Roundtable Weekly - November 1, 2019

Terrorism Risk Insurance Program - TRIA

Seven-Year TRIA Reauthorization Advanced by House Financial Services Committee

House Financial Services Committee Chairwoman Maxine Waters (D-CA)

  • The bipartisan House compromise bill also requires two studies: a U.S. Government Accountability Office (GAO) study on the cyber terrorism market and a biennial Treasury reporting on the 'availability and affordability' of TRIA coverage for places of worship.

  • Committee Chairwoman Maxine Waters (D-CA), above, in her opening committee markup statement noted, “This bipartisan bill provides a simple long-term reauthorization of the Terrorism Risk Insurance Program. Without a reauthorization, the program would expire at the end of 2020, but we could experience the harmful effects of a failure to reauthorize as soon as January of 2020. I am very pleased that I have reached a bipartisan compromise with Ranking Member [Patrick] McHenry [R-NC] on this issue for a seven-year reauthorization of this very important program.” (Committee Markup documents and video, Oct 29)

  • The Coalition to Insure Against Terrorrism (CIAT), which includes The Real Estate Roundtable, wrote to the committee’s leadership on Tuesday in support of H.R. 4634.  (CIAT letter, Oct. 29)

  • TRIA, originally passed in 2002, has been extended in 2005, 2007 and again in 2015 – following a 12-day lapse when Congress failed to complete their work on reauthorization at the end of 2014.

  • TRIA was the focus of a discussion during The Roundtable’s Oct. 30 Fall Meeting with American Property and Casualty Insurance Association President and CEO David Sampson.  The discussion emphasized that a long-term, clean TRIA reauthorization by Congress is needed as soon as possible to avoid market dislocation and provide certainty to commercial real estate policy holders who are actively renewing their coverage. 

  • Roundtable President and CEO Jeffrey DeBoer noted during an October 1 podcast episode of Through The Noise, “Businesses and facilities of all types need to see the terrorism risk insurance program extended. This need applies to hospitals, all commercial real estate buildings, educational facilities, sports facilities, NASCAR and theme parks, and really any place where commercial facilities host large numbers of people.”

The next step toward TRIA reauthorization is a floor vote in the House, which may occur before year-end. 

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Roundtable Meeting

Industry Leaders and Policymakers Address National Issues Affecting CRE, Including TRIA, Affordable Housing, Tax and Monetary Policy

This week’s Real Estate Roundtable Fall 2019 Meeting in Washington featured discussions with congressional lawmakers on national policy issues affecting economic growth, job creation, local communities and the commercial real estate industry.  Roundtable members engaged policymakers and other speakers on a wide range of issues, including terrorism insurance; affordable housing; GSE reform; opportunity zones; FIRPTA repeal; infrastructure; energy and climate; and monetary policy. 

Roundtable Chair Debra A. Cafaro (Chairman & CEO, Ventas, Inc.) launched the meeting by noting how the organization remains focused on its national policy agenda.  Cafaro added that The Roundtable continues to move forward from its 20-year foundation with 17 industry association partners and membership-driven policy advisory committees.  She emphasized, “We will continue to do the research necessary to make our case on issues with policymakers, and work across product types and entity classifications to advance strong, sustainable national policy for the industry.”  

Speakers at The Roundtable’s Fall Meeting included: 

  • Dr. Ben Carson—Secretary, U.S. Department of Housing and Urban Development (HUD)—discussed the Administration’s efforts to reshape the role of the Government Sponsored Enterprises (GSEs) by capitalizing Fannie Mae and Freddie Mac before ending their government conservatorship.  He also noted a Stanford University study on rent control legislation that found such actions decreased rental costs in the short-term, yet decreased the supply of affordable housing in the long-term.
  • Sen. Jacky Rosen (D-NV)—Member, Senate Committees on Commerce, Science and Transportation; Homeland Security and Governmental Affairs; and member of the Problem Solvers Caucus while she served in the House of Representatives—noted the importance of public-private partnerships for infrastructure investments, economic growth and community improvements.  She also lauded Opportunity Zones as an incentive to create more affordable housing in her state. 
  • Sen. Rick Scott (R-FL)—Member, Senate Committees on Budget; Commerce, Science and Transportation; Homeland Security and Governmental Affairs—addressed the importance of bipartisanship to achieve legislative goals.  He discussed the efforts of policymakers to reach solutions on immigration issues such as DACA, border security and Visa reform.
  • David Sampson—President and CEO, American Property Casualty Insurance Association—discussed the need to reauthorize the Terrorism Risk Insurance Act (TRIA) and current efforts in Congress to enact a “clean” multi-year extension as soon as possible.  He added that cyberterrorism was an increasing risk to business interruption in the marketplace.
  • Dana Peterson—Global Economist, Citgroup—spoke about how consumer spending trends, demographics and market conditions have led to the 11th year of economic expansion in the U.S.  She also forecast continued growth as domestic companies lead the way in technology areas affecting Artificial Intelligence, 5G and blockchain.
  • Charlie Cook—Political Analyst for The National Journal Group; Editor and Publisher of The Cook Political Report—spoke about the electoral landscape, the increase in “tribal” partisanship and how a sharp increase in voter engagement is expected in the upcoming presidential election. 

Following the business meeting, informal dinners were held with congressional policymakers and Roundtable members to discuss policy issues in more detail. 

Next on the Roundtable’s meeting calendar is the all-member State of the Industry Meeting on January 28, 2020, which will be held in conjunction with its policy advisory committee meetings in Washington, DC.

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Foreign Investment in Real Property Tax Act (FIRPTA)

Panel Draws Attention to How IRS Guidance is Impeding Jobs, Foreign Investment in U.S. Real Estate and Infrastructure

FIRPTA panel -- The Future of Real Estate Policy

Leading industry experts convened on Oct. 30 at the National Press Club in Washington for an in-depth discussion on IRS Notice 2007-55, which levies discriminatory tax penalties on foreign investment in U.S. real estate and infrastructure.  The panel detailed how the Notice subjects foreign owners of domestically controlled real estate investment trusts (REITs) to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) when the REIT liquidates, thereby suppressing capital investment and job creation in the real estate industry.

  • The 2007 tax guidance from the IRS overturned long-standing practice that treated liquidating distributions and redemptions of REITs as sales of stock.  Under Notice 2007-55, these transactions are now treated as taxable distributions and subject to a burdensome capital gains tax – affecting only foreign shareholders.  In the 12 years since Treasury issued the Notice, there have been no clarifying regulations, which has created uncertainty among potential investors and deterred foreign investment in U.S.-based real estate and infrastructure.

  • Panelists at the event, sponsored by Unibail-Rodamco-Westfield, included Ryan McCormick, Senior Vice President and Counsel for The Real Estate Roundtable (far right in photo above); John Jones, Vice President of Government Relations for Nareit; Kevin Klein, Director of Tax Policy for the Organization of International Investment (OFII); Darin Mellott, Director of Research, Americas at CBRE; and David Polster, Tax Partner at Skadden Arps.

  • McCormick emphasized that FIRPTA is a tax burden that does not apply to any other asset class and noted that FIRPTA hurts the ability of the United States to attract outside capital for infrastructure improvements.  Treasury could act on its own to remove much of the FIRPTA burden simply by withdrawing the IRS guidance. “Anything the Administration can be doing now to drive our economy forward and create jobs, they should,” said McCormick.

  • Outright repeal of the outdated FIRPTA law is The Roundtable’s ultimate policy goal.  In April 2019, Representatives John Larson (D-CT) and Kenny Marchant (R-TX) introduced the Invest in America Act (H.R. 2210), a bill to repeal FIRPTA altogether.  The Roundtable and 19 national trade organizations – representing every aspect of constructing, developing, financing, owning, and managing real estate and infrastructure in the United States – wrote to Ways and Means Committee Members and other key House lawmakers urging them to support the legislation.  (Comment Letter, March 28)

  • Both Republican and Democratic lawmakers agree on the negative impact that the Notice continues to exert on infrastructure investments.  In 2017, 32 bipartisan members of the House Ways and Means Committee wrote to Treasury Secretary Steven Mnuchin urging him to repeal the Notice.  The lawmakers pointed to billions of dollars’ worth of investment that flowed to small and mid-sized communities when 2015 legislation eased some of the tax burden for foreign investors.

A report by the Rosen Consulting Group (RCG) estimated that FIRPTA repeal would generate an initial increase of between $65 billion and $125 billion in international investment in U.S. commercial real estate. This new level of activity would lead to the creation of 147,000 to 284,000 jobs throughout the economy and increase taxpayers' income by $8 billion to $16 billion.  (Unlocking Foreign Investment in U.S. Commercial Real Estate, July 2017) 

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