Roundtable Weekly

The Senate yesterday approved funding to keep the government open through March 11, allowing congressional negotiators an additional three weeks to reach a spending deal for fiscal year 2022. (CQ, Feb. 18) 

From CR to Omni 

• The legislation (H.R. 6617) extends FY2021 funding levels, averting a government shutdown at midnight tonight. President Biden is expected to sign the Continuing Resolution (CR), which was passed by the House last week. (Roundtable Weekly, Feb. 11)
  
  
• Congressional appropriators are now focused on crafting an “omnibus” bill to fund the government though the end of FY2021, which began Oct. 1 and ends Sept. 30. A deal on an omni package would consolidate 12 separate spending bills and release additional funds for infrastructure. (Tax Notes, Feb. 18)
  
  
• The must-pass omnibus could become a vehicle for additional tax measures, including expired tax incentives and energy credits known as extenders. Senate Finance Committee Chair Ron Wyden, (D-OR), told Tax Notes on February 10 that certain credits may be included in an omnibus bill or in a scaled-down Build Back Better Act (H.R. 5376).
  
  
• The Biden administration’s request for Congress to appropriate billions more in COVID-19 response funds is meeting bipartisan resistance. Senate Appropriations Chair Patrick Leahy (D-VT) this week commented on negotiations about the omnibus and the White House supplemental, stating, “That should probably be a separate bill.” (Politico, Feb. 17 and PoliticPro, Feb. 18) 

Roundtable & Energy Measures 

• Omnibus negotiations and pandemic funding may be followed by congressional consideration of a pared-down BBB bill as the mid-term elections grow closer. Key Sen. Joe Manchin (D-WV), chair of the Senate Energy and Natural Resources Committee, has signaled his support for climate measures in a revised BBB package. (CNN, Jan. 5 and New York Times, Jan. 20)
  
  
• The Roundtable has supported the BBB Act’s climate measures, which include a suite of clean energy tax credits and incentives amounting to $300 billion. (Roundtable Weekly, Jan. 7)
  
  
• The Roundtable sent a letter to Congressional tax writers on Nov. 16, 2021 detailing five recommendations aimed at improving the green energy tax provisions affecting real estate. (Roundtable letter, Nov. 16)  

The Senate returns on Feb. 28 for President Biden’s first State of the Union address on March 1, which will be followed by the administration’s FY2023 budget request. 

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As the economy continues to recover from the global pandemic, commercial real estate executives see strong market fundamentals and steady economic growth, according to The Real Estate Roundtable’s Q1 2022 Economic Sentiment Index. While optimistic about the economic outlook going forward, inflation concerns and a rising interest rate environment are frequently cited as potential headwinds for the industry.

Market Conditions

• Additionally, Roundtable Chair John Fish (Chairman and CEO, Suffolk), above, on Feb. 14 discussed the real estate market and return-to-office efforts on Bloomberg’s “The Tape” podcast. (Listen to podcast from 10:45 to 16:55)
  
  
• The Roundtable’s Overall Q1 2022 Sentiment Index—a reflection of the views of real estate industry leaders—registered a score of 66, a seven-point increase relative to the Q1 2021 score, demonstrating continued optimism for market conditions despite a decrease of seven points from Q4 2021. The Current Index registered at 71, a 27- point increase compared to Q1 2021. The Economic Sentiment Overall Index is scored on a scale of 1 to 100 by averaging the scores of Current and Future Indices. Any score over 50 is viewed as positive.
  
  
• The Roundtable’s quarterly economic survey also shows that 69 percent of respondents believe that general market conditions today are “much better or somewhat better” versus one year ago—and that 53 percent anticipate conditions will continue to improve one year from now.
  
  
• Roundtable President and CEO Jeffrey DeBoer said, “We are encouraged by the decreasing number of cases of COVID-19, pandemic-related restrictions being lifted throughout the country, cities continuing to reopen safely and efficiently, and increased travel and consumer spending. Our nation’s post-pandemic recovery is reliant on the revitalization of cities, safe transportation systems, significant return of employees to the workplace, and healthy real estate values.”
  
  
• He added, “Throughout the pandemic the real estate industry has assisted suddenly jobless residents and troubled business tenants restructure leases to remain in their properties. Industry leaders now look forward to reimagining people’s living, shopping, work, and other spaces in the built environment to accommodate the evolving needs of the post-COVID economy.”

Topline Findings 

• The Q1 2022 Real Estate Roundtable Sentiment Index registered a score of 66, a decrease of seven points from the fourth quarter of 2021 but a seven-point increase over Q1 2021. While optimistic about the economic outlook going forward, inflation concerns and a rising interest rate environment were frequently cited as potential headwinds for the industry.
   
• Survey respondents’ outlook varied between asset classes and location; most participants felt that real estate assets, particularly single and multifamily housing and industrial, remain largely “priced to perfection” with limited supply being chased by seemingly “boundless” capital.
   
• This supply-demand imbalance has generally led to compressed cap rates across favorable asset classes and results in perceptions that valuations will remain elevated.
  
  
• Participants cited a continued abundance of debt and equity capital and strong investor demand for real estate. 

Data for the Q1 survey was gathered in January by Chicago-based Ferguson Partners on The Roundtable’s behalf. See the full Q1 report. 

Washington policymakers this week addressed new initiatives to disburse $1.2 trillion in federal infrastructure investment, including agency spending that will support production of low-carbon construction materials. (White House Fact Sheet, Feb. 15) 

Biden Administration Efforts 

• President Biden yesterday traveled to Ohio to emphasize how the Infrastructure Investment and Jobs Act (IIJA) signed into law last November is funding new roads, bridges and railways while also protecting the environment. (Roundtable Weekly, Nov. 12, 2021 and Reuters, Jan. 17)
  
  
• The White House on Tuesday announced new government-wide actions to support clean manufacturing for low-carbon production of steel, aluminum, and concrete needed as materials for electric vehicles, solar panels, buildings, and transportation projects.
  
  
• A “Buy Clean Task Force” includes efforts by the General Services Administration (GSA) to encourage best practices for reducing “embodied emissions” of construction materials in federal buildings. (Reuters and MarketWatch, Feb. 15)
  
  
• The administration also launched “Infrastructure School” this week – a series of webinars to provide an in-depth look into IIJA investment categories ranging from roads to rail to mass transit to broadband. Each webinar will cover an infrastructure asset class described in the Administration’s recently released Bipartisan Infrastructure Law guidebook. (Usetinc, Feb. 15 and Roundtable Weekly, Feb. 4) 

Transportation Spending Controversies 

• Billions from the Infrastructure Investment and Jobs Act (IIJA) for transportation projects are on hold, dependent on Congress reaching a deal on an “omnibus” appropriations bill to fund the U.S. government though Sept. 30. Meanwhile, the types of highways projects that should primarily benefit from federal funding is becoming a contentious issue. (E&E News, Feb. 7 and BGov, Feb.9)
  
  
• The Biden Administration in December issued guidance advising states to prioritize IIJA transportation dollars for maintaining and improving existing highways – before adding new lanes.
  
  
• In a letter last month to President Biden, a group of 16 Republican governors asked for greater flexibility. The letter noted, “A clear example of federal overreach would be an attempt by the Federal Highway Administration to limit state widening projects.”
  
  
• Senate Minority Leader Mitch McConnell (R-KY) and Sen. Shelley Moore Capito (R-WV) last week countered the Biden Administration’s guidance. They advised U.S. governors that the IIJA has no authority to “dictate how states should use their federal formula funding, nor prioritizes public transit or bike paths over new roads and bridges.” (Wall Street Journal, Feb. 9)
  
  
• Additionally, the Biden administration on Feb. 10 released a plan to distribute $5 billion in formula funding to states for EV chargers. States would first have to present charging network “deployment plans” to the US-DOT before receiving federal money. (CNBC, Feb. 10)
   
• In Congress, the economic impact of infrastructure investing was the focus of a Tuesday hearing held by a House Ways and Means subcommittee. (W&M news release, Feb. 5) 

Transit industry experts, state transportation officials, and other witnesses testified before the subcommittee on the importance of the IIJA’s funding to transportation infrastructure improvements, economic growth and public health. 

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A Federal Communications Commission (FCC) order released Tuesday aims to nullify arrangements between broadband providers and building owners to deliver efficient and cost effective internet service for residential and business tenants. (Bloomberg, Feb. 15)

• The FCC maintains that its latest rules will “unblock broadband competition” for apartment dwellers and businesses. The agency aims to block agreements that would allow building owners to share revenue with a broadband company when providing internet access in a residential or commercial building. (FCC news release)
  
  
• The FCC’s action this week derives from a Biden Administration executive order issued last summer that contains a far-reaching objective to “promote competition in the American economy.” The order included a lone reference to rules that improve tenants’ choices in selecting broadband providers, which led to this week’s action by the FCC.
  
  
• Multifamily industry advocates counter that the FCC’s latest order could “discourage investment and harm deployment and maintenance of broadband networks.” [Feb. 17 statement of the National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA)]
  
  
• The NMHC and NAA statement explains that the FCC’s ruling attempts to provide a solution where there is no problem. “Industry data shows competition and superior broadband service already exists, with 80 percent of apartments surveyed having two or more providers on site.”
  
  
• NMHC and NAA also point out that the FCC’s order could actually hinder broadband access for Americans living in low-income communities, smaller rentals, public housing, and other underserved properties most in need of broadband modernization. “Building owners often struggle to find even one provider to serve a property and provide up-to-date broadband service in these locations,” the organizations stated.

• NMHC and NAA led a coalition of real estate groups – including The Real Estate Roundtable and Nareit – in filing comments to the FCC last fall. The coalition comments demonstrated there is “ample competition in the broadband market in apartment buildings and office and retail properties” and that new FCC rules were unnecessary.
  
  
• The real estate coalition comments also explained that “revenue sharing agreements” between building owners and broadband providers are not the problem that limits internet access in low-income and other underserved communities. Rather, the chief “limiting factor” in addressing that challenge is the cost of “extending infrastructure to and within those communities” in the first place. (FCC comment letter, Oct. 20, 2021)

The bipartisan Infrastructure Investment and Jobs Act (IIJA) invests roughly $65 billion “to help ensure that every American has access to reliable high speed internet.” (Bipartisan Infrastructure Law Guidebook, “Broadband” section)

The Roundtable will continue to work with coalition partners to promote speedy and proper disbursement of IIJA funds for broadband and other infrastructure projects, while preserving the rights of owners to manage their buildings and meet their tenants’ demands.

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