Search Results for “” – The Real Estate Roundtable

This week, House Freedom Caucus Members proposed ending the ability of businesses to deduct their state and local business and property taxes on their federal income tax returns. (Politico, Jan. 15) Why It Matters The proposal was raised as a potential offset for relief from the SALT cap on individuals. The proposal was also included in a “menu” of potential policy options prepared by the House Budget Committee for tax and budget reconciliation legislation. (PoliticoPro, Jan. 17) The Budget Committee has a key role in setting the overall size of any reconciliation bill, but the actual details of tax changes fall under the jurisdiction of the House Ways and Means Committee. Industry & Congressional Response “Property taxes and other state-level business taxes are a basic cost of doing business. Denying the deductibility of these business taxes is nonsensical and would be devastating to American businesses, and especially U.S. real estate. The purpose of the income tax is to measure and tax income. Under the proposal, we would no longer have an income tax, we would have a tax on gross revenue. It would penalize existing property owners, artificially distort business decisions, and raise flashing red lights for anyone even considering a long-term capital investment in the United States,” said Jeffrey DeBoer, President and CEO of The Real Estate Roundtable. Senate Democratic Leader Chuck Schumer (D-NY) addressed the proposal on the Senate floor earlier today. (Senate Democrats, Jan. 17) “There is no scenario under God’s green Earth that New York taxpayers will ever accept another unfair SALT cap like the House Freedom Caucus proposes….I will do everything I can, first to remove the entire SALT cap tax, and second to never let a new proposal that for the first time imposes the SALT cap on businesses, small and large, to be put into effect. I’m going to do everything I can to fight this dastardly proposal,” said the Senator. The House Freedom Caucus is one of many factions in the House Republican Conference that will have significant leverage over any tax changes in 2025 due to Republicans’ extraordinary slim majority in the House. House Ways and Means Committee Chairman Jason Smith (R-MO) and House SALT Caucus Co-Chair Rep. Tom Suozzi (D-NY) are scheduled to address Roundtable members at the State of the Industry Meeting next week.

Policy Landscape

January 17, 2025

Roundtable Weekly

This Week on Capitol Hill: Confirmation Hearings and Tax Policy Debates

Fannie Mae Freddie Mac GSE Reform Opportunity Zones OZs Policy Landscape Tax Policy TCJA

This week, the Senate conducted confirmation hearings for several of President-elect Donald Trump's Cabinet nominees, providing critical insights into the nominees' perspectives and potential policy directions on real estate, housing, the economy, and tax policy under the incoming administration. Senate Confirmation Hearings Scott Bessent – Nominee for Secretary of the Treasury: Treasury nominee Scott Bessent faced bipartisan scrutiny during his Senate Finance Committee confirmation hearing over tax policy, tariffs, and China on Thursday. (Axios, Jan 17) He emphasized the importance of extending the 2017 Tax Cuts and Jobs Act, stating, "This is the single most important economic issue of the day." (Roll Call, Jan. 16 | PoliticoPro, Jan. 16) “We must make permanent the 2017 Tax Cuts and Jobs Act and implement new pro-growth policies to reduce the tax burden on American manufacturers service workers and seniors,” Bessent said in his testimony. He also praised the Opportunity Zones program as a "resounding success," highlighting its potential to address housing challenges, promote inner-city redevelopment, and support rural growth. (Politico, Jan, 16) He also called for spending cuts and shifts in existing taxes to offset the costs that extending the tax cuts would add to the federal deficit. (AP News, Jan. 16) Lee Zeldin, nominee for EPA Administrator, Chris Wright, nominee for Energy Secretary, and Doug Burgum, nominee for Housing and Urban Development Secretary, also testified this week and are expected to be confirmed. (see Energy story below) Sean Duffy – Nominee for Secretary of the Department of Transportation: Appearing before the Senate Commerce Committee, Duffy emphasized his commitment to safety and pledged to streamline regulatory processes that delay infrastructure projects. Promising to uphold the 2021 infrastructure law, he stated, “I commit to implementing the law," and vowed to expedite funding distribution, addressing delays to ensure critical projects move forward efficiently. (Politico, Jan. 17) Federal Housing Finance Agency (FHFA) Nominee On Thursday, Trump announced he would nominate Bill Pulte for Director of the Federal Housing Finance Agency (FHFA). (HousingWire | Reuters Jan. 16) If confirmed, Pulte would oversee Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) standing behind roughly half of the U.S. residential mortgage market. The Trump administration is expected to pursue a plan to release Fannie and Freddie from government control. (GlobeSt., Jan. 17) GOP lawmakers have raised the idea of including language to mandate Fannie and Freddie’s release in this year’s reconciliation package as a way to offset the cost of extending expiring tax cuts. (Politico, Jan. 16) House Ways and Means Committee Hearing - TCJA The tax debate kicked off Tuesday with the House Committee on Ways and Means’ first hearing on extending key provisions of the TCJA led by Chairman Jason Smith (R-MO). (Fox News, Jan. 14) At the hearing, lawmakers discussed expiring provisions of the TCJA including the SALT deduction, Section 199-A, opportunity zones, and child tax credits. Congress faces the dual challenge of addressing expiring tax provisions while managing fiscal pressures. While bipartisan cooperation is possible on certain issues like affordable housing, divisions over business tax rates, SALT deductions, and the debt ceiling could stall progress. What’s Next: RER President & CEO Jeffrey DeBoer will be on Marcus & Millichap’s 2025 Economic & CRE Outlook webinar next Thursday, January 23. He will be joined by Mark Zandi and a panel of industry leaders discussing the macro environment and the potential policies of the new administration and key trends on jobs, the FED outlook, tax policy expectations and more. (Register)

Housing

January 17, 2025

Roundtable Weekly

HUD Nominee Scott Turner Outlines Housing Policy Priorities in Senate Hearing

Housing HUD Housing and Urban Development agency Opportunity Zones OZs

Scott Turner, President-elect Donald Trump’s nominee for Secretary of Housing and Urban Development (HUD), emphasized the transformative potential of Opportunity Zones (OZs) and collaboration with the private sector during his Senate nomination hearing on Thursday. (The Hill, Jan. 16) Senate Hearing Recap At the hearing, members of the Senate Committee on Banking, Housing, and Urban Affairs asked HUD nominee Scott Turner how he would address pressing housing challenges, including the affordable housing crisis, the rising rate of homelessness, and HUD reform. (Turner Testimony) There is an estimated shortage of 5.5 million housing units, resulting in high rents and home prices in many parts of the country. Additionally, HUD released its 2024 Annual Homelessness Assessment Report, which found an 18 percent increase in the estimated point-in-time count of homeless individuals from 2023 to 2024. Speaking on the housing challenges facing the country, Turner said, “We have a housing crisis in our country. We have the American people and families that are struggling every day…HUD, if you will, is failing at its most basic mission, and that has to come to an end.” Turner continued, “As a country, we're not building enough housing. We need millions of homes, all kinds of homes, multifamily, single-family, duplex, condo, manufacturing housing, you name it…I believe that we need to bring HUD staff back to the office to do the job and empower them to serve the American people.” HUD Nominee’s Policy Priorities Turner, who previously ran the White House Opportunity and Revitalization Council during Trump’s first term, highlighted Opportunity Zones, public-private partnerships, and tailored local solutions as key elements of his plan to address the housing crisis. As executive director of the Council, Turner was responsible for carrying out the implementation of Opportunity Zones, which were passed as part of the Tax Cuts and Jobs Act of 2017 (TCJA). The Roundtable—along with 22 other real estate organizations—urged the Senate to approve Turner’s nomination, writing in a Jan. 14 letter to the Senate committee that Turner is well-equipped to lead as Secretary of HUD. The Power of Opportunity Zones RER has long championed Opportunity Zones (OZs) as a transformative tool to stimulate economic growth and increase the supply of affordable housing in low-income areas. By creating tax incentives for investments in designated low-income census tracts, OZs have channeled investment into areas most in need. Since its inception, the Opportunity Zones program has raised nearly $100 billion in private capital, catalyzed the creation of more than 500,000 jobs, and spurred multifamily housing developments in underserved areas. 20% of multifamily units under construction were located in OZs as of early 2024. (The New Localism, Jan. 9) Given the program’s success, prominent experts, including Bruce Katz (Founding Director of the Nowak Metro Finance Lab at Drexel University) and Steven G. Glickman (co-founder and former CEO of the Economic Innovation Group, former senior economic adviser in the Obama White House) have advocated for making OZs a permanent part of the tax code to ensure its long-term benefits. (Governing, Jan. 2) RER has called on Congress to improve and extend the program, which is set to expire along with other key provisions of the TCJA at the end of this year. RER will continue to work with policymakers in Congress and officials at HUD to build on the success of programs like Opportunity Zones. Through bipartisan policies that harness the power of the private sector to significantly increase the supply of affordable housing, the U.S. can make meaningful progress toward ending the housing crisis.

Energy

January 17, 2025

Roundtable Weekly

Incoming Trump Administration Prepares Energy Policy Shift

179D Artificial Intelligence AI Carbon Tariff Data Centers Energy Policy EPA

This week’s confirmation hearings shed light on the Trump Administration’s ambitious energy agenda, including plans to expand American energy production, streamline project approvals, and explore a carbon tariff on imports. (PoliticoPro, Jan. 16) “All of the Above” Energy Policy President-elect Trump has prioritized "drill, baby, drill" as a cornerstone of his agenda, emphasizing energy independence and dominance through increased domestic oil and gas production. Chris Wright, the Energy Secretary nominee, told the Senate Energy Committee on Wednesday that he would use the role to “unleash American energy at home and abroad” if confirmed. (Reuters, Jan. 15) Wright said in his opening statement that he would focus on three objectives: removing barriers for energy projects, accelerating innovation by the national laboratories, and advancing U.S. energy domestically and abroad. (Roll Call, Jan. 16) North Dakota Governor Doug Burgum, the Interior Secretary nominee, said at his Thursday confirmation hearing that the U.S. must expand domestic energy production and electricity generation to meet growing demand, particularly from AI technologies. (Politico, Jan. 16 | Roll Call, Jan. 16 ) Burgum supports an “all-of-the-above” approach that would utilize renewables and fossil fuels. Trump has also tapped Burgum to lead a White House-based energy council that would coordinate policy across the federal government. (Politico, Jan. 9) Former Representative Lee Zeldin, the nominee for EPA Administrator, said at his Thursday hearing he would work in a bipartisan manner with career staff to fulfill the agency's mission. (PoliticoPro, Jan. 16 | The Hill, Jan. 16) Zeldin vowed to address climate change without “suffocating the economy,” and committed to private sector collaboration to “promote common sense, smart regulation.” (NBC News, Jan. 16 | Washington Post, Jan. 16) Carbon Tariff Proposal During his Thursday confirmation hearing, Treasury Secretary nominee Scott Bessent (see Policy Landscape story above) expressed interest in a carbon tariff on imports, suggesting it could be part of a broader Trump administration strategy to raise revenue, counter unfair trade practices, and boost negotiating leverage. Bessent indicated the potential for such measures to align with the administration's broader trade and economic goals. (PoliticoPro, Jan. 16) Recently, Sen. Bill Cassidy (R-LA) proposed a bill, the “Foreign Pollution Fee Act” that would impose a “foreign pollution fee” on imported carbon-intensive products – including construction materials. (E&E News, Dec. 12) The bill’s co-sponsor, Sen. Lindsey Graham (R-SC), spoke about the bill at Bessent’s hearing. "If you want to clean up the environment, a carbon fee seems to be a good way to do it, to punish China and India for bad carbon practices," Graham said. (Politico, Jan. 16) The Roundtable submitted comments today on the Foreign Pollution Fee Act. The letter raises concerns regarding the impact of a carbon tariff on affordable housing constriction, rebuilding after natural disasters, and technical issues on calculating “indirect emissions” associated with product manufacturing. Other Energy News This Week President Biden issues executive order to advance U.S. artificial intelligence (AI) infrastructure: President Biden issued an executive order directing agencies to lease federal land for “gigawatt-scale” to support new data center construction. (AP News, WH Press Release, Jan. 14) 179D energy efficiency tax deduction: The Energy Department (DOE) launched the 179D Portal, offering tools for new commercial construction and retrofits to estimate energy savings and qualify for potential federal tax incentives. (DOE Press Release, Jan. 14) California wild fires raise electricity costs: The Los Angeles wildfires, which caused over $250 billion in damages and severely impacted the region's electrical infrastructure, have driven a nearly 50% increase in California's residential electricity rates since 2019, raising concerns about the fairness of passing these wildfire-related costs onto customers. (Politico, Jan. 15) Maryland building emissions standards lawsuit: A coalition of trade organizations filed a federal lawsuit arguing that the Maryland Building Energy Performance Standards (BEPS) is illegal because it is “pre-empted” due to its conflict with federal laws. The Maryland law mandates large buildings to reduce greenhouse gas emissions by 20% within five years and achieve net-zero emissions by 2040. The lawsuit claims the rules exacerbate the housing crisis, strain the power grid, and violate consumer choice. (Baltimore Banner, Jan. 14 | (Baltimore Sun, Jan. 16)

Insurance

January 17, 2025

Roundtable Weekly

Assessing the Impact of the LA Fires and Insurance Markets

Commercial Insurance Coverage Pandemic Risks amp Natural Catastrophes Insurance

The fires in Los Angeles this week have caused tremendous damage to lives and property, demonstrating how risks from natural catastrophes are a growing challenge to both people and industries across the country. National policy solutions are needed to prepare for the future and effectively manage natural catastrophe risk. (Associated Press, Jan. 11 | RAND, Jan.16) Historic Damages The devastating fires tearing through Los Angeles are poised to become the costliest in US history and are fueling an insurance crisis in California, raising questions about how millions of homeowners will secure coverage against future disasters. (Associated Press, Jan. 11) Damages from the LA fires could reach up to $275 billion after the blazes ripped through some of Los Angeles County’s wealthiest neighborhoods. (Orange County Register, Jan. 16) The staggering costs stem from fires hitting densely populated areas filled with some of the nation’s priciest real estate, says Accuweather’s Chief Meteorologist Jonathan Porter. (Associated Press, Jan. 11) Insurance Impact The wildfires that destroyed homes in multiple sections of the Los Angeles area will test California’s efforts to stabilize the state’s insurance marketplace after many insurers stopped issuing residential policies due to the high fire risk. (KNBC, Jan.10) The California FAIR Plan was created in 1968 and provides basic fire insurance coverage for high-risk properties when traditional companies would not. (NYT, Jan.14 | Bloomberg, Jan. 15) Some are worried that the FAIR Plan won’t have enough funds to cover the damages, but FAIR Plan spokesperson Hillary Mclean assured the public that "the FAIR Plan has payment mechanisms in place, including reinsurance, to ensure all covered claims are paid.” (KNBC, Jan.10) The U.S. Treasury's Federal Insurance Office (FIO) released a report Thursday, showing homeowners insurance costs are rising faster than inflation, with premiums 82% higher in high-risk ZIP codes due to climate-related disasters. (Treasury News Release, Jan. 16) The report based on extensive data from 2018-2022, highlights increasing challenges for homeowners and insurers alike, as nonrenewal rates and claims costs surge in areas most affected by severe weather events. (CNBC, Jan. 16) Policymaker and Industry Reaction Policymakers are working to streamline the permitting process to expedite recovery and are actively monitoring the insurance marketplace. Senator Sheldon Whitehouse (D-RI) told CBS News “We will be watching to see whether the collapse of a trembling home insurance market accelerates after this added shock”. (CBS News, Jan.16) California Governor Gavin Newsom has temporarily suspended permitting and review requirements under the California Environmental Quality Act (CEQA) and the California Coastal Act. The move aims to expedite the rebuilding process for fire victims, enabling faster restoration of homes and businesses, Newsom said. (GlobeSt., Jan. 14) The proliferation of natural catastrophe threats has raised concerns about commercial insurance coverage for real estate. Republicans on the Senate Banking Committee, led by Senators John Kennedy (R-LA) and Mike Rounds (R-SD), are drafting legislation to reform the National Flood Insurance Program (NFIP) and provide broader disaster relief for victims of catastrophes like wildfires, floods, and storms. (The Hill, Jan. 14) The proposed initiative aims to expand and improve disaster coverage without relying on taxpayer subsidies, addressing long-term issues with the NFIP and creating a more comprehensive program for natural disasters. Real Estate Industry Response The real estate industry continues to lead in the response and recovery to these fires. A group of 15 leading multifamily firms and commercial real estate industry groups has quickly banded together to support residents and rebuild Los Angeles following the wildfires that struck the city. RER members, including Cityview, Lincoln Property Company, and Marcus & Millichap support the coalition. (ConnectCRE, Jan. 16) Natural catastrophe insurance will be discussed at RER’s upcoming Homeland Security Task Force and Risk Management Committee Meeting next week at our 2025 State of the Industry Meeting in Washington, DC.

Tax Policy

January 10, 2025

Roundtable Weekly

Tax Policy 2025: Competing Strategies and CRE Priorities

Policy Landscape Tax Policy

The Real Estate Roundtable (RER) is focused on advancing a tax code that encourages investment, supports economic growth, and ensures fair treatment for commercial real estate. With significant provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire, tax policy is already dominating early Congressional discussions. Congressional Dynamics The tax debate is set to kick off on Tuesday, Jan. 14, with the House Committee on Ways and Means’ first hearing on extending key provisions of the TCJA led by Chairman Jason Smith (R-MO). Congress faces the dual challenge of addressing expiring tax provisions while managing fiscal pressures. While bipartisan cooperation is possible on certain issues like affordable housing, divisions over business tax rates, SALT deductions, and the debt ceiling could stall progress. House Speaker Mike Johnson and top House leaders doubled down on their plan to bundle border, tax, and energy policies into a single bill. Meanwhile, Senate leaders are continuing with their two-bill approach, aiming for faster legislative wins for the new administration. (The Hill, Jan. 10) The two chambers are effectively competing to see which strategy can deliver results more quickly. Trump indicated he can live with either approach. "I like one, big, beautiful bill," Trump said at a press conference on Tuesday. On Wednesday after meeting with Senate Republicans, he told reporters “Whether it’s one bill or two bills, it’s going to get done one way or the other. The end result is the same.” (Axios, Jan. 8 | The Hill, Jan. 8) Speaker Johnson and Republicans are determined to pass their budget blueprint by the end of February. Johnson told reporters Thursday that he’s still working with the Senate to properly “sequence” the massive effort. (PoliticoPro, Jan. 9) On Thursday, Senate Majority Leader John Thune refused to commit to the House's preferred approach and called it an ongoing conversation. "Obviously we want to give the House as much space as possible," he told reporters. "They believe they can move and execute on getting a bill across the finish line fairly quickly. But we are prepared to move here, as well." (PoliticoPro, Jan. 9) “We’re going to be having conversations with each chairman to make sure that the targets they’re given are achievable within their committee, and then ultimately get pulled back into budget reconciliation to give us the ability to do all the things you want to do,” House Majority Leader Steve Scalise told Punchbowl News. (Punchbowl News, Jan. 10) Senate Bipartisan Outreach Eleven moderate Senate Democrats, led by Sens. Catherine Cortez Masto (D-NV) and Mark Warner (D-VA) wrote to Republican leaders, offering to work with them on extending expiring tax cuts and raising the debt ceiling, proposing bipartisan reforms to balance tax policy and fiscal responsibility. (PoliticoPro, Jan. 10) The letter stated the group was willing to cut spending, protect family-oriented tax policies, maintain competitive business tax rates, — and indicated that they could provide enough votes to allow Republicans to overcome a filibuster in the Senate without having to go through the reconciliation process. While the GOP is unlikely to accept the offer amid internal divisions, the proposal highlights potential avenues for compromise on tax reform and debates ahead. Roundtable Tax Priorities for 2025 RER encourages lawmakers to ensure that any major tax legislation in 2025 retain or include: The reduced tax rate on capital gains. Tax fairness for partnerships and pass-through entities. Safeguard like-kind exchanges. Extend, improve, and enact smart tax policies to address the severe housing shortage. Tax rules that encourage, rather than deter, foreign investment in U.S. real estate. As negotiations and debates continue, RER remains committed to working with lawmakers to ensure the U.S. maintains a competitive tax code that encourages capital formation, rewards entrepreneurial risk-taking, and supports policy objectives, including accessible and affordable housing and safe and healthy communities.

Energy

January 10, 2025

Roundtable Weekly

Electric Grid Strain: CRE's Role in Addressing Energy Challenges

Artificial Intelligence AI Data Centers Electric Grid Energy Policy EPA

Demands for artificial intelligence (AI), advanced manufacturing, electric vehicles, and building electrification are straining the U.S. electric grid—creating challenges and opportunities for commercial real estate (CRE). (Deloitte, Dec. 9) Why it Matters The grid is at a “tipping point.” Heightened demands for power by consumers, businesses, and government are posing significant risks to energy reliability and driving data center construction to meet the needs. (PoliticoPro, Dec. 18) The organization authorized by Congress to assess grid capacity highlighted last month the “critical reliability challenges” needed to satisfy “escalating energy growth,” as retiring power plants age-out of service. The report also noted the need to accelerate construction of transmission projects to bring electricity to the nation’s cities and suburbs. (N. American Electric Reliability Corp., 2024 Assessment.) President Joe Biden is expected to issue an executive order as soon as today to boost the construction of data centers on federal land to support AI, while also aiming to increase geothermal and nuclear energy production to power them. (PoliticoPro, Jan. 9) Data center construction is surging to meet demand with site selection largely driven by power availability. Microsoft and Meta recently announced billions of data center investments. (E&E News, Jan. 10 | CBRE, Aug. 2024) The Department of Energy (DOE) estimates data centers could consume up to 12% of U.S. electricity by 2028, largely attributed to demand from cloud and AI providers. (DOE News Release, Dec. 20) As The Roundtable’s Policy Guide on building performance standards states, the transition to a digital economy raises serious concerns about electricity availability. “AI could soon need as much electricity as an entire country” as “[v]ast swaths of the U.S. are at risk of running short of power.” (Roundtable Weekly, Oct. 11) Bipartisan House Report on AI Policymakers and industry leaders are focusing more than ever on solutions to expand power generation and modernize the grid. The Bipartisan House Task Force on AI released a report last month finding that AI's critical role in U.S. economic and national security interests hinges on a robust power grid. (House AI Report, December 2024). Recommendations from the Bipartisan House AI Task Force report include: Develop metrics and standards to measure energy use and efficiency. Allocate infrastructure costs to customers who benefit most from upgrades. Use AI to improve energy infrastructure, production, and efficiency. EPA’s Energy Data Campaign Looking ahead, utilities, policymakers, and data center operators must collaborate to balance priorities such as grid upgrades, renewable energy procurement, water resource management, and equitable cost allocation. (Deloitte, Dec. 9) This week, EPA continued its building energy data campaign to assist real estate owners in coordinating with utilities to access tenant space energy data. To aid both owners, operators, and utility representatives in understanding this issue and potential solutions, EPA has prepared a number of energy data resources that can be found here. A resilient electric grid is critical to sustaining economic growth. These issues will be featured in discussions at The Roundtable’s State on the Industry meeting on Jan. 22-23.

CRE and the Economy

January 10, 2025

Roundtable Weekly

Navigating Rising Costs and Policy Challenges in CRE for 2025

Office Markets Return to Office Tariffs

While CRE leaders are optimistic about 2025, clear headwinds emerging from escalating construction costs and trade policies threaten to slow development activity and increase strain on industry stakeholders. These challenges demand coordinated efforts between policymakers and the private sector to stabilize costs, address labor shortages, and promote balanced trade measures. Market & Financial Headwinds in CRE Construction The commercial construction sector is facing mounting challenges that could reshape its trajectory. Labor Shortages: Baby boomer retirements are thinning the skilled workforce, with an estimated 5.4% of construction workers aged 65 or older and poised to exit the industry. Simultaneously, a larger share of young adults is pursuing college over the trades, creating a gap in new talent pipelines. Overall, the national number of job vacancies in construction has doubled between 2017 and 2023. (ConnectCRE, Jan. 2 | Construction Dive, Jan. 2) Rising Capital and Material Costs: Construction loans are difficult to get and relatively expensive, with interest rates hovering above 8%, while material costs remain elevated due to inflation and lingering tariffs on construction imports like lumber, steel, copper, and cement. (ConnectCRE, Jan. 2) Tariff Proposals Recent trade and policy developments could exacerbate these challenges. Trump Administration’s Tariff Proposals: President-elect Trump has proposed sweeping tariff increases, including a 60% tariff on Chinese imports and an additional 25% tariff on goods from Mexico and Canada. These measures could raise U.S. tariffs to their highest levels since 1934 and result in an $800 billion annual increase in tariffs across markets, according to PwC estimates. (Barron's Jan. 3, Construction Dive) Steel Supply Chain Disruption: President Biden’s decision to block Nippon Steel’s acquisition of U.S. Steel has raised concerns about the future of one of America’s largest steelmakers. The acquisition would bolster U.S. Steel’s production capacity and supply chain stability with investments such as $2.7 billion in capital for aging U.S. steel plants, a shared $500 million annual research & development budget, and the transfer of cutting-edge blast furnace technology to U.S. Steel. With construction being the primary steel-consuming sector, accounting for over 50% of steel consumption, U.S. Steel's uncertain trajectory could pose challenges for steel-dependent CRE projects. (The Washington Post, Jan. 3 | The Wall Street Journal, Jan. 3) Office Markets & Return to Work The U.S. office market faces a stark divide: while overall vacancy rates remain high due to aging buildings and remote work policies, demand for top-tier office space with modern amenities is surging in major cities. (Axios, Jan. 10 | WSJ, Jan. 7) Tenants occupied 22% more premium office space in late 2023 compared to pre-pandemic levels, according to CBRE. (WSJ, Jan. 7) Many outdated buildings have the potential for conversion to residential use, while landlords of premium properties have regained leverage, scaling back tenant concessions for the first time in four years. (WSJ, Jan. 7) JPMorgan Chase may soon require all employees to return to the office. This move follows a growing trend among major corporations, including Amazon, AT&T, and Walmart, that are ending remote work and returning to pre-pandemic office norms. (Axios, Jan. 1 | Forbes, Jan. 9) RER Board Member Scott Rechler (Chairman & CEO, RXR) highlighted stronger office markets, despite vacancies, and increased transactions and property conversions for New York City in 2025 this week on CNBC’s Squawk Box. (CNBC Squawk, Jan. 8) As rising costs and shifting policies reshape the CRE landscape, RER is committed to working with policymakers to stabilize material costs, innovate solutions to labor shortages, and adjust trade policies to avoid disproportionate impacts on the CRE sector.

Energy & Climate

January 8, 2025

Fact Sheet

Fact Sheet: How Federal Rules on HFC Refrigerants Affect Buildings

American Innovation and Manufacturing Act AIM Act, HFCs, Refrigerants,

Affordable Housing, Housing

December 20, 2024

Policy Comment Letter

Coalition Supports Affordable Housing Legislation – The Renewing Opportunity in the American Dream to Housing Act (ROAD) to Housing Act, (S. 5027 | H.R. 990)

Affordable Housing, Housing,

National Flood Insurance Program (NFIP)

December 20, 2024

Policy Comment Letter

Joint Coalition NFIP Extension Letter

National Flood Insurance Program NFIP,

Policy Landscape

December 20, 2024

Roundtable Weekly

Congress Faces Shutdown Threat Amid Funding Battles

Policy Landscape

House Speaker Mike Johnson (R-LA) announced this afternoon that the House will vote tonight on a revised version of the bill that was defeated on Thursday, excluding the debt ceiling provision advocated by President-elect Trump. (Politico, Live updates) Latest Funding Plan Under the House GOP’s latest plan, the government would be funded until March 14. It includes a one-year farm bill extension and the $110 billion disaster aid package. (The Hill, Dec. 20) (Latest CR-3rd Version, Dec. 20) On Thursday, Democrats and a group of Republicans rejected a second Continuing Resolution (CR) proposal in a decisive 174-235 vote, which fell short of the two-thirds majority needed under expedited rules. (Axios, Dec. 20) Elon Musk and President-elect Trump amplified tensions in Congress, urging Johnson to abandon the bipartisan agreement he reached with top Democrats in favor of a Republican-preferred measure earlier in the week. (AP, Dec. 20) By rejecting the Trump-endorsed proposal, Democrats signaled they would not support legislation unless they were included in negotiations. Roundtable Urges National Flood Insurance Program (NFIP) Extension The Roundtable and 11 other organizations wrote to Congressional leadership urging swift action to extend the National Flood Insurance Program (NFIP) before its December 20 expiration. (NFIP Letter, Dec. 20) The letter emphasized the urgency of passing the “NFIP Extension Act of 2024” in the event of a government funding lapse. This legislation, already introduced in both the House and Senate, would extend the NFIP through September 30, 2025, ensuring continuity and aligning the program with the end of the fiscal year. Debt Ceiling House Republican leaders unveiled a plan this afternoon to raise the debt ceiling by $1.5 trillion in early 2025, paired with $2.5 trillion in cuts to mandatory spending. (Politico, Dec. 20) GOP leaders aim to use the reconciliation process next year to pass these measures with a simple majority vote in the Senate, bypassing the filibuster. The proposal directly challenges President-elect Donald Trump's demands for immediate bipartisan action to raise the debt ceiling. GOP leaders hope to leverage this budget tool to achieve major policy goals, such as increased border security and expiring tax cuts, but face challenges in rallying the slim majorities they will have in both chambers when the new Congress is sworn in. (Politico, Dec. 20) What’s next: The GOP plan sets the stage for a contentious fiscal battle in 2025, as the party grapples with how to balance its policy priorities against the looming threat of economic fallout.

CRE and the Economy

December 20, 2024

Roundtable Weekly

Fed Cuts Rates Again: Slower Path Ahead Amid Inflation Concerns

Federal Reserve Interest Rates The Fed

The Federal Reserve reduced its benchmark interest rate by a quarter percentage point Wednesday, bringing it to a target range of 4.25% to 4.50%. While the cut provides some relief to borrowers, the central bank signaled a more cautious pace for future rate reductions as inflationary pressures persist. (Axios, Dec. 18) Why It Matters The Fed’s decision reflects its effort to balance slowing inflation with a resilient economy. Powell cited recent data, and not just potential policy changes, justified an adjustment to the inflation forecast. Additionally, the labor market has proven more resilient than officials anticipated when they began rate cuts in September. (WSJ, Dec. 18) "We are at or near a point at which it will be appropriate to slow the pace of further adjustments," Fed chair Jerome Powell told reporters at a press conference on Wednesday, referring to the decision to cut rates. (Press Conference, Dec. 18) The Fed’s latest quarterly projections suggest a slower path to lower rates, with officials anticipating only two rate cuts in 2025, down from four or five predicted in September. (AP News, Dec. 18) Beth Hammack, President of the Cleveland Federal Reserve, dissented from the decision, advocating for steady rates. Looking Ahead The incoming Trump administration is expected to pursue policies such as deregulation, tax cuts, and a growth-focused agenda. While policies like deregulation and tax cuts could stimulate growth, tariffs and deportations threaten to exacerbate inflationary pressures. Fed Chair Jerome Powell noted that some officials have started factoring in "highly conditional estimates" of the potential economic impacts of Trump administration policies into their forecasts. The Federal Open Market Committee (FOMC) emphasized that further cuts would depend on incoming data, stating it will assess “the extent and timing” of future adjustments. (Summary of Economic Projections, Dec. 18) The Fed now projects inflation to reach 2.5% in 2025, higher than its September forecast of 2.1%, reflecting expectations of slower progress in curbing price increases. (CBS, Dec. 18) For CRE, adaptability remains key as the macroeconomic environment evolves. The Fed’s next meeting will be January 28-29, 2025, a week after inauguration, and RER’s all-member State of the Industry (SOI) Meeting on January 22-23.

CRE and the Economy

December 20, 2024

Roundtable Weekly

CRE’s Year of Transformation: Lessons from 2024 and Outlook for 2025

Data Centers Economic Growth amp CRE Jeffrey DeBoer Office Markets Property Conversions Return to Office Tax Policy

As 2024 comes to a close, the commercial real estate industry has made significant strides in recovery and adaptation. 2024 Roundtable Highlights Over the past year, industry confidence has rebounded. RER’s Q4 Sentiment Index reached 73—a three-year high—and a 12-point jump from Q1 of this year. Despite ongoing challenges, the industry has demonstrated resilience and emerged stronger. RER President & CEO Jeffrey DeBoer spoke about the industry’s 2025 priorities in a recent episode of the Leading Voices in Real Estate podcast, saying, “Real estate cuts across all aspects of our economy, and it’s what makes cities strong. You can't find a time in history where nations have been strong without healthy cities. Right now, cities are struggling, and we want to help them back.” Looking ahead to 2025, RER remains focused onadvancing policies that support liquidity, innovation, and adaptive reuse to ensure CRE remains a pillar of economic growth and community development. 2025 Policy Priorities Survey: Next week we will be distributing our Policy Issues Survey to all members to gather input on our policy priorities for 2025. Top Takeaways from 2024 Key drivers of the industry’s growing confidence include easing interest rates and improving financial conditions, which have helped to stabilize asset values and encourage investment activity. By year-end, easing monetary policy and growing investor confidence have started to open up capital availability, with more progress expected in 2025. (Roundtable Weekly, Nov. 8) Office-to-residential conversions saw a banner year, with more than 70 projects completed in 2024. Bolstered by the growing number of state and local incentive programs, 71 million sq. ft. (1.7% of U.S. office inventory) was undergoing or planned for conversion as of Q3. Property conversions will continue to see growing momentum in 2025, helping to alleviate elevated vacancy rates. (CBRE, Nov. 11) Loan modifications and extensions, encouraged by regulators and supported by RER, have helped many distressed owners stabilize properties and avoid defaults. While 2024 was a challenging year for the office sector, markets have started to reach an inflection point as capital becomes more available, vacancy rates start to peak, return-to-office momentum grows, and transaction activity picks up. (Roundtable Weekly, Nov. 15) Meanwhile, multifamily and industrial assets—especially data centers—continued to demonstrate strength, benefiting from robust tenant demand and the rapid expansion of AI-driven technologies. (CBRE, Dec. 11) Prospects for 2025 and Trends to Watch Economic growth: The CRE sector is poised to benefit from moderate economic growth and a more favorable interest rate environment. Investors are cautiously optimistic about improving liquidity and stabilizing valuations, which could unlock much-needed capital. (Commercial Observer, Dec. 10, CBRE, Dec. 11) Office recovery: In San Francisco, office vacancy rates have dropped for the first time in four years—a sign that the office sector is beginning to turn the corner on the pandemic-era economy. Conversion activity is also expected to remain robust, supported by state and local incentives. (S.F. Chronicle, Dec. 16, GlobeSt., Dec. 17) As RER Chair Emeritus William C. Rudin (Co-Executive Chairman, Rudin) recently told Squawk Box, “the demise of office and New York City are greatly exaggerated…there is capital, the CMBS market is back, the banks are coming back to the market,” indicating a welcome trend that could help drive an office revival across America’s downtowns. The data center market will likely see explosive growth driven by artificial intelligence and cloud computing, although power constraints may limit development. Demand for data centers is expected to grow 160% by 2030, driving the buildout of the physical infrastructure needed to support the next digital revolution. (Goldman Sachs, May 14) (McKinsey, Oct. 29) Political and regulatory shifts following the 2024 election—including potential changes to trade, immigration, and fiscal policies with a new Congress and presidential administration—could pose new opportunities or risks in 2025. Collaborating with and educating policymakers on the impact these policies have on real estate will be crucial to ensuring that public policies support economic growth, job creation, housing affordability, and industry stability. Heading into 2025, RER will continue advocating for policies that strengthen economic growth and capital availability while addressing industry challenges, including expanded tax credits for affordable housing and property conversions, permitting reform, and other initiatives that support a vibrant and resilient CRE sector.

Roundtable Leadership

December 20, 2024

Roundtable Weekly

Roundtable Employee Elizabeth A. Hoopes Retiring After 42 Years

Roundtable Leadership

Elizabeth “Liz” A. Hoopes retired on December 1, 2024, after a distinguished 42-year career with the National Realty Committee (NRC) and The Real Estate Roundtable. Liz began her career with NRC in December 1982 as Systems Administrator, where she was instrumental in implementing and managing the foundational technology and membership database systems. In 2015, she was promoted to Director, Information Systems, overseeing all technology infrastructure and providing critical support and solutions to ensure seamless operations at The Roundtable. For the past forty years, Liz managed The Roundtable’s Political Action Committee (REALPAC), facilitating all donations, FEC reports, filings, compliance requirements, and more. Recognizing her dedication, professionalism, and unwavering commitment to The Roundtable staff and membership throughout the years, the Board of Directors honored Liz with an engraved glass piece at our Fall Meeting last month. Roundtable President & CEO Jeffrey DeBoer remarked, "Liz’s exceptional work ethic, focus, and dedication are unparalleled, making her truly irreplaceable. Her hard work in so many areas over the years has been invaluable and has helped the Roundtable achieve its mission. We wish her continued success, happiness, and good health in the next chapter of her life.” The Roundtable proudly acknowledges her significant professional achievements and congratulates her on her well-deserved retirement. We are honored to have called her a friend and colleague all these years and wish her a wonderful retirement.

News

December 20, 2024

Roundtable Weekly

Roundtable Weekly Will Resume Publication on January 10, 2025

The Roundtable’s policy news digest will resume publication on Friday, January 10, 2025 Recent issues of Roundtable Weekly can be searched by keyword here.

December 16, 2024

RER Policy Priorities

November 2024 Policy Priorities Full Report

Policy Landscape

December 13, 2024

Roundtable Weekly

GOP Leaders Debate Strategy for Reconciliation in 2025

SALT Tax Policy TCJA

Republicans are divided on how to approach a sweeping legislative package in 2025, as debates intensify between House and Senate GOP leaders considering whether to consolidate tax, border security, energy, and defense priorities into a single reconciliation bill or pursue a two-step approach. (TaxNotes, Dec. 12) The Debate The outcome will shape the GOP’s legislative strategy as they prepare to extend key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and deliver on other campaign promises. House Ways and Means Committee Chair Jason Smith (R-MO) is advocating for a single reconciliation bill that combines tax policy with border and energy reforms, arguing that this approach maximizes the slim Republican majority’s ability to pass ambitious legislation. Rep. Smith’s stance has put him at odds with incoming Senate Majority Leader John Thune (R-SD), who prefers a two-bill strategy—one focused on border security and energy early in the year, followed by a tax package later. (PoliticoPro, Dec. 11) Sen. Thune, backed by Senate Budget Chair Lindsey Graham (R-SC) and incoming White House policy advisor Stephen Miller, see an early legislative win on immigration as critical to setting the stage for more complex tax negotiations. (Axios, Dec. 9) Rep. Smith, contends that splitting the package could jeopardize tax policy priorities, including extensions of TCJA provisions set to expire at the end of 2025. (Roundtable Weekly, Dec. 6) Failure to act on tax reform by the end of 2025 will lead to the expiration of many provisions of the 2017 tax law, resulting in tax increases for most individuals and some businesses. (Bloomberg, Dec. 3) View from the Senate While negotiations continue, Sen. Thune said he’s eyeing a “big early win” for President-elect Trump with a party-line push on border security, military and energy provisions. “Failure is not an option as far as tax is concerned." (Politico, Dec. 11) View from the House House Majority Leader Steve Scalise (R-LA) said Tuesday House leadership is still deciding on a one- or two-bill strategy, and that they have been meeting with House and Senate members, including Sen. Thune and incoming Senate Finance Committee Chair Mike Crapo (R-ID). He warned it would be challenging to pass multiple budget resolutions. (TaxNotes, Dec. 11) “Donald Trump is the whip right now,” Scalise said, describing how Trump would corral votes from House Republicans. “You don’t have to worry about me; I’m actually a nice guy. The guy at 1600 Pennsylvania is going to send out a tweet, a truth, or whatever, and it’s not going to be as nice.” (TaxNotes, Dec. 11) Government Funding Members on both sides of the aisle expect the government will stay open past the Dec. 20 shutdown deadline. (GlobeSt. Dec. 11) Lawmakers anticipate leadership will settle on a stopgap measure extending through next March, though some Republicans in both chambers are advocating for a CR that ends sooner to expedite Congress's funding work. (The Hill, Dec. 11). Challenges Ahead Narrow majorities: House Republicans can only afford to lose a handful of votes, making consensus critical. Senate Republicans face their own challenges under reconciliation rules requiring compliance with strict budget parameters. (NBC News, Dec. 12) SALT deduction disputes: Republicans from high-tax states like New York and New Jersey are expected to push for raising the $10,000 cap on state and local tax (SALT) deductions, which could complicate efforts to unify the caucus. Economist Stephen Moore, a member of President-elect Trump’s economic advisory transition team, told Bloomberg that expanding the tax write-off limit from $10,000 to $20,000 has been discussed. (TaxNotes, Dec. 11 | Bloomberg, Dec. 12) What's Next House Speaker Mike Johnson (R-LA) faces mounting pressure to navigate the narrow majority and align the party’s legislative strategy with President-elect Trump’s priorities. Johnson has indicated flexibility in the approach, noting ongoing discussions with Trump and GOP leaders. House Republicans are preparing to move swiftly in early January, with Budget Committee Chair Jodey Arrington (R-Texas) leading efforts on a budget resolution to lay the groundwork for reconciliation. Arrington has emphasized the need for a streamlined process, warning that delays could jeopardize Republican priorities. (TaxNotes, Dec. 12) Passage of a budget resolution, which is the first key step in the reconciliation process, will be crucial to move forward—a challenge in itself given the slim GOP majority in the House. The text of the funding bill is anticipated to be released over the weekend or early next week, enabling both chambers to pass the measure before lawmakers adjourn until January.

Housing

December 13, 2024

Roundtable Weekly

Real Estate Coalition Supports Affordable Housing Legislation

Affordable Housing Housing Opportunity Zones OZs Renewing Opportunity in the American Dream to Housing Act ROAD to Housing Act

On Tuesday, a coalition of national real estate associations, including The Real Estate Roundtable (RER), wrote to Congress urging support for the Renewing Opportunity in the American Dream to Housing Act (ROAD) to Housing Act, (S. 5027 | H.R. 990). Introduced by Senator Tim Scott (R-SC) and Representative French Hill (R-AR), this comprehensive legislation aims to make housing more affordable and widely available. (Letter, Dec. 10) Addressing Housing Affordability The nation faces a persistent housing affordability crisis rooted in a critical shortage of supply. Addressing this challenge requires bipartisan solutions that foster collaboration across government agencies, industry stakeholders, and policymakers. The coalition praised the bill as “a step forward in addressing the root cause of housing affordability challenges—supply shortages.” (Letter, Dec. 10) The key pillars of the bill are increasing access to affordable housing, promoting opportunity, incentivizing local solutions, and ensuring proper oversight and accountability over federal housing programs. (Sen. Scott Press Release, Sept. 12) Rep. French Hill (R-AR) said, “With the ROAD to Housing Act, we are taking real steps toward creating a housing market that benefits everyone—renters, homeowners, and families striving for stability. I thank my friend Senator Tim Scott for spearheading this legislation in the Senate.” (Rep. Hill Press Release, Oct. 15) The letter emphasized the importance of bipartisan collaboration in crafting sustainable, effective housing policy solutions. ROAD to Housing Act The ROAD to Housing Act introduces targeted reforms and initiatives, including: Enhanced financial literacy and housing counseling: Empowering individuals with tools to navigate homeownership and rental markets. HUD’s Moving to Work (MTW) program: Fully authorizing this initiative to improve housing outcomes for low-income families. The MTW program helps public housing authorities and agencies implement innovative solutions that support affordable housing goals Boosting affordable housing construction: Encouraging development through construction grants and support for small-dollar mortgage lending. Opportunity Zones focus: Promoting affordable housing projects in designated Opportunity Zones to drive investment in underserved areas. Federal coordination: Establishing regular dialogue between federal agencies and Congress to align housing policies with on-the-ground needs. The Roundtable and its coalition partners will continue to educate and collaborate with policymakers to advance the ROAD to Housing Act and ensure that housing supply and affordability remain top priorities.

Policy Landscape

December 13, 2024

Roundtable Weekly

Rep. French Hill to Chair Powerful House Financial Services Committee

Capital and Credit

Rep. French Hill (R-AR) was selected as the next chair of the powerful House Financial Services Committee, after securing the endorsement of the GOP steering committee in a closely watched race. (Axios, Dec. 12) (PoliticoPro, Dec.13) Financial Policy Priorities The House Financial Services Committee holds broad jurisdiction over monetary policy, housing, banking, and international finance. (Axios, Dec. 12) As chair, Rep. Hill will play a vital role in shaping financial policy and working with President-elect Trump’s administration on priorities like banking oversight, GSE reform and cryptocurrency regulation. In an interview with CNBC, Rep. Hill said his top priorities as chair are making community and commercial banking more competitive by rolling back rules, removing limits on investing to make it easier for companies to become publicly traded, and overhauling cryptocurrency regulation. (CNBC, Dec. 13) (PoliticoPro, Dec.13) A former banker, Rep. Hill brings a wealth of experience to the role, having served as Financial Services vice chair and leader of the committee’s digital assets subcommittee. Rep. Hill has advocated for several Roundtable priorities, including affordable housing measures, expanding capital formation, GSE reform, reauthorization of the National Flood Insurance Program, and terrorism risk insurance. Trump Administration Eyes Changes to Financial Regulation President-elect Trump advisers and officials from the newly founded Department of Government Efficiency (DOGE) are exploring ways to consolidate or eliminate major bank regulators, including potentially abolishing the FDIC and transferring deposit insurance to the Treasury Department, according to people familiar with the matter. (WSJ, Dec. 12) Such proposals, which would require congressional approval, mark a dramatic shift in federal oversight, though no major cabinet-level agency or regulatory body like the FDIC has ever been shuttered in Washington’s history. (Reuters, Dec. 13) Looking Ahead Rep. Hill has proposed initiatives to streamline financial regulations, create a “chief economist” role within the committee, and enhance member communication on financial policy issues. (The Hill, Dec. 12) Rep. Maxine Waters (D-CA) will continue to serve as Ranking Democrat of the committee. (Politico, Dec. 12) Whether the Trump administration’s bold proposals to restructure federal regulators gain traction remains uncertain, but Rep. Hill’s experience and focus on pragmatic policy solutions could provide a steady hand in this transformative period for U.S. financial services. The House Republican Conference is anticipated to ratify the steering committee’s selection in the coming days.

Property Conversions

December 13, 2024

Roundtable Weekly

Property Conversions Unlock New Potential in Real Estate

Property Conversions

Property conversions are emerging as a critical tool to revive underutilized assets and address market demands. By transforming outdated office spaces into housing and mixed-use developments, the industry is seizing an opportunity to adapt and thrive. Industry Voices Capture Momentum These strategies offer a blueprint for addressing nationwide housing shortages, while revitalizing communities and modernizing infrastructure. Former RER Chair Dan Neidich (CEO, Dune Real Estate Partners) likens the opportunities in office-to-residential conversions to a "fire hose," emphasizing the urgency and scale of adapting underperforming spaces. (CNBC, Dec. 10) RER Board Member Scott Rechler (Chairman & CEO, RXR) highlights that in New York, "70% of the vacancy is in 30% of the buildings," indicating a concentration of underutilized office space prime for conversion. (CNBC Squawk Box, Nov. 22) According to a recent CBRE report, 73 U.S. conversion projects have been completed this year, a slight increase from last year. Looking forward, another 309 projects are planned or underway, with about 75% categorized as office-to-residential, placing the total count of units in the works at 38,000. (Wall Street Journal, Nov. 26) Community Success Stories New York City recently approved the "City of Yes" plan to create 80,000 new homes through adaptive reuse. NYC real estate leaders have supported this effort to streamline zoning and enable housing development, including RER Board Member Scott Rechler, who spoke in favor of the proposal on an NYU panel. (New York Times, Dec. 5 | Bisnow, Dec. 6) In cities such as Columbus, St. Louis, and Pittsburgh across the Midwest, developers are converting outdated office spaces into vibrant residential communities and mixed-use developments, fostering neighborhood and downtown revitalization. (Business Journal, Dec. 3) 2024 CommercialEdge research outlines New York City, San Francisco, Chicago, and Los Angeles as top cities with conversion feasible office space. The analysis shows that conversion in the top "30 central business districts and surrounding urban segments alone could mean turning roughly 167 million square feet of aging office space into modern residential and mixed-use properties." (CommercialCafe, Dec. 10) Navigating Challenges Financing gaps, structural challenges, and community concerns remain significant hurdles for conversion projects. Regulatory obstacles such as outdated building codes, minimum unit sizes, and natural light requirements continue to increase costs of development. (Governing, Dec. 3) Recognizing the need for change, cities are taking steps to encourage property conversions. Methods include reductions in approval times, exemptions from affordable housing rules, changes in building code requirements, and tax incentives or subsidies to developers. (Governing, Dec. 3) The Roundtable urges federal policymakers to adopt incentives that support and promote these transformative local projects. These measures are vital to expanding access to affordable housing and meeting the nation’s growing demand.

Affordable Housing, Housing

December 10, 2024

Policy Comment Letter

RER Supports the Renewing Opportunity in the American Dream to Housing Act (“ROAD to Housing Act,” S. 5027/H.R. 990)

Affordable Housing, Housing,

Policy Landscape

December 6, 2024

Roundtable Weekly

Outlook for 2025 Budget, Reconciliation, and Tax Legislation

Policy Landscape Tax Policy

Senate Republicans are mapping out an ambitious two-step reconciliation strategy for 2025, planning to first address defense, energy, and border security before tackling a tax package later in the year. The initial focus is to secure an early win that could help build momentum for the more complex task of extending the expiring provisions of the 2017 Tax Cuts and Jobs Act (TCJA). (Tax Notes, Dec. 4) Why It Matters This approach marks a notable shift from House Republicans' earlier plan to address tax issues within the first 100 days of President-elect Trump's term. (Washington Post, Dec. 4) Instead, Senate Republicans want to divide the legislative work to make each package more manageable, leveraging early victories to build momentum for harder battles. (PoliticoPro, Dec. 4) Reconciliation Plan GOP senators, including Thom Tillis (R-NC) and Shelley Moore Capito (R-WV), emphasized the importance of consensus and coordination within the party, acknowledging that a slim House majority could complicate passage. (Tax Notes, Dec. 4) Sen. Capito noted that a smaller, earlier reconciliation package—focused on defense, energy, and border security—could help set the stage for tackling the more politically challenging tax bill. The initial bill could include measures that all Republican factions can support, such as limited deficit reduction and targeted energy policy reforms. Failure to act on tax reform by the end of 2025 will lead to the expiration of many provisions from the 2017 tax law, resulting in tax increases for most individuals and some businesses. (Bloomberg, Dec. 3) Rep. Jason Smith (R-MO), chairman of the House’s Ways and Means committee, voiced his opposition to delaying tax reform under Sen. Thune's plan, noting the difficulty of advancing two budget reconciliation packages, which are immune to filibusters in the Senate. (The Hill. Dec. 5 | CNBC, Dec. 4) “The important thing is getting all the policies done as quickly as possible, and what we ultimately all agree on [is] we’re all going to have to be in unison on that, but no final decision has been made,” said House Majority Leader Steve Scalise (R-LA) regarding the reconciliation timeline. (PoliticoPro, Dec. 4) View from Senate Sen. Chuck Grassley (R-IA) pointed to the complexity of the tax package as the reason for its placement as the second bill. “We want to help lower energy costs, we want to help the military. We want to hit the ground running,” said Sen. Lindsey Graham (R-SC). (The Hill, Dec. 4) Sen. Rand Paul (R-KY) cautioned against using reconciliation to increase spending, emphasizing the need to reduce overall expenditures. What's Next Senate Republicans, led by incoming Senate Majority Leader John Thune (R-SD), will work closely with House Speaker Mike Johnson (R-LA) and the White House to finalize the contents and timing of both reconciliation bills. Passage of a budget resolution, which is the first key step in the reconciliation process, will be crucial to move forward—a challenge in itself given the slim GOP majority in the House. The two-bill reconciliation strategy reflects Senate Republicans' cautious approach to the legislative calendar. By securing an earlier, more straightforward win, the GOP hopes to gain the momentum needed to navigate a complex tax debate later in 2025.

Beneficial Ownership

December 6, 2024

Roundtable Weekly

Corporate Transparency Act Enforcement Blocked by Federal Court

Beneficial Ownership amp the Corporate Transparency Act Corporate Transparency Act CTA

On Tuesday, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, blocking enforcement of the Corporate Transparency Act (CTA), questioning its constitutionality and its impact on small businesses. The ruling prevents the federal government from enforcing CTA requirements until further notice. (Forbes, Dec. 4) Impact of Ruling The CTA, effective January 1, 2024, mandates that over 32 million "reporting companies" disclose beneficial ownership information to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). Due to the far-reaching scope of the CTA, The Roundtable has long raised concerns about the regulatory burden and cost the CTA would impose on many commercial and residential real estate investment businesses. The preliminary injunction halts enforcement of the upcoming January 1, 2025, deadline for filing ownership reports. The decision marked the second time a judge has deemed the law unconstitutional. An Alabama federal judge reached a similar conclusion in March (Reuters, Dec. 4 | Roundtable Weekly, March 8) The injunction is temporary; not a final decision. The pause on enforcement could be overturned if the ruling is challenged successfully on appeal. Court's Decision In Texas Top Cop Shop v Garland et al., Judge Amos L. Mazzant III found the CTA's federal oversight of corporate ownership to be overreaching, infringing on constitutional rights typically overseen by states. (Bloomberg, Dec. 3) Judge Mazzant also highlighted the heavy compliance costs — projected at $22 billion in the first year alone — without adequate privacy safeguards. The plaintiffs, including small business owners and a trade association, argued that the CTA compels speech and association, infringing on First Amendment protections. They also raised concerns about privacy violations under the Fourth Amendment, given the extensive personal information required. The Court agreed that a nationwide injunction was necessary due to the sweeping impact of the CTA. Roundtable Opposition The Roundtable has consistently opposed beneficial ownership rules under the CTA, the burdensome reporting requirements, and the negative impact on real estate partnerships and capital formation. In May, The Roundtable and more than 100 business organizations expressed strong support for bicameral legislation that would repeal the Corporate Transparency Act (CTA) and its onerous beneficial ownership burdens. (Roundtable Weekly, May 10) RER continues to work with policymakers to identify a balanced position that would inhibit illicit money laundering activity but would not place unnecessary compliance costs and regulatory burdens on the real estate industry. (Roundtable Weekly, June 7 ) The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to closely monitor developments related to the enforcement of the CTA and challenges to the law.

Roundtable Advocacy

December 6, 2024

Roundtable Weekly

The Roundtable’s Jeffrey DeBoer Recognized as One of DC’s “Top Lobbyists” for 2024

Jeffrey DeBoer

Real Estate Roundtable President and CEO Jeffrey DeBoer has been recognized as one of the "Top Lobbyists" in Washington, D.C. for 2024, according to the prominent policy news publication, The Hill. This marks the seventh consecutive year that DeBoer has received this honor. (The Hill, Dec. 5) The Hill noted that their list details “some of the best in the business and those that have been “go-to advocates during a year defined by unprecedented political events, legislative logjams, federal spending cut crusades and big rulemaking swings by the outgoing Biden administration.” DeBoer stated, “I am truly honored to be recognized by The Hill for my work, especially in a city with more than 12,000 lobbyists. This recognition, though, really is a testament to the overall Roundtable team, leadership, and membership.” DeBoer added, “This acknowledgment underscores the importance of the fact-based advocacy work we do to advance policies that foster solid real estate asset values, spur job opportunities, economic growth and strengthen communities nationwide."

Tariffs

November 27, 2024

Roundtable Weekly

Trump Tariffs Could Impact Housing Affordability

Affordable Housing Housing Tariffs

On Monday, President-elect Donald Trump pledged to impose a 25 percent tariff on all goods from Mexico and Canada, and an additional 10 percent tariff on imports from China. These measures could have significant repercussions for the U.S. economy, including housing affordability. (WSJ, Nov. 25 | Reuters, Nov. 26) Response to Illegal Drugs, Immigration Trump’s social media posts stated that the threatened tariffs are necessary to stop illegal immigration and fentanyl trafficking. He couched the levies on imports as temporary, staying in effect “until drugs and migrants stopped coming over the border.” (New York Times, Nov. 26) The U.S. imports the most goods from Mexico, China, and Canada, in that order. (U.S. Census Bureau, Sept. 2024). Trump said he plans to impose the new tariffs on his first day in office. (AP, Nov. 26). Mexico, the U.S.’s largest export partner after Canada, vowed to retaliate with its own tariffs and spark a possible trade war. (Washington Post, Nov. 26) Potential Impacts on Housing, Construction “Overly broad and poorly designed tariffs could unintentionally increase housing costs for millions of renters and home buyers,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “Building safe and desirable housing cost-effectively is tied closely to the price of imported materials like steel, cement, concrete, lumber, glass, and more. Tariffs that increase construction costs would slow bringing new supplies to the market and increase prices to purchase and rent homes.” “We need to boost the nation’s housing supply — through new construction, converting obsolete buildings, strengthening the low-income housing tax incentive, reforming local zoning laws, and other bipartisan strategies,” DeBoer continued. “We look forward to working with the Trump Administration on policies to spur economic growth, create jobs, and in this case, improve housing affordability and availability.” About 32 percent of building materials are imported, largely from China, Germany, and South Korea. The extent of these imports has increased dramatically in recent years. The proposed tariffs would be additional to Biden-era tariffs, which themselves derive from import taxes dating back to the first Trump Administration. For example, in May, President Biden increased the tariff on steel products from China to 25 percent— while also increasing tariffs to varying degrees on semiconductors, solar panels, batteries and other specific Chinese imports. (White House fact sheet, May 14). It appears that President-elect Trump will seek an additional 10 percent on top of these. Similarly, in August, President Biden raised tariffs on imports of Canadian softwood lumber to 14.54 percent, according to the National Association of Home Builders (NAHB). It appears that President-elect Trump plans to raise this import tax further to 25 percent. Lumber tariffs have a detrimental impact on housing affordability, according to NAHB. “In effect, the lumber tariffs act as a tax on American businesses, home buyers, and consumers.” Potential Impacts on the Broader Economy Investor Uncertainty: Uncertainty surrounding trade policies risks dampening investor confidence, which could weigh on real estate property values and slow transaction activity. (Bisnow, Nov. 24) Energy costs: A 25 percent tariff on all imports from Canada would drive up energy costs. Canada is the top external supplier of crude oil to the U.S., with oil, gas, and other energy products making up its largest exports. (Bloomberg, Nov. 26) Trump did not specify how he plans to impose the tariffs, although many have expected him to rely heavily on the International Emergency Economic Powers Act. That law gives the president broad authority to regulate U.S. commerce after declaring a national emergency. (PoliticoPro, Nov. 24)

Policy Landscape

November 22, 2024

Roundtable Weekly

View from the CEO: Priorities for the CRE Industry in 2025

Capital Gains Energy amp Climate FIRPTA Foreign Investment in Real Property Tax Act Housing Interest Rates Jeffrey DeBoer Property Conversions Section 199A Tariffs

With control over the White House and both chambers of Congress decided, attention has turned to how President-elect Donald Trump’s second term will affect the commercial real estate industry. Looking Ahead As Roundtable President & CEO Jeff DeBoer noted to BisNow last week, the new administration represents a chance to strengthen policymakers’ understanding of the critical role CRE plays in the economy. (BisNow, Nov. 12) “Anytime that there's a turning of the page, there's an opportunity to emphasize new issues, or to bring priority to older issues that maybe have been pushed out by previous leaders,” DeBoer told BisNow. DeBoer also highlighted key policy priorities for commercial real estate to move forward in the coming administration, including housing, tax, capital markets, and energy. Housing Policy Interagency task force: The Roundtable is calling for a federal task force focused on expanding the housing supply, particularly affordable housing. This task force would coordinate efforts across agencies to streamline building processes and reduce regulatory barriers, incentivizing new development across the U.S. Property conversions: The administration should support federal incentives for (such as low interest loans) converting obsolete office buildings into residential housing. Modeled after tax credits for historic preservation, bipartisan legislation like the Revitalizing Downtowns and Main Streets Act could help relieve the national housing shortage. (Roundtable Weekly, July 12) Tariff concerns: Proposed tariffs on materials like lumber, steel, concrete, glass and appliances could impact housing supply: “By putting tariffs on housing materials, you will be indirectly increasing costs for buyers and renters and making it more difficult to solve this housing crisis,” said DeBoer. Tax Policy With key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) expiring soon, tax legislation will likely be central to President-elect Trump’s first 100 days. Capital gains: Long-standing elements of the tax code, including the reduced rate for capital gains, the ability to reinvest through like-kind exchanges, and step-up in basis of assets at death, are critical for real estate businesses and encourage productive investment and economic growth. RER will continue to advocate that these provisions be maintained. Section 199A: The qualified business income deduction for pass-through businesses, known as Section 199A, ensures that small businesses can compete on a level playing field with public corporations. RER supports extending the deduction, which is currently set to expire. Foreign investment: Restrictions on foreign investment discourage capital formation and could hinder growth in real estate at a time when increasing the supply and availability of capital is critical to the industry’s recovery. Policymakers should avoid imposing additional restrictions or tax burdens on foreign investors, and consider repealing or reforming the Foreign Investment in Real Property Tax Act (FIRPTA). Capital Markets Strengthening capital flows in real estate is a top priority, as lending and credit availability have remained relatively weak since the pandemic and are only recently starting to see improvement. Interest rates: Policymakers should carefully consider the inflationary effects of fiscal policies to maintain a favorable interest rate environment. Avoiding increased capital requirements, such as Basel III Endgame proposal, is also necessary to prevent hindering growth. Energy Policy With the rise of data centers, AI and other energy-intensive sectors, addressing energy capacity and permitting is a critical bipartisan need and “very important” to RER’s agenda, as DeBoer noted. See the story immediately below for more details. RER is committed to working proactively and productively with President-elect Trump and the 119th Congress to support the needs of the economy and commercial real estate industry.

Energy Policy

November 22, 2024

Roundtable Weekly

The Post-Election Energy Landscape for CRE

Building Performance Standards Clean Energy Tax Incentives Corporate Disclosure Energy amp Climate Energy Efficiency ENERGY STAR NextGen EPA Grid Reliability Reporting on Climate Risks

The 2024 election results signal a return to energy policies supported by President-elect Trump and a shift from Biden era climate programs. For the commercial real estate (CRE) industry, these changes present opportunities to emphasize the “business case” for high performance, energy efficient buildings. Anticipated Energy Policy Shifts De-Regulation: Former Congressman Lee Zeldin (R-NY), the pick to lead the EPA, remarked on “the opportunity to roll back regulations” on power plant emissions, abolish fees on oil and gas development, and lift rules that drive automakers to manufacture electric vehicles. (The Washington Post, Nov. 19) Climate Disclosures: The SEC will likely withdraw its controversial rule for public companies to report climate-related financial risks in 10-K forms. (Bloomberg, Nov. 7) Companies may still need to report and disclose emissions under state laws like those in California (if they survive litigation). Clean Energy Tax Incentives: The incoming administration has vowed to dismantle the Inflation Reduction Act (IRA) that provides credits and deductions for solar projects, battery storage, EV charging stations, and energy efficient buildings. However, many clean energy projects benefit Red States and House Speaker Mike Johnson (R-LA) said he intends to use “a scalpel not a sledgehammer” in reviewing the IRA in light of Republican support. (POLITICO, Sept 18). City, State Grants: Federal funding will likely be eliminated to support city and state efforts to enact building performance standards (BPS). (Roundtable Weekly, Sept 6) Localities may continue to adopt these laws imposing energy use and emissions limits on buildings even without federal support, and The Roundtable will continue to urge policymakers to follow our 20-Point Guide for fair and reasonable BPS laws. Grid Reliability: Given the increased demands on the electric grid from AI, bipartisan bills to streamline the federal permitting process to approve interstate transmission lines – carrying electricity produced in rural areas and delivering it to cities long distances away – could finally become a priority. (Roundtable Weekly, Oct. 25) The “Business Case” for Energy Efficiency By emphasizing the economic benefits of energy efficient buildings, the industry can remain resilient and forward-looking amid “policy volatility” arising from the power changes in Washington. Energy efficient buildings improve our economy. They create jobs for American workers, enhance U.S. energy independence, help make the power grid more reliable, and attract overseas investments to our shores. Non-regulatory, voluntary federal guidelines – developed and enhanced with The Roundtable’s support – help real estate companies make the case for energy efficiency. These include public-private partnerships with EPA such as the ENERGY STAR program, the industry standard Portfolio Manager tool for buildings to measure energy use, and the landmark NextGen certification program. They also include our collaboration with the Department of Energy and other agencies through the Better Climate Challenge, the national Zero Emissions Building definition, the Buy Clean initiative, and programs that highlight the environmental benefits of commercial-to-residential property conversions.

Capital & Credit

November 22, 2024

Roundtable Weekly

RECPAC Fall Meeting Spotlights Upcoming Policy Opportunities and Challenges in Real Estate Capital Markets

Basel III Capital and Credit CFIUS Restoring Liquidity in CRE Markets and Protecting Capital Formation

The Real Estate Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) convened this week in New York to address market conditions, pressing policy issues, including Basel III Endgame, shifts in capital markets, and the evolving political and regulatory landscape. Fall RECPAC Meeting RECPAC met Tuesday, under the leadership of RECPAC Co-Chairs Bryan McDonnell (Head of U.S. Debt and Chair of Global Debt, PGIM Real Estate), Rex Rudy (EVP, Head of Commercial Real Estate, US Bank), Miriam Wheeler (Global Head Real Estate Finance, Goldman Sachs Asset Management), and Working Group Chair Michael Lascher (Global Head of Real Estate Debt Capital Markets, Blackstone) to discuss the new political landscape and top policy priorities for 2025. Roundtable Chair Kathleen McCarthy (Global Co-Head, Blackstone Real Estate) kicked off the meeting and welcomed RECPAC members to the meeting, sharing her insights on real estate credit and capital markets. Other discussions included: Overview of Real Estate Capital Markets: Mark Gibson (CEO, JLL Capital Markets, Americas) provided an overview of current economic and real estate market conditions, investment capital flows, interest rate trends, and their impact on financing. Political and Regulatory Landscape: Wayne Berman (Head of Government Affairs, Blackstone) discussed the new political landscape, and its implications for financial services and tax policy, credit, and capital market issues. U.S. Economic Outlook: David Mericle (Chief US Economist, Goldman Sachs) presented his views on the U.S. economic outlook, including growth prospects and recession risks. Global Real Estate Credit Markets Roundtable: Nick Seidenberg (Managing Director, Eastdil) led a discussion on global real estate credit markets, joined by Jeff Krasnoff (CEO, Rialto Capital), Bryan McDonnell (Chair, Global Debt and Agriculture, PGIM), Rex Rudy (EVP, U.S. Bank), Miriam Wheeler (Global Head, Real Estate Financing, Goldman Sachs), and Greg Wolkom (Group Head, Real Estate Syndicated Finance and REIT Finance, Wells Fargo). Committee on Foreign Investment in the U.S (CFIUS) This week, the U.S. Department of the Treasury, as Chair of the Committee on Foreign Investment in the United States (CFIUS), finalized a previously proposed rule expanding both the types of military installations covered by its regulations governing reviews of real estate transactions and the number of military installations subject to those reviews. (Axios, Nov. 18) Under the proposed rule issued in July, foreign land transactions within a mile of 40 additional military installations and within 100 miles of 19 additional military sites would trigger a CFIUS review. (Roundtable Weekly, July 12) The finalized rule, which impacts transactions entered into on or after December 9, 2024, continues the trend toward reviews of more real estate transactions based on their proximity to a growing list of military installations deemed “sensitive,” and also allows for greater growth by changing the definition of “military installations” that can become subject to these regulations in the future. (Morgan Lewis, Nov. 18) Nearly 60 military installations will be added to an existing list of military installations and approximately 10 existing installations will be extended for CFIUS jurisdiction purposes. During their annual conference this week, CFIUS mentioned that the renewable energy industry has been a particular area of focus triggering jurisdiction over real estate transactions, due to the critical infrastructure component. (The National Law Review, Nov. 20) Basel III Endgame Fed Vice Chairman Michael Barr (Vice Chairman for Supervision, Board of Governors of the Federal Reserve System) at a House Financial Services Hearing: Oversight of Prudential Regulators told lawmakers that they will halt rulemaking before Trump takes office. (Barr Testimony) Barr, the Fed’s top regulatory official, said the central bank will not be moving ahead with its plan to hike capital requirements for big banks, also known as Basel III Endgame, or move on any proposals to overhaul rules affecting bank liquidity and long-term debt over the next two months. (Politico Pro, Nov. 20) “I expect to work with my new colleagues at the OCC and the FDIC in the coming year on those measures to get their policy input, their perspectives,” Barr said. Earlier this year, RER 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, concluding with a call to federal regulators to withdraw their proposed rulemaking. (Roundtable Weekly, Sept. 19) New regulators are expected to lead the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Consumer Financial Protection Bureau (CFPB) when President-elect Trump takes office in January 2025. The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to engage with policymakers on any further changes to the Basel III Endgame proposal and other federal policy issues impacting credit capacity and capital formation.

Roundtable Meeting

November 15, 2024

Roundtable Weekly

CRE Leaders Gather to Discuss Elections, Economy, Housing and More

Affordable Housing Capital and Credit Tax Policy The Fed

Roundtable Chair Kathleen McCarthy (Global Co-Head of Blackstone Real Estate, Blackstone) This week’s Fall Roundtable meeting came at a pivotal time for commercial real estate, as key policy issues take center stage in Washington. Discussions focused on national policies impacting the industry, including the implications of the recent elections, challenges in capital and credit markets, expiration of the 2017 tax bill, and the federal government’s role in supporting housing supply and regulating energy usage. (Bisnow, Nov. 11) The meeting also covered topics such as return-to-office trends, office-to-residential conversions, and liquidity concerns. (The Roundtable’s Fall 2024 Policy Priorities and Executive Summary) Speakers & Policy Issues Roundtable members engaged in policy issue discussions with the following guests: Reince Priebus, former White House Chief of Staff (President Trump) and the longest-serving chairman of the Republican National Committee in modern history, gave his perspective on the recent elections, dynamics on Capitol Hill, and potential focus of the new administration in 2025. (L-R) Roundtable President & CEO Jeffrey DeBoer & Reince Preibus Sen. Tim Scott (R-SC) is the current ranking member and presumed next chair of the influential Senate Banking, Housing, and Urban Affairs Committee and a senior member of the Senate Finance Committee. Sen. Scott advocated for expanding business and homeownership, enhancing financial literacy, and improving affordable housing by reducing regulations and advancing zoning reforms to foster economic growth and equity in communities. Sen. Tim Scott (R-SC) The Honorable Tom Barkin (President & Chief Executive Officer, Federal Reserve Bank of Richmond), provided a candid assessment of economic recovery and the challenges ahead. He also questioned the fundamental demand for office space as companies reassess their needs in a post-pandemic environment. (Reuters, Nov. 14) (L-R) RER Board Secretary Jodie McLean (CEO, EDENS) and Tom Barkin Rep. Richard Neal (D-MA) (Ranking Member, House Committee on Ways and Means), addressed the significance and major takeaways of the recent election and the outlook for tax and trade policy going forward. He discussed affordable housing incentives, such as the Low Income Housing Tax Credit (LIHTC) and the bipartisan Revitalizing Downtowns and Main Streets Act (H.R.9002), and extending tax provisions like Section 199A, capital gains. (RER’s Tax Policy Priorities) Rep. Richard Neal (D-MA) Next on The Roundtable's meeting calendar is the all-member State of the Industry (SOI) Meeting, which will include policy advisory committee meetings, on January 22-23, 2025 in Washington, DC.

CRE and the Economy

November 15, 2024

Roundtable Weekly

Post Election, CRE Shows Signs of Recovery Heading into 2025

Office Markets Property Conversions Return to Office

The commercial real estate sector is at a critical inflection point, with numerous positive indicators signaling substantial progress on recovery and growth since the pandemic's initial disruption to the industry. Key factors driving the change are easing interest rates, continued return-to-office momentum, property conversions and rising office demand from tech and AI sectors, though some challenges remain. Driving Factors in CRE’s Recovery Interest rates have continued to ease, with the Federal Reserve cutting rates by another 0.25 percentage points last week. While inflation has shown some lingering signs of persistence, Fed Chair Jerome Powell indicated that interest rates are likely to continue to come down slowly and deliberately in the coming months. (Roundtable Weekly, Nov. 8, AP, Nov. 14) CRE lending has also improved, with buyers and owners taking advantage of lower interest rates. Total commercial and multifamily originations increased by 59% year-over-year across many property types including healthcare, retail, multifamily and industrial, though office lending remains relatively stagnant. (GlobeSt, Nov. 12) (Bisnow, Nov. 11) Office leasing has seen an uptick, with several major brokers, including JLL and CBRE, reporting significant increases in office leasing revenue. Larger lease sizes and a rising return-to-office trend have been key contributors, with the average number of in-office days required per week by employers up 50% compared to last year. (CoStar, Nov. 11) Regional office visit data indicates that October 2024 was the busiest in-office month since the pandemic for major hubs like Atlanta, Dallas, Houston, Denver, Washington, D.C., Chicago, and San Francisco. (GlobeSt., Nov. 15) Office leasing has been further buoyed by growing demand from tech and AI companies. Tech firms leased 9.9 million square feet of U.S. office space during the third quarter, the highest level in nearly three years—supporting activity in high-value office locations such as San Francisco, Seattle, and New York. (WSJ, Nov. 12) Property Conversions Property conversions have been a bright spot in 2024, with 73 projects already completed this year and another 30 scheduled to be completed by year-end. The vast majority are office-to-residential conversions—71 million sq. ft., or 1.7%, of U.S. office inventory was planned for or already undergoing conversion, helping to increase the supply of housing, boost downtown vibrancy and ease office vacancy rates. (CBRE, Nov. 11) What’s Next: RER’s Real Estate Capital Policy Advisory Committee (RECPAC) will be meeting in person next week on November 19, 2024 in New York to discuss the economic outlook, capital and debt markets and much more.

Elections and Policy Updates

November 8, 2024

Roundtable Weekly

The Roundtable Congratulates President-Elect Trump and Looks Forward to Jointly Addressing Key Policy Priorities

Capital and Credit Energy amp Climate GSE Reform Statement Jeffrey DeBoer Tax Policy

The 2024 election cycle concluded this week, with Donald J. Trump elected as President of the United States. The Roundtable congratulated the President-elect and the newly elected members of Congress. As the nation transitions to new leadership, The Roundtable is looking forward to collaborating with the new administration and Congress on policies critical to the economy, jobs, housing, and the health of real estate markets. Election Results At the time the election was called, President-elect Trump had received 295 electoral votes compared to Vice President Harris’ 226. Trump also took the lead in the popular vote, with 72,773,748 votes compared to Harris’ 68,123,125. (The New York Times, Nov. 7) On the Congressional front, the Republican party took control of the Senate with 53 seats. Neither party has reached the necessary 218 seats to secure a majority in the House, but Republicans are in the lead with 211 seats. (AP News, Nov. 7) Focused Hard Work Ahead Regarding Tax Legislation, Deregulation, and Housing Policy Shifts Donald Trump's victory in the presidential election, Republicans' victory in the Senate, and the likely Republican House majority dramatically reshuffle the dynamics for policy debates on key issues related to real estate. The Roundtable’s initial thoughts on how the election results impact our priorities, strategy and outlook include: Tax Policy Extensions and New Proposals: The incoming administration is expected to extend 2017 tax cuts, restore bonus depreciation, and support Opportunity Zone incentives. New pro-growth tax measures could also gain traction. Deregulation in Energy and Financial Services: Deregulatory shifts may impact climate and financial services regulations, prioritizing oil and gas development, easing bank regulatory and SEC, HUD, and FHFA oversight. Federal rollbacks could increase regulatory challenges across states as they implement varying climate standards. Ensuring grid reliability could become an even more prominent issue in the energy policy arena. Focus on Credit Markets and Housing: Anticipated policy objectives include reducing mortgage rates, revisiting Fannie Mae and Freddie Mac conservatorship, and reducing housing costs by cutting regulatory barriers. Potential Treasury appointments reflect a push toward expanded credit access and reduced regulatory burden. Roundtable Statement Earlier this week, Roundtable President and CEO Jeffrey D. DeBoer issued a statement congratulating President-elect Trump and pledging to work with the new administration and Congress on pressing commercial real estate issues. “We look forward to working with the President-elect and his team to advance policies that will expand the nation’s economy, boost job creation, increase the supply and affordability of housing, and address the many important national policy issues related to constructing, financing and maintaining modern real estate, work, living, and recreational buildings. Strong real estate markets provide millions of American jobs, support strong local budgets, and help millions of people plan for retirement through their pension and retirement savings investments in real estate. The strength of real estate and the benefits the industry provides to all Americans, depends on fair, consistent, and forward-looking policies at all levels of government. Real estate public policies are nonpartisan. The Real Estate Roundtable supports policies based on objective economic principles that are responsive to changing economic cycles and sensitive to societal demands. Tax and financial regulatory reform, housing investment, immigration issues, energy policy, and physical and cyber security each present opportunities to advance the economy and stability of U.S. real estate markets. We are excited to offer our support, expertise and assistance to President-elect Trump and the new Congress. We are honored to contribute meaningfully to the strength and prosperity of our nation,” said DeBoer.

CRE and the Economy

November 8, 2024

Roundtable Weekly

Second Consecutive Fed Rate Cut Offers Continued Relief to CRE

Economic Growth amp CRE Federal Reserve Quarterly Sentiment Index

On Thursday, the Federal Reserve reduced the federal funds rate by 0.25 percentage points, setting the new target range at 4.5% to 4.75%. This marks the second consecutive rate cut, following a 0.5 percentage point reduction in September, as the Fed responds to moderating inflation and evolving economic conditions. (FOMC Statement, Nov. 7) Fed’s Decision Policy Adjustment for Economic Stability: Fed Chair Jerome Powell noted that while inflation has eased to 2.5% as of August 2024, the labor market shows signs of softening: “This further recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we move toward a more neutral stance over time.” (Reuters, Nov. 7) Outlook for Future Cuts: The Federal Reserve's Summary of Economic Projections indicates the possibility of additional rate cuts in the coming months, with the federal funds rate projected to decrease to a range of 3.25% to 3.5% by the end of 2025. (Barron’s, Oct. 9) Impacts on CRE The Fed’s rate cut arrives at a time when real estate capital markets are under considerable pressure. Industry leaders expect this move will enhance credit capacity and capital formation, support refinancing efforts, and stabilize property values. Credit Availability & Market Sentiment: The positive impact of a continued downward trend in the federal funds rate on CRE industry sentiment is reflected in the Roundtable’s Q4 Sentiment Index. The Q4 results showed a 9-point jump in the overall score of the Index, marking the highest score in three years, since Q4 2021. (Q4 Sentiment Index Survey) Implications for Property Refinancing: Decreasing financing costs could reignite projects that have been delayed due to high interest rates.The rate cut should facilitate refinancing efforts, particularly in sectors like office and multifamily, where challenges from post-pandemic occupancy shifts continue to impact valuations and cash flow. Looking Ahead Chair Powell emphasized that future rate adjustments will be assessed on a meeting-by-meeting basis, allowing the Federal Reserve to respond flexibly to evolving economic conditions. Powell’s remarks suggest a cautious but adaptable stance, which CRE leaders can look to as they assess financing and investment strategies in a shifting economic landscape. (Wall Street Journal, Nov. 7) The Fed’s final 2024 meeting is scheduled for December 17-18. RER will continue monitoring rate adjustments, advocating for policies that support CRE stability and growth as the rate environment evolves. At FSU’s Real Estate TRENDS conference this week, Roundtable President & CEO Jeffrey DeBoer commented, “The Fed’s recent action to lower interest rates is a promising development for the commercial real estate industry. Reduced borrowing costs may help alleviate current pressures on project financing, foster investment, and ultimately support asset valuations as we enter a more balanced credit environment.” DeBoer was a featured speaker at the FSU Real Estate Center’s 30th Real Estate TRENDS conference this week, where he shared economic and political insights on the recent elections, on the Fed’s rate cuts, ongoing economic trends in CRE, and the industry’s upcoming political and regulatory landscape.

News, Q4 Sentiment Index

November 8, 2024

Roundtable Weekly

Sentiment Index Reaches Three Year High, Signaling Industry Optimism for Gradual Recovery

Quarterly Sentiment Index

The Real Estate Roundtable’s Q4 2024 Sentiment Index reached an overall score of 73, up 9 points from the previous quarter and marking its highest score since Q4 2021. The three year high reflects industry leaders’ cautious optimism that commercial real estate markets are stabilizing, showing signs of recovery and becoming well positioned for activity in 2025. The Index, which measures commercial real estate executives’ confidence and expectations about the industry 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. Roundtable Perspective Roundtable President and CEO Jeffrey DeBoer said, “The notable increase in sentiment this quarter reflects a combination of factors, primarily the Federal Reserve's rate cuts and expected future monetary easing. This action coupled with positive shifts in office leasing demand and a broader return-to-office trend are leading to greater price discovery and transaction volume. Housing supply constraints, access to energy sources, high operating expenses continue to present major challenges.” Compared to one year ago, sentiment on current conditions is up by 37 points, perception of future conditions is up by 20 points, and overall conditions are up by 29 points. In comparison to last quarter, sentiment on current conditions is up by 10 points, perception of future conditions is up by 7 points, and overall conditions are up by 9 points. Roundtable Chair Kathleen McCarthy (Global Co-Head of Blackstone Real Estate, Blackstone) commented on the Q4 Sentiment Index results: “The improved sentiment reflects the continuing recovery in commercial real estate, which is supported by improving liquidity in the market. This recovery will play out over time, and it is critical that we continue to support policies that help drive economic growth in communities throughout the U.S.” Topline Findings All indices of The Roundtable’s Q4 Index are up, compared to the previous quarter and one year ago. The Q4 2024 Real Estate Roundtable Sentiment Index reached an overall score of 73, up 9 points from the previous quarter and marking the highest score since Q4 2021. The Current Index registered 69, rising 10 points from Q3 2024. Meanwhile, the Future Index hit 77, an increase of 7 points from the previous quarter and the highest level seen since 2011. Leaders in the industry are cautiously optimistic that the commercial real estate industry is showing signs of recovery and is well positioned for activity in 2025. Over three-quarters (77%) of Q4 survey participants said conditions are better now compared to this time last year, and 88% of respondents expect general market conditions to improve one year from now. Although there is some concern that multifamily assets will plateau in certain geographic areas, the market is optimistic about industrial development, Class A offices, shopping centers, and data centers. A significant 98% of Q4 survey participants expressed optimism that asset values will be higher (79%) or the same (19%) one year from now, indicating some semblance of expected stability. 71% of Q4 survey participants believe asset values are higher (38%) or about the same (33%) today compared to a year ago. 61% and 66% of respondents believe the availability of equity and debt capital, respectively, has improved compared to one year ago. There is even more optimism for the future, with 80% and 79% of participants believing the availability of equity and debt capital, respectively, will be better one year from now. While commentary indicates that the capital markets are starting to open, the cost of capital remains elevated from previous levels. Data for the Q4 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in October. See the full Q4 report.

News Release, Roundtable Statement

November 6, 2024

Press Release

Roundtable Statement on 2024 Elections

Statement Jeffrey DeBoer

Real Estate Roundtable Congratulates President-Elect Trump and Incoming Congress Looks Forward to Jointly Addressing Key Policy Initiatives Statement by Real Estate Roundtable President and CEO Jeffrey D. DeBoer (WASHINGTON, D.C.) — Real Estate Roundtable President and CEO Jeffrey D. DeBoer today congratulated President-Elect Trump and pledged to work with the new Administration and Congress on compelling issues affecting the nation’s economy, job creation, housing, and the health of real estate markets. “We look forward to working with the President-elect and his team to advance policies that will expand the nation’s economy, boost job creation, increase the supply and affordability of housing, and address the many important national policy issues related to constructing, financing and maintaining modern real estate, work, living, and recreational buildings. Strong real estate markets provide millions of American jobs, support strong local budgets, and help millions of people plan for retirement through their pension and retirement savings investments in real estate. The strength of real estate and the benefits the industry provides to all Americans, depends on fair, consistent, and forward-looking policies at all levels of government. Real estate public policies are nonpartisan. The Real Estate Roundtable supports policies based on objective economic principles that are responsive to changing economic cycles and sensitive to societal demands. Tax and financial regulatory reform, housing investment, immigration issues, energy policy, and physical and cyber security each present opportunities to advance the economy and stability of U.S. real estate markets. We are excited to offer our support, expertise and assistance to President-Elect Trump and the new Congress. We are honored to contribute meaningfully to the strength and prosperity of our nation,” said DeBoer. 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. # # #

Tax Policy

November 1, 2024

Roundtable Weekly

CRE Industry Advocates for Tax Relief to Support Recovery and Stability

Capital Gains Opportunity Zones OZs PassThroughs Section 199A Tax Policy

As the U.S. commercial real estate sector enters a critical recovery period, industry leaders are urging policymakers to retain key tax policies from the Tax Cuts and Jobs Act of 2017 (TCJA), many of which expire at the end of 2025. (Reuters, Oct. 28) Tax Landscape The outcome of the November presidential election will play a critical role in shaping year-end tax bill discussions. If either candidate secures the presidency and achieves unified control of Congress, they may urge their congressional allies to delay any tax negotiations until 2025. The Roundtable is preparing for potential tax legislation in the lame-duck session, though action may be delayed until next year’s debate when major provisions in the TCJA expire. (Roundtable Weekly, Oct. 25) In early October, RER submitted comments to Capitol Hill on the pending expiration of the TCJA and ways in which tax policy can support long-term investment, economic stability, and the creation of affordable housing. (Roundtable Weekly, Oct. 4) Industry Advocacy Speaking to Reuters, Real Estate Roundtable President and CEO Jeffrey DeBoer noted the difficult economic backdrop for real estate as the tax debate has gathered steam, "Over the last 18 months ... operating costs have ... risen dramatically at the same time the availability of capital and credit have diminished…. All of that creates stress and challenges in the CRE marketplace.” (Reuters, Oct. 28) With the tax reform debate heating up in Washington, maintaining sound tax rules that both reflect the economics of real estate transactions and encourage capital formation is a priority for the CRE industry. “Depreciation deductions and interest expense deductions. They’re not tax breaks. They’re the cost of doing business,” said Ryan McCormick (SVP & Counsel, RER) while discussing housing policy in Politico’s Morning Tax. (Politico, Oct. 28) RER Member Hessam Nadji (President & CEO, Marcus & Millichap) appeared on CNBC International Squawk Box this week and spoke on the upcoming elections, international investor re-engagement with U.S. CRE, zoning and private-public partnerships, and the impact of government policies, particularly regarding housing. RER Tax Priorities Roundtable tax priorities heading into 2025 include: Capital formation and capital gains: Preserving key elements of the tax code (e.g., capital gains preference, like-kind exchanges, step-up in basis at death) that encourage productive real estate investment, risk-taking, and growth. Strong partnership, pass-through, and entity choice rules: Extending tax provisions like section 199A that allow pass-through businesses to compete on a level playing field with public corporations. Affordable housing and community development incentives: Advocating for tax incentives tied to affordable housing, energy efficiency, Opportunity Zones, and commercial-to-residential conversions. Removing barriers to job-creating foreign investment: The tax system should avoid discriminatory policies that discourage job-creating foreign investment in US real estate and infrastructure. Tax Bill Negotiators to Watch Sen. Mike Crapo (R-ID): If Republicans take control of the Senate, Crapo is poised to lead the Senate Finance Committee in 2025. Given his influence over Senate Republicans, many of whom followed his opposition to this year's bipartisan tax bill, Crapo's stance on a year-end tax deal will be pivotal. Sen. Ron Wyden (D-OR): Wyden has shown a willingness to strike deals, as evidenced by his work with Rep. Smith on this year's agreement. He might be eager to pass as much of that legislation as possible during the lame-duck session. Rep. Jason Smith (R-MO): As chair of the House Ways and Means Committee, Smith's perspective will be highly influential in the lame-duck session, with Republicans still holding the House majority. The Roundtable is committed to working with lawmakers to ensure the U.S. maintains a competitive tax code that encourages capital formation, rewards entrepreneurial risk-taking, and supports critical policy objectives, including accessible and affordable housing and safe and healthy communities.

Office Markets

November 1, 2024

Roundtable Weekly

Office Markets Stabilize as More Companies Mandate In-Person Work

Office Markets Return to Office

After years of acquiescing to remote and hybrid work arrangements, major companies are reversing course, a positive sign for demand for office space and the continued recovery of America’s downtowns and city centers. Office Leasing Gains Traction Office leasing demand has seen a noticeable uptick, partially thanks to broader factors such as greater economic stability and a stronger push from companies for employees to return to the office. (The Business Journal, Oct. 14) Amazon and HSBC lead the charge: Amazon has ordered corporate staff back five days a week and is searching for more office space in Manhattan. HSBC Bank increased its U.S. headquarters space by 35,000 square feet after attendance rose to 80%. (WSJ, Oct. 29) Dell Technologies and 3M are also tightening in-office requirements, with Dell mandating full-time office work for its global sales teams, and 3M seeking higher attendance from senior employees. (Bloomberg, Oct. 21) More firms requiring in-office presence: The proportion of firms requiring employees in-office five days a week rose to 33% in Q3, up from 31% in Q2, according to Flex Index, which tracks workplace strategies. (WSJ, Oct. 29) Tech sector demand surges: Over the past twelve months, demand for office space has surged in tech-centric cities such as Seattle, Boston, and San Francisco, as tech employers revisit their office needs and reconsider remote work policies. (VTO News Release, Oct. 30) Vacancy Rates Show Signs of Stabilizing Vacancy rates show signs of stabilization: The vacancy rate is stabilizing at a near-record level of 13.8%, up from 9.4% in the fourth quarter of 2019. Since the second quarter of 2020, U.S. office tenants have vacated close to 209 million square feet of space, the highest amount ever for a four-and-half-year period, according to data firm CoStar Group. (WSJ, Oct. 29) Although vacancy rates remain a concern, leasing activity is up in major cities across the US, such as New York City, Washington, D.C., Boston, and San Francisco. (Roundtable Weekly, Oct. 18) The 46th edition of PwC and the Urban Land Institute's Emerging Trends in Real Estate report released this week, depicts the commercial real estate industry as gradually returning to normalcy after the significant disruptions caused by the pandemic. "Investors' focus is shifting back to the typical cyclical changes that occur throughout business cycles," the report noted. (GlobeSt. Nov. 1 | Report, Oct. 29) The Roundtable's Q4 2024 Sentiment Survey which measures senior executives’ confidence and expectations about the commercial real estate market environment will be available next week.

Elections and Policy Updates

October 25, 2024

Roundtable Weekly

Zoom Town Hall Recap: Election Insights and CRE Policy Priorities

Capital and Credit Energy amp Climate Tax Policy

Last week, The Roundtable hosted a Zoom Town Hall to discuss the upcoming election, along with policy priorities for the lame-duck session and the upcoming year. (Watch Town Hall) Town Hall The Roundtable’s Chair Kathleen McCarthy (Global Co-Head of Blackstone Real Estate, Blackstone) kicked off the meeting thanking and recognizing Roundtable Immediate Past Chair John Fish (Chairman and CEO, Suffolk) and board members for their stewardship and support. The Town Hall featured Jonathan Martin, Politics Bureau Chief and Senior Political Columnist for POLITICO. He shared his expert insights on the political landscape, highlighting the most significant races and trends leading up to the election. Election Forecast Senate flip likely: Martin emphasized the high likelihood of a Senate flip. Split government impact: If Vice President Kamala Harris wins the presidential election, the Senate and House could be controlled by opposing parties. Conversely, a Trump victory might ensure Republican control of both chambers. The policy angle: Regardless of the election outcome, key commercial real estate issues will remain central to legislative discussions. "We are preparing for potential action during the lame-duck session, but definitely positioning ourselves for what may come next year," said Roundtable President & CEO Jeffrey DeBoer. "No matter the election outcome, core issues for the real estate industry—tax policy, energy, housing affordability and liquidity—will be front and center." Roundtable Policy Priorities: What’s Next? Tax policy: The Roundtable is preparing for potential tax legislation in the lame-duck session, although it likely will be delayed until next year’s debate regarding the expiration of the 2017 tax cuts. Priorities include: Capital formation and capital gains: Preserving key elements of the tax code (e.g., capital gains preference, like-kind exchanges) that encourage productive real estate investment, risk-taking, and growth. Strong partnership, pass-through, and entity choice rules. Extending tax provisions like section 199A that allow pass-through businesses to compete on a level playing field with public corporations. Foreign investment and competitiveness: Ensuring the U.S. remains competitive by maintaining tax rules and regulations that attract foreign capital to infrastructure and real estate. Affordable housing incentives: RER advocacy will continue for tax incentives tied to affordable housing, energy efficiency, Opportunity Zones, and commercial-to-residential conversions. Energy & climate: Expect policy movement regardless of election outcomes. Key focus areas include: Mandates on buildings: state and local governments are increasingly adopting Building Performance Standard (BPS) laws that impose mandates on buildings to limit emissions and energy use, setting new requirements for energy and climate performance in real estate. RER recently published a BPS policy guidebook reflecting our ongoing commitment to addressing climate change while ensuring the economic sustainability of real estate investments and the communities they support. (Roundtable Weekly, Oct. 11) Disclosure requirements: Future climate risk disclosures for public companies remain on the radar, along with possible passage of the Energy Permitting Reform Act of 2024 (S. 4753), legislation aimed at streamlining and modernizing the permitting process for energy infrastructure projects. Capital & credit: RER continues to monitor the looming wave of maturing commercial real estate loans, Basel III Endgame proposals, and SEC rules affecting capital formation. Insurance rate spike: The real estate industry is dealing with a historic spike in insurance rates, exacerbated by recent hurricanes. RER continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs. Basel III Endgame: With regulators at an apparent impasse on revisions to the original Basel III Endgame proposal, we do not expect any further action on the revised proposal before the elections. RER’s Real Estate Capital Policy Advisory Committee (RECPAC) will be meeting in person on November 19, 2024 in New York to discuss the outcome of the election on the political landscape, the economic outlook, capital and debt markets and much more.

Energy & Climate

October 25, 2024

Roundtable Weekly

Electricity Supply Issues Teed-Up for Lame-Duck

Energy and Climate Policy

A bipartisan measure to address the growing stress on the nation’s electricity grid could see a window for opportunity in Congress’s lame-duck session after the November 5 elections. The Energy Permitting Reform Act of 2024 (S. 4753), co-sponsored by Senate Energy Committee Chairman Joe Manchin (I-WV) and Ranking Member John Barrasso (R-WY), would streamline approvals for major energy development projects amid increasing demands for power. Why it Matters Permitting reform has been a bipartisan priority reflected by more than two dozen bills introduced by both parties in the 118th Congress. S. 4753 aims to streamline reviews and permitting processing for energy infrastructure. Expediting approvals for pending and new projects are long-standing goals for renewable energy companies, as well as the oil and gas sector. With Senator Manchin retiring at the end of his current term, the bill could be a capstone to his legislative legacy. He has urged Senate Majority Leader Chuck Schumer (D-NY) to bring it to the floor before year-end. (E&E News, Sep. 23) Leader Schumer (D-NY) told reporters in July, “I’d like to get permitting reform done.” (The Hill, July, 26) The bipartisan bill has its controversies. While climate advocates argue that the bill’s fossil fuel provisions could lock in emissions for decades, others point to the need for large-scale clean energy supplies and grid reliability. Third-party analyses indicate that even with these fossil fuel provisions, the bill would ultimately lead to net emissions reductions. The Roundtable believes permitting reform is essential for advancing our economy’s energy transition. The current fragmented system of environmental reviews and approvals hinders progress on launching new projects and delivering cleaner, reliable electricity to our nation’s buildings. The High Stakes for U.S. Grid America’s power grid is under increasing strain as the digital economy accelerates. Data centers, AI, and electric vehicles are all demanding more power. Current infrastructure is not equipped to handle it. As The Roundtable’s recent Policy Guide on building performance standards states, the transition to a digital economy raises serious concerns about electricity availability. “AI could soon need as much electricity as an entire country” as “[v]ast swaths of the US are at risk of running short of power.” (Roundtable Weekly, Oct. 11) A Wood Mackenzie report predicts that parts of the U.S. could see a 15% jump in power demand by 2030—posing major challenges for an already-stressed grid. (Politico, Oct. 18). According to the latest CBRE North America Data Center Trends study, the rapid growth of AI, coupled with soaring demand for cloud services, has driven a 70% surge in data center construction across the US over the past six months—along with an unrelenting need for the electricity to power them. (Cybernews, Aug. 20) Without permitting reform, meeting this growing demand will become more difficult and expensive. (Forbes, Sep. 2) Congress returns to Washington in a matter of weeks and has the opportunity to pass the Energy Permitting Reform Act and address these grid challenges.

Town Hall

October 18, 2024

Roundtable Weekly

Zoom Town Hall: 2024 Election Insights With POLITICO's Jonathan Martin

With the 2024 elections rapidly approaching, the outcome could significantly shape the future of the economy and the commercial real estate (CRE) industry. Later this afternoon at 3:00 PM ET, The Roundtable will host an exclusive Zoom Town Hall session featuring Jonathan Martin, Politics Bureau Chief and Senior Political Columnist for POLITICO. He will share his expert insights on the political landscape, highlighting the most significant races and trends leading up to the election. In addition to Martin’s analysis, The Roundtable will give a brief update on its policy priorities on tax policy, capital and credit issues, energy and sustainability initiatives, housing affordability, and more. This Zoom session, provided to RER members only, will provide a unique opportunity to gain political insight from one of the country’s top analysts, alongside critical updates on the Roundtable advocacy efforts. RER members will receive a link to register for the event. If you are unable to join the session, a recording will be available next week.

Office Markets

October 18, 2024

Roundtable Weekly

Back to the Office: Vacancies Ease, Optimism Grows

CRE Conversions Office Markets Remote Work Return to Office SPAC Sustainability Policy Advisory Committee

Office vacancy rates are beginning to show signs of easing as companies ramp up efforts to bring employees back to the office, fueling optimism across commercial real estate. The office sector also saw key highlights in property conversions and sustainability efforts this week. Driving Factors Office leasing demand has seen a noticeable uptick, partially thanks to broader factors such as greater economic stability and a stronger push from companies for employees to return to the office. (The Business Journal, Oct. 14) A mix of lower office vacancy rates and high-profile return-to-office mandates, like Amazon’s, could help stabilize a sector still grappling with the remote work shift. (Roundtable Weekly, Sept. 20) Market Sentiment Although vacancy rates remain a concern, leasing activity is up in major cities across the US, such as New York City, Washington, D.C., Boston, and San Francisco. (Boston RE Times, Oct. 4; GlobeSt., Oct. 14; SF Examiner, Oct. 15 | Bisnow, Oct. 16) As reported in our Q3 2024 Sentiment Index, which measures commercial real estate executives’ confidence and expectations about the industry environment, there is growing confidence in the future of the commercial real estate market despite ongoing challenges. (Roundtable Weekly, Sept. 6) The Roundtable’s Q4 Sentiment Index survey is currently underway and expected to be released in early November. Additionally, JLL’s latest Global Future of Work survey found that organizations are “planning to increase and rebalance organizational headcount in the coming years and many are ready to invest into their real estate, expecting to increase budget and footprint.” Over 60% of survey respondents anticipate increased workplace utilization in the next five years, prioritizing more efficient and responsible use of real estate assets. (JLL Survey 2024) Property Conversions Office-to-residential conversions are gaining traction as a solution to address high vacancy rates and housing shortages. In 2024, the number of office spaces being converted into apartments increased to 55,000, a staggering 357% jump from 2021, according to data from Yardi Matrix. (New York Post, Oct. 14) Property conversions can be a cost-effective means to re-purpose assets, provide new, affordable housing, revive struggling city centers and small businesses, restore local revenue sources, and reduce energy consumption. (Roundtable Weekly, Oct. 4) Sustainable Innovation Investments in sustainability efforts also reflect growing confidence in the industry rebound and stability heading into 2025. Yesterday, the White House recognized BXP, Clark Pacific, Turner Construction Company, and Weldon Development Group as innovative real estate firms “stepping up to the challenge” of integrating cleaner, low-carbon construction materials in their projects – to help combat climate change and boost U.S. economic competitiveness. (White House fact sheet, Oct. 16) “The Federal Buy Clean Initiative, and BXP’s aligned construction specifications, send a strong demand signal to concrete producers that helps drive market transformation,” said Ben Myers, Co-Vice Chair of the Roundtable’s Sustainability Policy Advisory Committee (Senior Vice President, BXP). “As an active developer, we are interested in cost-effective methods of supply chain engagement to create more sustainable outcomes.” The Roundtable continues to advocate for energy-efficient solutions, supporting property conversions and innovative building methods that align with the evolving needs of modern offices. These efforts are essential to creating sustainable workspaces and revitalizing cities.

Affordable Housing

October 18, 2024

Roundtable Weekly

Solutions to Tackle the Affordable Housing Crisis

Affordable Housing

While recent rate cuts from the Federal Reserve are providing relief for both CRE and housing markets, the affordability crisis remains at the forefront of policy debates in Washington. Roundtable Housing Priorities Sustained recovery and resolution of the affordability crisis will require continued policy reform, increased housing supply, and greater collaboration between public and private sectors. (Roundtable Weekly, Sept. 27) The Roundtable continues to advocate for housing policies that: Streamline Permitting and Zoning: Simplify permitting and zoning processes to reduce delays in housing projects. Promote Modular Construction: Encourage modular construction to accelerate the production of new housing supply. Strengthen Public-Private Partnerships: Foster collaboration between public and private sectors to support innovative construction methods. Expand Housing Incentives: Advocate for expanding the low-income housing tax credit (LIHTC), improving the real estate-related clean energy tax provisions in the Inflation Reduction Act, and introducing new incentives for the conversion of obsolete commercial buildings into affordable housing. (Roundtable Weekly, Oct. 4) Housing policy has become a central issue in the 2024 presidential campaigns as well. (Associated Press, Aug. 27) Vice President Kamala Harris has proposed $25,000 in down payment assistance for first-time buyers and expanding federal funds to streamline local zoning laws and build 3 million homes. Former President Donald Trump countered with plans to reduce housing demand by restricting illegal immigration and opening federal land for housing development while opposing policies that promote urban densification, arguing they harm suburban property values. Alternative Housing Solutions Property Conversions: The conversion of underutilized and often vacant buildings offers a tremendous opportunity to improve the built environment and uplift a surrounding locality. Modular Housing: A recent survey from The Amherst Group shows that Americans are warming up to modular housing as an alternative solution to the ongoing housing supply shortage. Nearly 90% of respondents find modular homes appealing, and four out of five (81%) would consider living in one themselves. With 71% of respondents interested in seeing more alternative housing types in their neighborhoods, modular homes could play a key role in expanding housing supply. (News Release, Oct. 8) Roundtable member and Amherst Chairman, CEO and CIO Sean Dobson emphasized the potential of modular housing: "While the offsite construction process has been around for decades, it has yet to be adopted as a mainstream way to generate high-quality housing supply at scale. As a result, homebuilding remains overdue for disruption and innovation. Amid ongoing supply constraints in the U.S., we think modular construction is an important part of the solution.” (News Release, Oct. 8) The Roundtable encourages policymakers to support federal incentives for affordable housing and zoning reforms to streamline housing development. These measures can help ensure that high-quality, affordable options, such as modular homes, are available to meet rising demand.

Energy & Climate, News

October 11, 2024

Roundtable Weekly

Roundtable Offers Policy Guide to US-DOE to Shape Effective Building Performance Standards

Building Performance Standards BPS

The Real Estate Roundtable urged the U.S. Department of Energy (DOE) on Wednesday to follow a newly released policy guide as the agency awards grants for states and localities to develop Building Performance Standards (BPS). The guidebook developed by the Roundtable’s Sustainability Policy Advisory Committee (SPAC) reflects RER’s ongoing commitment to addressing climate change while ensuring the economic sustainability of real estate investments and the communities they support. (Letter, Oct. 8) Building Performance Standards (BPS) State and local governments are increasingly adopting BPS laws that impose energy and climate performance mandates on real estate. These laws typically set annual limits on how much energy buildings can use and how much greenhouse gases (GHGs) they can emit, with an ultimate goal of reaching net zero emissions around 2050. International groups also apply pressure for energy and emissions performance limits on buildings to drive global investments in real estate. (Roundtable Weekly, July 19) The Department of Energy (DOE) in August announced $240 million in federal grants to help states and localities implement BPS laws. (Roundtable Weekly, Sept 6). The inconsistent nationwide BPS “patchwork” poses significant challenges for property owners and policymakers alike. These laws must be backed by studies and adequate resources to ensure they achieve significant emission reductions—while continuing to further parallel efforts to support the recovery of business districts and increase the supply of affordable housing. “Our members face a variety of local and state legislative initiatives around building performance standards which lack consistent, implementable, fact-based frameworks. The federal government has the research and analysis heft to create and maintain a voluntary system of fair, reasonable, and effective BPS guidelines to help inform these efforts ” said Anthony E. Malkin, Chair of the Roundtable’s SPAC (Chairman and CEO, Empire State Realty Trust). “Our peer-reviewed, 20-point policy guide intends to help start and guide a discussion of the subject,” he continued. Source: US-DOE, IMT (map as of August 2024) BPS Policy Guide: 20 Key Points RER’s policy guide should shape how DOE disburses tens of millions of taxpayer-funded federal grants to states and cities across the country. It outlines 20 key points that should be prioritized when developing and implementing BPS laws. These include: Develop science-based and data-driven standards. Policymakers should base building performance targets on robust cost-benefit analyses, housing affordability studies, grid resilience assessments, and actual data on energy usage. Align standards across jurisdictions. Property owners face confusing and inconsistent mandates. Policymakers should harmonize rules to ease multi-jurisdictional compliance and use landmark federal programs as a uniform means for compliance. Provide clear compliance resources and fair remedies. Policymakers should ensure that BPS laws come with transparent, accessible compliance pathways that building owners can follow. This includes offering practical resources, technical assistance, and incentive programs to help owners plan for “life-cycle” capital investments and retrofits. Enforcement mechanisms should offer building owners reasonable opportunities to correct non-compliance before imposing fines. RER welcomes engagement on the 20-point policy guide to help craft BPS laws that are fair and effective.

Insurance, News

October 11, 2024

Roundtable Weekly

Hurricanes Helene and Milton: The Case for NFIP Reform

Insurance National Flood Insurance Program NFIP

Commercial real estate owners face soaring insurance costs as back-to-back hurricanes place financial strain on insurers and the National Flood Insurance Program (NFIP). The implications for property owners, especially in coastal areas, are severe, with insurance premiums skyrocketing and coverage harder to secure. Storm Impact and Market Challenges Milton is the second major storm to strike Florida in less than two weeks. The hurricane could cause over $50 billion in damages, with worst-case losses approaching $175 billion, according to Wall Street analysts. (CNBC, Oct. 8) Potential insured losses from Milton are expected to be substantial and could amount to $60 billion, according to an S&P Global Inc. report. (Bloomberg, Oct. 9) Without a robust, long-term NFIP, property owners face escalating risks from future storms, leaving both homeowners and commercial real estate properties vulnerable. (Roundtable Weekly, Oct. 4) With more severe storms expected, CRE property owners are struggling to cover rising costs—sometimes opting to forego upgrades or sell assets to manage financial pressures. (NYT, Oct. 8) According to Marsh McLennan, premiums on commercial properties have increased by an average of 11% nationwide, and even more in storm-prone areas. The report also states that owners with "significant exposures and sustained losses" can expect rates to climb by 50% to 100%. “High-magnitude catastrophe losses, the enduring challenges of the pandemic on the supply chain, fluctuations in the employment market, and rising inflation have banded together to create a perfect storm that threatens the sustainability of every property portfolio.” (Marsh McLennan report) Federal Challenges and Response Lawmakers remain divided on addressing FEMA's potential disaster fund shortfall, which could jeopardize rebuilding infrastructure like roads and water facilities. Speaker Mike Johnson has indicated no plans for Congress to reconvene and approve more disaster funding. (PoliticoPro, Oct. 9) The Biden administration is confident that FEMA’s disaster relief fund has sufficient resources to support recovery efforts for both Helene and Milton. However, they have raised concerns about the fund’s solvency through the remainder of the hurricane season ending in November. (PoliticoPro, Oct. 10) Milton could also spark debate again in Washington, D.C., about the need for a national catastrophe insurance program. (PoliticoPro, Oct. 9) NFIP Under Pressure With nearly two million NFIP policies in areas hit by Helene and Milton, the program's $15 billion in coverage may fall short, prompting debates over whether to raise the NFIP's borrowing authority, forgive debt, or appropriate funds to cover policyholders' claims. (Politico, Oct. 9) House Financial Services Chair Patrick McHenry (R-NC) and the committee’s lead Democrat, Rep. Maxine Waters (D-CA), have previously collaborated on long-term NFIP reform. However, they now hold differing opinions on how to free up funds for claims if needed. Rep. McHenry leans toward raising the NFIP’s borrowing cap or appropriating additional funds, while Rep. Waters has consistently supported debt forgiveness. Currently, Congress has set a $30.4 billion limit on the NFIP’s borrowing capacity from the Treasury. The Roundtable has been a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms. These measures are essential for residential markets, overall natural catastrophe insurance market capacity, and the broader economy. The Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs. RER will continue advocating for targeted policy solutions that can help alleviate increased insurance costs for housing providers nationwide.

Building Performance Standards - BPS

October 8, 2024

Policy Comment Letter

Roundtable Letter to US-DOE on Fair and Reasonable Building Performance Standards (BPS)

Building Performance Standards BPS, Energy amp Climate,

Building Performance Standards - BPS, Energy & Climate

October 8, 2024

Fact Sheet

Lessons Learned to Shape Fair and Reasonable Building Performance Standards (BPS) 20-Point Policy Guide Oct. 2024

Building Performance Standards BPS, Energy amp Climate,

Tax Policy

October 4, 2024

Policy Comment Letter

The Roundtable Shares 2025 Tax Legislative Agenda with Lawmakers

Capital Gains, FIRPTA, LikeKind Exchanges LKEs, Low Income Housing Tax Credit LIHTC, Opportunity Zones OZs, Partnerships amp PassThrough Taxation, Tax Policy, TCJA,

Tax Policy

October 4, 2024

Roundtable Weekly

The Roundtable Shares 2025 Tax Legislative Agenda with Lawmakers

Capital Gains FIRPTA LikeKind Exchanges LKEs Low Income Housing Tax Credit LIHTC Opportunity Zones OZs Partnerships amp PassThrough Taxation Property Conversions TCJA

Responding to a request for input from the chairs of the House Ways and Means Committee and Ways and Means Tax Policy Subcommittee, The Real Estate Roundtable submitted comments on the pending expiration of the Tax Cuts and Jobs Act of 2017 and ways in which tax policy can support long-term investment, economic stability, and the creation of affordable housing. (Letter, Oct. 2) Roundtable Recommendations The letter from Roundtable President and CEO Jeffrey DeBoer urges lawmakers to ensure that any major tax legislation in 2025 retain or include: The reduced tax rate on long-term capital gains. The capital gains rate is critical for driving long-term real estate investment and fostering job creation. Raising capital gains rates, taxing unrealized gains, or double-taxing gains at death would deter entrepreneurship, increase costs, and reduce economic mobility. Tax fairness for partnerships and pass-through entities. Half of the nation’s tax partnerships are real estate-related, making these provisions vital to the industry's success. Section 199A, which provides a 20% deduction on pass-through business income (including REIT dividend income), allows privately held businesses to compete on a level playing field with large corporations. Like-kind exchanges. Section 1031 allows for the deferral of capital gains through real estate exchanges and helps gets languishing properties into the hands of new owners who will invest in, and improve, them. Retaining section 1031 is vital to promoting reinvestment in communities, creating opportunities for minority and small business owners, and improving struggling properties. Tax rules that encourage, rather than deter, foreign investment in U.S. real estate. Targeted changes to the outdated and discriminatory Foreign Investment in Real Property Tax Act (FIRPTA) could unlock capital for large-scale real estate and infrastructure projects that create jobs and spur economic development. Incentives for affordable housing, energy efficiency, and community revitalization. The Roundtable supports expanding the low-income housing tax credit (LIHTC), improving the real estate-related clean energy tax provisions in the Inflation Reduction Act, and introducing new incentives for the conversion of obsolete commercial buildings into affordable housing. The letter also calls for a long-term extension of Opportunity Zone (OZ) tax incentives and preserving carried interest tax rules that recognize and reward sweat equity with capital gains treatment. The Roundtable is committed to working with lawmakers to ensure the U.S. maintains a competitive tax code that encourages capital formation, rewards entrepreneurial risk-taking, and supports critical policy objectives, including accessible and affordable housing and safe and healthy communities.

Flood Insurance

October 4, 2024

Roundtable Weekly

Hurricane Helene Highlights Need for National Flood Insurance Program Reform

Flood Insurance National Flood Insurance Program NFIP

Hurricane Helene wreaked havoc along the east coast, causing widespread flooding and over $20 billion in damages to homes, businesses, and infrastructure. The storm underscored the critical need to reform the National Flood Insurance Program (NFIP), which is set to expire in December. Hurricane Helene Damages The frequency of severe weather events continues to rise, yet many communities are underinsured or entirely without flood coverage. Without a robust, long-term NFIP, property owners face escalating risks from future storms, leaving both homeowners and commercial real estate properties vulnerable. The NFIP is the primary source of flood coverage in the U.S., relied upon by 4.7 million properties in high-risk areas. (Reuters, Oct.3) Moody’s Analytics estimates the storm caused $15 billion to $26 billion in property damage, as well as an additional $5 billion to $8 billion in lost economic output. (Washington Post, Sept. 29) Moody's RMS Event Response is preparing a more precise estimate of the insured losses caused by Hurricane Helene that will be released in the coming weeks. (Fox Business, Sept. 30) Roundtable Advocacy The Roundtable, along with nine industry organizations, wrote to Congress last week urging them to extend the National Flood Insurance Program (NFIP) before its Sept. 30 expiration. (Letter) As part of the CR package passed last week, the NFIP was extended until Dec. 20. Congress has enacted over 31 short-term extensions of the NFIP. The Roundtable has been a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms. A long-term reform and reauthorization of the NFIP is essential for residential markets, overall natural catastrophe insurance market capacity, and the broader economy. The Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs. The Roundtable will continue advocating for targeted policy solutions that can help alleviate increased insurance costs for housing providers nationwide.

Property Conversions

October 4, 2024

Roundtable Weekly

The Push for Office-to-Residential Conversions

Affordable Housing Cities amp Infrastructure Property Conversions

Cities across the U.S. are increasingly embracing office-to-residential conversions as part of the solution to address persistent housing shortages and high office vacancy rates driven by remote work policies. Many local governments in key metro areas have accelerated incentive programs and made major progress, bringing thousands of new homes into the development pipeline with more to come. Challenges and Incentives Property conversions can be a cost-effective means to re-purpose certain CRE assets to provide new, affordable housing supply, revive struggling city centers and small businesses, restore local revenue sources, and reduce energy consumption. While costs can vary depending on the building and other project factors, at least one recent property conversion is estimated to cost 40% less than a wholly new apartment building. (Morning Brew, Sept. 24) Office-to-residential conversions present a path to revitalizing downtown areas, but regulatory and financial hurdles must be addressed to unlock their full potential. (ULI, Sept. 27) Various cities are actively pursuing policies to incentivize these conversions through zoning changes and tax incentives: New York City proposed a $400 million initiative to support the conversion of older office buildings into residential units. The "City of Yes for Housing Opportunity" plan aims to create 500,000 new homes over the next decade by legalizing zoning conversions for buildings constructed before 1990 in areas where residential use is allowed, and expands the types of housing commercial buildings can be converted into. Washington, D.C. has implemented the Housing in Downtown program, designed to catalyze new residential development through a 20-year tax abatement for commercial-to-residential conversions, with expectations to deliver 6.7 million square feet of residential use. (BisNow, Sept. 19) Minneapolis took steps last week to simplify its office-to-residential conversion process by passing an ordinance that streamlines the review process, reduces project timelines, and pauses certain affordability requirements for five years. (CBS, Sept. 24) San Francisco has seen limited success despite efforts to incentivize conversions. Only two projects totaling 165 units are underway, prompting Mayor London Breed and Supervisor Matt Dorsey to propose eliminating impact fees and affordable housing requirements for downtown conversions in key areas. (GlobeSt., Oct. 1) California faced a setback this week when Governor Gavin Newsom vetoed a bill aimed at expediting the conversion of vacant office buildings into residential or mixed-use spaces. The legislation would have mandated by-right approval for adaptive reuse projects, streamlining the review process by bypassing environmental reviews and local zoning approvals. (GlobeSt., Oct. 1) This week on the Walker Webcast, Dr. Peter Linneman (Leading Economist, Professor Emeritus, The Wharton School of Business) predicted there will be a push for back-to-office policies after the November elections, regardless who gains control of the White House. (Walker Webcast, Oct. 2) Climate Risks and Opportunities Office-to-residential conversions are recognized universally as having positive climate impacts because they reduce “embodied” emissions in concrete, glass, and other construction materials relative to new projects built from the ground up. (Arup, Dec. 2023; Urban Green, Dec. 2023; NAIOP (April 2023)). Expanding the use of clean energy tax credits, as proposed in the IRA, could further incentivize conversion projects, helping to reduce long-term operating costs and improve building resilience. With tax policy debates at the forefront in Washington, The Roundtable submitted recommendations to Congressional tax leaders this week (see Tax story above), urging enhancements to the Inflation Reduction Act’s clean energy tax provisions in any future legislation. (Letter, Oct. 2) The recommendations included expanding energy-efficient tax credits to cover low-emissions building equipment and allowing developers to transfer the 45L and 179D credits, which would help reduce housing costs and boost energy efficiency. The Roundtable has also encouraged federal agencies to make key improvements to their existing low-interest loan programs to better support property conversions that support high-density, transit-oriented housing. (Roundtable Weekly, April 19) A recent Morningstar report highlighted the growing importance of ESG considerations in real estate investment, with 67% of global asset owners acknowledging that ESG factors have become more material over the past five years. (CREFC, Oct. 1) The Roundtable will continue to advocate for support at the federal level, such as the bipartisan Revitalizing Downtowns and Main Streets Act (H.R.9002) introduced in July, to create market-based tax incentives for office-to-residential conversions. These projects offer a promising but complex solution to both the commercial real estate market’s transformation and the housing shortage. With proper support, they could reshape and rebuild cities across the country.

Policy Landscape

September 27, 2024

Roundtable Weekly

Congress Averts Shutdown – New Deadline Set for Dec. 20

National Flood Insurance Program NFIP

Congress passed a three-month continuing resolution on Wednesday, funding the government through Dec. 20 and avoiding a shutdown ahead of the Sept. 30 deadline. While this provides some temporary stability, lawmakers face additional fiscal challenges on the horizon—including the need for a long-term reauthorization of the National Flood Insurance Program (NFIP). (The Hill, Sept. 26) What’s Next The House passed the CR package 341-82, followed by the Senate approving it 78-18. The bill now heads to President Biden for his signature, ensuring government operations continue through late December. After passing the bill, Speaker Mike Johnson reiterated he won't allow an omnibus spending bill during the lame-duck session. (The Hill, Sept. 24) If Congress fails to pass final spending bills in December, funding negotiations will overlap with efforts to address two other looming fiscal deadlines: the debt limit, which is waived until early January, and the expiration of many 2017 tax cuts at the end of next year. (Politico, Sept. 25) National Flood Insurance Program (NFIP) Extended The Roundtable, along with nine industry organizations wrote to Congress this week urging them to act quickly to extend the National Flood Insurance Program (NFIP) before its Sept. 30 expiration. (Letter) As part of the CR package, the NFIP was extended until Dec. 20. Congress has enacted over 31 short-term extensions of the NFIP. The Roundtable has been a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms. A long-term reform and reauthorization of the NFIP is essential for residential markets, overall natural catastrophe insurance market capacity, and the broader economy. The Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs. The Roundtable will continue advocating for targeted policy solutions that can help alleviate increased insurance costs for housing providers nationwide. Both the House and Senate are in recess and won’t return to Washington until Nov. 12, after the election.

Energy & Climate

September 27, 2024

Roundtable Weekly

EPA Issues New Rules Impacting Building Air Conditioning Systems

American Innovation and Manufacturing Act AIM Act EPA HFCs

The U.S. Environmental Protection Agency (EPA) is accelerating regulatory actions that will affect how real estate owners and developers design, install, and manage air conditioning systems that use refrigerants to cool buildings. Hydrofluorocarbons (HFCs) Impact Climate Change Congress passed the American Innovation and Manufacturing (AIM) Act in 2020. The AIM Act requires a phasedown of certain greenhouse gases known as hydrofluorocarbons (HFCs). The Act also requires a transition to new technologies that use HFCs with lower emissions impacts. (EPA webpage). HFCs regulated by the AIM Act are beneficial to protect the ozone layer but contribute greatly to global warming and are much more potent than carbon emissions. (National Oceanic and Atmospheric Administration, US-EPA) Air conditioning and refrigeration systems in buildings depend on HFCs. An estimated 20% of the total electricity used in buildings’ worldwide electricity consumption comes from space cooling that uses high-emissions refrigerants. (International Energy Agency) EPA Rule on HFC Leak Detection and Repair EPA issued an AIM Act implementation rule on Monday focused on leak detection and repair of equipment that uses HFCs. Starting in 2026, building owners and other operators of heat pumps, chillers, and other air conditioning systems that contain at least 15 pounds of HFC-containing refrigerants are subject to these new requirements. (POLITICO, Sept.. 23) Large appliances that use at least 15,000 pounds of refrigerants must install automatic leak detection for new systems starting in 2026, and existing systems starting in 2027. (EPA fact sheet) The new rule also sets requirements for HFC disposal, and HFC recycling that must be used during installation and repair of new fire suppression systems. (EPA fact sheet) Proposed Rule on HFC Transition Separately, EPA has proposed rules that would phasedown the manufacturing of HFCs controlled by the AIM Act altogether, and set “technology transition” deadlines for when buildings must install new AC systems using refrigerants that are less harmful to the environment. The Roundtable submitted comments yesterday on the proposed “technology transition” rules. The comments expressed concern that EPA’s deadlines do not account for permitting and construction processes in complex buildings designed to accommodate AC and refrigeration systems years before equipment is actually installed. As RER’s letter explains, strict, immutable deadlines that ‘strand’ buildings from HFC regulatory compliance are not what Congress intended and may not be the best interpretation of the statute. RER also stated it seeks a partnership with EPA “to educate our industry leaders on the AIM Act’s requirements” and help regulators better understand how the HFC phasedown may impact new construction, existing building retrofits, and real estate ownership, operations, and financing. Yesterday, RER’s Sustainability Policy Advisory Committee (SPAC) held an educational session with members to start raising awareness about the new regulations (Slide deck). RER will continue to coordinate with the EPA as implementation of the HFC phase-down and transition unfolds.

Housing

September 27, 2024

Roundtable Weekly

Impact of Rate Cuts on CRE and Housing Markets

Affordable Housing Housing Low Income Housing Tax Credit LIHTC The Fed

The Federal Reserve’s recent decision to cut rates renewed optimism in the commercial real estate market, following a prolonged period of high interest rates and economic headwinds. This monetary easing is seen as critical to the CRE sector's path to recovery—reducing financing costs and helping stabilize property valuations. Industry Insights The Summary of Economic Projections (SEP) report released last week forecast an additional half-point rate cut through two more quarter-point reductions over the next three months. (Roundtable Weekly, Sept. 21) These predicted rate cuts, alongside lower bond yields, are expected to boost commercial real estate investment activity and asset values. (CBRE, Sept. 18) Roundtable member Willy Walker (CEO, Walker & Dunlop) appeared on CNBC's Squawk Box, to discuss the importance of removing barriers such as zoning restrictions to increase housing supply. “It’s going to be a very healthy market for commercial real estate as rates start to come down.” (Watch) Roundtable member David O’Reilly (CEO, Howard Hughes Holdings) discussed the resurgence of new construction in the housing market on Fox Business, anticipating that home prices will stabilize in response to interest rates cuts, influencing both demand and affordability. He also highlighted the effects of prolonged high rates on pricing and market trends. “As long as those rates continue to trend lower… demand picks up, more sales occur, prices will remain steady as home builders continue to deliver more supply to meet that demand.” (Watch) Housing Affordability at the Forefront The Senate Budget Committee, chaired by Sen. Sheldon Whitehouse (D-RI), held a hearing this Wednesday, Sept. 25, on housing unaffordability. The hearing focused on the need for significant policy reform to boost housing supply, remove regulatory barriers to new construction, and deregulate land use and zoning. (Watch Hearing) Chair Whitehouse introduced the Affordable Housing Construction Act, which aims to tackle the housing crisis by expanding the Low-Income Housing Tax Credit (LIHTC) program, loosening financing requirements, and ensuring affordability for 50 years— an increase from the previous 30-year mark. (Sen. Whitehouse News Release) The bill also pushes for more sustainable, energy-efficient, and accessible housing. Rate cuts from the Fed are providing relief for both CRE and housing markets, but sustained recovery and resolution of the affordability crisis will require continued policy reform, increased housing supply, and greater collaboration between public and private sectors.

National Flood Insurance Program (NFIP)

September 25, 2024

Policy Comment Letter

Joint Coalition NFIP Extension Letter

National Flood Insurance Program NFIP,

Energy & Climate

September 25, 2024

Policy Comment Letter

Roundtable Files Comments with EPA on the Phasedown of Hydrofluorocarbons

American Innovation and Manufacturing Act AIM Act, EPA, HFCs, Refrigerants,

Energy and Tax Policy

September 20, 2024

Roundtable Weekly

Treasury and IRS Propose Detailed Rules for Expanded EV Charger Tax Credit

Clean Energy Tax Incentives EV Charging Stations

This week, the Treasury Department and IRS released proposed rules for the expanded investment tax credit (Section 30C) for electric vehicle (EV) chargers installed in low-income and rural areas. The credit, enhanced by the Inflation Reduction Act (IRA), is poised to encourage private-sector investment in EV charging infrastructure. (PolitcoPro, Sept. 18) Proposal Details The proposed rules should help accelerate the buildout of a reliable and convenient charging network. In 2021, President Biden set forth an ambitious plan for a nationwide network of public and private EV charging stations. The 30C credit covers as much as 30% of qualifying costs, up to $100,000 per charger for businesses and $1,000 for individuals. (Bloomberg, Sept. 19) In particular, the rules related to qualifying census tracts should encourage the construction of charging stations at industrial properties, commercial parks, warehouses and logistics facilities, and port-adjacent properties that are unpopulated themselves but in the vicinity of denser, population centers. Treasury’s proposed rule broadly defines “low-income” and “rural” areas, making nearly two-thirds of the U.S. population eligible for the credit. (AP, Sept. 18) In addition, one significant change that the IRA made to section 30C, is that the credit applies per charging port, not per location, boosting savings for developers by reducing the cost of building multiple ports at one station. The Roundtable submitted comments in Dec. 2022 to Treasury and IRS on the Section 30C tax credit, urging the IRS to issue guidance to clarify the components of EV charging property that qualify for the credit, the geographic areas that are 30C-eligible, and depreciation matters. (Roundtable Weekly, Dec. 2022) The new proposed rules reflect feedback from The Roundtable on many of the key issues raised, including important clarifications on component eligibility. While White House advisor John Podesta emphasized that the rule will help expand EV access across all communities, Sen. Joe Manchin (I-W.Va.) criticized the broad definition of "non-urban," claiming it overlooks rural areas. (The Hill, Sept. 18) What’s Next With the tax policy debate at the forefront in Washington, House Speaker Mike Johnson made remarks this week regarding the future of the IRA. He pledged to cut "wasteful" spending while preserving some clean energy tax incentives. He emphasized using a "scalpel" rather than eliminating all provisions, acknowledging that certain credits benefit economic growth. In August, 18 Republicans wrote to Speaker Johnson expressing concern that “[p]rematurely repealing energy tax credits, particularly those which were used to justify investments that already broke ground, would undermine private investments and stop development that is already ongoing.” (The Hill, Sept. 18) Treasury will accept public comments on the proposed regulations through Nov. 18. The Roundtable’s Tax Policy Advisory Committee (TPAC) and Sustainability Policy Advisory Committee (SPAC) are reviewing the proposed rulemaking in its entirety and may provide additional written comments to the regulators.

CRE and the Economy

September 20, 2024

Roundtable Weekly

The Federal Reserve Cuts Interests Rates

Federal Reserve Interest Rates

On Wednesday, the Federal Reserve reduced interest rates by half a percentage point, marking thefirst rate cut in four years. The target rate now stands at 4.75-5%, with important implications for the commercial real estate industry and broader economy. (Federal Reserve Press Release | Washington Post, Sept. 18) Fed’s Decision Fed Chair Jerome Powell emphasized that while inflation is easing, falling below 3% from a peak of 9.1% in June 2022, the labor market needs support to prevent further weakening. At a news conference after the meeting, Chair Powell said, “This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation.” (WSJ, Sept. 18) The Summary of Economic Projections (SEP) report released this week forecasts an additional half-point rate cut by December, signaling two more quarter-point reductions in 2024. (Axios, Sept. 18) Fed officials project the target rate will decrease to 3.4% by the end of 2025, indicating four quarter-point cuts over the next year. Impacts on CRE The rate cut comes at a time when the real estate capital markets landscape remains challenging. However, this move could improve credit capacity and capital availability and help stabilize asset values. Prior to the rate cut, The Roundtable’s Q3 2024 Sentiment Index revealed that a majority of respondents expected improvements in the availability of both equity capital (71%) and debt capital (60%) within the next year. Meanwhile, 88% of respondents expressed optimism that asset values will either increase (57%) or remain stable (31%) over the same period. Stay tuned for The Roundtable’s Q4 Sentiment Index, which will provide further insights into how the rate adjustment is impacting real estate markets. Looking Ahead Chair Powell added that decisions regarding further rate adjustments will be data-driven and made on a meeting-to-meeting basis. Roundtable President & CEO Jeffrey DeBoer commented on the impact for commercial real estate: "The Fed’s rate cuts will bring much-needed relief to the industry. Lower borrowing costs could help address the wave of maturing commercial real estate loans, reignite stalled projects and encourage new investments, helping stabilize property values as we move into a more favorable lending environment." A mix of lower rates and corporate decisions like Amazon’s office return could help stabilize the office sector still grappling with the post-pandemic shift toward remote work. (Business Insider, Sept. 18) This environment also presents multifamily investors with opportunities to refinance properties, reduce payments, improve cash flow, and capitalize on lower borrowing costs, while exploring new asset classes as valuations stabilize. (JPMorgan, Sept. 19) The Fed has two more opportunities to adjust interest rates in 2024, with meetings scheduled for November 6-7 and December 17-18.

Roundtable Leadership

September 13, 2024

Roundtable Weekly

The Roundtable’s Jeffrey DeBoer Honored at the Annual Lamplighter Awards

John Fish

Roundtable President & CEO Jeffrey DeBoer was honored this week with the Lamplighter Award by the American Friends of Lubavitch (Chabad), along with Speaker of the U.S. House of Representatives Mike Johnson, for their leadership and dedication to community and service. Roundtable Leaders’ Comments Coinciding with the 23rd anniversary of the September 11 terrorist attacks and approaching the first anniversary of the October 7 Hamas attacks in Israel, the evening began with a moment of silence, followed by a tribute from the United States Marine Corps Color Guard. Immediate Past Roundtable Chair and event chair, John Fish (Chairman and CEO, Suffolk), introduced House Democratic Leader Hakeem Jeffries (D-NY), who, alongside Rabbi Levi Shemtov, presented the Lamplighter Leadership Award to Speaker Johnson. In his introductory remarks as the event chair and last year’s recipient of the Lamplighter Award, Fish stated, “On this important day, we are all reminded there is far more that unites us as Americans, than divides us.” (L-R): Rabbi Levi Shemtov, John Fish, Jeffrey DeBoer, Norm Brownstein After accepting his award, DeBoer commented, “I am honored to support the American Friends of Lubavitch, particularly because of my deep respect and appreciation for the good deeds the Chabad does. But also because of my utter dismay and disgust by the rise of anti-Semitism in America and in many places around the world.Moreover, I am moved to provide assistance because of my deep distress over the violence that has been planted and allowed to grow on the campuses of our nation’s greatest universities. We must realize that speech is sometimes violent, but violence is never speech. One is allowed, up to a point. The other should never be allowed particularly on university campuses where young people are supposed to be learning.Together, we must continue to stand up against hate and bigotry in all its forms.” (Jeffrey DeBoer's Speech) Lamplighters The American Friends of Lubavitch (Chabad) is 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 event, reception and dinner, including several Senators and House members; Gold Star families and members of the U.S. armed forces; and nearly two dozen ambassadors.

Tax Policy

September 13, 2024

Roundtable Weekly

Senate Finance Committee Tackles 2025 Tax Policy Debate

SALT Section 199A StepUp In Basis Tax Policy

The Senate Finance Committee held a hearing on the 2025 tax policy debate, highlighting sharp divides between Republicans and Democrats over the future of the key provisions of the Tax Cuts and Jobs Act of 2017 (TCJA) that are set to expire in 2025. (Watch Hearing | Bloomberg, Sept. 12) 2025 Tax Policy Debate Chair Sen. Ron Wyden (D-OR) pushed for reforms targeting tax avoidance by the ultra-wealthy. Wyden pointed out tactics like "buy, borrow, die," which he argues allow billionaires to accumulate wealth without paying appropriate taxes, and criticized corporate tax loopholes. (Sen. Wyden Statement) Ranking Member Sen. Mike Crapo (R-ID) defended the TCJA, emphasizing its positive impact on economic growth, job creation, and tax relief for middle-class Americans. Sen. Crapo warned that allowing the TCJA to expire would result in significant tax increases for individuals and businesses, harming the economy. (Sen. Crapo Statement) Jeff Brabant, VP of Federal Government Relations at the National Federation of Independent Business, testified on the importance of making the 20% pass-through business income deduction (Section 199A) permanent and shared new data detailing the critical impact the deduction’s looming expiration will have on the small business economy if Congress fails to act. (Brabant Testimony) Republicans also pushed back on potential changes to estate taxes, including lowering exemptions or eliminating stepped-up basis, which they argue would hurt family-owned businesses. (Bloomberg, Sept. 12) Speaking on the consequences of eliminating stepped-up basis on small businesses, Brabant said, “If you get rid of stepped-up basis and you have an increase in the death tax, you’re looking at a double death tax. Our members who are nearing retirement, this is a critical issue for them. The concern for the small business sector is, often these small businesses are selling these businesses—because they can’t afford to pay these taxes—to larger businesses that don’t have the same footprint in these same small rural communities.” 199A Coalition The Roundtable is a founding member of the newly formed PROTECT Coalition, an alliance of small, medium and large pass-through businesses and industries that oppose the expiration of Section 199A. (Politico, Sept. 5) The coalition’s mission is to defend vital tax incentives that support the growth and sustainability of successful entrepreneurial businesses across the nation. The Real Estate Roundtable’s SVP & Counsel Ryan McCormick said, “Over four million businesses, including two million in real estate, are organized as partnerships. Section 199A was enacted to ensure that these entrepreneurial businesses could compete on a level playing field with large corporations. Permanently extending Section 199A will allow partnerships and other pass-through businesses to continue advancing careers, investing in communities, and expanding economic opportunity for all.” What’s Next The TCJA expiration looms large, with both parties framing the debate around small businesses, working families, and economic growth. Republicans argue that letting it expire would stifle economic activity, while Democrats are focused on shifting more of the tax burden on higher-income earners. Next week, on September 18 at 2:00 PM EDT, the Senate Banking, Housing and Urban Affairs Subcommittee on Economic Policy, chaired by Senator Elizabeth Warren (D-MA) will hold a hearing on the macroeconomic impacts of potential tax reform in 2025. The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue to closely track ongoing tax debates in Congress.

Capital & Credit

September 13, 2024

Roundtable Weekly

Fed Revises Basel III Endgame Proposal

Basel III

Federal Reserve Vice Chair for Supervision Michael S. Barr previewed the latest revisions to the Basel III Endgame capital requirements this week. Amid industry opposition, Barr scaled back his initial proposal to raise capital requirements for large banks, offering a more measured approach to the rule. (Bloomberg, Sept. 10) Basel III & CRE The revised proposal would increase aggregate Common Equity Tier 1 (CET1) capital requirements for global systemically important banks by roughly 9%—half of what would have been required in the original proposal. Banks with assets between $100 billion and $250 billion are now exempt from most of the proposed changes, except for recognizing unrealized gains and losses in regulatory capital. (Politico, Sept. 10) "There are benefits and costs to increasing capital requirements," Barr said during his September 9 remarks at the Brookings Institution. "The changes we intend to make will bring these two important objectives into better balance, in light of the feedback we have received." (Barr’s Speech | Bloomberg, Sept. 10) The proposal reduces risk weights for certain residential mortgages, and retail exposures, extending this reduction to low-risk corporate debt. However, commercial real estate risk weights remain unclear. Non-GSIB banks would see a long-term increase of 3 to 4% in capital requirements, mainly from the inclusion of unrealized gains and losses. Other changes are expected to add just 0.5% to their capital obligations. The 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, concluding with a call to federal regulators to withdraw their proposed rulemaking. (Roundtable Weekly, Mar. 29) What’s Next An open Board meeting is expected to be scheduled to review the revised plan, with an announcement expected as early as Sept. 19. The plan will be open to public comment for 60 days once released. While this new proposal is an improvement of the original plan, we remain concerned that any increase in capital requirements will have a pro-cyclical impact on credit capacity and still carry a cost for commercial real estate and the overall economy. The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to monitor and respond to any further changes to the Basel III Endgame proposal and other federal policy issues impacting credit capacity and capital formation.

News, RER Quarterly Sentiment Index

September 10, 2024

Press Release

NEWS: Sentiment Index Reflects Growing Optimism Amid Persistent Market Challenges

Quarterly Sentiment Index

(WASHINGTON, D.C.) — The Real Estate Roundtable’s Q3 2024 Sentiment Index, which measures commercial real estate executives’ confidence and expectations about the industry environment, suggests a growing confidence in the future of the commercial real estate market despite ongoing challenges. The Q3 Sentiment Index reported an overall score of 64, reflecting an increase of three points from the previous quarter, and the Future Index at 70, up four points from the previous quarter. This rise in sentiment marks an 18-point increase in the overall score since last year. Roundtable President and CEO Jeffrey DeBoer said, “The increase in our Q3 Sentiment Index indicates that while uncertainty remains, the industry is gradually regaining confidence. Leaders are seeing signs of stabilization in asset values and a potential improvement in the availability of capital, which are encouraging signals as we navigate this complex environment.” He added, “The results of the report reflect the resilience of the commercial real estate industry. The fact that a majority of executives expect better conditions in the coming year is a strong signal that although serious challenges remain, the worst may be behind us.” The Q3 Sentiment Index topline findings include: All indices of The Roundtable’s Q3 Index are up, compared to the previous quarter and one year ago. The Q3 2024 Real Estate Roundtable Sentiment Index registered an overall score of 64, an increase of three points over the previous quarter. The Current Index registered 59, a four-point increase over Q2 2024. The Future Index posted a score of 70 points, an increase of four points from the previous quarter, indicating that uncertainty surrounding the future of asset values and availability of capital persists, but has lessened. In Q3 2023, the Overall Index registered at 46, while the Current Index registered at 33, reflecting a notable 26-point gain in the Q3 2024 Current Index compared to the previous year. The Index 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. Evolving market trends continue to shape the real estate landscape. A majority (70%) of Q3 survey participants expect general market conditions to show improvement one year from now. Additionally, 48% of respondents said conditions are better now compared to this time last year. Only 6% of Q3 participants expect general market conditions to be somewhat worse in a year, a decrease from 11% in Q2. Some subsector asset classes, such as data centers and student housing, are well-positioned from both a fundamentals and capital availability perspective. However, Class B office properties continue to face ongoing challenges, and the fast pace of multifamily and industrial rent growth has subsided. A significant 88% of Q3 survey participants expressed optimism that asset values will be higher (57%) or the same (31%) one year from now, indicating some semblance of expected stability. 76% of Q3 survey participants believe asset values are slightly lower (50%) or about the same (26%) today compared to a year ago. The real estate capital markets landscape remains challenging. However, 71% of respondents believe the availability of equity capital will improve in one year, while 60% said the availability of debt capital will improve in one year. 40% of participants said the availability of debt capital would be the same or worse in one year, an increase from 36% who voiced the same expectation in Q2 of this year. Some sample responses from participants in the Sentiment Index’s Q3 survey include: “Investors still want to allocate dollars to real estate, but there is still sentiment for defensive positioning and risk mitigation.” “Pricing is all over the board and has reset since the post-Covid boom. The magnitude of the reset depends on where the asset is in its life cycle and its financing structure.” “Banks have pulled back, but insurance companies have a reasonable level of capital and pricing has been stable. For higher quality assets, there’s demand.” “Spreads are tightening on construction loans, but acquisition financing is more available. There is a lot of debt capital on the sidelines for high quality asset acquisitions.” 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. # # #

Tax Policy

September 6, 2024

Roundtable Weekly

The Roundtable Files Amicus Brief in Sirius Solutions v. Commissioner

limited partnerships Tax Policy

On August 19, The Roundtable submitted an amicus brief to the Fifth Circuit Court of Appeals in Sirius Solutions v. Commissioner, a pivotal case that could redefine the tax obligations of limited partners under the self-employment tax in the Self-Employed Contributions Act (SECA). (Amicus Brief) Why It Matters There are more than 441,000 limited partnerships in the U.S., with over 10 million partners. Nearly half of these limited partnerships are real estate partnerships. If the IRS position prevails, it could result in widespread tax increases on real estate limited partners who provide some services to the business and effectively raise the tax burden on real estate investments. The IRS’s position would requires limited partners to be “passive investors” to qualify for the exemption from the 3.8% SECA tax under Section 1402(a)(13). Roundtable Amicus Brief The Roundtable’s amicus brief argues that the IRS’s interpretation is flawed, pointing to decades of state law that allows limited partners to provide services and still retain their status. The brief emphasizes that pre-1977 state court decisions and the IRS’s own 1994 proposed regulations contradict the government’s position that limited partners must be passive to avoid SECA taxes. The Tax Court’s imposition of the passive investor test is found nowhere in the statute and rests on a fundamental misunderstanding of state laws that Roundtable members and others have relied on for decades. Ignoring an established body of partnership law, the IRS is relying on a recent Tax Court decision, Soroban, that imposes a judge-made test requiring a limited partner to be a “passive investor.” The Roundtable believes this fundamental error should be reversed. What’s Next The Fifth Circuit’s ruling in Sirius will set a precedent for future SECA tax cases, with significant consequences for real estate and other industries that use limited partnerships for business purposes. A successful outcome in the Sirius case could reduce the likelihood that the government moves forward with formal tax guidance that expands the reach of SECA taxes. The Roundtable remains committed to protecting entrepreneurs’ ability to flexibly organize in partnerships and other pass-through entities that promote capital formation, risk-taking, and economic growth, and it will remain engaged as the SECA dispute moves forward.

Quarterly Sentiment Index

September 6, 2024

Roundtable Weekly

Sentiment Index Reflects Growing Optimism Amid Persistent Market Challenges

Quarterly Sentiment Index

The Real Estate Roundtable’s Q3 2024 Sentiment Index, which measures commercial real estate executives’ confidence and expectations about the industry environment, suggests a growing confidence in the future of the commercial real estate market despite ongoing challenges. Roundtable View The Q3 Sentiment Index reported an overall score of 64, reflecting an increase of three points from the previous quarter, and the Future Index at 70, up four points from the previous quarter. Roundtable President and CEO Jeffrey DeBoer said, “The increase in our Q3 Sentiment Index indicates that while uncertainty remains, the industry is gradually regaining confidence. Leaders are seeing signs of stabilization in asset values and a potential improvement in the availability of capital, which are encouraging signals as we navigate this complex environment.” This rise in sentiment marks an 18-point increase in the overall score since last year. He added, “The results of the report reflect the resilience of the commercial real estate industry. The fact that a majority of executives expect better conditions in the coming year is a strong signal that although serious challenges remain, the worst may be behind us.” Topline Findings All indices of The Roundtable’s Q3 Index are up, compared to the previous quarter and one year ago. The Index 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 2024 index registered an overall score of 64, an increase of three points over the previous quarter. The Current Index registered 59, a four-point increase over Q2 2024. The Future Index posted a score of 70 points, an increase of four points from the previous quarter, indicating that uncertainty surrounding the future of asset values and availability of capital persists, but has lessened. In Q3 2023, the Overall Index registered at 46, while the Current Index registered at 33, reflecting a notable 26-point gain in the Q3 2024 Current Index compared to the previous year. Evolving market trends continue to shape the real estate landscape. A majority (70%) of Q3 survey participants expect general market conditions to show improvement one year from now. Additionally, 48% of respondents said conditions are better now compared to this time last year. Only 6% of Q3 participants expect general market conditions to be somewhat worse in a year, a decrease from 11% in Q2. Some subsector asset classes, such as data centers and student housing, are well-positioned from both a fundamentals and capital availability perspective. However, Class B office properties continue to face ongoing challenges, and the fast pace of multifamily and industrial rent growth has subsided. A significant 88% of Q3 survey participants expressed optimism that asset values will be higher (57%) or the same (31%) one year from now, indicating some semblance of expected stability. 76% of Q3 survey participants believe asset values are slightly lower (50%) or about the same (26%) today compared to a year ago. The real estate capital markets landscape remains challenging. However, 71% of respondents believe the availability of equity capital will improve in one year, while 60% said the availability of debt capital will improve in one year. 40% of participants said the availability of debt capital would be the same or worse in one year, an increase from 36% who voiced the same expectation in Q2 of this year. Data for the Q3 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in July. Read the full Q3 report.

Energy & Climate, News

September 6, 2024

Roundtable Weekly

Biden Administration Announces $240 Million of IRA Grants for Building Efficiency Upgrades

Building Performance Standards BPS Energy amp Climate Inflation Reduction Act

On August 27, the U.S. Department of Energy announced plans to allocate $240 million from the Inflation Reduction Act (IRA) to 19 state and local governments to help communities adopt energy-efficient building codes and retrofit structures to meet updated standards. (Politico, Aug. 27) Key Details The initiative is expected to reduce utility costs for multifamily residents and commercial building operators, enhance grid resilience, and lower emissions. “DOE is helping jurisdictions move further and faster in implementing stronger codes that will provide Americans safer, healthier, and more comfortable places to live, work, and play,” said U.S. Secretary of Energy Jennifer Granholm. (US-DOE Press Release, Aug. 27) The 19 selected projects will receive direct technical assistance to support the adoption and implementation of traditional energy codes, zero energy codes, and building performance standards. The grants also align with the Justice40 Initiative, designed to direct 40% of federal investments to disadvantaged communities overburdened by pollution. This latest announcement follows an initial $90 million awarded to 27 projects last year from the 2021 Infrastructure Investment and Jobs Act, commonly known as the bipartisan infrastructure law, to implement updated building codes. (Politico, Aug. 27) Chosen jurisdictions must go through a “negotiation process” with US-DOE before the agency ultimately awards Round 1 grants. Applications for the second round of IRA funding will close on Sept. 13. (US-DOE Press Release, Aug. 27) What’s Next Building Performance Standards (BPS) laws have the potential to drive significant environmental benefits, but only if they are thoughtfully designed and implemented. The Roundtable is developing a “primer” for real estate stakeholders, highlighting key issues in the state and local BPS trend, with a release planned for this fall.

Beneficial Ownership, Beneficial Ownership & the Corporate Transparency Act

September 3, 2024

Policy Comment Letter

The Roundtable and Coalition Urge Congress to Delay CTA Compliance Deadline, Support H.R.9278

Beneficial Ownership amp the Corporate Transparency Act,

Bipartisan Tax Bill Stalls in Senate

bonus depreciation Business Interest Deduction Low Income Housing Tax Credit LIHTC Tax Policy

Yesterday, the Senate failed to pass a bipartisan $79 billion tax package, the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). The House-passed legislation seeks to extend various expiring tax provisions from the 2017 and pandemic-related tax bills. (WSJ, Aug. 1 | The Hill, Aug. 1) Key Points Bipartisan Effort: Senate Finance Committee Chair Ron Wyden (D-OR) and House Ways and Means Committee Chair Jason Smith (R-MO) crafted the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). The bill passed the House on Jan. 31 by an overwhelming 357-70 vote. Senate Opposition: Despite bipartisan support, the bill faced significant opposition in the Senate, where critics argued it failed to adequately address long-term fiscal concerns and prioritized short-term fixes. Roundtable Support: The bill included Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC). Other provisions in the agreement: 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. (RW, Jan. 19) Roundtable Advocacy In February, The Roundtable and a large coalition of housing and other real estate groups sent letters to Congress in support of the tax bill. (RW, Feb. 16) The Roundtable and the Housing Affordability Coalition’s letter emphasized the importance of advancing provisions in the bill 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 housing supply 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. Congress will return to Washington on September 9, with several critical legislative priorities on the agenda, including decisions on key housing policies and potential new regulations impacting the commercial real estate industry.

CRE and the Economy

August 2, 2024

Roundtable Weekly

Fed Holds Rates Steady: Implications for Commercial Real Estate

Federal Reserve Office Markets The Fed

The Federal Reserve chose to maintain current interest rates at the same level since last July, despite calls from economists and policymakers to implement a cut. (AP News, July 31 | Axios, July 31) Fed's Decision Fed chair Jerome Powell emphasized the need for data-driven decisions, indicating that future rate adjustments will hinge on economic indicators. (Washington Post, July 31) During the June meeting, Fed officials released their Summary of Economic Projections report, which showed that policymakers penciled in just one rate cut this year, down from the three initially estimated at the start of the year. (RW, June 14) After the decision, Powell said, "a reduction in our policy rate could be on the table as soon as the next meeting in September." (Barrons, Aug.1) In June, Senators Elizabeth Warren (D-MA), Jacky Rosen (D-NV), and John Hickenlooper (D-CO) wrote to Powell, urging the Fed to cut the federal funds interest rates from a two-decade-high of 5.5 percent, citing that high interest rates are increasing the costs of housing and insurance, and exacerbating the housing supply crisis. (Letter) In their letter on housing prices, they emphasized that “The country is already facing a severe housing shortage, and the Fed’s refusal to bring down interest rates is exacerbating this shortage and driving higher inflation rates…Lower mortgage rates would encourage more people to sell their homes, which would in turn increase housing supply, decrease prices, ease the costs of renting, and ultimately increase homeownership.” CRE Markets RER board member Owen Thomas (BXP) With interest rates unchanged at a 23-year high, the commercial real estate sector faces significant challenges, particularly in financing and investment, as higher rates increase borrowing costs and reduce demand for development. Higher interest rates and the pandemic-induced shift to remote work have left a lasting impact on office demand, prompting landlords to rethink space utilization. In a recent interview with Bloomberg Television, RER board member Owen Thomas (BXP) discussed the transformation of the office market and the need for innovation and adaptability in the face of changing tenant needs and market conditions. (Watch interview) The Fed’s next meeting is scheduled for September 17-18, 2024.

Housing, News

August 2, 2024

Roundtable Weekly

New Study on Rent Control Shows Proposals Impede Housing Production

Rent Control

In July, the White House announced a nationwide rent control plan that aims to cap rent increases at 5%. Owners of rental housing would only be able to take advantage of depreciation write-offs if they limit annual rent increases to no more than 5%, effectively trading depreciation deductions for price controls. Economists on Rent Control Proposals The White House’s recent rent control plan, while intended to make renting more affordable, would impede the production of much-needed housing, particularly for affordable units. (RW, July 19) Last week, The Roundtable and a coalition of national real estate associations, wrote to President Biden expressing strong opposition to the proposed rent control measures. (RW, July 26) Economists across the political spectrum widely agree that rent control is a discredited policy. Jason Furman, the former Obama administration's top White House economist, asserts that rent control would worsen housing supply issues instead of solving them. A recent study by the University of Chicago surveyed 45 economists from elite institutions, revealing near-universal agreement that national rent control measures would do little to aid Americans and would ultimately worsen the housing shortage. (NMHC, July 30) Survey Findings: No economist agreed rent control would substantially reduce income inequality. 2% of economists surveyed agreed that a national rent cap would substantially improve the lives of middle-income Americans over the next 10 years. 62% of the economists agreed or strongly agreed that the Administration’s rent cap proposal would substantially reduce the amount of available apartments over the next 10 years, compared to 7% who disagreed. The Roundtable will continue to encourage policymakers to enact measures that will expand the nation’s housing infrastructure, develop more affordable units and reduce the costs of housing.

Housing

July 26, 2024

Roundtable Weekly

Real Estate Coalition Opposes Federal Rent Control Proposal

Affordable Housing Rent Control

On Monday, a coalition of national real estate associations, including The Real Estate Roundtable, wrote to President Biden expressing strong opposition to recently proposed nationwide rent control measures. (Letter) Key Points Last week, the White House announced a nationwide rent control plan that aims to cap rent increases at 5%. Owners of rental housing would only be able to take advantage of depreciation write-offs if they limit annual rent increases to no more than 5%, effectively trading depreciation deductions for price controls. (Roundtable Weekly, July 19) Negative impacts of rent control: Rent control consistently leads to instability in the housing market and reduced supply, undermining efforts to foster a healthy and equitable housing environment. Economic consensus: Economists across the political spectrum widely agree that rent control is a discredited policy. Jason Furman, the former Obama administration's top White House economist, asserts that rent control would worsen housing supply issues instead of solving them. Disincentive for investment: Rent control discourages necessary housing investments, particularly in areas with limited affordable options. It disproportionately benefits higher-income renters, impeding access for lower-income households. Coalition Recommendations Increase housing subsidies: Instead of imposing rent control, the coalition urges the administration to increase subsidies for those in need and to work with housing providers on solutions that expand the affordable housing supply. Support proven solutions: The coalition advocates for enhancing federal programs such as the Low-Income Housing Tax Credit (LIHTC) and Section 8, which have been effective in creating and preserving affordable housing units. Industry Testimony On Wednesday, the House Financial Services Committee Subcommittee on Housing and Insurance held a hearing, “Housing Solutions: Cutting Through Government Red Tape” to discuss the nation’s housing affordability crisis and burdensome federal government reviews and permitting processes. The committee heard testimony from Carl Harris (Chairman, National Association of Home Builders (NAHB) and James H. Schloemer (Chair, National Multifamily Housing Council (NMHC) who testified on the rent cap proposal and the federal push to mandate costly and restrictive national energy codes. NMHC Chair Schloemer stated in his testimony, “Decades of research shows that rent regulation devastates rental housing quality and harms affordability. The Biden administration proposal to cap rents will not add a single new unit of housing, and, in fact worsens housing availability and quality.” Hastening the permit approval process must be a critical part of any policy legislation aimed at increasing the supply of affordable housing. (NYT, July 8) The Roundtable and the coalition will continue to educate policymakers about and push back against flawed rent control policies while advocating for bipartisan solutions to boost supply and affordability.

News, Tax Policy

July 26, 2024

Roundtable Weekly

Roundtable Requests Additional Guidance for FIRPTA REIT Regulations

LookThrough Rule FIRPTA Tax Policy Tax Policy Advisory Committee TPAC

Today, The Roundtable wrote to U.S. Treasury Secretary Janet Yellen requesting that the Treasury Department provide additional clarifying guidance regarding transition relief in the Foreign Investment in Real Property Tax Act’s (FIRPTA) regulations for domestically controlled REITs. (Letter) Key Concerns In April, Treasury issued final regulations that redefined what constitutes a domestically controlled REIT exempt from tax under FIRPTA. The regulations created a new look-through rule that extended the reach of the discriminatory FIRPTA regime to common investment structures. (Roundtable Weekly, April 26) Clarifying guidance is necessary and urgent to enable a qualified investment entity (QIE) to make a timely determination concerning its direct or indirect ownership of “U.S. real property interests” (“USRPI(s)”) under the conditions of the Transition Rule. Impact on foreign investment: Foreign investment can attract significant capital, helping to support market stability and create jobs. The final regulations, designed to define a domestically controlled QIE, are feared to be deterring foreign investment in U.S. real estate. Outstanding questions: Specifically, the letter seeks additional guidance on: what constitutes “direct or indirect” ownership of real estate when it is held by a REIT through multiple subsidiaries, how to treat acquisition costs and capitalization expenditures, and situations where ongoing construction or substantial renovations are occurring. Roundtable Advocacy The Roundtable has consistently advocated for the withdrawal of regulations and policies that hinder foreign investment in U.S. real estate. (Roundtable Weekly, April 26) David Friedline, a tax partner at Deloitte and Vice Chair of RER’s Tax Policy Advisory Committee (TPAC) said, “The official guidance would provide needed clarification for our members, who have been adversely affected by the final regulations’ new look-through rule, on how to comply with the conditions of the transition relief.” Friedline was a principal drafter of the Roundtable letter. Building new affordable housing and office-to-residential conversion projects requires encouraging more investment, not less. Erecting new barriers to passive foreign investment in U.S. real estate runs counter to important bipartisan policy priorities. The Roundtable remains committed to collaborating with the Treasury to ensure that the final regulations can provide much-needed clarity and stability, supporting the industry's efforts to attract foreign capital and drive economic growth.

Energy & Climate, ENERGY STAR “NextGen”, Zero Emissions Buildings (ZEB)

July 24, 2024

Fact Sheet

Fact Sheet: NextGen-ZEB Path to Sustainable Real Estate

Energy amp Climate, ENERGY STAR NextGen, EPAs NextGen Building Label, Zero Emissions Buildings ZEB,

Affordable Housing, Housing

July 23, 2024

Policy Comment Letter

Real Estate Coalition Opposes Federal Rent Control Proposal

White House Calls on Congress to Enact Federal Rent Price Control Measure, Eliminate Depreciation Write-Offs to Help Reduce Housing Costs

Affordable Housing GSE Reform Housing Rent Control

This week, the White House unveiled a nationwide rent price control plan that calls on Congress to "pass legislation giving . . . landlords a choice to either cap rent increases on existing units at 5% or risk losing current valuable federal tax breaks." (White House Fact Sheet) While the package is focused on imposing flawed rent price control policies and eliminating long-standing depreciation write-offs, it also includes policies to help build more housing. (WSJ, July 16) Housing Proposals Under President Biden’s plan, beginning this year and for the next two years, owners of rental housing would only be able to take advantage of faster depreciation write-offs if they limit annual rent increases to no more than 5%, effectively trading depreciation deductions for rent price controls. This would apply to landlords with over 50 units in their portfolio, covering more than 20 million units nationwide—nearly half the U.S. rental market. It would include an exception for new construction and substantial renovation or rehabilitation. (White House Fact Sheet) While intended to make renting more affordable, these proposals would impede the production of much-needed housing, particularly for affordable units. (Bloomberg, July 17) The Biden-Harris Housing Plan also includes initiatives to: Call on all federal agencies to assess surplus federal land that can be repurposed to build more affordable housing; Rehabilitate distressed housing, build more affordable housing, and revitalize neighborhoods; and Authorize $325 million in Choice Neighborhoods grants under the U.S. Department of Housing and Urban Development (HUD) to build new deeply-affordable homes and spur economic development in communities across the country. The proposal would require congressional action to become law. FHFA Proposed Tenant Protections Last week, the Federal Housing Finance Agency (FHFA) announced a set of required tenant protections for multifamily properties financed by Fannie Mae and Freddie Mac (the Enterprises). (FHFA News Release) This is the first time tenant protections will be a standard component of Enterprise multifamily financing. These protections apply to future loans acquired by the Enterprises and would include: Requiring 30-day notice before rent increases; Requiring 30-day notice on lease expiration; and Providing a 5-day grace period before imposing late fees on rental payments. Industry & Roundtable Response (L-R): Heidi Sommer (POLITICO), Jeffrey DeBoer (The Real Estate Roundtable), and Shannon McGahn (National Association of Realtors) This week at the Republican National Convention, our National Real Estate Organizations (NREO) partnered with POLITICO to host a series of discussions on the elections, affordable housing, revitalizing cities, the commercial real estate industry, and proactive policy solutions. (Watch here) The Roundtable’s President & CEO Jeffrey DeBoer was a featured speaker alongside Shannon McGahn (National Association of Realtors), joining Heidi Sommer (POLITICO) for a discussion on affordable housing, upcoming tax priorities, interest rates, and the economy. DeBoer stated in response to the administration’s recent rent cap proposal, “Rent control is fundamentally flawed and historically ineffective. Wage and price controls, even during wartime, have consistently failed to deliver the intended results. Implementing such measures now will only exacerbate the root cause of America’s housing problem by discouraging new housing development and reducing investment in existing housing.” Many of our NREO colleagues, including NAR also spoke out against the proposal. (NAR statement) (NMHC statement) (Housing Solutions Coalition statement) The Roundtable is developing comments on the proposed plans and will continue work to enact measures that will help spur the expansion of America’s affordable housing infrastructure.

Energy & Climate, News

July 19, 2024

Roundtable Weekly

Roundtable Requests Voluntary U.S. Guidelines for Climate-Resilient Buildings to Fend Off EU-Based Rules

Energy amp Climate ENERGY STAR EPAs ENERGY STAR Certification for Buildings

This week, The Roundtable urged the Departments of Treasury, Energy, and the Environmental Protection Agency to develop voluntary, science-based guidelines to help U.S. real estate companies align their climate-related programs with global targets. (July 16 letter) U.S.-Specific Climate Investment Principles The Roundtable’s letter to Treasury Secretary Yellen, Energy Secretary Granholm, and EPA Administrator Regan, builds on Treasury’s Principles for Net Zero Financing and Investment. (Roundtable Weekly, Sept. 23) Treasury’s principles can guide net-zero corporate commitments in the United States. However, foreign organizations aim to exert significant influence over capital decisions in America’s real estate – which can leave buildings “stranded” in the eyes of some overseas investors because they do not meet “energy requirements being rolled out in Europe.” Bloomberg (June 18) These market risks prompted the Roundtable’s letter requesting voluntary building “decarbonization curves” designed by the U.S. government reflecting climatic, market, and data conditions in our country. Investment principles for America’s real estate “should not be the creation of the European Union,” The Roundtable states. “This is a matter of global economic competitiveness for capital access,” said the Chair of The Roundtable’s Sustainability Policy Advisory Committee, Anthony Malkin (Chairman and CEO, Empire State Realty Trust, Inc.). “America’s buildings should not be expected to meet standards that speak to assets, laws, power grids, and regulatory environments in Europe or elsewhere.” U.S. Energy Programs and Recommendations Anthony Malkin (Chairman and CEO, Empire State Realty Trust, Inc.) Malkin continued, “The United States leads the world in government developed, voluntary guidelines for all types of buildings' energy use and emissions. Agencies like US-EPA and US-DOE know the conditions of our markets, climate zones, and power grids and can help make it easier for capital to come into real estate and grow jobs and tax revenue in the United States.” America’s global leadership in developing climate-related real estate guidelines is shown through tools and resources such as: EPA: ENERGY STAR Standards for efficient and low-carbon buildings, including NextGen certification. (Roundtable Weekly, March 22) DOE: The first voluntary National Definition for a Zero Emissions Building (“ZEB”) (Roundtable Weekly, June 7), and the wealth of scientific research from the agency’s 17 national labs. Federal Data Collection: Systems like the national Commercial Building Energy Consumptions Survey (CBECS) and ENERGY STAR’s Portfolio Manager. Electric Grid Information: Unmatched resources profiling carbon intensities of grid regions across the U.S. The Roundtable urged the U.S. government to develop building “pathways” through a robust public input process that considers the experiences of companies that own, develop, manage and finance America’s real estate. The Sustainability Policy Advisory Committee (SPAC) will continue to work with the agencies and Congress to shape policies that promote cost-effective investments to optimize building energy efficiency and help the real estate sector mitigate the effects of climate change.

Energy & Climate

July 18, 2024

Policy Comment Letter

U.S. Guidelines for Climate-Resilient Real Estate

Energy amp Climate, Energy Efficiency, ENERGY STAR, EPAs ENERGY STAR Certification for Buildings, Treasury Department,

News, Property Conversions

July 12, 2024

Roundtable Weekly

Property Conversions Legislation Introduced

Affordable Housing Property Conversions Tax Policy

On Thursday, House Ways and Means Committee Members Mike Carey (R-OH) and Jimmy Gomez (D-CA) introduced the bipartisan Revitalizing Downtowns and Main Streets Act (H.R.9002), which would create a market-based tax incentive for converting older commercial buildings to residential use. Revitalizing Downtowns and Main Streets Act The bill is a positive step forward in the effort to modernize U.S. real estate, create new and affordable housing, and strengthen cities and neighborhoods that continue to suffer from the aftereffects of the pandemic and changing business needs. “Between high housing costs and the rise of remote work, formerly prosperous neighborhoods across the country are struggling,” said Rep. Carey (R-OH). “The solution is right in front of us. But even though vacant commercial and office space is sitting unused, converting these properties into housing is so expensive it is often uneconomical. This bill will allow communities to meet their residents’ need for affordable, abundant housing and allow American downtowns and main streets to thrive.” (Rep. Carey Press Release) The bill would create a new and temporary 20% tax credit for qualified property conversion expenditures, modeled after the historic rehabilitation credit. (RER’S One-Page Summary) The total credit authority would be limited to $15 billion, allocated by state housing finance agencies based on feasibility and impact. Larger credits would be available for projects in rural areas, low-income census tracts, and economically distressed areas. The credit could be stacked with other federal tax benefits, including LIHTC, the rehabilitation credit, and Opportunity Zone benefits. Roundtable Advocacy The Real Estate Roundtable has supported similar versions of conversion legislation, such as the Revitalizing Downtowns Act (S. 2511, H.R. 4759), introduced by Sen. Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA). The Roundtable has also worked closely with the White House on administrative actions designed to provide low-cost financing for conversion projects. (Roundtable Weekly, April 19) “The Revitalizing Downtowns and Main Streets Act is a proactive, market-based policy measure that aims to breathe new life into underutilized commercial properties, create jobs, generate local property tax revenue, and help reinvigorate our nation’s cities and suburbs,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “We commend the leadership of the bill sponsors for their vision and urge support for this critical bipartisan legislation.” The bill addresses and incorporates most of the recommendations a Roundtable-led coalition had collectively made to the Revitalizing Downtowns Act in comment letters submitted in October 2022 and June 2024. Since then, many states and localities have taken bold action to support property conversion efforts. Both letters are the product of a property conversions working group created by The Roundtable’s Tax Policy Advisory Committee (TPAC). The working group has reviewed and considered the challenges and impediments confronting potential property conversion activities. (Roundtable Weekly, June 28) The Roundtable’s Tax Policy Advisory Committee will continue working with policymakers to advance tax policies that encourage and facilitate property conversion efforts.

Capital & Credit

July 12, 2024

Roundtable Weekly

Treasury Issues Proposed Rule to Expand CFIUS Coverage of Real Estate Transactions Near Military Installations

Capital and Credit CFIUS

This week, the U.S. Department of the Treasury, as Chair of the Committee on Foreign Investment in the United States (CFIUS), issued a Notice of Proposed Rulemaking (NPRM) that would expand CFIUS’s jurisdiction over certain transactions by foreign persons involving real estate in the United States. (Treasury Press Release, July 8) Proposed Rule As chair of the Committee on Foreign Investment in the United States (CFIUS), the Treasury has the authority to review certain real estate transactions near specified military installations and to act in appropriate circumstances. Under the new proposal, foreign land transactions within a mile of 40 additional military installations and within 100 miles of 19 additional military sites would trigger a CFIUS review. The proposed rule would add over 50 military installations across 30 states to the existing list of installations for which CFIUS has jurisdiction. The national security review panel has the power to block transactions entirely or impose restrictions on foreign transactions. The U.S. Department of Defense (DOD), a member of CFIUS, continuously assesses its military installations and the geographic scope established under the CFIUS regulations to ensure appropriate application in light of national security considerations. This proposed rule is the result of a recent comprehensive assessment conducted by the DOD regarding its military installations. Other Key Changes This latest update would vastly expand the reach of CFIUS’s real estate jurisdiction while maintaining its sharp focus on national security. The proposed rule would also make other key changes: Expand CFIUS’s jurisdiction over real estate transactions between 1 mile and 100 miles around eight military installations already listed in the regulations; and Update the names or locations of 21 military installations already listed in the regulations to better assist the public in identifying the relevant sites. Implications and Next Steps The rulemaking comes amid growing bipartisan concern in Congress over the purchase of U.S. agricultural land and other property by China and other foreign adversaries. Several GOP-led states have considered or enacted new restrictions on foreign ownership of land, targeting investors with ties to China and other countries. (PoliticoPro, July 8) In response to the proposed rule, written comments will be accepted for 30 days following the NPRM’s publication in the Federal Register. The Real Estate Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to monitor the proposed rulemaking and plans to submit comments.

Homeland Security, News

July 12, 2024

Roundtable Weekly

Real Estate Coalition Raises Concerns Over Cyber Reporting Requirements

CIRCIA CISA Cyber Reporting Requirements Cyber Risks Cybersecurity Homeland Security RERs Homeland Security Task Force HSTF

A coalition of national real estate associations submitted comments to the Cybersecurity and Infrastructure Security Agency (CISA) expressing concerns over a new proposed rule: Cyber Incident Reporting for Critical Infrastructure Act (CIRCIA) Reporting Requirements. As currently drafted, the rule imposes overly burdensome requirements and requires companies to assume unnecessary but significant legal and cybersecurity risks. (Letter) Cyber Incident Reporting Rule Under the current proposal, companies would be required to report significant cyber incidents to the Department of Homeland Security or CISA within 72 hours as well as any ransomware payments within 24 hours. Given the ever-expanding cyber-threat landscape, the rental housing and real estate industry has prioritized defense against vulnerabilities. The industry has undertaken efforts to mitigate cybersecurity risks, implement policies to prevent and mitigate such risks and encourage investments in bolstering cyber defenses to protect data. The letter noted, “We support a unified but flexible regulatory framework for data security and incident notification, and believe it is important to have a balanced approach to providing consumers with meaningful information about material cybersecurity risks and incidents, while also not imposing overly burdensome regulations on the real estate/rental housing industry or unintentionally exposing our members to substantially greater cybersecurity risks.” Industry Concerns and Recommendations Overly burdensome requirements: CISA should revise the definition of "covered cyber incident" to a higher threshold for reporting to prevent unnecessary administrative load. Disproportionate compliance costs: the estimated compliance cost of over $1.4 billion is seen as disproportionate to the benefits. These funds could be better spent on actual cybersecurity measures rather than on reporting. Reporting deadlines are unclear and increase the risk of attack: the proposed rule’s 72-hour reporting requirement and 24-hour ransom payment reporting deadline could hinder effective incident response and increase vulnerability to additional attacks. The proposed rule adds another reporting requirement to an already cluttered landscape. CISA should harmonize its reporting requirements to reduce compliance burdens. The Real Estate Roundtable’s Homeland Security Task Force and RE-ISAC will continue to be resources and assist CISA in the development of clear, effective, and secure cyber incident reporting rules.

Cyber Risks, Cybersecurity, Homeland Security

July 3, 2024

Policy Comment Letter

Cyber Incident Reporting for Critical Infrastructure Act (CIRCIA) Reporting Requirements – Comment Letter

Cyber Risks, Cybersecurity,

Roundtable Leadership

June 28, 2024

Roundtable Weekly

Roundtable Announces FY 2025 Leadership; Kathleen McCarthy Takes Over As New Chair

Board of Directors Jeffrey DeBoer John Fish Kathleen McCarthy Roundtable Leadership

Roundtable Leadership The Roundtable’s membership also approved a 26-member Board of Directors. Kathleen McCarthy, Chair of the Real Estate Roundtable (above), said, “I am incredibly honored to step into the role of Chair of the Real Estate Roundtable. The real estate industry touches every aspect of our economy—from affordable housing and shopping centers to warehouses and data centers. Strong collaboration between the public and private sectors will enable the country to meet the challenges we face and capitalize on the opportunities ahead. John, Jeff, and the entire Roundtable team have advocated for policies to help drive growth and innovation across communities in the U.S., and I look forward to building on their important work.” (Press Release) John Fish, Immediate Past Chair, stated, “It has been a privilege to serve as Chair during such a pivotal period for our industry. I am pleased to hand over the reins to Kathleen. Her expertise and leadership, along with Jeff DeBoer’s vision and guidance, will undoubtedly guide The Roundtable to new heights. The focus on recovery, resilience, and innovation remains crucial as this important organization works with our partners in government to advance our shared interests and strengthen the American economy.” “The Real Estate Roundtable and its members have always risen to meet the challenges of the times, and I am confident that under Kathleen’s leadership, we will continue to make impactful strides,” said Jeffrey DeBoer, Roundtable President and CEO. “The real estate industry is a cornerstone of economic vitality, job creation, and community development. Kathleen’s extensive experience and strategic vision will be invaluable as we address critical policy issues and advocate for a shared, prosperous future.” Roundtable Board of Directors The 26-member FY2025 Roundtable Board of Directors is elected from the membership and includes three elected leaders of national real estate trade organizations from The Roundtable’s 18 partner associations. Joining The Roundtable’s Board of Directors as of July 1 are: Conor Flynn, CEO, Kimco Realty Corporation; First Vice Chair, Nareit Michelle Herrick, Head of Real Estate Banking, J.P. Morgan Diane Hoskins, Global Co-Chair, Gensler; Chairman, The Urban Land Institute Michael H. Lowe, Co-CEO, Lowe Andrew P. Power, President & CEO, Digital Realty See the complete list of the FY2025 Roundtable’s Board of Directors here. Stepping down from The Roundtable Board as of July 1 are: Michael D. Brown, Travel & Leisure Co. President & CEO, Immediate Past Chair, American Resort Development Association Debra A. Cafaro, Chairman and Chief Executive Officer, Ventas, Inc., Immediate Past Chair, The Real Estate Roundtable W. Matthew Kelly, CEO, JBG Smith, Chair, Nareit The Roundtable will release its 2024 Annual Report: Dynamic Policy for Evolving Needs in the coming weeks, which highlights the organization’s advocacy efforts over the past year and future policy solutions.

Property Conversions

June 28, 2024

Roundtable Weekly

Real Estate Coalition Urges House Members to Support Bipartisan CRE Conversions Bill

Affordable Housing CRE Conversions Property Conversions Tax Policy

A Roundtable-led coalition of 17 national real estate organizations wrote to members of the House of Representatives voicing their support for the introduction of the Revitalizing Downtowns and Main Streets Act, which would create a market-based tax incentive for converting older commercial buildings to residential use. (Coalition letter) Revitalizing Downtowns and Main Streets Act The House Ways and Means Committee Members Mike Carey (R-OH) and Jimmy Gomez (D-CA) will introduce the Revitalizing Downtowns and Main Streets Act in the coming weeks. If enacted, the bill would be a step forward in the effort to modernize U.S. real estate, create new and affordable housing, and strengthen cities and neighborhoods that continue to suffer from the aftereffects of the pandemic and changing business needs. Currently, only 2% of vacant offices are undergoing the conversion process (CBRE). However, 15% of office buildings are suitable for residential conversion. (White House, Oct. 2023) The bill would create a new and temporary 20% tax credit for qualified property conversion expenditures, modeled after the historic rehabilitation credit. The total credit authority would be limited to $15 billion, allocated by state housing finance agencies based on feasibility and impact. Larger credits would be available for projects in rural areas, low-income census tracts, and economically distressed areas. Roundtable Advocacy The Roundtable’s Tax Policy Advisory Committee Meeting The Real Estate Roundtable has supported similar versions of conversion legislation, such as the Revitalizing Downtowns Act (S. 2511, H.R. 4759), introduced by Sen. Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA) to encourage the conversion of older buildings into new uses. The new bill addresses and incorporates most of the recommendations the coalition made collectively to the Revitalizing Downtowns Act in the October 2022 letter. (June 2024 letter | October 2022 letter) Since then, many states and localities have taken bold action to support property conversion efforts. Both letters are the product of a property conversions working group created by The Roundtable’s Tax Policy Advisory Committee (TPAC). The working group has reviewed and considered the challenges and impediments confronting potential property conversion activities. The Roundtable’s Tax Policy Advisory Committee will continue to respond to legislative proposals affecting potential property conversion activities.

Roundtable Leadership

June 28, 2024

Roundtable Weekly

Roundtable Employee Nancy G. Pitcher Retiring After 47 Years

Nancy G. Pitcher will retire on June 28, 2024, after a distinguished 47-year career with the National Realty Committee and The Real Estate Roundtable. Nancy began her career with NRC in 1977, as Office Manager. In 2001, she was promoted to Office Manager and Assistant Secretary, and in 2002, she was promoted to Director of Administration. In recognition of her dedication, exceptional skills, professionalism, and unwavering commitment to The Roundtable staff, the Board of Directors honored Nancy with a gift and presented her with a Board Resolution, among other acknowledgments, at last week’s Annual Meeting. (Watch Presentation) Roundtable President & CEO Jeffrey DeBoer remarked, “We have worked together for 32 years and through it all, Nancy has always been someone the industry, our team and I could rely on. She has been an inspiration and a role model to all our employees. She is hard-working, caring, focused, team-oriented, and can’t be replaced.” Nancy has earned the admiration and respect of The Roundtable members, her colleagues, and everyone she has worked with over the years. The Roundtable is proud to acknowledge her significant professional achievements and extends heartfelt congratulations on her well-deserved retirement. We wish her continued success, happiness, and good health in the years to come. We are honored to have called her a friend and colleague all these years and wish her a wonderful retirement.

Cities & Infrastructure, Property Conversions

June 28, 2024

Policy Comment Letter

Roundtable Coalition Urges House Members to Support Property Conversions Legislation

Affordable Housing, Cities amp Infrastructure, Property Conversions,

Board of Directors, Roundtable Leadership

June 27, 2024

Press Release

NEWS: The Real Estate Roundtable Announces FY 2025 Leadership

Board of Directors John Fish Kathleen McCarthy Roundtable Leadership

Roundtable Annual Meeting

June 21, 2024

Roundtable Weekly

Public Officials and Industry Leaders Discuss National Policy Challenges Affecting CRE

Jeffrey DeBoer John Fish

The Real Estate Roundtable’s 2024 Annual Meeting this week included discussions with key public officials and industry leaders on issues affecting commercial real estate, including market conditions, the upcoming elections, affordable housing solutions, tax policy, sustainability issues, rebuilding cities, and evolving security threats. Roundtable Leadership During the meeting, Roundtable Chair Emeritus Robert Taubman (Chairman, President & CEO, Taubman Centers, Inc.) presented outgoing Chair John Fish (Chairman & CEO, SUFFOLK) with a gift from The Roundtable Board of Directors and membership, for his outstanding leadership and successful time as Chair. In his outgoing speech as now-Immediate Past Chair, Fish thanked Jeffrey DeBoer, The Roundtable Board of Directors, membership, and staff for their hard work, and reiterated a key lesson from his time as Chair: “What’s good for America is good for our business.” Kathleen McCarthy (Global Co-Head of Blackstone Real Estate) will begin her three-year term as Roundtable Chair on July 1, 2024. Meeting Speakers (L-R): Kenneth T. Rosen (Chairman of the Fisher Center for Real Estate and Urban Economics at the Haas School of Business at the University of California, Berkeley; Chairman, Rosen Consulting Group) presented and led a panel discussion on the economy and market conditions with Scott Rechler (Chairman & CEO, RXR), Bryan McDonnell (Managing Director, Chair of Global Debt & Agriculture, PGIM Real Estate), and Andrew P. Power (President & CEO, Digital Realty). The Honorable Elliot Doomes (Commissioner, Public Buildings Service, U.S. General Services Administration) discussed public-private partnership opportunities and sustainable building practices. “We urge the Public Buildings Service to accelerate their process to catalogue and sell to the private sector underutilized federal buildings. The private sector can convert those buildings to much needed housing, reduce unnecessary emissions, and help revitalize communities still struggling to recover from the pandemic,” said Roundtable President & CEO Jeffrey DeBoer. Dr. Frank Luntz (Founder and President, FIL Inc.) Bruce J. Katz (Director, Nowak Metro Finance Lab, Drexel University, former Inaugural Centennial Scholar and Vice President of the Brookings Institution) Policy Advisory Committee Meetings Joint Real Estate Capital Policy Advisory Committee (RECPAC) and Research Committee During a joint meeting, Research Co-Chair Spencer Levy (Global Chief Client Officer & Senior Economic Advisor, CBRE) and Darin Mellot (CBRE) briefed members on current real estate market conditions. RECPAC Co-Chair Michael Lowe (Co-CEO, Lowe) led a discussion about real estate credit and capital markets with: Kathleen S. Briscoe (Dermody Properties); Christina Chiu (Empire State Realty Trust); John Kessler (Mitsui Fudosan America); and Rex Rudy (U.S. Bank). Roundtable Senior Vice President Chip Rodgers moderated a discussion with Terry Haines (Pangea Policy) and Alex Sternhell (Sternhell Group) on key policy issues affecting the industry. (Agenda & Speakers) Tax Policy Advisory Committee (TPAC) TPAC Vice Chair David Friedline (Partner, Deloitte Tax LLP) led panels on tax legislation at the forefront of policy debates in Washington, including the Revitalizing Downtowns Act 2.0, the Foreign Investment in Real Property Tax Act (FIRPTA), partnerships, and pass-throughs. (Agenda & Speakers) Sustainability Policy Advisory Committee (SPAC) SPAC Chair Anthony E. Malkin (Chairman and CEO, Empire State Realty Trust, Inc.) and Vice Chair Ben Myers (Vice President, Sustainability, BXP) led discussions on the recently announced national definition of a Zero Emissions Building (ZEB), the SEC’s climate risk reporting rule, US-EPA ENERGY STAR, and NextGen. (Agenda & Speakers) Homeland Security Task Force (HSTF) Co-Chairs Amanda S. Mason (Executive Director, Global Intelligence, Related Companies) and Keith Wallace (VP, Global Safety & Security, Marriott International) led a series of discussions on a number of key areas of concerns for the commercial facilities sector. Dr. Todd C. Helmus (Senior Behavioral Scientist, RAND) discussed issues related to the 2024 U.S. election; Dr. Michael Doran (Senior Fellow and Director, Center for Peace and Security in the Middle East at the Hudson Institute) discussed risks posed by Iran; and FBI special agent Matthew Drummond briefed the Task Force on the current threat picture. (Agenda & Speakers) Next on The Roundtable's FY 2025 meeting calendar is the Fall Meeting on October 8-9. The Fall Meeting is restricted to Roundtable-level members only.

News, Tax Policy

June 21, 2024

Roundtable Weekly

Supreme Court Rules in Case of Federal Taxation of Unrealized Income

Moore v United States Unrealized Gains Billionaire Tax

On Thursday, the Supreme Court ruled 7-2 to uphold the constitutionality of mandatory repatriation tax (MRT) enacted in 2017, but chose to sidestep and not rule on the issue of whether the Constitution imposes a realization requirement on the taxation of income. (Moore v. United States) Background & The Decision The petitioners in Moore argued that the MRT exceeds Congress’s authority under the 16th Amendment to lay and collect taxes on income. The Moore’s were shareholders of a foreign corporation. The corporation never distributed its earnings, but the MRT taxed the Moore’s on their deemed share of the corporation’s income. The Moore’s argued that the federal government could not tax them on income they never realized. (Roundtable Weekly, Oct. 13) A decision in favor of the Moore’s could have important consequences for both legislative proposals to tax unrealized gains, but also existing aspects of the tax code and pass-through taxation. The Ninth Circuit ruled against the Moore’s on the grounds that there is no realization requirement in the Constitution. The Roundtable has consistently opposed proposals to tax unrealized gains on several grounds, including their constitutionality and the damage they would cause to the economy, entrepreneurship, and productive investment. The Supreme Court, in a decision authored by Justice Brett Kavanaugh, stepped back from the sweeping holding by Ninth Circuit and concluded that it did not need to rule on the realization question because the foreign company’s operating income was clearly “realized” by the foreign company. In passing the MRT, Congress was simply attributing (or passing through) that income to its U.S. shareholders. The 7-2 opinion by Justice Kavanagh was accompanied by two concurring opinions, one from Justice Jackson and one from Justice Barrett (joined by Justice Alito). Justices Thomas and Gorsuch dissented. While the Real Estate Roundtable’s Tax Policy Advisory Committee (TPAC) and its members are still parsing the language of the various opinions to understand the broader implications, at the end of the day, there appear to be at least four justices willing to uphold a realization requirement (Barrett, Alito, Thomas, and Gorsuch), one justice prepared to hold that realization is not required (Jackson), and four justices who have not yet tipped their hand (Kavanaugh, Roberts, Sotomayor, and Kagan). See analysis of Moore decision by TPAC member Don Susswein (Principal, RSM US LLP) The Moore ruling is unlikely the last word in the heated debate over the constitutionality of taxing unrealized gains.

News, Tax Policy

June 21, 2024

Roundtable Weekly

IRS and Treasury Unveil New Rules Aimed at Partnership “Basis-Shifting” Transactions

Partnerships amp PassThrough Taxation

This week, the IRS and Treasury Department announced a multistage regulatory initiative aimed at regulating certain partnership transactions that shift the tax basis of assets and generate additional depreciation deductions, reduce taxable gains, or increase deductible losses. (IRS-Treasury Press Release, June 17) Guidance Package In Notice 2024-54, Treasury and the IRS indicated they intend to issue proposed regulations governing certain transactions that affect the basis of property held by a partnership or distributed by a partnership. The guidance will focus on partnerships that involve related parties or tax-indifferent parties. Related parties could include family members, corporations and their shareholders, and other entities and businesses with common or overlapping ownership. It is unclear from the guidance where the administration believes the targeted abuses generating inappropriate tax benefits are most likely to arise (e.g., corporate mergers, family offices, real estate, etc.). The rules will apply to cost recovery deductions and gain/loss calculations for tax years ending after June 17, 2024, thus covering deductions, gains, or losses attributable to transactions completed in prior years. Roundtable Concerns A principal concern voiced at this week’s RER Tax Policy Advisory Committee meeting is related to the broad scope of the new rules. Rather than focusing specifically on identifiable, abusive transactions, Notice 2024-54 states that the forthcoming regulations will provide “mechanical rules applicable to all covered transactions without regard to the taxpayer's intent and without regard to whether the transactions could be abusive or lacking in economic substance.” Moreover, the Notice states that the regulations will only apply if the transaction results in a basis increase for the relevant property. “If, and to the extent, property has been allocated a basis decrease, the proposed rules would not apply.” The new rules thus apply to a transaction regardless of whether the transaction is abusive or lacking in economic substance, but only if they result in a negative outcome for the taxpayer. If the same mechanical rules would generate a positive result for another taxpayer, they are disregarded. In sum: Heads, IRS wins; tails, taxpayer loses. Additional Developments: Other elements of the regulatory initiative include: Proposed regulations (REG-124593-23) identifying some partnership-related-party basis adjustment transactions as transactions of interest and requiring disclosures by participants and material advisers. Revenue Ruling 2024-14 notifying taxpayers that it will apply the codified economic substance doctrine to challenge certain basis-shifting transactions. The IRS Office of Chief Counsel also announced the formation of a new associate office focused exclusively on partnerships, S corporations, trusts, and estates. (TaxNotes, June 17) The Roundtable’s Tax Policy Advisory Committee will continue its discussion of the partnership basis-shifting issue and how best to respond on its next TPAC Zoom meeting.

Homeland Security

June 14, 2024

RER Policy Priorities

Homeland Security – June 2024 Policy Priorities

Cyber Risks, Homeland Security, Physical Risks, Real Estate Information Sharing and Analysis Center REISAC, RERs Homeland Security Task Force HSTF,

Affordable Housing, Capital & Credit, Cities & Infrastructure, Energy & Climate, Homeland Security, Housing, Tax Policy

June 14, 2024

RER Policy Priorities

June 2024 – Policy Priorities

Capital and Credit, Cities amp Infrastructure, Energy amp Climate, Homeland Security, Housing, Tax Policy,

Cities & Infrastructure, Housing

June 14, 2024

RER Policy Priorities

Housing, Infrastructure, and Cities – June 2024 Policy Priorities

Affordable Housing, Cities amp Infrastructure, GSE Reform, Housing, Low Income Housing Tax Credit LIHTC, Yes In My Backyard YIMBY,

Tax Policy

June 14, 2024

RER Policy Priorities

Tax – June 2024 Policy Priorities

Capital Gains, Carried Interest, LikeKind Exchanges LKEs, Opportunity Zones OZs, Partnerships amp PassThrough Taxation, StepUp In Basis, Tax Policy, Unrealized Gains Billionaire Tax,

Affordable Housing, Capital & Credit, Cities & Infrastructure, Energy & Climate, Homeland Security, Housing, Tax Policy

June 14, 2024

RER Policy Priorities

Executive Summary – June 2024 Policy Priorities

Capital and Credit, Cities amp Infrastructure, Energy amp Climate, Homeland Security, Housing, Tax Policy,

Energy & Climate

June 14, 2024

RER Policy Priorities

Energy & Climate – June 2024 Policy Priorities

Building Performance Standards BPS, Clean Energy Tax Incentives, Energy amp Climate, Energy and Climate Policy, EPAs ENERGY STAR Tenant Space Recognition, EPAs NextGen Building Label, EPAs ENERGY STAR Certification for Buildings, Healthy Buildings, Reporting on Climate Risks, ScienceBased Targets,

Capital & Credit

June 14, 2024

RER Policy Priorities

Capital & Credit – June 2024 Policy Priorities

Basel III, Beneficial Ownership amp the Corporate Transparency Act, Capital and Credit, Commercial Insurance Coverage Pandemic Risks amp Natural Catastrophes, Halting ProCyclical Policy Measures and Increases in Regulatory Capital, Restoring Liquidity in CRE Markets and Protecting Capital Formation, Restrictions on Foreign Investment in US Real Estate, SAFE Banking Act,

Insurance, News

June 14, 2024

Roundtable Weekly

Housing Coalition Calls on Lawmakers to Address Rising Insurance Costs

Affordable Housing Commercial Insurance Coverage Pandemic Risks amp Natural Catastrophes Insurance National Flood Insurance Program NFIP

On Monday, The Roundtable as part of a broad housing coalition wrote to policymakers offering solutions to address rising insurance premiums across the nation’s housing market and its significant impact on all stakeholders throughout the commercial real estate industry. (Letter) Coalition Policy Solutions The lack of affordability and availability of insurance options has both short- and long-term implications for the real estate industry’s ability to address the housing crisis. The letter suggests several measures to mitigate these issues, including regulatory reforms, public-private partnerships, and innovative insurance products tailored toward affordable housing projects. Federal Backstop for Catastrophic Coverage: A federal backstop, similar to terrorism risk and national flood insurance, could help stabilize the market. Adjust Operating Cost Adjustment Factor (OCAF) Methodology at HUD: Use industry data for property and casualty insurers to reflect actual insurance costs for rental housing. Modernize Insurance Requirements: Revise stringent insurance requirements for federally-backed loans to provide more flexibility. Expand Federal Grants and Programs: Leverage existing federal programs to subsidize insurance costs and support resiliency investments. Unprecedented Insurance Rates The volatility in the insurance market, driven by more frequent natural catastrophes and inflation, has led insurers to raise premiums, increase deductibles, and limit coverage. Rising insurance premiums significantly impact housing providers, developers, and renters across the U.S., exacerbating housing affordability challenges and disincentivizing providers from participating in the affordable housing market. Insurance rates have surged dramatically, with property insurance rates increasing for 25 consecutive quarters and casualty insurance rates for 17. Over the past three years, affordable rental housing communities have seen premium increases ranging from 30% to 100%. An October 2023 survey and report, commissioned by the National Leased Housing Association (NLHA), found that affordable housing providers are facing much higher premiums, with nearly one in every three policies experiencing rate increases of 25% or more in the most recent renewal period. National Flood Insurance Program (NFIP) A recent report by the Joint Economic Committee Democrats found that the total annual economic burden of flooding in the United States is between $179.8 and $496 billion—equivalent to 1-2% of U.S. GDP in 2023. (JEC Report on Flooding) Congress has enacted 30 short-term extensions of the NFIP. The most recent stopgap spending bill extended the NFIP's funding through September 2024. (PoliticoPro, June 10) The Roundtable has been a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms. A long-term reauthorization of the NFIP is essential for residential markets, overall natural catastrophe insurance market capacity, and the broader economy. The Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs through targeted policy solutions that can help alleviate the burden on housing providers and ensure the availability of affordable housing nationwide.

Financial Stability

June 14, 2024

Roundtable Weekly

Federal Reserve Leaves Rates Unchanged

Housing Insurance Interest Rates The Fed

The Federal Reserve’s Federal Open Market Committee voted unanimously this week to maintain the federal funds rate at the 5.25%-5.5% range where it has been since July of last year. (Federal Reserve Press Release) Federal Open Market Committee (FOMC) Meeting After the meeting Wednesday, Fed chair Jerome Powell said at a news conference that he saw either one or two rate cuts this year as "plausible" scenarios. (Axios, June 12) "What everyone agrees on is it's going to be data dependent," Powell added. The FOMC issued a statement indicating that lowering inflation to 2 percent is their primary objective before reductions can occur. The Summary of Economic Projections (SEP) report released this week forecasted one rate cut in 2024, compared with three estimated in December 2023. The FOMC currently anticipates making four quarter-point cuts next year, bringing the federal funds rate down by 1.25 percentage points from its current level. Congressional Pushback Senators Elizabeth Warren (D-MA), Jacky Rosen (D-NV), and John Hickenlooper (D-CO) wrote to Fed chair Jerome Powell, urging the Fed to cut the federal funds interest rates from its current, two-decade-high of 5.5 percent, citing that other major central banks around the globe have made cuts or are leaning toward lowering interest rates. (Press Release | Letter) Their letter also raises concerns that high interest rates are increasing the costs of housing and insurance, continuing to hurt Americans as rates remain unchanged. On housing prices, the senators wrote: “The country is already facing a severe housing shortage, and the Fed’s refusal to bring down interest rates is exacerbating this shortage and driving higher inflation rates…Lower mortgage rates would encourage more people to sell their homes, which would in turn increase housing supply, decrease prices, ease the costs of renting, and ultimately increase homeownership.” Sen. Sheldon Whitehouse (D-RI), chairman of the Senate’s Budget Committee, and Rep. Brendan Boyle (D-PA), ranking member of the House Budget Committee, also wrote to Chairman Powell echoing their concerns that high interest rates are exacerbating the housing supply crisis. (Letter) Next week, at The Roundtable’s all-member Annual Meeting, we will hear economic and market forecasts from a panel of Roundtable members and Kenneth T. Rosen, Chairman, Fisher Center for Real Estate and Urban Economics at the Haas School of Business at the University of California, Berkeley; Chairman, Rosen Consulting Group.

Capital & Credit

June 10, 2024

Policy Comment Letter

Roundtable and Housing Coalition Call on Lawmakers to Address Rising Insurance Costs

Capital and Credit, Commercial Insurance Coverage Pandemic Risks amp Natural Catastrophes, Flood Insurance, National Flood Insurance Program NFIP, Pandemic Risk Insurance Program, Terrorism Risk Insurance Program,

Climate and Energy Policy

June 7, 2024

Roundtable Weekly

White House Announces Guideline for a “Zero Emissions Building”

Zero Emissions Buildings ZEB

The Biden administration on Thursday unveiled the “National Definition for a Zero Emissions Building,” or “ZEB.” This voluntary, long-term goal for commercial and residential buildings to slash carbon emissions has been anticipated for months. It is the first definition of its kind from the U.S. government and was developed with heavy input from The Real Estate Roundtable’s Sustainability Policy Advisory Committee (SPAC). (ZEB Definition | Press Release) ZEB Criteria Three criteria define a ZEB asset under the new definition from the U.S. Department of Energy (DOE). To meet the guideline, a building must be: Highly energy efficient, such as having an ENERGY STAR score of “75” or higher; Free of on-site emissions from energy use, with an exception for emergency backup power generation; and Powered solely from clean energy, which can be achieved through on-site renewable energy measures or the purchase of verified renewable energy certificates that increase off-site supplies of clean power. U.S. Energy Secretary Jennifer Granholm said, “With today’s announcement, DOE is helping bring clarity to our public and private sector partners to support decarbonization efforts and drive investment—paving the way for the cutting-edge clean energy technologies we need to make America’s buildings more comfortable and affordable.” (Press Release) The Roundtable and Nareit collaborated closely on comments in February when the ZEB definition was proposed to shape the final version. (Roundtable Weekly, February 2) A U.S. Definition for U.S. Real Estate A voluntary definition with standard minimum criteria for what it takes for a building to be “zero emissions” will drive innovation, attract investment capital, and support workforce development, according to DOE. It is important for U.S. real estate to have energy and climate guidelines—like the ZEB definition—backed by the federal government that reflect building data, climate conditions, and the carbon intensity of the electric grid here at home. Climate-related building standards “have to be granular enough to accurately reflect the power and buildings infrastructure located in the United States,” said Duane Desiderio, Senior Vice President and Counsel with The Roundtable. “We’re not getting that from the EU and global climate advocates.” (Bloomberg, June 6). EPA Offers the “Path to ZEB” ZEB status is best considered a long-term aspiration. Few buildings will reach zero emissions levels today. Buildings have ways to show more immediate progress, such as through the ENERGY STAR “NextGen” program, recently announced by the U.S. Environmental Protection Agency. “NextGen” building certifications will be available starting this fall. (Roundtable Weekly, March 22) Investors need a market signal for buildings to indicate they are taking steps now to slash emissions and energy use. NextGen, a low-carbon building label, is the intermediate step before reaching ZEB’s zero emissions guideline. “A building has to be ‘NextGen’ before it can be ‘ZEB.’ They work together,” Desiderio told Bloomberg. Speakers from the White House, DOE, EPA, and other leaders will discuss the ZEB definition and NextGen program at the upcoming SPAC meeting in Washington, DC on June 21.

Capital & Credit

June 7, 2024

Roundtable Weekly

US Appeals Court Vacates SEC’s Private Fund Rule

Capital and Credit Private Fund Advisors Private Rule Fund SEC Proposed Rules

The Fifth Circuit Court of Appeals in New Orleans ruled in favor of six private equity and hedge fund groups, finding that the Securities and Exchange Commission (SEC) exceeded its authority by adopting the Private Fund Adviser rule in August 2023. (WSJ, June 5) Court Ruling The appellate panel stated in a 25-page opinion that the SEC had exceeded its authority by implementing the rule changes in a 3-0 decision. The rules adopted by the SEC required fund managers to submit quarterly reports detailing performance, compensation, and other fees. They also restricted the ability of fund managers to provide more favorable terms or information access to investors. (WSJ, June 5) The rule applied to private equity funds, hedge funds, venture capital funds, and fund managers for institutional investors. The industry groups challenging the SEC rule argued it was burdensome and would harm investors by suppressing capital formation and make it harder for smaller advisers to compete. (CNBC, June 6) The panel noted that the Dodd-Frank Act section used by the SEC to justify it “has nothing to do with private funds.” (Politico, June 6) A spokeswoman said that the SEC is reviewing the decision and will determine its next steps. (Reuters, June 5) Roundtable Advocacy Since March 2022, The Roundtable has consistently advocated that the addition of reporting requirements presents significant compliance and operational challenges for private real estate fund sponsors with no added benefit to investors. While we support efforts to protect investors and monitor risk, we believe these proposals are unnecessary and would curb the entrepreneurialism, flexibility, and investment returns that make real estate private equity an increasingly attractive option for investors. (April 2022 Comment Letter) The Roundtable’s April 2022 letter stated, “As the real estate investment fund industry is required to bear more regulatory burdens and demands, the risk is that capital formation will be unduly hindered. We are therefore concerned that the Proposal, if finalized, could hinder real estate capital formation, the development and improvement of real properties, essential economic activity and jobs.” The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to monitor and respond to the SEC’s various proposed regulatory initiatives with its industry and coalition partners.

Beneficial Ownership

June 7, 2024

Roundtable Weekly

Real Estate Organizations Urge Congress to Delay Filing Deadlines of the Corporate Transparency Act (CTA)

Beneficial Ownership amp the Corporate Transparency Act Capital and Credit

The Real Estate Roundtable, along with eleven other national real estate organizations, wrote to the Senate Banking, Housing, and Urban Affairs Committee urging them to advance the Protect Small Business and Prevent Illicit Financial Activity Act (S.3625), which would extend the deadline for companies to report ownership information to the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). Corporate Transparency Act (CTA) Delay Bills Beneficial ownership regulations that took effect on Jan. 1 under the Corporate Transparency Act (CTA) pose burdensome compliance and material cost challenges for real estate and the small business community. The Protect Small Business and Prevent Illicit Financial Activity Act (S.3625), introduced by Banking Committee Ranking Member Tim Scott (R-SC), would extend the deadline for companies to report beneficial ownership information to FinCEN to two years (current regulations require the report within 1 year). Additionally, it would prohibit FinCEN from allowing companies to withhold information that would obscure their true owners. (Press Release, Jan. 18) “Chinese shell companies cannot be allowed to operate discreetly in the United States – threatening our national security, harming our economy, and stealing sensitive information. At the same time, we must ensure U.S. small businesses have the time necessary to comply with new reporting requirements. This bill makes important changes to do both,” said Ranking Member Scott. The bipartisan companion to this legislation (H.R. 5119), introduced by Representatives Zach Nunn (R-IA) and Joyce Beatty (D-OH), passed the House of Representatives by a decisive vote of 420-1 on December 12, 2023. The coalition’s letter noted a one-year delay of the CTA’s filing deadline would: Be consistent with congressional intent to give covered entities two years to comply with the CTA’s reporting requirements; and Provide the business community and FinCEN additional time to educate millions of small business owners regarding the new reporting requirements and the onerous penalties resulting from non-compliance. Roundtable Opposition The Roundtable has consistently opposed the beneficial ownership rules, the burdensome reporting requirements, and the negative impact on real estate transactions. (Coalition letter, April 29) “Because there are more real estate partnerships in the U.S. than any other line of business, the beneficial ownership reporting requirements in the CTA have a considerable impact on the industry. A one-year delay, as called for in S. 3625, would permit businesses much-needed time to fully understand these new reporting requirements,” said Clifton E. (Chip) Rodgers, Jr., Roundtable Senior Vice President. The Roundtable also joined more than 120 other national business organizations in a March 19 letter that urged Senate Banking Committee leaders to support a one-year filing delay for the new CTA beneficial ownership regulation requirements. The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor developments related to beneficial ownership requirements and legal outcomes.

Affordable Housing

June 7, 2024

Roundtable Weekly

Reports Show Single-Family Rentals Increase Housing Availability, Drive Educational Advancement

Affordable Housing Housing

Recent studies show major investments that grow the single-family rental (SFR) market increase housing supplies for low-income and middle-class households, and create more educational opportunities for families with improved access to quality school districts. Positive SFR Research Roundtable members discussed these results in a “listening session” on Wednesday with housing policy leads from the White House Domestic Policy Council and the National Economic Council. A report released last month by the U.S. Government Accountability Office (GAO) highlights the positive impact of major SFR investors in the aftermath of the 2007—2009 financial crisis. Large investors leveraged capital and technology to convert foreclosed homes into rentals, stabilizing neighborhoods and increasing housing availability. (GAO Report Highlights | Full GAO Report) Another study out of UNC Charlotte, also released in May, finds that children from low- and moderate-income households see improved achievements in school when they rent single-family homes in neighborhoods where they cannot afford to buy. (UNC Study Highlights | Full UNC Report) Key Findings Market Stabilization: The GAO explained that institutional investors bought foreclosed homes in bulk, converting them into rental properties, during the Great Financial Crisis. This helped stabilize neighborhoods and increased home values. Technological Efficiency: Advanced digital platforms and online management tools enabled investors to efficiently manage large property portfolios, improving tenant experiences and reducing costs, according to the GAO. Improved Housing Stock: Larger equity investors were able to underwrite substantial repairs and renovations to the units they purchase, “the cost of which is out of reach for many homebuyers,” according to a study cited by GAO. Educational Achievement: According to the UNC-Charlotte study, “low-income parents [are] taking advantage of these newly available rental units” and “their children are experiencing substantial achievement gains from attending high-performing schools.” Clear SFR Benefits Expanding the supply of housing across the geographic and economic spectrum is essential for the nation’s economic vitality. Large-scale SFR investments have helped revitalize distressed properties and communities, contributing to economic growth and stability. "Changing lifestyles are driving people to seek more flexible housing options that also provide better education opportunities without the long-term financial commitment of homeownership. Large-scale single-family rental businesses are responding to meet this demand," said Jeffrey DeBoer, Roundtable President and CEO. As American households increasingly turn to the rental market for housing, a strong housing finance system should support homeowners and aid the expansion of affordable rental housing. The Roundtable’s Annual Meeting on June 20-21 in Washington, DC, will feature discussions regarding the policies needed to help expand the supply of affordable and workforce housing.

Beneficial Ownership & the Corporate Transparency Act, Capital & Credit

June 4, 2024

Policy Comment Letter

RE Coalition Letter Supporting the Protect Small Business and Prevent Illicit Financial Activity Act (S.3625)

Capital and Credit, Corporate Transparency Act CTA,

Energy & Climate

May 31, 2024

Roundtable Weekly

Administration Unveils Principles for Carbon Offset Markets

Carbon Emissions Energy amp Climate GHG Emissions Scope 1 Emissions Scope 2 Emissions

The Biden administration on Tuesday released principles to enhance the integrity and effectiveness of voluntary carbon markets (VCMs) and incentivize companies to prioritize reducing their emissions. These principles can guide real estate businesses that seek to offset greenhouse gas (GHG) emissions. (White House fact sheet, May 28) All-of-Government Approach The principles and joint policy statement were signed by the Treasury, Energy and Agriculture Secretaries, and White House officials directing national economic and climate policy. VCMs can “channel a significant amount of private capital to support the energy transition and combat climate change, with the right incentives and guard rails in place,” they wrote Markets that provide credits for greenhouse gas (GHG) mitigation are crucial for meeting the administration’s climate goals to cut emissions in half by 2030 and reach net zero by 2050. Focus on Market Integrity The principles support carbon markets based on independently verified emissions savings. “[S]takeholders must be certain that one credit truly represents one tonne of carbon dioxide (or its equivalent) reduced or removed from the atmosphere.” Specific actions cited in the White House fact sheet to support the new principles include proposed guidance from the U.S. Commodity Futures Trading Commission (CFTC) for high-quality carbon offsets. (Roundtable Weekly, Feb. 16) The principles reflect the U.S.’s intentions to play a leadership role in standardizing international carbon markets. Today, VCMs are around $2 billion annually. With the potential of more private capital into climate projects through VCMs, Morgan Stanley projected that the voluntary market could grow to $100 billion by 2030. (Axios, May 28) Relevance for CRE Companies may finance GHG mitigation projects such as reforestation, carbon capture, and increasing renewable energy supplies. (WSJ, May 28) These tools can help real estate and other companies offset their Scope 1 “direct” emissions, as well as controversial Scope 3 emissions from supply chain sources. “Concerns about the credible use of credits (for example, to address a portion of Scope 3 emissions) must also be adequately addressed for VCMs to truly drive decarbonization.” (Joint Policy Statement, May 28) Specific instruments known as Renewable Energy Certificates (RECs) are commonly used in U.S. markets to address Scope 2 emissions, which are generated by power plants for the electricity used by tenants and other building occupants. (US-EPA, “Offsets and RECs – What’s the Difference?”) The Roundtable’s Sustainability Policy Advisory Committee (SPAC) continues to work closely with the White House on climate initiatives impacting commercial real estate.

Property Conversions

May 31, 2024

Roundtable Weekly

Revitalizing Post-Pandemic Cities Through Building Conversions

Cities amp Infrastructure Housing Property Conversions

Recent reports show property conversions are on the rise as commercial real estate and cities continue to undergo significant transformations to adapt to new post-pandemic realities. (Multihousing News, May 20 | (CBRE Report, May 29) Report Data Adaptive reuse projects are on the rise, with 17.6% more apartments converted from outdated buildings in 2023 than the prior year, according to a recent RentCafe report. There are currently 151,000 units underway in various stages of conversion projects across the U.S., of which 58,000 are to be redeveloped from office properties. (CRE Daily, May 30) Adaptive reuse projects from former hotels are at an all-time high in the U.S., with a 38.8% increase since the previous year and almost double the volume of 2021. (RentCafe report). CBRE’s “Shaping Tomorrow’s Cities” report identified six key factors that can help cities rebuild and thrive: economic dynamism, demographic potential, lifestyle vibrancy, distinctive identity, responsive governance, and resilient infrastructure. Rebuilding Strategies Converting underutilized buildings to residential use can be a cost-effective means of developing new housing, creating jobs, and generating critical sources of local property tax revenue while saving energy and reinvigorating communities. However, conversions can be costly, and local governments and developers must work together to bridge the gap and aid in rebuilding cities and communities. For example, Chicago is providing $150 million in public subsidies to property developers to convert four buildings in the business district to more than 1,000 apartments, with the assurance that one-third are set aside as affordable units. (WSJ, May 28) In New York City, Mayor Adams created the Office Conversion Accelerator Program, which brings city agencies together to work collaboratively with developers and aims to streamline converting offices into housing. (CRE Daily, May 30) “Public and private stakeholders have an integral role to play in shaping American cities. By having an all-hands-on-deck approach, the collective impact of experiences and rich data will drive insights and strategies to transform our cities,” the report said. (CBRE Report, May 29) Roundtable Recommendations The Roundtable has urged policymakers to create a robust tax incentive to help overcome the significant financial, architectural, and engineering hurdles associated with repurposing older commercial buildings as housing. The incentive should complement actions taken by state and local governments to encourage property conversions. The Roundtable is working with the House and Senate sponsors of the Revitalizing Downtowns Act (H.R.419) to update and improve the bill, which would create a 20-30 percent tax credit for qualifying conversion costs. The credit is based on the highly successful historic rehabilitation tax credit and would apply to buildings that set aside 20 percent of their housing units for low- and moderate-income tenants. In April, The Roundtable recommended a series of actions to the Biden administration to support commercial-to-residential property conversions, including leveraging various federal loan programs and tax incentives to provide financial support for CRE conversions. (Roundtable Weekly, April 19) Property conversions and the Revitalizing Downtowns Act (H.R.419) will be discussed at The Roundtable’s Annual Meeting on June 20-21 in Washington, DC.

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 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

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

May 24, 2024

Roundtable Weekly

Roundtable Founding Member and TPAC Chairman Frank G. Creamer, Jr. Passes

Frank G. Creamer, Jr., a founding member of The Real Estate Roundtable and long-serving chairman of its Tax Policy Advisory Committee (TPAC), passed away on May 17. (Obituary) Industry Mentor “Frank Creamer offered his deep expertise and knowledge to so many in the industry during his 25 years of involvement with RER,” said Jeffrey DeBoer, Roundtable President and CEO. “In his long-time role as TPAC Chairman, Frank was a tremendous mentor and reliable guide who cared deeply about The Roundtable, its role in the industry, and its members. His dedication was exemplary, and he will be remembered as the consummate gentleman he most certainly was, who always had time for others. We will sorely miss Frank and extend our heartfelt condolences to his family and friends.” Mr. Creamer held various executive positions during his career in the global commercial real estate lending business, rising to oversee all real estate banking at Citibank. After his tenure at Citibank, he became a principal and owner of his company, FGC Advisors, LLC, a real estate advisory firm. A memorial service is scheduled for June 5 in Center Moriches, NY followed by a June 6 funeral Mass at St. John the Evangelist Roman Catholic Church. In lieu of flowers, a donation in his memory can be made to the Tunnels to Towers Foundation. (See obituary for details)

Q2 Sentiment Index

May 23, 2024

Quarterly Sentiment Index

Q2 2024 Real Estate Roundtable Sentiment Index – full report

Quarterly Sentiment Index,

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.

Energy And Climate Policy

May 22, 2024

Policy Comment Letter

Roundtable Statement for House Hearing on Green Building Policies and Home Ownership

building codes, Building Performance Standards, Building Performance Standards BPS, Energy and Climate Policy, EPA,

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) # # #

Yes In My Backyard (YIMBY)

May 15, 2024

Policy Comment Letter

Roundtable and 17 National Organizations Support Passage of the Bipartisan “Yes In My Backyard” (YIMBY) Act

Yes In My Backyard YIMBY, YIMBY,

Policy Landscape

May 10, 2024

Roundtable Weekly

Roundtable’s William C. Rudin Discusses Public Policies to Strengthen CRE and the Economy

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 OZs 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 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. # # #

Roundtable Testimony

April 30, 2024

Testimony

Roundtable Testimony Before House Oversight Subcommittee on Policies to Strengthen CRE Markets

CRE, Jeffrey DeBoer, Roundtable Statement, testimony,

Beneficial Ownership & the Corporate Transparency Act

April 29, 2024

Policy Comment Letter

Roundtable Supports Legislation to Repeal the Corporate Transparency Act (CTA)

Beneficial Ownership, Corporate Transparency Act CTA,

Affordable Housing

April 29, 2024

Policy Comment Letter

Roundtable and Broad Housing Coalition Call on Lawmakers to Enact Policies Aimed at Broadening Housing Supply and Lowering Costs

Affordable Housing, Yes In My Backyard YIMBY,

Policy Landscape

April 26, 2024

Roundtable Weekly

Roundtable Congressional Testimony on April 30 Will Focus on Policy Actions to Strengthen CRE Markets

Jeffrey DeBoer 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 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

CRE Conversions 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) # # #

CRE Conversions

April 15, 2024

Policy Comment Letter

Roundtable Recommends White House Actions to Support Commercial-to-Residential Property Conversions

179D, Clean Energy Tax Incentives, CRE Conversions, Property Conversions, Tax Policy,

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

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 & Credit, Cities & Infrastructure, Energy & Climate, Homeland Security, Housing, Tax Policy

April 12, 2024

RER Policy Priorities

Spring 2024 – Policy Priorities

Capital and Credit, Cities amp Infrastructure, Energy amp Climate, Homeland Security, Housing, Tax Policy,

Tax Policy

April 12, 2024

RER Policy Priorities

Tax – Spring 2024 Policy Priorities

Capital Gains, Carried Interest, LikeKind Exchanges LKEs, Opportunity Zones OZs, Partnerships amp PassThrough Taxation, StepUp In Basis, Tax Policy, Unrealized Gains Billionaire Tax,

Cities & Infrastructure, Housing, Infrastructure, Remote Work

April 12, 2024

RER Policy Priorities

Housing, Infrastructure, and Cities – Spring 2024 Policy Priorities

Affordable Housing, Cities amp Infrastructure, GSE Reform, Housing, Low Income Housing Tax Credit LIHTC, Yes In My Backyard YIMBY,

Homeland Security

April 12, 2024

RER Policy Priorities

Homeland Security – Spring 2024 Policy Priorities

Cyber Risks, Homeland Security, Physical Risks, Real Estate Information Sharing and Analysis Center REISAC, RERs Homeland Security Task Force HSTF,

Energy & Climate

April 12, 2024

RER Policy Priorities

Energy & Climate – Spring 2024 Policy Priorities

Building Performance Standards BPS, Clean Energy Tax Incentives, Energy and Climate Policy, EPAs ENERGY STAR Tenant Space Recognition, EPAs ENERGY STAR Certification for Buildings, Healthy Buildings, Reporting on Climate Risks, ScienceBased Targets,

Capital & Credit

April 12, 2024

RER Policy Priorities

Capital & Credit – Spring 2024 Policy Priorities

Basel III, Beneficial Ownership amp the Corporate Transparency Act, Capital and Credit, Commercial Insurance Coverage Pandemic Risks amp Natural Catastrophes, Halting ProCyclical Policy Measures and Increases in Regulatory Capital, Restoring Liquidity in CRE Markets and Protecting Capital Formation, Restrictions on Foreign Investment in US Real Estate, SAFE Banking Act,

Capital & Credit, Cities & Infrastructure, Energy & Climate, Homeland Security, Housing, Tax Policy

April 12, 2024

RER Policy Priorities

Executive Summary – Spring 2024 Policy Priorities

Capital and Credit, Cities amp Infrastructure, Energy amp Climate, Homeland Security, Housing, Tax Policy,

Tax Policy

April 10, 2024

Policy Comment Letter

Roundtable and 35 National Organizations Urge Congressional Taxwriters to Preserve Like-kind Exchange Rules (Section 1031)

LikeKind Exchanges LKEs, Section 1031, Tax Policy,

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. # # #

Beneficial Ownership

March 20, 2024

Policy Comment Letter

Roundtable and Business Coalition Urge Congress to Delay Implementation of Beneficial Ownership Rules

Beneficial Ownership, Beneficial Ownership amp the Corporate Transparency Act,

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. # # #

Climate Risk Reporting

March 12, 2024

Fact Sheet

The SEC’s Climate Disclosure Rules: What CRE Should Know – Roundtable Fact Sheet, March 12

Climate and Energy Policy, Climate Policy, Climate Risk Reporting, Energy and Climate Policy, Reporting on Climate Risks, Scope 3 reporting, SEC, Securities and Exchange Commission,

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.” # # #

Restrictions on Foreign Investment in U.S. Real Estate

March 1, 2024

Policy Comment Letter

Roundtable letter to Florida State Legislative Leaders in Support of Amendment on Real Property Ownership

Florida SB264, Foreign Investment, Restrictions on Foreign Investment in US Real Estate,

Quarterly Sentiment Index

February 29, 2024

Quarterly Sentiment Index

2024 Quarterly Sentiment Index

Quarterly Sentiment Index,

EB-5

February 28, 2024

Policy Comment Letter

Roundtable Letter to Judiciary Committees on Need to Correct EB-5 Guidance

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. # # #

Affordable Housing

February 20, 2024

Policy Comment Letter

Roundtable and Broad Coalition Strongly Support the Yes in My Backyard Act (YIMBY) — H.R. 3507

Affordable Housing, Yes In My Backyard YIMBY,

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 Low Income Housing Tax Credit LIHTC 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) # # #

Tax Policy

February 15, 2024

Policy Comment Letter

Roundtable and Housing Affordability Coalition Urge Senate to Pass Tax Package

Business Interest Deduction, Low Income Housing Tax Credit LIHTC, Tax Policy,

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. # # #

Capital and Credit

February 7, 2024

Policy Comment Letter

Real Estate Coalition Comments on Proposed FTC Rule on Unfair or Deceptive Fees

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. # # #

Zero Emissions Buildings (ZEB)

February 2, 2024

Policy Comment Letter

Roundtable-Nareit Cover Letter to DOE on Zero Emissions Building (“ZEB”)

Climate Policy, Zero Emissions Buildings ZEB,

Zero Emissions Buildings (ZEB)

February 2, 2024

Policy Comment Letter

Roundtable-Nareit Addendum Comments to DOE on Zero Emissions Building (“ZEB”)

Climate Policy, Zero Emissions Buildings ZEB,

Affordable Housing, Housing, Tax Policy

January 31, 2024

Policy Comment Letter

RER Supports H.R. 7024, The Tax Relief for American Families and Workers Act of 2024

Affordable Housing, Business Interest Deduction, Low Income Housing Tax Credit LIHTC,

Equity, Diversity, and Inclusion

January 31, 2024

Mission Statement for The Roundtable’s Equity, Diversity, and Inclusion Committee

Equity Diversity and Inclusion EDI,

Restrictions on Foreign Investment in U.S. Real Estate

January 30, 2024

Policy Comment Letter

Roundtable Recommends Changes to Implementation of Florida Law Limiting Certain Foreign Investments in Real Estate

Capital and Credit, Florida SB264, Restrictions on Foreign Investment in US Real Estate,

Capital and Credit

January 26, 2024

Presentation

Capital and Credit Issues Presentation – January 2024 Roundtable State of the Industry Meeting

Capital and Credit, Chip Rodgers,

2024 State of the Industry Meeting

January 26, 2024

Roundtable Weekly

Senator Joe Manchin and Financier Michael Milken Among Roundtable’s SOI Meeting Guests

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

Capital and Credit Chip Rodgers Debra Cafaro Ventas 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

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. # # #

Roundtable Meeting

January 26, 2024

Meeting Agenda

2024 RER State of the Industry (SOI) Meeting Agenda — January 23-24

Sustainability Policy Advisory Committee - SPAC

January 24, 2024

Presentation

EPA Update on ENERGY STAR and “NextGen” to Roundtable’s Sustainability Advisory Policy Committee

EPA, EPAs NextGen Building Label, SPAC Sustainability Policy Advisory Committee,

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 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. # # #

Roundtable Leadership

January 19, 2024

Roundtable Weekly

RER President and CEO Jeffrey DeBoer Recognized with Commercial Property Executive’s Lifetime Achievement Award

Jeffrey DeBoer Roundtable Leadership Statement Jeffrey DeBoer

A “Lifetime Achievement Award” from the national publication Commercial Property Executive recognized the accomplishments of Roundtable President and CEO Jeffrey DeBoer, who spoke about current policy challenges facing the industry, The Roundtable’s evolution, and the industry’s historical effectiveness in Washington. (Watch the Jan. 18 webcast | Read DeBoer’s written comments | CPE article, Jan. 19) DeBoer noted that real estate is entering a period of increased national public policy risks, which include issues such as liquidity, energy and resiliency, tax policy, and more. DeBoer stated, “[The Roundtable’s] job is to focus on these policy risks, gather the facts, prepare the analysis, develop sound messages, and fine-tune our messages and our message delivery system.” DeBoer added, “It’s very important that everyone in the industry recognize that to ignore Washington in the coming years is to increase business risk.” Current and upcoming challenges facing the industry will be the focus of The Roundtable’s Jan. 23-24 all-member State of the Industry Meeting in Washington, DC. # # #

Roundtable Leadership

January 18, 2024

Statement - Jeffrey DeBoer

Roundtable President and CEO Jeffrey DeBoer Lifetime Achievement Award — Keynote Address

Jeffrey DeBoer, Roundtable Leadership, Statement Jeffrey DeBoer,

Basel III

January 16, 2024

Policy Comment Letter

Roundtable and Real Estate Coalition Oppose “Basel III Endgame” Proposal to Raise Bank Capital Requirements

Basel III, Capital and Credit, Halting ProCyclical Policy Measures and Increases in Regulatory Capital, The Fed,

Basel III

January 12, 2024

Policy Comment Letter

Roundtable Opposes Proposed “Basel III Endgame” Increase in Capital Requirements

Basel III, Capital Credit, Federal Reserve, Halting ProCyclical Policy Measures and Increases in Regulatory Capital, The Fed,

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 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. # # #

Roundtable Leadership

January 12, 2024

Roundtable Weekly

RER President and CEO Jeffrey DeBoer to Receive Commercial Property Executive’s Lifetime Achievement Award

DeBoer Jeffrey DeBoer Roundtable Leadership

Real Estate Roundtable President and CEO Jeffrey DeBoer, above, will receive Commercial Property Executive’s Lifetime Achievement Award during CPE’s virtual 2023 Influence Awards on Thursday, Jan. 18 at 1 pm ET, when he will deliver the keynote address. (Register here for the event) As the founding President and CEO of The Real Estate Roundtable and in previous Washington-based positions, DeBoer has been at the forefront of national policy affec