnuchin "to issue guidance that will facilitate the intent of the law and eliminate the imposition of large additional tax compliance and accounting burdens on taxpayers, as well as associated tax enforcement burdens on the Internal Revenue Service."  Last week, all Republican members of the Finance Committee and Chairman Orrin Hatch (R-UT) wrote to Treasury and the IRS, requesting "guidance that is consistent with the congressional intent" of the new tax law regarding QIP expensing and two other tax policy areas.  (Roundtable Weekly, Aug. 17)    Roundtable President and CEO Jeffrey DeBoer stated, "In 2015, Congress voted overwhelmingly to permanently extend the 15-year recovery period for certain property improvements.  By passing tax reform, Congress intended to consolidate those changes.  Treasury should now use its authority to provide taxpayers with relief until a technical corrections bill is enacted.  Treasury guidance will remove taxpayer uncertainty, unlock investment, and spur job-creating property upgrades and renovations." 
September 15, 2023
Roundtable Comment Letter Urges Treasury to Simplify, Streamline New Pass-Through Deduction Regulations
The Real Estate Roundtable on Monday submitted detailed recommendations to the Treasury Department on simplifying and streamlining  the new 20 percent tax deduction for pass-through businesses. (Roundtable letter, Oct. 1)The   Real Estate Roundtable on Monday submitted detailed recommendations to the Treasury Department on simplifying and streamlining  the new 20 percent tax deduction for pass-through businesses. (Roundtable letter, Oct. 1) Passed as part of last year's tax overhaul, the deduction can reduce the top tax rate on qualifying pass-through income, including rental income, to 29.6 percent.  Once it is fully implemented, section 199A will be a powerful incentive for capital investment and job growth.The comment letter from Roundtable President and CEO Jeffrey DeBoer suggests four major simplifications that would provide greater certainty, lessen the need for wasteful restructuring, and reduce taxpayer-government controversies.    Trade or business definition  The final regulations should clarify that rental income from real property held for the production of rents will be considered a trade or business for purposes of section 199A;Aggregation  The final regulations should allow taxpayers to treat all qualifying real estate rental activities, whether held directly or through a pass-through entity, as if held in a single “trade or business” for purposes of section 199A;Non-recognition transactions When assets with associated unadjusted basis immediately after acquisition (UBIA) are transferred in a non-recognition transaction (such as a like-kind exchange or the contribution or distribution of assets involving a partnership or S corporation), the general rule should be that the UBIA of an asset (and its duration) carries over; andSeparating trades and businesses The final regulations should provide rules to help taxpayers ascertain when multiple activities (including multiple activities conducted in a single entity) constitute discrete trades or businesses.With a few exceptions, last year's Tax Cuts and Jobs Act limited the pass-through deduction to businesses with employees or capital-intensive businesses that invest in long-lived (i.e., depreciable) assets, including real estate.  This so-called wage/capital limitation applies to partnerships, S corporations, and sole proprietorships, but does not apply to ordinary REIT dividends and income from publicly traded partnerships.During the tax reform debate, The Roundtable's Tax Policy Advisory Committee (TPAC) formed a task force to review the regulations, analyze their impact on real estate investment and jobs, and craft specific recommendations for policymakers. The pass-through deduction (section 199A) was a key element of Roundtable President and CEO Jeffrey DeBoer's testimony before the Senate Finance Committee shortly before lawmakers released the first version of the proposal in the fall of 2017.   (Roundtable Weekly, Sept. 22, 2017)TPAC will continue to offer insight to Treasury officials and congressional tax-writing committees before final regulations are expected by the end of the year. 
September 15, 2023
Roundtable and Business Coalition Seek Administrative Relief, Shorter Cost Recovery Period for Nonresidential Real Estate Improvements
This week The Real Estate Roundtable, along with 239 businesses and trade groups, wrote to Secretary Mnuchinurging the Treasury Department to provide taxpayers with administrative relief from a drafting mistake in last year’s tax overhaul that increased the cost recovery period for qualified improvement property (QIP).This week, The Real Estate Roundtable, along with 239 businesses and trade groups,  wrote to Secretary Mnuchin  urging the Treasury Department to provide taxpayers with administrative relief from a drafting mistake in last year’s tax overhaul that increased the cost recovery period for qualified improvement property (QIP). The drafting error in the tax law has resulted in a significantly longer 39-year cost recovery period for new, qualified nonresidential interior improvements.  The intent of Congress was to allow the immediate expensing of QIP – or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest. In the Oct. 9 letter to Secretary Mnuchin, the coalition addressed the need for a QIP correction, along with the unintended consequences if action is not taken.  The letter raised concerns that the drafting error is resulting in “[d]elays in store and restaurant remodeling projects,” “[b]usinesses refraining from purchasing or leasing vacant stores or other leasehold spaces that require improvements,” and “[l]oss of construction jobs associated with commercial renovation projects.”  The coalition letter was sent in response to the Administration’s request for comments on newly proposed regulationsimplementing the additional first year depreciation deduction (immediate expensing) benefit.  The coalition submission also included two recent letters—one from 16 Democratic Senators to Treasury Secretary Steven Mnuchin and the other from 58 House Republicans to GOP leadership—reiterating the importance for policymakers to correct this unintentional drafting mistake in last year’s legislation, while recommending that Treasury should issue interim guidance and refrain from enforcing the drafting error.  (House Letter, Oct 2 and Senate Letter, Sept 24)The Real Estate Roundtable and a broad-based business coalition urged Secretary Mnuchin in August to issue guidance clarifying certain provisions included in tax overhaul legislation enacted last year – including the cost recovery period for qualified improvement property. (Coalition letter, Aug. 22)Congress could address the issue during the lame duck congressional session between the mid-term election and January. Senate Republican Conference Chairman John Thune (R-SD) said GOP lawmakers are motivated to address a number of tax issues that are outstanding, including tax reform technical corrections and expired tax provisions. (The Hill, Oct. 11) 
September 15, 2023
Congressional Lame Duck Session Could Consider Condominium Tax Accounting and Other Real Estate Tax Policy Issues
Following the Nov. 6 mid-term elections, a “Lame Duck” session of Congress is expected to consider various tax policies of importance to commercial real estate.   Several tax issues of importance to real estate may be in play during the November "Lame Duck" congressional session, including  condo tax accounting rules; technical corrections; the cost recovery period for qualified improvement property (QIP);and tax extenders. As part of a potential year-end omnibus spending bill to fund the government, tax policies that may be addressed include condo tax accounting rules; technical corrections; the cost recovery period for qualified improvement property (QIP); and tax extenders.  (Roundtable Weekly, Oct. 12) Current condo tax accounting rules require multifamily developers of buildings with five or more residential units to recognize income and pay tax on their expected profit as construction is ongoing — well before pre-sale transactions are closed and full payment is due from the buyer.  This mismatch of cash flow and tax liability prevents income tax deferment until a condo building is finished.   Home builders of single-family homes, townhouses and row houses are not subject to this accounting rule restriction. A House bill introduced last summer by Reps. Carlos Curbelo (R-FL) and Joe Crowley (D-NY) aimed to correct this disparity.  Although the Fair Accounting for Condominium Construction Act (H.R. 3659) stalled in 2017, it could serve as a template for inclusion in year-end tax legislation.  The Real Estate Roundtable supports lawmakers' efforts to pass H.R. 3659. Other congressional efforts to ensure that development accounting rules treat condos like other residential construction included a 2016 letter from 10 members of the Senate Finance Committee urging regulatory corrections to former Treasury Secretary Jack Lew. Roundtable President and CEO Jeffrey DeBoer on April 7, 2017 sent a letter to Treasury Secretary Steven Mnuchin   outlining eight regulatory actions the Treasury Department could take to stimulate new real estate investment, job creation, and economic growth.  Among the recommendations addressed in the letter are tax accounting for new condominium construction; the Foreign Investment in Real Property Tax Act, tax treatment of private real estate funds and partnership tax rules. Last week, an article on the condo tax accounting issue in The Real Deal included a quote from Roundtable Senior Vice President & Counsel Ryan McCormick, who commented on the outlook for correcting the current rules.  "Legislation may be the most likely route, in light of all the work ongoing at Treasury with tax reform," McCormick said.
September 15, 2023
Business Coalition Urges Implementation Delay for FASB’s ‘Current Expected Credit Loss Accounting Standard’ (CECL), Pending Impact Analysis
A business coalition that includes The Real Estate Roundtable on March 5 wrote to the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) to urge a delay in the implementation of the proposed Current Expected Credit Loss (CECL) accounting standard, which may begin to reduce aggregate bank lending as early as next year. (Coalition Letter, March 5)The March 5 coalition letter cites a 2018 KPMB survey showing companies are struggling to make certain accounting, modeling and data decisions to be in compliance with CECL. (KPMG, Financial institutions feeling the crunch in countdown to CECL implementation) The new CECL model will change the way banks calculate reserves on assets, requiring certain financial institutions to estimate the expected loss over the life of a loan beginning in January 2020.  For real estate, there is concern is that banks may reduce lending volumes as they build up additional capital reserves to be in compliance with CECL. The accounting rule change was issued by the Financial Accounting Standards Board (FASB) in June 2016 as a result of the 2008 financial crisis.The regulatory change in how banks estimate losses in their allowance for loan and lease losses (ALLL) will require substantial changes in data analytics and financial methodologies.  The March 5 coalition letter cites a 2018 KPMB survey showing companies are struggling to make certain accounting, modeling and data decisions to be in compliance with CECL.  (KPMG, Financial institutions feeling the crunch in countdown to CECL implementation)According to Trepp’s Looking at Historical CRE Losses for CECL, “To benchmark and fine-tune loss methodologies for CECL, the key for banks will be a four-letter word: data.  Unfortunately, many banks have very little in the way of granular historical data, and a number of those that do have good data have taken few to no losses in their history. This has made it difficult for those banks to effectively model future losses.”  (Trepp article by Joe McBride, April 21, 2017)To avoid unintended economic consequences, the coalition states in its letter, “We believe it is important to delay implementation of CECL in order to allow for time to conduct a quantitative impact analysis and to consider potential alternatives, while allowing for post-issuance field testing. Time for further assessment will also allow regulators to better understand and address the key consequences of any proposal for capital and other regulatory purposes.”The 8 signatories to the coalition letter are the U.S. Chamber of Commerce, American Bankers Association, Bank Policy Institute, The Real Estate Roundtable, Commercial Real Estate Finance Council, Mortgage Bankers Association, National Association of Realtors, Credit Union National Association and National Association of Federal Credit Unions.
September 15, 2023
Roundtable Recommends Policies to Spur Infrastructure Investment and Economic Growth
Repealing FIRPTA, streamlining permit procedures and passing infrastructure financing measures will help spur infrastructure improvements and contribute to economic growth, according to recommendations submitted this week by The Real Estate Roundtable to the House Ways and Means Committee.  (Roundtable Statement for the Record)Repealing FIRPTA, streamlining permit procedures and passing infrastructure financing measures will help spur infrastructure improvements and contribute to economic growth, according to recommendations submitted this week by The Real Estate Roundtable to the House Ways and Means Committee.  (Roundtable Statement for the Record) In the March 20 Statement for the Record for a recent hearing regarding “Our Nation’s Crumbling Infrastructure,” Roundtable President and CEO Jeffrey DeBoer states, “A holistic approach to expanding and modernizing our aging infrastructure will create American jobs, boost economic growth, and improve the quality of life in all regions of the country.”  The Roundtable recommendations include the following:  Unlocking private capital by repealing the Foreign Investment in Real Property Tax Act (FIRPTA).  FIRPTA imposes a discriminatory layer of capital gains tax on foreign investment—a tax burden that does not apply to any other asset class.  Repealing FIRPTA would serve as a market-driven catalyst to finance improvements in our nation’s infrastructure.Streamlining the permitting process.  A report by the nonprofit organization Common Good estimates that a six-year delay in starting construction on public projects costs the nation more than $3.7 trillion.  Permit delays dampen private sector investment and add to the overall costs of infrastructure projects. Increasing the federal gas “user fee” in a responsible and sustainable manner.  The gas user fee (18.4-cents a gallon) that capitalizes the Highway Trust Fund has not been raised since 1993.  The Roundtable supports proposals to sustain the HTF by increasing the user fee by five cents a year for the next five years, and indexing it to inflation thereafter.Revising IRS “volume caps” and other limitations on private-activity bonds (PABs).  Congress should broaden availability of these tax-exempt municipal bonding tools. Bipartisan measures that advance PAB financing, including the Move America Act (H.R. 1508), the Public Buildings Renewal Act ( H.R. 1251), and the BUILD Act  (S. 352), warrant close analysis.   Improving the Transportation Infrastructure Finance Innovation Act (TIFIA) loan program through measures such as the RAPID Act (S. 353).  Congress should consider establishing a similar credit enhancement program to encourage public-private partnerships to help repair an aging pipeline grid and remediate gas leaks that impact climate change. DeBoer discussed the role of public-private partnerships to develop infrastructure projects on CNBC’s Squawk Box in June 2017.  “There’s a lot of capital that wants to invest in infrastructure,” DeBoer said.  (Roundtable Weekly, June 9, 2017).  Ways and Means Chairman Richard Neal (D-MA) has indicated he intends for his committee to consider an infrastructure bill this spring.
September 15, 2023
Roundtable and Business Coalition Seek Administrative Relief, Shorter Cost Recovery Period for Nonresidential Real Estate Improvements
This week The Real Estate Roundtable, along with 239 businesses and trade groups, wrote to Secretary Mnuchinurging the Treasury Department to provide taxpayers with administrative relief from a drafting mistake in last year’s tax overhaul that increased the cost recovery period for qualified improvement property (QIP).This week, The Real Estate Roundtable, along with 239 businesses and trade groups,  wrote to Secretary Mnuchin  urging the Treasury Department to provide taxpayers with administrative relief from a drafting mistake in last year’s tax overhaul that increased the cost recovery period for qualified improvement property (QIP). The drafting error in the tax law has resulted in a significantly longer 39-year cost recovery period for new, qualified nonresidential interior improvements.  The intent of Congress was to allow the immediate expensing of QIP – or provide a 20-year recovery period in the case of taxpayers electing out of new limitations on the deductibility of business interest. In the Oct. 9 letter to Secretary Mnuchin, the coalition addressed the need for a QIP correction, along with the unintended consequences if action is not taken.  The letter raised concerns that the drafting error is resulting in “[d]elays in store and restaurant remodeling projects,” “[b]usinesses refraining from purchasing or leasing vacant stores or other leasehold spaces that require improvements,” and “[l]oss of construction jobs associated with commercial renovation projects.”  The coalition letter was sent in response to the Administration’s request for comments on newly proposed regulationsimplementing the additional first year depreciation deduction (immediate expensing) benefit.  The coalition submission also included two recent letters—one from 16 Democratic Senators to Treasury Secretary Steven Mnuchin and the other from 58 House Republicans to GOP leadership—reiterating the importance for policymakers to correct this unintentional drafting mistake in last year’s legislation, while recommending that Treasury should issue interim guidance and refrain from enforcing the drafting error.  (House Letter, Oct 2 and Senate Letter, Sept 24)The Real Estate Roundtable and a broad-based business coalition urged Secretary Mnuchin in August to issue guidance clarifying certain provisions included in tax overhaul legislation enacted last year – including the cost recovery period for qualified improvement property. (Coalition letter, Aug. 22)Congress could address the issue during the lame duck congressional session between the mid-term election and January. Senate Republican Conference Chairman John Thune (R-SD) said GOP lawmakers are motivated to address a number of tax issues that are outstanding, including tax reform technical corrections and expired tax provisions. (The Hill, Oct. 11) 
September 15, 2023
Senate Committee Advances Legislation to Reauthorize “Brand USA” Tourism Marketing Program
The Senate Committee on Commerce, Science and Transportation on July 24 overwhelmingly passed  S. 2203 , the Brand USA Extension Act  to reauthorize the organization that promotes the U.S. globally as a travel destination. Brand USA is a public-private partnership  that attracts international travelers to the U.S. to encourage tourism spending at America's hospitality, retail, attraction and other properties.  The Brand USA marketing organization operates at no expense to taxpayers.  Private sector contributions fund the program, matched by U.S. government fees collected from foreign visitors who enjoy visa-free entry to the U.S.Brand USA is a public-private partnership  that attracts international travelers to the U.S. to encourage tourism spending at America's hospitality, retail, attraction and other properties.  The Brand USA marketing organization operates at no expense to taxpayers.  Private sector contributions fund the program, matched by U.S. government fees collected from foreign visitors who enjoy visa-free entry to the U.S. The federal portion of Brand USA funding runs out next year.  S. 2203 would extend the federal cost-share until 2027, and increase the foreign traveler fees that pay for the federal portion. The bill's bipartisan co-sponsors are Sens. Roy Blunt (R-MO), Amy Klobuchar (D-MN), Cory Gardner (R-CO), Catherine Cortez Masto (D-NV), Dan Sullivan (R-AK), Lindsey Grahan (R-SC), and Jacky Rosen (D-NV).  Nearly 50 senators signed-onto a bipartisan May 2019 "Dear Colleague" letter to support reauthorizing and extending Brand USA. The Real Estate Roundtable is part of the Visit U.S. Coalition which advocates for Brand USA reauthorization.  The coalition, led by the U.S. Travel Association (USTA) and the American Hotel and Lodging Association, also includes the American Resort Development Association and the U.S. Chamber of Commerce.  The importance of international travel to the domestic economy, job growth, and CRE was the focus of a panel discussion during The Roundtable's 2018 Annual Meeting. (Roundtable Weekly, June 15, 2018). A study released last year shows that Brand USA's marketing efforts brought in 6.6 million incremental international visitors to the U.S. between 2013 and 2018, at a return-on-investment of $28 in visitor spending for every $1 the agency spent on marketing. S. 2203 is introduced at a crucial time, as recent travel trend figures forecast steady declines in the U.S.'s share of the international travel market through at least 2022.   The decline in market share represents estimated losses to the domestic economy of 14 million international visitors, $59 billion in international traveler spending and 120,000 U.S. jobs. (USTA news release, Aug. 1) Other travel policy legislation is pending in the House.  Reps. Mike Quigley (D-IL) and Tom Rice (R-SC) on April 9 reintroduced the bipartisan Jobs Originating through Launching Travel (JOLT) Act of 2019 (H.R. 2187) to improve national security, increase international tourism, and reform visa laws.  (Roundtable Weekly, April 26, 2019) When Congress returns from its summer recess on Sept. 9, policymakers will face the task of setting FY'20 federal appropriations for individual agencies and departments - before current funding runs out on September 30.  It is uncertain which individual programs such as Brand USA could be addressed within these funding bills, or whether Congress will need to pass an extension of current funding levels via a "Continuing Resolution."  (Roundtable Weekly, Aug. 2)# # #
September 15, 2023
President Trump Signs Debt Limit, Budget Caps Deal After Senate Passage; Congress In Recess Until Sept. 9
President Trump signed major bipartisan legislation today that allocates more than $2.7 trillion in discretionary federal spending over two years; suspends the debt ceiling until July 2021; and permanently eliminates the prospect of strict "sequestration" spending caps imposed under the Budget Control Act of 2011. ( The Hill , Aug. 2) After passing the budget deal yesterday, the Senate left for summer recess, following the House's exit last week.  Congress will reconvene on September 9.The legislation – a result of weeks of negotiations between Democratic congressional leaders and the White House – passed the Senate yesterday by a vote of 67-28 after the House last week approved it 284-149.  (Roundtable Weekly, July 26).  President Trump tweeted yesterday in support of the bill. Senate Majority Leader Mitch McConnell (R-KY) yesterday commented on the bill: "In recent weeks, key officials on President Trump's team engaged in extensive negotiations with Speaker Pelosi and the Democratic House.  Given the exigencies of divided government, we knew that any bipartisan agreement on funding levels would not appear perfect to either side. But the administration negotiated a strong deal." (CNN, August 1) Notably, the budget deal puts an end to the threat of sequestration, which would have imposed a mandatory 10 percent cut on all programs if budget targets were not met.  Senate Minority Leader Chuck Schumer (D-NY), said yesterday, "For too long, the arbitrary, draconian limits of sequester have hampered our ability to invest in working Americans and in our military readiness. This deal ends the threat of sequester permanently. That is huge." (Schumer Floor Remarks, August 1)  President Trump has indicated he wanted to eliminate budget brinkmanship in Washington that last year resulted in the longest partial government shutdown in U.S. history – while obtaining a two-year budget allocation until after the 2020 presidential election.  (Wall Street Journal, August 1) After passing the budget deal yesterday, the Senate left for summer recess, following the House's exit last week.  Congress will reconvene on September 9. Policymakers will face a tight deadline upon their return as they will need to set federal appropriations for individual agencies and departments for FY'20.  Current FY'19 funding runs out on September 30, as does legislative authority for the National Flood Insurance and EB-5 investment programs.  If Congress and President Trump cannot agree on how to allocate the $1.37 trillion in discretionary money allotted for the new fiscal year beginning October 1, a stopgap funding measure (or "Continuing Resolution") may be required.
September 15, 2023
Senate Committee Advances Five-Year Transportation Bill
The Senate Environment and Public Works Committee (EPW) unanimously approved a bill on Tuesday to authorize $287 billion over five years to repair and maintain the nation's surface transportation.  The bipartisan measure also aims to expedite the infrastructure permitting process, help address climate change, and grow the economy.  ( EPW Committee news release , July 30)    The Roundtable on April 29 submitted  infrastructure policy recommendations  to House Committee on Transportation and Infrastructure Chairman Peter DeFazio (D-OR) and Ranking Member Sam Graves (R-MO  ).    America's Transportation Infrastructure Act of 2019 (ATIA, S. 2302) is not the comprehensive infrastructure overhaul that Republicans and Democrats have long sought. (Roundtable Weekly,May 3, 2019.)  However, it makes progress toward shoring-up the Highway Trust Fund (HTF) – the nation's largest financing source for roads, bridges, tunnels, and mass transit.  Congress must reauthorize and capitalize the HTF before it runs out of money by the end of September 2020, at the height of the presidential election season. (ATIA summary and section-by-section analysis)  The ATIA would also codify Trump Administration measures to cut lengthy project permitting times.  EPW Chairman John Barrasso (R-WY) and Ranking Member Tom Carper (D-DE) stated their bill "will speed up project delivery by codifying key elements of the President's 'One Federal Decision' policy, without forgoing important environmental protections. Cutting red tape will allow important highway infrastructure projects to be built quicker and smarter."  (July 29 CNN joint op-ed)President Trump tweeted his support of S. 2302 on July 30, praising the EPW Committee's 21-0 vote as a bipartisan achievement. The bill now moves to the Finance Committee, chaired by Sen. Chuck Grassley (R-IA), to figure out how to pay for it through tax revenues and other means.  Additionally, the Senate Banking Committee, chaired by Mike Crapo (R-ID), must also mark-up sections dealing with mass transit programs.  The Senate's No. 2 Republican, John Thune (R-SD), said funding the bill will be a "heavy lift" and that any broader infrastructure package is "really unlikely."  (POLITICO Morning Transportation, Aug. 2)One financing source reportedly off-the-table is an increase to the "pay-at-the-pump" gas user fee that capitalizes the HTF.  Congress has not raised the so-called "gas tax" since 1993, and its buying power has been significantly diminished since then by inflation and gains in fuel efficiency.  Grassley said the Finance Committee will not consider how to pay for the ATIA until Senate Majority Leader Mitch McConnell (R-KY) "says he's willing to let a gas tax increase on the floor."  (BGov Tax, July 31)The Real Estate Roundtable's infrastructure policy agenda recommends a responsible increase to the gas user fee to sustain the Highway Trust Fund for the long term; streamlined permitting goals; and support for infrastructure innovations (such as driverless and electric vehicles) that respond to the nation's changing demographics and accommodate increased demands for transit-oriented development.Roundtable President and CEO Jeffrey D. DeBoer discussed the role of public-private partnerships to develop infrastructure projects on  CNBC's Squawk Box  in June 2017 .  ( Roundtable Weekly , June 9, 2017)  Congressional committees have also received statements from The Roundtable outlining our infrastructure priorities. ( Roundtable Weekly,    May 3, 2019  and March 22, 2019 ).   
Workplace Return
September 15, 2023
Roundtable Weekly
Congress Seeks to Include Legislative Language in Spending Bills Addressing Federal Workers' Return to Offices
DeBoer Jeffrey DeBoer Workplace Return
House and Senate lawmakers are looking to change current federal workforce telework policies by including language in annual spending bills under consideration by Congress. Yesterday, a House Oversight and Accountability Subcommittee held a hearing on “Oversight of Federal Agencies’ Post-Pandemic Telework Policies” and efforts to mandate federal workers return to their offices. (BGov, Sept. 14) Federal Telework The Real Estate Roundtable has urged President Biden and national policymakers for months to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 12, 2022) The White House directed Cabinet officials on Aug. 4 to increase the return of federal employees to their offices this fall as a “critical” part of fulfilling the mission of government agencies. (Government Executive, Aug. 7 | Axios, Aug. 4 In the House, Republicans inserted language into the Financial Services-General Government spending bill (H.R. 4664) that would defund any agency that does not return to 2019 telework practices. The House bill states, “Within 30 days of enactment of this Act, the Committee requires Federal agencies to reinstate and apply their pre-pandemic telework policies, practices, and levels in effect as of December 31, 2019, or they cannot obligate or expend funding for fiscal year 2024.” The Senate’s Appropriations bill for FY 2024 (S. 2309) is far more flexible, requiring agencies to only “examine how policies for in-person work, telework, and remote work impact agency productivity and performance as well as how effectively and efficiently agencies are able to carry out their missions and serve the public.” (Government Executive, Sept. 5 and FedWeek, July 18) Sen. Joni Ernst (R-IA) is seeking to add an amendment to federal spending bills that would force agencies to provide details on the cost of telework. “You have bureaucrats that are doing bubble baths during their conference calls for work. So you federal employees that are out there, we’re coming after you,” Ernst said recently. (BGov, Sept. 14) Roundtable Calls for Workplace Return The Roundtable followed its letter to President Joe Biden in December about the negative economic impact of federal telework policies with a letter to the Senate in April about the need to get more federal workers back to the workplace. (Commercial Observer and The Hill, April 14)  Today Real Estate Roundtable Chairman Emeritus Bill Rudin (Co-Chairman and CEO, Rudin Management Co.) discussed the return-to-office trend in New York City, the challenge of property conversions, the need to increase the housing supply, and other issues facing CRE on CNBC’s Squawk on the Street. Roundtable President and CEO Jeffrey DeBoer will discuss the impact of remote work and other policy issues facing the industry on Sept. 26 as part of a Marcus & Millichap webcast, “A Conversation with Lloyd Blankfein, Former Chairman and CEO of Goldman Sachs, on the Economy and Commercial Real Estate with Insights from Industry Leaders.” Marcus & Millichap President and CEO, Hessam Nadji and former Chairman and CEO of Goldman Sachs, Lloyd Blankfein, will lead the live webcast discussion on the economic factors, including Federal Reserve policy, impacting the commercial real estate market. DeBoer, Tom McGee, President and CEO of ICSC and Sharon Wilson Géno, President of NMHC will join the conversation as CRE industry leaders. (Register here)
Energy And Climate Policy
September 15, 2023
Roundtable Weekly
CRE Coalition Asks EPA to Help Standardize Conflicting State, Local Building Emissions Laws
Anthony Malkin Building Performance Standards BPS ENERGY STAR EPA EPAs ENERGY STAR Certification for Buildings Reporting on Climate Risks Securities and Exchange Commission
The Real Estate Roundtable and industry partners encouraged the U.S. Environmental Protection Agency (EPA) on Sept. 14 to enhance its set of effective, standardized, and voluntary federal tools that can assist real estate companies meet climate targets imposed by city and state laws. (Real estate coalition letter, Sept. 14) EPA Standards to Quantify Emissions The coalition endorsed EPA’s planned improvements to its free, online Portfolio Manager benchmarking tool, announced in an ENERGY STAR July 2023 policy brief. Nearly 25% of U.S. CRE space measures energy and water use, waste disposal, and GHG emissions using Portfolio Manager.   The coalition’s letter cites the ENERGY STAR Commercial Buildings program as an exemplary “public-private partnership to address the climate crisis and enhance our nation’s energy independence.” Portfolio Manager and other EPA resources can help real estate owners, developers, and lenders with common tools to comply with numerous building performance standards (“BPS”) enacted at the state and local level, and similar non-governmental frameworks like the one proposed by the Science Based Targets Initiative (“SBTi”).  (Roundtable Weekly, July 14 and Jan. 20). Without EPA’s voluntary resources to support uniform emissions measurement, compliance with local mandates is “exceedingly difficult, impracticable, and in some cases, impossible,” the letter states. “We value greatly our longstanding collaboration with the US-EPA’s ENERGY STAR program.  It is the gold standard of resources which help our industry report on energy efficiency and the financial impacts from the increase of renewable energy supplies,” said Roundtable Sustainability Policy Advisory Committee Chair, Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust), below. Malkin added, “Non-binding federal guidelines from the EPA’s strong and best-in-class analytical frameworks are the North Star through which local governments can inform their law-making, and this helps to bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs. The future is hard facts and data, and our industry is fortunate to have a constructive and productive relationship with the EPA that focuses on points on the board, the how to address the what.”   The American Hotel & Lodging Association; Building Owners and Managers Association (BOMA) International; CRE Finance Council; ICSC; Mortgage Bankers Association; NAIOP, Commercial Real Estate Development Association; and Nareit® joined The Roundtable on the coalition letter. Anticipated SEC Climate Rules The Roundtable’s call for uniform methods to calculate and report emissions anticipates overdue rules this fall from the U.S. Securities and Exchange Commission (SEC). The SEC’s rules are expected to compel registered companies to disclose in investor filings material financial impacts related to climate change. (See Roundtable Weekly, June 10, 2022 and RER comments). SEC Chair Gary Gensler testified this week before the Senate Banking Committee that rules regarding disclosure of Scope 3 “indirect” emissions could be changed. “Really important issues have been raised around Scope 3,” he said. (Wall Street Journal, Sept. 12) (See also Roundtable Weekly, March 17). Gensler is also scheduled to testify before the House Financial Services Committee on Sept. 19. A Sept. 12 podcast featuring Roundtable Senior Vice President & Counsel Duane Desiderio, and Nareit’s Senior Vice President of Environmental Stewardship and Sustainability Jessica Long, discusses the imminent SEC rule and other real estate policy priorities in the energy and climate arena. (Listen to Nareit’s “Real Estate Roundtable says CRE Playing Key Role in Success of Federal Climate Programs”) The Biden administration’s emphasis on climate policy will continue this fall, when it is expected to propose a uniform federal definition on the long-term concept of “zero emissions buildings.” The Roundtable’s SPAC will convene a working group to analyze the definition upon its release for public comments. #  #  # 
Capital and Credit
September 15, 2023
Roundtable Weekly
Roundtable and Business Coalition Urge SEC to Withdraw Proposed Safeguarding Advisory Client Rule
Safeguarding Advisory Client Proposed Rule Securities and Exchange Commission
The Roundtable and a diverse group of 25 trade associations this week wrote to Securities and Exchange Commission (SEC) Chair Gary Gensler to oppose a proposed Safeguarding Advisory Client Rule—in its current form—and explain the negative impacts it would have on investors, including their access to various services, assets, and markets with well-established rules and procedures. (Coalition letter, Sept. 12) Inconsistent and Duplicative The coalition letter notes how the proposal creates requirements that are inconsistent with certain recent or preexisting Commission requirements—and duplicative of, existing safeguards enforced by the Commodity Futures Trading Commission (CFTC), federal banking agencies, and state insurance regulators. The letter emphasizes that substantial, material flaws in core elements of the proposal require changes that would make the proposal no longer meaningful in its current form. The letter states, “Should the Commission decide to make such changes and move forward with rulemaking, we strongly recommend withdrawing and re-proposing the [Safeguarding Advisory Client Rule].” The Commission acknowledged this fact on August 23, 2023, when it re-opened the comment period on the proposal to give the public 60 days to provide additional feedback in light of separate final rules adopted by the SEC regarding the regulation of private fund advisers. (SEC news release, proposed rule, fact sheet, and comments received) The proposal’s range of new custodial requirements would create significant operational and practical challenges to the custody of real estate, even though these assets cannot be misappropriated and are easily tracked by deeds and mortgages recorded by municipalities. These challenges would materially inhibit adviser clients’ access to investment strategies relating to real estate, compounding the pressures that high interest rates and vacancies are placing on commercial and residential markets. Policymaker Pushback During a Senate Banking Committee hearing this week, Ranking Member Tim Scott (R-SC), above, questioned Gensler about the proposal. Sen. Scott noted in his opening statement that the SEC has put forward 47 proposals and adopted 22 of them in the first several months of Gensler’s leadership, not allowing a reasonable amount of time for the public to provide input on proposed rules and for the widespread impact and confuse on created by agency’s proposed rules. During Q&A with Gensler, Sen. Scott stated “…your proposed revisions to the current rules for safeguarding are so overreaching, you've placed your fellow regulators at the CFTC, the Fed and Treasury between a rock and a hard place. These proposals and rule makings will have a tremendous effect on our capital market system. Yet under your leadership, the SEC has failed to conduct thorough cost benefit analysis, much less look at the overall impacts of these proposal and has limited the time the public can have—the time to analyze and then comment on these rules and the proposals.” (CQ transcripts) In the House, Rep. Patrick McHenry (R-NC), chairman of the House Financial Services Committee, announced this week that its Capital Markets Subcommittee will hold a hearing on “Oversight of the SEC’s Division of Investment Management” on Sept. 19. The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) established a Custody Rule Working Group, which is working on comments about the SEC proposal that are due October 30. The working group also plans to meet with the SEC’s Division of Investment Management.
Beneficial Ownership
September 15, 2023
Roundtable Weekly
Roundtable and Broad Coalition Support Legislation to Delay CTA Reporting Requirements
Beneficial Ownership Beneficial Ownership amp the Corporate Transparency Act Corporate Transparency Act CTA FinCEN
The Roundtable and a broad coalition representing millions of businesses throughout the country wrote to House Financial Services Committee Chairman Patrick McHenry (R-NC), above, this week in strong support of his legislation—the Protecting Small Business Information Act of 2023 (H.R. 4035). McHenry’s bill would delay the date when the Corporate Transparency Act’s (CTA) beneficial ownership reporting requirements go into effect, currently scheduled for Jan. 1, 2024. (Coalition letter, Sept 12 and McHenry news release, June 12) CRE Impact There is significant concern about the CTA's far-reaching scope and its impact on many commercial residential real estate businesses that use the LLC structure for conducting business. The coalition’s letter states that Chairman McHenry’s bill “legislation offers a commonsense solution to this pending regulatory trainwreck.” The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about “beneficial owners” who own at least 25% of an entity or indirectly exercise “substantial control” over it. The CTA authorizes the Treasury's Financial Crimes Enforcement Network (FinCEN) to collect and disclose beneficial ownership information to authorized government authorities and financial institutions, subject to effective safeguards and controls. The statute requires the submission of regular reports to the federal government that include a litany of sensitive personal identifiers of the owners, senior employees, and/or advisors of covered entities. CTA Rule Burdens The coalition notes that the rule will cover over 32 million existing entities and an additional 5 million newly-created entities every year. These companies and other legal entities could be subjected to increased paperwork, privacy risks, and potentially devastating fines and prison terms. The CTA also applies only to businesses with under $5 million in annual revenues and fewer than 20 employees, thus ensuring that the very companies who can least afford the costs associated with compliance are the ones targeted. Additionally, the coalition emphasizes that despite a looming effective date of January 1, 2023, FinCEN regulators have not finalized the “Access Rule,” which specifies who can access the database and for what purposes, nor an updated “Customer Due Diligence Rule” that applies to financial institutions. Regulators have not laid out a clear plan for engaging millions of affected businesses to convey upcoming responsibilities. In April, bipartisan groups of House and Senate policymakers urged FinCEN to amend the proposed beneficial ownership reporting and access rules, contending certain provisions do not follow congressional intent. (Reuters, April 5) Rep. McHenry, Sen. Sheldon Whitehouse (D-RI), and a bipartisan, bicameral group of congressional lawmakers requested that FinCEN amend the proposed beneficial ownership rule to adhere to congressional intent and ensure reporting companies cannot avoid transparency. (Congressional letter, April 3) The Roundtable is also part of a broad coalition of business trade groups that supports a National Small Business Association legal challenge (NSBA v. Janet Yellen) on the constitutionality of the Corporate Transparency Act (CTA), which became law in Jan. 2021. (Coalition statement of support, Dec. 7, 2022 and NSBA’s website on the CTA)
Policy Landscape
September 8, 2023
Roundtable Weekly
Congress Faces Short-Term Funding Measure to Prevent Government Shutdown by Sept. 30
Climate Risk Reporting Congress National Flood Insurance Program NFIP Policy Landscape Tax Policy
Funding for the government will expire Sept. 30 if Congress cannot muster a short-term stopgap patch to keep federal agencies open and avoid a partial government shutdown. House Speaker Kevin McCarthy (R-CA) faces strong opposition from members of the conservative House Freedom Caucus to strike a deal with the Biden administration, which has submitted an additional $44 billion request for disaster relief, border security, and Ukraine. (CQ, Sept. 5 and AP, Aug. 21) Flood Response Funding An uncertain funding landscape dominates the prospects for legislative developments for the remainder of the year. If policymakers manage to pass a short-term “continuing resolution,” it could require a follow-on “omnibus” budget package for 2024 that may serve as the only must-pass vehicle to move other policy changes through Congress. As the hurricane season picks up momentum, one government program affecting commercial real estate that is subject to the Sept. 30 funding deadline is The National Flood Insurance Program (NFIP). Congress has enacted 25 short-term NFIP reauthorizations since 2017. A new flood rating methodology (Risk Rating 2.0) in 2021 established by the Federal Emergency Management Agency (FEMA) has attracted additional disagreement among policymakers after it was reported that resulting rate hikes could cause the loss of coverage for hundreds of thousands of policyholders. (Associated Press, July 22) The Roundtable is a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms that create long-term stability for policyholders, improved accuracy of flood maps, mitigation reforms, enhanced affordability, and the acceptance of non-NFIP policies for commercial properties. (Roundtable Weekly, June 30) Tax and Other Policy House Republican leaders hope to break an impasse in the GOP caucus over a tax relief package passed by the Ways and Means Committee that includes measures affecting commercial real estate. Committee Chairman Jason Smith (R-MO), above, spoke about his efforts to advance the tax measure during The Roundtable’s recent Annual Meeting. (Roundtable Weekly, June 16 and June 9)  The committee bill has not reached the House floor for a vote due to opposition by members from high-tax states who want the package to include relief from the $10,000 cap on state and local tax deductions (SALT), enacted in the GOP’s 2017 tax law. (Washington Post, July 24 and  Roll Call).  The tax package would extend expired business interest deductibility rules and 100% immediate expensing (bonus depreciation) for qualifying capital investments. Bonus depreciation is 80% in 2023 and gradually phasing down. Two other tax issues with bipartisan support that may be folded into a negotiated end-of-year tax package are the expansion of The Roundtable-supported low-income housing tax credit and technical corrections to SECURE 2.0, a package of retirement provisions. (Tax Notes, Sept. 5) Hearings & Climate Disclosure Rule Securities and Exchange Commission (SEC) Chair Gary Gensler will testify before the Senate Banking Committee on Sept. 12, followed by an expected appearance before the House Financial Services Committee on Sept. 27. (PoliticoPro, Aug. 28) Committee members are likely to question Gensler about a highly anticipated climate disclosure rule and SEC proposals impacting advisory client assets and cybersecurity risk management. (Thomson Reuters, Aug. 22, “SEC Plans to Finalize 30 Proposed Rules in Near Term”) See The Roundtable’s resources on “Reporting on Climate Risks,” including a Fact Sheet, recent issues of Roundtable Weekly, and policy comment letters. In other news this week, the Wall Street Journal featured a story on how owners of buildings in cities across the U.S. are facing significant new taxes on their carbon emissions. Ben Myers, Senior Vice President of Sustainability at BXP and Vice Chair of The Roundtable’s Sustainability Policy Advisory Committee (SPAC), is quoted in the article, stating, “We have made energy efficiency a priority” The policy issues above and many more will be the focus of discussions during The Roundtable’s Fall Meeting (Roundtable-level members only) on Oct. 16-17 in Washington.
Foreign Investment & CRE
September 8, 2023
Roundtable Weekly
Roundtable Urges Clarifications to Florida Law Restricting Certain Foreign Investments in Real Estate
Capital and Credit Florida SB264 Foreign Investment Restrictions on Foreign Investment in US Real Estate
On Sept. 5, The Real Estate Roundtable urged the Florida Real Estate Commission to clarify their implementation of a recently enacted law that could have negative consequences for foreign real estate investment in the state. Twenty states have enacted restrictions on foreign investors in real estate or agricultural land, eight states are considering similar measures, and other states are exploring the issue. (Roundtable letter) Restrictions on Foreign Investment Governor Ron DeSantis signed into law Florida Senate Bill 264 (SB 264) on May 8. The new law aims to limit and regulate the sale and purchase of certain Florida real property by “foreign principals” from “foreign countries of concern.” The Florida Real Estate Commission will implement the new law. (SB 264 text). Foreign investment is a major source of capital funding for U.S. commercial real estate projects, leading to job creation and economic growth for communities nationwide. Real estate is a critical element of Florida's economy, and the state is one of the most popular states for foreign investment. Property taxes contribute over 18% of Florida’s overall tax revenue. The letter from Roundtable President and CEO Jeffrey DeBoer notes that approximately $1.5 trillion of U.S. commercial real estate debt will come due in the next three years. Foreign equity investments in U.S. assets are often an important source of capital as commercial real estate owners seek to restructure, refinance or sell their properties. Roundtable Concerns The Roundtable’s letter supports efforts to protect the nation’s economic, military, and civil security, as well as the integrity of commercial real estate investments. The letter also reflects Roundtable members' concerns that the new law may have a chilling effect on foreign investment in Florida real property, hinder foreign investment in U.S. real estate by legitimate enterprises, and act as a barrier to capital formation by law-abiding entities. The comments detail how SB 264 expands the scope of the law beyond its publicly stated intent, which could have negative repercussions for Florida real estate markets and capital formation. (Roundtable letter) The Roundtable letter includes a request for clarification about the definition of a “controlling interest” that impact exceptions to the law based on an investor’s meaningful ownership or influence. (SB 264 text). News Service Florida cited the letter in their Sept. 7 article “Real Estate Group Concerned About Land Law.” DeBoer requests the Florida Commission to “carefully consider the impact of your agency’s interpretation and implementation efforts of this new law so that it does not prohibit major investments in the state, which are safe from control by foreign countries of concern and promote growth without sacrificing the security or economic interests of Florida.”
Q3 Sentiment Index
August 16, 2023
Press Release
Commercial Real Estate Executives Optimistic Despite Challenging Market Conditions
Economic Growth amp CRE Quarterly Sentiment Index
August 16, 2023 (WASHINGTON, D.C.) — Industry leaders remain optimistic about future market conditions while acknowledging uncertainty due to interest rate increases, maturing office loans, financing costs, prolonged remote work policies, and labor productivity, according to The Real Estate Roundtable’s Q3 2023 Sentiment Index. Roundtable President and CEO Jeffrey DeBoer said, “Many maturing loans were financed when base rates were near zero and now need to be refinanced in a challenging environment where rates are much higher, values are lower, and markets are less liquid. Higher rates are also contributing to cyclical pressure on valuations. On top of that, remote work has devastated America’s downtowns and stalled office demand.” DeBoer added, “The economy has undergone significant transformations due to the pandemic. The realities and challenges we face today requires us to rethink how businesses and people use offices, retail, housing, medical care, and more. Future buildings must accommodate the changes to be successful. The Roundtable will continue to advocate and support measures that boost the availability of credit and enhance the formation of capital in the commercial real estate industry, particularly during these times of market uncertainty.” The Roundtable’s Economic Sentiment Index—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of Current and Future Economic Sentiment Indices.­­­­ Any score over 50 is viewed as positive. ­­­­ The Q3 Sentiment Index topline findings include: All indices reported increases: The Q3 2023 Real Estate Roundtable Sentiment Index registered an overall score of 46, an increase of five points from the previous quarter. The Current Index registered 33, a six-point increase from Q2 2023, and the Future Index posted a score of 59 points, an increase of four points from the previous quarter. Disparities between asset classes persist in these challenging market conditions. Hotel and retail markets are largely performing well. Niche asset classes continue to generate interest. On the other hand, office is performing poorly, and rental growth in multifamily and industrial are starting to abate. Perceptions of declining asset values continue to dominate, with 95% of survey participants reporting that asset values are lower as compared to last year. While Class A properties across all asset classes are trading at competitive prices, managers are still in a “wait and see” mindset for other assets, resulting in lower transaction volumes and an inability to complete accurate valuations. The availability of capital —both debt and equity—continues to be a pressing topic; 85% and 69% of survey participants, respectively, believe that today’s conditions are more difficult than a year ago. Although managers face a difficult capital raising environment, only 24% and 9% of participants believe debt and equity availability respectively will be worse a year from now as the industry works to creatively solve financing issues. Data for the Q3 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in July. See the full Q3 report. The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.
Workplace Return
August 11, 2023
Roundtable Weekly
White House Directs Agencies to Increase Return of Employees to Federal Offices
Remote Work Return to Office Telework Workplace Return
White House Chief of Staff Jeff Zients, above, directed Cabinet officials on Aug. 4 to increase the return of federal employees to their offices this fall as a “critical” part of fulfilling the mission of government agencies. The Real Estate Roundtable has urged President Biden and national policymakers for months to end government policies that encourage remote working arrangements for federal employees. (Government Executive, Aug. 7 | Axios, Aug. 4 | RER letter to President Biden, Dec. 12, 2022) Back-to-Office Fed Policies Zients informed administration officials, “As we look towards the fall, your agencies will be implementing increases in the amount of in-person work for your team. This is a priority of the president — and I am looking to each of you to aggressively execute this shift in September and October." (Reuters, Aug 5 and The Washington Post, Aug. 4) Empty federal offices have depressed local economies, according to a July 18 Federal News Network (FNN) broadcast. (Listen or read transcript from Federal Drive with Tom Temin) An updated list of agencies’ return-to-office policies is available online through the Federal News Network. Meanwhile, Republican leaders on the House Oversight and Accountability Committee have also urged agency officials to encourage a return-to-office, threatening this week to “resort to compulsory measures” in their probe of federal agencies’ telework polices. Roundtable Weighs In In an April letter to all U.S. Senators, Real Estate Roundtable President and CEO Jeffrey DeBoer, above, emphasized, “The executive branch’s current policies are undermining the health of cities, local tax bases, and small businesses. Federal agencies should return to their pre-pandemic workplace practices.” (RER letter to the Senate, April 12). In a similar letter to President Biden in December, DeBoer noted that federal telework policies were ignoring “the negative impacts of remote work on cities and communities, labor productivity, and U.S. economic competitiveness, as well as the quality of government services.” (Commercial Observer, April 14 and RER letter to President Biden, Dec. 12) #   #    #
CRE Conversions
August 11, 2023
Roundtable Weekly
House Democrats Urge Federal Regulators to Incentivize CRE Conversions
Property Conversions
Rep. Jimmy Gomez (D-CA), above, and nine other House Democrats last week urged federal banking regulators to incentivize conversions of commercial real estate to other uses. Rep. Gomez previously introduced the Roundtable-supported Revitalizing Downtowns Act (H.R. 4759) in 2021 to encourage adaptive use of older buildings. Sen. Debbie Stabenow (D-MI) also introduced companion legislation in the Senate (S. 2511). (Rep. Gomez news release, July 31) Federal Regulators & CRE Conversions The recent letter to Fed Chairman Jerome Powell and other regulators stated that the congressional policymakers are concerned how the COVID-19 pandemic continues to exert a negative influence on markets and regional banks. "We are especially interested in the impact of this instability on the $6 trillion dollar market for retail and office space CRE, which has been unduly impacted by pandemic related disruptions," the letter states. The letter also noted, "It is essential that all arms of the federal government take prudent steps to limit the impact of a CRE market contraction, and innovate to encourage reuse of vacant commercial space as a potential source of housing." (Rep. Gomez news release, July 31) Legislation & Tax Credits  On Oct. 12, 2022, a Roundtable-led coalition of 16 national real estate organizations urged Rep. Gomez and Sen. Stabenow to consider certain enhancements and expansions to the Revitalizing Downtowns Act’s 20% tax credit for qualified property conversion expenditures. (Real Estate Coalition letter) The bill's property conversion measure was modeled on the historic rehabilitation tax credit and could be used for office buildings that are at least 25 years old at the time of conversion. The industry's recommendations included expanding the category of properties eligible for the credit to various types of commercial buildings such as shopping centers and hotels. (GlobeSt and Roundtable Weekly, Oct. 2022) The Senate addressed the Revitalizing Downtowns Act as part of a March hearing on Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families. Sen. Stabenow engaged hearing witness and National Multifamily Housing Council President Sharon Wilson Géno about a joint NMHC and Urban Land Institute study on adapting CRE to residential use. White House Initiative The Roundtable on Dec. 12, 2022 urged the Biden administration to support "legislation to facilitate the increased conversion of underutilized office and other commercial real estate to much-needed housing." (RER letter to President Biden, Dec. 12 andGlobeSt, Aug. 8) Last month, the administration announced a new initiative that will establish a multi-agency working group to "develop and advance federal funding opportunities" for commercial-to-residential conversions that would help increase the supply of energy-efficient affordable housing. (Reuters and HousingWire, July 27 | Roundtable Weekly, July 28) New CRE Conversion Study A new analysis from researchers at New York University and Columbia University explores the potential for renewable energy investment tax credits in the Inflation Reduction Act to help subsidize CRE adaptive use and green conversions. (National Bureau of Economic Research)  The August study, Converting Brown Offices to Green Apartments, also notes the significant role that local zoning laws, permitting policies, and building codes could play in encouraging CRE conversions. The authors conclude that about 11% of commercial office buildings in the 105 largest cities are candidates for conversion, and that an estimated 400,000 new apartment units could be created. (Axios, Aug. 8) A property conversions working group created by The Real Estate Roundtable’s Tax Policy Advisory Committee will continue to respond to legislative proposals affecting potential property conversion activities.  #   #   # 
News
August 11, 2023
Roundtable Weekly
New Federal Rules Issued Regarding Real Estate Construction, Clean Energy Projects
Clean Energy Tax Incentives Energy Policy Labor Policy Tax Policy
The Biden administration issued two new rules this week impacting real estate construction and investments in clean energy projects.  Davis-Bacon: The U.S. Labor Department on Tuesday issued a final rule to overhaul Davis-Bacon standards that determine prevailing wages for workers on construction projects covered by a federal contract or financially assisted by federal grants, loans, guarantees or insurance. Construction association AGC issued a statement expressing “preliminary” concerns that “this rulemaking critically missed an opportunity” to inject “more accurate data” in processes to establish prevailing wage rates in local markets across the nation. Laborers and mechanics constructing transportation, energy, water, toxic site clean-ups, and other infrastructure financially supported by the bipartisan Infrastructure Investment and Jobs Act (IIJA) must meet the new Davis-Bacon requirements. (IIJA project map) Inflation Reduction Act (IRA) projects receiving clean energy tax incentives are not required to meet Davis-Bacon rules, but they can qualify for increased credits and deductions if workers are paid prevailing wages. (RER’s IRA fact sheets)  “Bonus” Tax Credits: The Treasury Department and IRS on Thursday released final rules explaining how IRA “bonus credits” can be awarded to solar, wind, and associated storage projects in low-income communities. (The Hill, August 10) Qualifying projects in census tracts eligible for new market tax credits (NMTCs) can receive a 10% solar credit boost, while those supported by low-income housing tax credits or Section 8 rental assistance can receive a 20% solar credit increase. (RER’s IRA “bonus rate” chart) The “bonus” incentives – over “base” rate tax credit amounts – are competitive. Bonuses will be awarded through an application process run by the U.S. Department of Energy scheduled to open this fall. The Roundtable submitted comments in June when the IRS proposed the “bonus credit” program. (Roundtable Weekly, June 30). It will update its summary of IRA-related agency guidance following analysis of the newly issued rule.  #  #  # 
Annual Reports
August 11, 2023
Roundtable Weekly
Roundtable Releases FY2023 Annual Report, “Sustained Strength, Sustained Solutions”
2023 Annual Report
The Real Estate Roundtable has released its FY2023 Annual Report, which coincides with the June 30 conclusion of the organization's fiscal year. The report details how the industry experienced significant transformation due to the global pandemic—yet emerged resilient and adaptive, achieving successes over the past 12 months on several national issues in the tax, energy, and capital formation policy areas.  Roundtable Policy Issues In the introduction to “Sustained Strength, Sustained Solutions,” Roundtable Chair John F. Fish (Chairman & CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer state, "Adapting to this new reality requires us to rethink how businesses and people use offices, retail and entertainment spaces, housing, medical care, and more. Future buildings must accommodate the changes brought on by the pandemic, as well as those that accompany the rapidly evolving artificial intelligence and technological world. The real estate industry is at the center of this transition, where the future of work, the future of housing, the future of our communities, and much more are being reimagined before our eyes." The Roundtable leaders add, "However, we are also mindful that embracing these changes is not without its costs and time constraints, and as has proven in the past to be true, the industry’s ability to respond to these changes will be inhibited or encouraged by public policy actions." The Roundtable’s FY2023 Annual Report details the organization's mission, recent activities, and offers potential policy solutions to today's pressing and far-reaching industry challenges, including: Tax Policy  Capital & Credit Energy & Climate Homeland Security  Infrastructure, Affordable Housing & GSE Reform Roundtable Initiatives The publication also includes: Introduction Summary of FY2023 Policy Outreach Activities Commercial Real Estate by the Numbers — useful industry statistics Membership of The Roundtable #  #   # 
Annual Reports
August 11, 2023
Press Release
Roundtable Releases FY2023 Annual Report, “Sustained Strength, Sustained Solutions”
2023 Annual Report
The Real Estate Roundtable has released its FY2023 Annual Report, which coincides with the June 30 conclusion of the organization's fiscal year. The report details how the industry experienced significant transformation due to the global pandemic—yet emerged resilient and adaptive, achieving successes over the past 12 months on several national issues in the tax, energy, and capital formation policy areas.  Roundtable Policy Issues In the introduction to “Sustained Strength, Sustained Solutions,” Roundtable Chair John F. Fish (Chairman & CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer state, "Adapting to this new reality requires us to rethink how businesses and people use offices, retail and entertainment spaces, housing, medical care, and more. Future buildings must accommodate the changes brought on by the pandemic, as well as those that accompany the rapidly evolving artificial intelligence and technological world. The real estate industry is at the center of this transition, where the future of work, the future of housing, the future of our communities, and much more are being reimagined before our eyes." The Roundtable leaders add, "However, we are also mindful that embracing these changes is not without its costs and time constraints, and as has proven in the past to be true, the industry’s ability to respond to these changes will be inhibited or encouraged by public policy actions." The Roundtable’s FY2023 Annual Report details the organization's mission, recent activities, and offers potential policy solutions to today's pressing and far-reaching industry challenges, including: Tax Policy  Capital & Credit Energy & Climate Homeland Security  Infrastructure, Affordable Housing & GSE Reform Roundtable Initiatives The publication also includes: Introduction Summary of FY2023 Policy Outreach Activities Commercial Real Estate by the Numbers — useful industry statistics Membership of The Roundtable #  #   #