Roundtable Weekly - July 13, 2018

"Building Success" Reports on The Roundtable’s FY2018 Policy Activities in Tax, Capital and Credit, Homeland Security, Energy and Infrastructure Issue Areas

The Real Estate Roundtable has released its FY2018 Annual Report “Building Success,” which reports on the organization’s policy activities from July 1, 2017 to June 30, 2018 and outlines its policy priorities for the coming year.

Roundtable President and CEO Jeffrey D. DeBoer showcasing The Roundtable's 2018 Annual Report "Building Success."

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  • "We are extremely proud of our success this past year and equally eager to build on its foundation as we move into our new fiscal year. As always, we will continue to inform lawmakers with consistent and credible policy analysis that encourages economic growth, job creation, and a healthy national real estate market,” said Roundtable President and CEO Jeffrey D. DeBoer.
  • Immediate Past Roundtable Chair (2015-2018) William C. Rudin (Co-Chairman and CEO, Rudin Management Company, Inc.) noted the continued efforts of promoting greater diversity throughout the organization and his efforts during his tenure as Chair. “We have made measurable progress at identifying and recruiting more highly qualified women and people of color to join, and participate at The Roundtable. With greater membership diversity, we ensure that our decisions are better informed and more sustainable.”

The Report includes summaries showing continued progress on the policy front, including:

  • In late 2017, the most comprehensive tax reform in over 30 years, the Tax Cuts and Jobs Act, was signed into law.  Due in large part to the Roundtable’s advocacy efforts, TCJA preserved interest deductibility; retained like-kind exchanges for real estate; and maintained depreciation and cost recovery rules. The Roundtable and its Tax Policy Advisory Committee is continuing its efforts with Treasury and the Administration to ensure appropriate implementation of the comprehensive law.

    The Real Estate Roundtable's FY2018 Annual Report “Building Success” reports on the organization’s policy activities from July 1, 2017 to June 30, 2018 and outlines its policy priorities for the coming year.

  • Congress passed financial deregulation legislation – Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) – that included important reforms to the Basel III High Volatility Commercial Real Estate (HVCRE), which promote sustainable development and lending, and lowers financial barriers for job-creating projects.
  • The Federal Reserve and four other federal agencies approved a proposal to simplify and ease the Volcker Rule.  The proposal, known as Volcker 2.0, seeks to simplify regulatory requirements by giving banks new quantitative “bright-line rules” to provide more clarity on what activities are prohibited and permitted.
  • As a long-time supporter of the ENERGY STAR Program, The Roundtable was a key player in the creation and ongoing development of the EPA’s new charter tenant program “ENERGY STAR for Tenants” labeling platform of high-performance leased office spaces.
  • Anticipating infrastructure as a policy issue for possible compromise after the upcoming midterm elections, The Roundtable offered comments to the Administration and Congressional committees on real estate’s role in creating public-private partnerships to help repair the roads, transit, broadband, power grid and other systems needed to make our communities safe, productive and competitive.

Newly elected Roundtable Chair Debra A. Cafaro (Chairman and Chief Executive Officer, Ventas, Inc.) emphasized that The Roundtable’s policy agenda remains full of key issues that require our engagement as a non-partisan industry voice. “Above all, we must uphold our independent and respected position on Capitol Hill, emphasizing our optimism about the economy and the positive contributions the real estate industry provides as a job creator and as a cornerstone for retirement savings. We are committed to proactively advancing policies that promote a healthy balance of capital and people flows to create sustainable economic growth that is good for our members, our industry and our national economy,” said Cafaro.

The publication includes a listing of all Roundtable members, as well as the FY2019 Board of Directors and Committee Leadership, and has been mailed to all Roundtable members, congressional offices on Capitol Hill, and is available online.

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LIBOR Reform

Regulators Emphasize Need for Transition Away From LIBOR to New Standard by End of 2021; Roundtable to Address Impact on Commercial Real Estate Finance

International regulators this week urged banks to speed up their transition plans away from the London Inter-bank Offered Rate (LIBOR) to a new standard for setting the price of trillions of dollars of loans and derivatives worldwide. LIBOR is an important reference rate for commercial real estate and the broader economy, underlying approximately $373 trillion worth of cash and derivative contracts globally. 

The Fed's Alternative Reference Rates Committee (ARRC) will meet on July 19 to address risks in contract language and actions that could minimize disruptions associated with a possible end to LIBOR.

  • With LIBOR set to expire at the end of 2021, the status of reform efforts and their impact on commercial real estate finance is profiled by Joseph Forte (Sullivan & Worcester) – a member of The Roundtable's Real Estate Capital Policy Advisory Committee (RECPAC) – in his recent article, "Après LIBOR: Black Swan or Y2K." 
  • LIBOR's credibility was badly undermined a decade ago by a rate-manipulation scandal. These illegal actions damaged the public's trust in LIBOR, financial markets and institutions. 
  • The United Kingdom's Financial Conduct Authority (FCA), which regulates LIBOR, announced last year that it will phase out the global borrowing index by 2021.  In December 2018, FCA Chief Executive Andrew Bailey said, "There is some good news to report on the important steps taken towards transition. But the pace of that transition is not yet fast enough. There is much further to go."  (FCA, "Interest rate benchmark reform: transition to a world without LIBOR") 

    With LIBOR set to expire at the end of 2021, the status of reform efforts and their impact on commercial real estate finance is profiled in Joseph Forte's recent article, " Après LIBOR: Black Swan or Y2K ." 

  • The Federal Reserve Bank of New York in April began publishing an alternative U.S. benchmark to work alongside LIBOR – the Secured Overnight Financing Rate (SOFR), which is seen as the next step to transition trillions of dollars in securities away from LIBOR.  SOFR is seen as more reliable, as it is based on interest rates in the U.S. market for repurchase agreements instead of LIBOR's estimated quotes by bankers in the relatively thin interbank loan market. 
  • Yesterday, The Wall Street Journal reported that international regulators are urging banks to stop using LIBOR for new contracts and plan to accommodate legacy contracts that are set to expire after LIBOR sunsets at the end of 2021.  "Legacy contracts represent arguably the greatest challenge for regulators and industry groups," according to the July 13 article.   
  • Former President of the Federal Reserve Bank of New York William Dudley spoke about LIBOR in May. "Time is of the essence, and we must manage it well," he told a Bank of England forum.  "Because of the great uncertainty over LIBOR's future and the risks to financial stability that would likely accompany a disorderly transition to alternative reference rates, we need aggressive action to move to a more durable and resilient benchmark regime," Dudley added.  (Reuters, May 24, 2018) 
  • The Fed's Alternative Reference Rates Committee (ARRC) will meet on July 19 to address risks in contract language and actions that could minimize disruptions associated with a possible end to LIBOR.  See "Alternative Reference Rates Committee Releases Principles for Fallback Contract Language Guiding Principles Mark a Key Milestone in Meeting the ARRC's Mandate" and the ARRC website for additional information. 

The Roundtable's RECPAC has formed a LIBOR Working Group to address this challenge and work toward the development and implementation of an effective, new replacement benchmark that does not impair liquidity, needlessly increase borrowing costs or cause market disruptions.

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Homeland Security - Terrorism Risk Insurance Program - TRIA

Treasury Department Reports on Effectiveness of Terrorism Risk Insurance Program

The federal government's Terrorism Risk Insurance Program has been effective in making terrorism risk insurance available and affordable throughout the United States, according to a recent report by the U.S. Department of the Treasury’s Federal Insurance Office

The  Treasury based its June “Report on the Overall Effectiveness of the Terrorism Risk Insurance Program” on marketplace data collected for the past two years, along with public comments such as those submitted by the broad-based Coalition to Insure Against Terrorism (CIAT), which includes The Real Estate Roundtable.

  • The Terrorism Risk Insurance Program – authorized by the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) of 2015 – provides a federal backstop for certain U.S. property and casualty insurance losses resulting from a certified act of terrorism.
  • TRIPRA directs Treasury to provide reports on the Program’s effectiveness and estimate the total amount of premiums earned on terrorism risk insurance since January 1, 2003.  Treasury published its first Program effectiveness report two years ago.  (Roundtable Weekly, July 8, 2016).
  • In last month’s report, Treasury’s estimate of total earned premiums for terrorism risk insurance from 2003 to 2017 is approximately $37.6 billion (excepting captive insurers).  This amount is between 1 and 2 percent of the total premiums earned in the Program-eligible lines of insurance during that period.  Treasury estimates that an additional $7.4 billion has been earned by captive insurers. 
  • The total of terrorism risk premiums earned is comparable to the loss sustained by the insurance industry in connection with the attacks on September 11, 2001. 
  • While the purchase of terrorism risk insurance is not mandated by the Program, a significant proportion of commercial policyholders nationwide have elected to obtain such insurance, and take-up may be even higher in metropolitan areas at greater risk of terrorism. 

Without Congressional action, the Terrorism Risk Insurance Program, authorized by TRIPRA, will expire on Dec. 31, 2020.  The Roundtable is working with industry partners to develop a proposal that would make terrorism insurance available for the long-term.

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Industry Outreach

29 Industry Organizations Launch "Careers Building Communities" to Encourage Real Estate Talent Development

The Roundtable and 28 other real estate industry organizations – representing more than 10 million jobs – yesterday launched Careers Building Communities, a website highlighting diverse career paths within the real estate sector. The public policy area of the site links to Roundtable resources.

Careers Building Communities highlights diverse career paths within the real estate sector.

  • With changing demographics, technological advances and evolving preferences in how different generations live, work and play, Careers Building Communities seeks to encourage students, educators, career changers and others to explore opportunities in real estate.  
  • Housing Wire reported today that individuals can use the website to learn about real estate industry trends and take an interactive quiz to explore possible career pathways in the industry.
  • Roundtable President and CEO Jeffrey DeBoer said, “This is the kind of positive collaboration that has proven to be a winning formula for policy action in Washington.  And now, thru this new collaboration, we will apply this formula to raise the awareness that everyone, particularly young people, minorities and people of color, have regarding the tremendous career opportunities that real estate offers.”

By attracting diverse talent to the many careers available across the built environment, Careers Building Communities also responds to a consistent theme among industry stakeholders – the increased need for talent. 

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