Pandemic Relief

House Passes $1.9 Trillion Virus Relief Package; Fed Reports Concerns About CRE

Capitol Building evening 475w

Congressional Democrats racing to enact President Biden’s landmark $1.9 trillion COVID-19 relief package before unemployment benefits expire March 14 passed The American Rescue Plan Act of 2021 (H.R. 1319) early Saturday morning on a near party-line vote. The massive aid bill now goes to the 50-50 Senate where Democrats cannot afford to lose a single vote. (Associated Press, Feb. 27 and Politico, Feb. 26 and text of the bill)

  • The House bill provides $638 billion in tax cuts, offset by $45 billion in tax increases, representing over 2% of GDP in 2021 and a significant individual income boost for low- and middle-income Americans. While there is no business tax relief in the bill, it includes: 

    • $245 billion to extend enhanced unemployment benefits through August;

    • $350 billion in fiscal assistance for States and localities;

    • $170 billion for schools and colleges – and $85B for vaccine distribution.

    • $30.5 billion in grants to mass transit
        
  • Key elements of the bill affecting real estate include:

    • $19 billion for residential rental assistance through Sept. 30, 2027, which adds to the existing $25 billion in rental assistance provided in December’s omnibus legislation;

    • $10B homeowner assistance fund to help prevent foreclosure or eviction due to the pandemic;

    • a new $25B Restaurant Revitalization Fund to provide cash grants to food and beverage establishments.

Fed Concerns on Pandemic & CRE

As the $1.9 trillion relief package made its way through the House this week, Federal Reserve Chairman Jerome Powell testified before congressional committees on the Fed’s semiannual monetary policy report to Congress before the Senate Banking, Housing and Urban Affairs Committee on Feb. 23 and the House Financial Services Committee on Feb. 24.

  • The Fed’s Feb. 19 Monetary Policy Report warned of significant risks to the economy as a result of the ongoing national impact of the pandemic. The report noted, “Commercial real estate prices remain at historically high levels despite high vacancy rates and appear susceptible to sharp declines, particularly if the pace of distressed transactions picks up or, in the longer term, the pandemic leads to permanent changes in demand.”  (Bloomberg, Feb. 19, “Fed Sounds Alarm on Commercial Real Estate, Business Bankruptcy”)

“We don't have a plan specifically for commercial real estate,” Powell testified. “I will say that we do see a number of sectors of commercial real estate that are under pressure, particularly office [and] hotels … which are directly affected by a pandemic. The best thing that can happen for the commercial real estate sector is [to] … get the pandemic behind us.” (Powell House Testimony)

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COVID-19 & CRE

White House Requests Information from Businesses on Their COVID-19 Efforts

The Biden Administration is calling on the private sector to share their unique contributions in combatting the pandemic. In the coming weeks, The White House plans to elevate these examples to show how businesses across the country are doing their part to fight the coronavirus. (New York Times and White House Press Briefing, Feb. 26)

  • Examples of how commercial real estate owners are offering to open their buildings for COVID-19 testing are provided in a Feb. 24 Bloomberg report (subscription only).
  • The Bloomberg article focuses on the efforts of several companies exploring how to open coronavirus testing centers for the public good. “SL Green Realty Corp. and Rudin Management Co. have expressed interest in offering tests at their buildings. And Vornado Realty Trust and Boston Properties Inc. are among companies that agreed to let the state set up testing centers in select buildings,” according to the article.
  • Companies such as Related Cos. and RXR Realty are noted for having added on-site testing at their properties for returning clients. Roundtable Member and RXR Chairman and Chief Executive Officer Scott Rechler told Blooomberg, “You think to yourself, as a real estate owner and operator, we need to provide testing to help our tenants.”

Roundtable President and CEO Jeffrey DeBoer noted the continuing efforts of Roundtable members in fighting the pandemic. “Commercial real estate owners of buildings small and large have been active in combatting COVID-19 on behalf of their employees, tenants and investors since the early days of the outbreak,” DeBoer said. “These focused efforts will continue to help Americans in towns and cities throughout the nation until the pandemic is defeated and a sense of normalcy returns to the workplace.” 

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Energy and Infrastructure Policy

Biden Plans Infrastructure Push as Congress, Agencies Prepare to Investigate the Texas Electric Grid Crisis

Infrastructure Pittsburgh rails roads

The Biden Administration plans to push for a large-scale infrastructure initiative that takes into account the effects of climate change after Congress finishes consideration of the pandemic relief package. Meanwhile, federal regulators and Congress are preparing to examine the threat that climate change poses to the nation’s electric infrastructure in the wake of last week’s deadly freeze in Texas that stranded millions without power. (Wall Street Journal and ReutersFeb. 22)   

  • The Biden Administration is expected to reveal details of its infrastructure package soon, as part of its “Build Back Better” agenda to spur economic recovery. (Roundtable Weekly, Feb. 19)
  • The rolling power outages across Texas and the Midwest due to severe winter storms prompted the Federal Energy Regulatory Commission (FERC) this week to open a proceeding to examine how electric grid operators prepare for and respond to extreme weather events. (FERC news release and FERC Insight, Feb. 2021)
  • FERC Chairman Richard Glick said, “The effects of climate change are already apparent and we must do everything we can within our statutory authority to ensure that the electric grid is capable of keeping the lights on in the face of extreme weather.” 
  • The Texas power outages have increased scrutiny in Congress on the need for investments in the nation’s electric grid. House Speaker Nancy Pelosi (D-CA) referred to the blackouts when she announced that the House Energy Committee will be investigating the matter. (Axios, Feb. 19)
  • In the Senate, Energy Committee Chairman Joe Manchin (R-WV) told Politico Pro that he is planning his own review of the power grid issue. (Politico, Feb. 19) 
  • The question of how to fund a national infrastructure effort remains the major challenge for Washington policymakers. ( Roundtable Weekly, Feb. 12)  Senate Environment and Public Works Committee Chairman Tom Carper (D-DE) suggested at a hearing yesterday that a national pilot program should explore a “vehicle miles travelled” tax, while Manchin separately stated that the gas tax paid by consumers at the pump “is not going to do what we need” to build and modernize roads, bridges, and mass transit. (NATSO, Feb. 25)   
  • The Roundtable and the Build by the 4th coalition is encouraging Congress to pass a comprehensive infrastructure package by Independence Day 2021. Last December it also provided recommendations to the new Administration that included infrastructure funding and modernization as engines to drive recovery and job growth from the economic fallout of the COVID-19 pandemic. 

Construction Industry’s Role

  • “The construction industry can be part of the solution by working with developers and owners to reimagine the entire building lifecycle and ensure sustainability is incorporated at every stage of the process, from planning, design and material selection to building operation and energy efficiency after construction completion,” the op-ed states.
  • Other recommendations include more efficient management of the consumer supply chain; just-in-time delivery of materials to project sites; and minimizing construction waste.

Ms. Klee concludes that sustainable development will require “smart planning, flawless execution and education across the spectrum of stakeholders to ensure these best practices pay significant dividends, both socially and financially, in the long term.”

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Equity, Diversity and Inclusion

Roundtable-Backed Corporate Diversity Bill Reintroduced in House and Senate

Legislation requiring public companies to report on the diversity of their corporate boards and executive officers was reintroduced Feb. 23 in the Senate and House by Sen. Bob Menendez (D-NJ), above right, and Rep. Gregory Meeks (D-NY), left, (Bloomberg Law, Feb. 23) 

  • The Improving Corporate Governance Through Diversity Act  would amend the 1934 Securities Exchange Act to require issuers of securities that must file annual reports to disclose in proxy statements:

    • Data on the racial, ethnic, and gender composition of their executive officers, board of directors, and board nominees;

    • Whether any director, board nominee, or executive officer is a veteran; and

    • Plans or strategies to promote diversity at the board and executive levels. 

  • “Without greater diversity in top corporate positions, the U.S. will fail to compete with other leading economies and stall our nation’s progress towards full inclusivity,” said Sen. Menendez. “It’s time corporate boardrooms mirror the rich diversity of our country.” (Menendez news release, Feb. 23
  • “Revealing the gender, racial, ethnic and veteran makeup of these corporate C-suites and boardrooms will not only shed light on the value of diversity, but hopefully encourage corporate shareholders to increase diversity in the highest ranks of their corporations,” said Rep. Meeks. (Meeks news release, Feb. 23)
  • The Improving Corporate Governance Through Diversity Act passed the House in the last Congress but did not advance in the Senate. (Roundtable Weekly, July 31, 2020). Now that the Senate is controlled by the Democrats, the measure has a higher likelihood of passage this session.
  • The Roundtable supports the Menendez-Meeks bill along with other groups including Nareit, NAIOP, International Council of Shopping Centers, Real Estate Executives Council (REEC) and the U.S. Chamber of Commerce. (Meeks news release, Feb. 23)
  • “Diversifying corporate leadership is a critical step to provide equal business opportunities for all Americans, and we urge Congress to pass the Improving Corporate Governance Through Diversity Act,” said Roundtable President and CEO, Jeffrey DeBoer. ”It’s been estimated that $5 trillion can be added to US GDP over the next five years if we close the systemic gaps that have prevented Blacks, Hispanics, and other under-represented groups from fully and fairly participating in our economy.”
  • Reports from PwC and McKinsey & Co. find that diversity in corporate management and leadership drives profitability.  The McKinsey report concludes that “companies with more diverse executives were 33% more likely to see above average profits.” (CNBC, June 12, 2020)
  • The Roundtable’s Equity, Diversity and Inclusion (ED&I) Committee recently issued its mission statement to create equal opportunities for Black Americans and other minorities to prosper in the commercial real estate industry. (Roundtable Weekly, Feb. 12)

The Roundtable is also a “Founding Diversity Partner” in a national program recently launched by the Real Estate Executives Council (REEC) — the leading trade association formed to promote the interests of minority executives in the CRE industry. (Roundtable Weekly, Feb. 5) 

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Tax Policy

Legislation Reintroduced in the House to Change Taxation of Carried Interest

Rep. Bill Pascrell Jr. (D-NJ)

A group of House Democrats led by Bill Pascrell Jr. (D-NJ), chairman of the House Ways and Means Oversight Subcommittee, introduced the Carried Interest Fairness Act of 2021 (H.R. 1068) on Feb. 16. For taxpayers with a profits interest in a partnership that invests in capital assets, such as stock and real estate, the bill would convert long-term capital gain to ordinary income. (Pensions & Investments and Bisnow, Feb. 16)

  • As currently drafted, the House legislation would apply to dispositions of partnership interests, distributions of partnership property, and sales of partnership assets that occur in tax years ending after the date of enactment. Thus, if the bill became law this summer or fall, and a partnership’s tax year corresponded with the calendar year, the tax increase would apply to gains realized after December 31, 2020. There is no provision that would exempt or grandfather prior partnership agreements, even though the agreements were negotiated based on well-settled tax law as it existed at the time.
  • The top individual income tax rate today is 37%. The current maximum tax rate on long-term capital gain is 20%.  In some cases, an additional 3.8% tax on net investment income also applies. 
  • The six co-sponsors of H.R. 1068 are Reps. Reps. Don Beyer (D-VA), Earl Blumenauer (D-OR), Judy Chu (D-CA), Andy Levin (D-MI), Katie Porter (D-CA) and Tom Suozzi (D-NY). (Rep. Pascrell news release, Feb. 16).  Similar legislation has been introduced in every Congress since 2010.
  • In the Senate, incoming Finance Committee Chairman Ron Wyden (D-OR) outlined his tax agenda during a Jan. 13 call with reporters, including plans to move forward with an increase in the corporate tax rate and major changes in the taxation of individual capital gains. Wyden added he would also pursue raising the current 21% corporate tax rate and change the tax treatment of carried interest (Roundtable Weekly, Jan. 15).
  • During the Presidential campaign, then-candidate Joe Biden did not put forward a carried interest proposal, but rather proposed raising the maximum tax rate on long-term capital gains to create rate parity with wages, rental income, and other sources of ordinary income. 

The Roundtable & Carried Interest

  • The Roundtable has consistently opposed proposals to tax all carried interest at ordinary income rates. Congress likewise has consistently rejected proposals to recharacterize all profits interests as ordinary income. Carried interest is not compensation for services.  General partners receive fees for routine services like leasing and property management.  Those fees are taxed at ordinary tax rates.  The carried interest is granted for the value the general partner adds to the venture beyond routine services, such as business acumen, experience, and relationships.  It is also recognition of the risks the general partner takes with respect to the general partnership’s liabilities, such as predevelopment costs and potential litigation. 
  • “Taxing carried interest at ordinary income rates would discourage the risk taking and sweat equity that drives job creation and economic growth,” said Roundtable President and CEO Jeffrey DeBoer. “It would encourage real estate owners to borrow more money to avoid taking on equity partners, and it would make it more expensive to build or improve real estate and infrastructure, including workforce housing, assisted living communities, and industrial properties, to name just a few. Some development simply won’t happen, especially in long-neglected neighborhoods or on land with potential environmental contamination,” DeBoer added.
  • The Tax Cut and Jobs Act of 2017 created a 3-year holding period requirement for carried interest to qualify for the long-term capital gains rate.

As Congress considers additional economic recovery legislation, The Roundtable and its Tax Policy Advisory Committee (TPAC) will continue working with policymakers, including the Congressional tax-writing committees, to preserve and improve tax rules that promote capital formation and the appropriate treatment of entrepreneurial activity and productive risk-taking.   

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