Global Stock Markets Plunge Over Coronavirus Threat; U.S. Policymakers and CRE Industry Prepare for Potential Disruption
Deepening concerns over the international spread of the coronavirus (COVID-19) have prompted U.S. policymakers to consider measures for combating the potential public health and economic repercussions of the global disease, as the commercial real estate industry braces for potential disruption.
Dramatic drops in international stock markets this week reflected investor anxiety over the potential global economic impact of a virus that has, so far, infected more than 83,000 people in at least 56 countries and killed more than 2,800 – with no vaccine yet in sight. (New York Times and Axios for coronavirus daily updates)
Today, the World Health Organization raised its risk level of the global coronavirus to “very high” – the most serious assessment in its four-stage alert system. “This is a reality check for every government on the planet. Wake up. Get ready. This virus may be on its way,” said Dr. Michael J. Ryan, deputy director of W.H.O.’s health emergency program. (The Hill, Feb. 28)
Dr. Nancy Messonnier – director of the National Center for Immunization and Respiratory Diseases of the Centers for Disease Control and Prevention (CDC) – on Feb. 25 told reporters, “We really want to prepare the American public for the possibility that their lives will be disrupted.” She added, “Ultimately we expect we will see community spread in the United States. It’s not a question of if this will happen, but when this will happen, and how many people in this country will have severe illnesses.” (CDC Coronavirus Resources)
There are now 62 confirmed cases of novel coronavirus in the United States, Messonnier stated during a press briefing today. The limited guidance that has been distributed to date has primarily been directed at health care professionals, not specific industries.
Trump administration health officials on Tuesday told Senators during a closed-door briefing that a vaccine, although being rushed into clinical trials, could take more than a year before one would be widely available to the public. (Washington Post, Feb. 25)
The Trump Administration initially requested $2.5 billion to combat the spread of the virus. Congressional appropriators are working this weekend on an emergency coronavirus spending package of $6 billion to $8 billion and intend to take action on the House floor next week. House Speaker Nancy Pelosi said bipartisan discussions on a final figure are getting “close.” (PolticoPro, Feb. 28)
Federal Reserve Board Chairman Jay Powell issued a statement today to ease investor concerns. “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy,” Powell stated. (The Fed, Feb. 28)
Just earlier in the week, Fed officials said it was too soon to ascertain the potential adverse effect of the coronavirus on the U.S. economy. Fed regional presidents said they are carefully monitoring the progression of the virus and how disruptions in global supply chains may affect the U.S. before considering a decrease in interest-rates. (Wall Street Journal, Feb. 25)
As stocks are on track for the biggest weekly losses since the 2008 financial crisis, investors have reassessed the chances that the Federal Reserve will lower interest rates to as soon as March (Wall Street Journal, Feb. 27)
CRE Industry Concerns
Roundtable President and CEO Jeffrey DeBoer said, “Owners and managers of all types of buildings are taking actions to better understand the potential contagion and how to best help building occupants, visitors and employees prevent further spread of the coronavirus. This viral threat to lives, businesses and economies is a top concern for our industry and we stand ready to assist public health officials as they recommend.”
The Roundtable’s Homeland Security Task Force (HSTF) and the Real Estate Information Sharing and Analysis Center (RE-ISAC) are in close contact with the Department of Health and Human Services (HHS) and the Centers for Disease Control and Prevention (CDC) to provide useful information to the real estate industry on the coronavirus threat as it continues to evolve.
The Roundtable’s HSTF & the RE-ISAC will also host a conference call on Monday, March 2 with CDC’s Deputy Director for Infectious Diseases, Dr. Jay Butler.
Coronavirus-related updates and resources are available to the commercial real estate industry through the RE-ISAC’s #COVID Section, which includes these recent reports:
- Coronavirus Disease 2019 (COVID-19) Situation Summary, last update 25 Feb.
- 2019 Novel Coronavirus (2019-nCoV) in the U.S., 26 Feb update (update will be provided later today and in tomorrow’s Daily Report).
Other resources include:
- The Centers for Disease Control and Prevention (CDC) web page includes an interim guidance based on what is currently known about the Coronavirus Disease 2019 (COVID-19). The interim guidance may help prevent workplace exposures to acute respiratory illnesses, including nCoV, in non-healthcare settings. The guidance also provides planning considerations if there are more widespread, community outbreaks of COVID-19.
- The World Health Organization (WHO) main information page on the virus.
- ICSC: “Epidemic Crisis Best Practices”
- Hotel Management: “How hotel companies are working to lessen coronavirus impact”
The Roundtable’s next membership meeting is currently scheduled for March 31 in Washington, DC (Roundtable-level members only).
House Committee Unanimously Advances Bill to Reduce Zoning Barriers to Affordable Housing
The House Financial Services Committee reported a bill today with overwhelming bipartisan support that would require localities to report to the U.S. Department of Housing and Urban Development (“HUD”) on land use practices that promote affordable housing production.
- The Real Estate Roundtable joined a Feb. 24 coalition letter to support H.R. 4531, the Yes in My Backyard (“YIMBY”) Act. The bipartisan bill – sponsored by Reps. Denny Heck (D-WA) and Trey Hollingsworth (R-IN) – would direct local governments that receive HUD Community Development Block Grants (“CDBGs”) to develop favorable planning and zoning strategies that enable affordable housing development.
- “We have a national housing crisis, one that is brought on in part by zoning and land use policies,” Rep. Heck said upon the Committee’s approval of the bill today with no opposition. “The YIMBY Act is a crucial first step to addressing these policies in order to increase affordability and construction.” (Heck-Hollingsworth joint press release)
- The YIMBY Act respects federalism principles and avoids a mandate from Congress to compel cities and towns to enact certain land-use laws. Rather, the bill aims to discourage localities from limiting housing supplies through reporting and disclosure rules attendant to HUD’s grant process.
- Specifically, the YIMBY Act directs that a community receiving CDBG money must consider and track implementation of over 20 pro-housing strategies, such as:
- Enacting high-density zoning, and expanding by-right multifamily zoned areas;
- Allowing manufactured homes and accessory dwelling units on single-family lots;
- Reducing minimum lot sizes;
- Increasing allowable floor area ratios for multifamily projects;
- Providing property tax abatements to existing home owners to garner support for high development densities in their communities; and
- Ensuring that impact fees paid by developers accurately reflect infrastructure needs generated by new units.
- Speaking at the Annual Real Estate Forum held at the University of Colorado (Boulder) this week, Roundtable President and CEO, Jeffrey D. DeBoer, said: “The YIMBY Act recognizes that local zoning ordinances coupled with lengthy duplicative permitting hurdles frequently result in decreased housing availability and increased housing costs. Asking local authorities to report on their efforts to ease these regulatory hurdles makes a lot of sense.” DeBoer and Roundtable board member Ric Clark (Senior Managing Partner and Chairman, Brookfield Property Group) focused their keynote presentation at the event on national policy issues, including housing affordability, as well as current and expected trends in national real estate markets.
- The Roundtable urged support for the YIMBY Act in comments filed with HUD in January. (Roundtable Weekly, Jan. 17, 2020). Companion legislation is pending in the Senate (S. 1919), sponsored by Todd Young (R-IN) and Brian Schatz (D-HI). The bill also reflects the goals of President Trump’s Executive Order for “ Eliminating Regulatory Barriers to Affordable Housing.” (Roundtable Weekly, June 28, 2019)
- The National Multifamily Housing Council (NMHC) and National Apartment Association (NAA) issued a statement praising the Committee’s action on the YIMBY Act – and also noted the successful markup of the Housing is Infrastructure Act (H.R. 5187), sponsored by Chairwoman Maxine Waters (D-CA). H.R. 5187 would direct greater investments to construct new affordable housing units for low-income households, persons with disabilities, and the elderly. It would also provide more federal funding to build, repair and modernize public housing.
- A bill similar to the YIMBY Act -- that uses the “carrot” of federal grants to incentivize high density land uses – is the Build More Housing Near Transit Act (H.R. 4307). While the YIMBY Act leverages HUD CDBG dollars, H.R. 4307 leverages Federal Transit Administration grants to require local authorities to evaluate housing development along proposed rail, bus, and other mass transit routes. H.R. 4307 is under consideration as part of “must pass” infrastructure legislation to reauthorize the Highway Trust Fund, which is scheduled to expire on Sept 30. (Roundtable Weekly, Oct. 4, 2019)
The strong bipartisan showing for the YIMBY Act at the Committee level bodes well for full House consideration in the coming weeks. While the path forward in the Senate is presently unclear, The Roundtable and coalition partners will continue to press lawmakers to make progress on the YIMBY Act and similar legislation.
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House Ways & Means Republicans Ask Treasury Secretary Mnuchin to Boost Investment, Create Jobs by Easing FIRPTA Tax Burden
Over three-quarters of the Republican Members of the House Ways and Means Committee on Feb. 20 urged Treasury Secretary Steven Mnuchin to remove tax barriers to foreign investment in U.S. real estate and infrastructure.
- The congressional letter, led by Representative Devin Nunes (R-CA), encourages Treasury to withdraw section two of IRS Notice 2007-55. The Notice, which relates to the Foreign Investment in Real Property Tax Act (FIRPTA), effectively imposes U.S. capital gains tax on the liquidating distributions of a domestically controlled REIT.
- Domestically controlled REITs commonly are employed in joint ventures where a foreign investor is a minority partner in a U.S. real estate or infrastructure investment. Prior to the Notice, a liquidating distribution from a domestically controlled REIT was treated as nontaxable sale of stock for tax purposes.
- The 16 signatories of the February 20 letter wrote that “repealing the IRS Notice will restore the intent of Congress with respect to the tax law governing liquidations, provide parity to investors, and increase direct foreign investment in U.S. commercial real estate and infrastructure in every corner of the nation.”
- The Ways and Means Republican letter comes on the heels of a high-profile exchange on the broader economic harm caused by FIRPTA at a recent Ways and Means tax hearing. At the hearing, Rep. Kenny Marchant (R-TX), said that “FIRPTA is an outdated, discriminatory law. It applies to no asset class other than real estate and infrastructure . . . Economic studies indicate repealing FIRPTA could drive $65 to $125 billion in new investment.” Rep. Marchant is lead sponsor of the bipartisan Invest in America Act (H.R. 2210), a bill to repeal FIRPTA altogether. (Watch video of Feb. 11 FIRPTA exchange)
- In conjunction with The Roundtable’s Tax Policy Advisory Committee (TPAC) meeting on January 29, Darin Mellott, Director of Americas Research at CBRE shared updated data indicating that foreign capital represented only 10 percent of total transaction volume between 2007 and 2019 – further evidence that FIRPTA weighs heavily on potential inbound investment. In other asset classes, such as manufacturing, foreign capital represents a much larger share of overall investment.
- A letter similar to the House Republican letter was sent by a bipartisan group of 11 Senate Finance Committee Members to Secretary Mnuchin on December 18, 2019. The December letter was led by Sen. Robert Menendez (D-NJ), a longtime lead sponsor of bills to roll back FIRPTA, and Sen. Johnny Isakson (R-GA). A bipartisan House Ways and Means Committee letter urging repeal of the Notice and signed by 32 Representatives was sent to Secretary Mnuchin shortly before introduction of the Tax Cuts and Jobs Act of 2017 (TCJA). ( Roundtable Weekly , Dec. 20, 2019)
Members of the Roundtable’s Tax Policy Advisory Committee have met with Treasury officials on multiple occasions to discuss the harm caused by IRS Notice 2007-55. Since 2017, Treasury’s regulatory agenda has focused on implementing the TCJA. With TCJA implementation nearly complete, The Roundtable is now urging Treasury officials to give the Notice the attention it merits.