Roundtable Weekly - May 17, 2019

Climate Change - Energy Efficiency Legislation - Portman-Shaheen - Energy Efficiency Tax Incentives - E-QUIP - Energy, Climate and Immigration - E-QUIP - Tax Policy

Senate Finance Committee Announces Tax “Extenders” Task Forces; House Ways & Means Committee Examines Climate Change

U.S. Senate Finance Committee Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR) yesterday announced the formation of several bipartisan taskforces to examine and help permanently resolve the fate of 42 expired and expiring tax provisions.  (Senate Finance Committee Announcement, May 16)

U.S. Senate Finance Committee Chairman Chuck Grassley (R-IA), above, and Ranking Member Ron Wyden (D-OR) yesterday announced the formation of several bipartisan taskforces to examine and help permanently resolve the fate of 42 expired and expiring tax provisions.  (Senate Finance Committee Announcement and Video of Grassley statement, May 16)

  • Among the expired provisions are a deduction for energy efficient commercial buildings (sec. 179D), the new markets tax credit, and the exclusion of income for debt forgiveness on a principal home. The committee members assigned to each task force are detailed in a committee news release.  
  • In conjunction with the announcement, the Joint Committee on Taxation (JCT) issued a report yesterday on the tax provisions that expired in 2017 and 2018, as well as those set to expire this year.  The taskforces are expected to complete their work by the end of June.  (Grassley statement, May 16)
  • "We'll ask the taskforces to work with stakeholders, other Senate offices, and interested parties to consider the original purpose of the policy and whether the need for the provision continues today," said Chairman Grassley.  "If so, we'll ask the taskforce to identify possible solutions that would provide long-term certainty in these areas." (Video of Grassley statement, May 16)
  • Legislation supported by The Roundtable is currently pending to fix a technical error from the Tax Cut and Jobs Act regarding depreciation of interior building improvements, known as Qualified Improvement Property ("QIP").  (Roundtable WeeklyMarch 15 and QIP Policy Comment LetterApril 26
  • In the House, Ways and Means Committee Chairman Richard Neal (D-MA) has suggesting tax extenders should be part of a more comprehensive tax package.  (CQ, March 16)
  • This week, a Ways and Means hearing focused on "The Economic and Health Consequences of Climate Change."  In his opening statement, Chairman Neal said, "Climate change is real. The business community understands this, and savvy companies are planning accordingly."  He added, "… it's time for Congress to get on board. We cannot rely solely on the business community to solve this problem for us. The federal government has a significant role to play in creating real pathways for meaningful, long-term economic growth that creates solutions to reduce carbon emissions."  (Chairman Neal's Opening Statement, May 15)
  • The Real Estate Roundtable and a broad coalition of real estate and environmental organizations last week urged Senate and House tax writers to establish an accelerated depreciation schedule for a new category of Energy Efficient Qualified Improvement Property installed in buildings – or "E-QUIP."  (Coalition E-QUIP Letter, May 8)
  • Roundtable President and CEO Jeffrey DeBoer said, "The purpose of establishing a new E-QUIP category in the tax code is to stimulate productive, capital investment on a national level that modernizes our nation's building infrastructure while helping to lower greenhouse gas emissions.  As Congress considers potential tax, infrastructure, and climate legislation, the E-QUIP proposal should have bipartisan appeal on a range of important policies prioritized by Republicans and Democrats."  (Roundtable Weekly, May 10) 

E-QUIP and tax extenders will be among several tax policy issues discussed during The Roundtable's June 11-12 Annual Meeting in Washington, DC.

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EB-5 - Energy, Climate and Immigration

Rural-Urban Coalition Proposes EB-5 Reforms

A broad coalition representing rural and urban stakeholder groups submitted principles today to the Senate and House Judiciary committees on strengthening and reforming the EB-5 investment visa program, which is scheduled to expire on September 30, 2019.  (EB-5 coalition letter)

A broad coalition representing rural and urban stakeholder groups submitted principles today to the Senate and House Judiciary committees on strengthening and reforming the EB-5 investment visa program, which is scheduled to expire on September 30, 2019. (EB-5 coalition letter

  • The coalition also recommends in the May 17 letter that a comprehensive reform package for the EB-5 Regional Center program accompany a six-year reauthorization term.
  • The letter marks the first set of reform principles that have broad, unified support across the EB-5 industry and national real estate organizations.  Signatories to the letter include the EB-5 Investment Coalition, Invest in the USA (IIUSA), Rural Alliance, The Real Estate Roundtable, and the U.S. Chamber of Commerce.
  • The coalition's recommendations to modernize the EB-5 program "…would achieve the vital goals of safeguarding our national security and deterring investor fraud while ensuring that foreign direct investment obtained through the EB-5 program continues to drive economic growth and job creation in the U.S."  (EB-5 coalition letter)
  • recent report estimates that the regional center program brought a total of $10.98 billion into the country (accounting for roughly 2% of all foreign direct investment net flows into the U.S.), and created more than 355,000 U.S. jobs (representing roughly 6% of private sector job growth), from FY 2014 – FY 2015.
  • Among the principles detailed in the letter, the coalition proposes steps to benefit Targeted Employment Area (TEA) projects in rural communities and distressed urban census tracts designated by the U.S. Treasury Department as "Opportunity Zones." Both geographic designations are census tract-based and share the common objective to channel investment capital to the nation's distressed communities. 

The coalition recommends a set-aside of visas to spur EB-5 investments in Rural and Urban Distressed communities.  It also urges Congress to take action to reduce the overwhelming backlog of pending investor petitions that are choking the program and blocking inbound foreign investment capital into the U.S.

 

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News Release

Q2 Economic Sentiment: Commercial Real Estate Executives See Disciplined Markets, Healthy Economy

Questions Remain About The Length of The Overall Economic Cycle  

(WASHINGTON, D.C.) — Commercial real estate executives expressed increased optimism about real estate markets and overall economic conditions, according to The Real Estate Roundtable’s 2019 Q2 Sentiment Index released today. 

The Q2 Sentiment Index registered 51 – a six point increase from the previous quarter. The Index has registered between 50 and 55 every quarter since Q1 2017 – except Q1 2019.

“The increase in our Q2 Sentiment Index can be largely attributed to a calming of the late 2018 capital market volatility and interest rate concerns,” said Real Estate Roundtable President and CEO Jeffrey DeBoer.  “Debt and equity continue to be widely available for quality commercial real estate investments.   At the same time strong lending underwriting is keeping uneconomic new development in check. This positive situation has positioned the commercial real estate industry on solid footing to respond to a continuing growing economy, or to mitigate the impact of a natural slowdown in the current historically long economic cycle,” DeBoer added.

The Roundtable’s Q2 2019 Sentiment Index’s score of 51 reflects a positive trend for the overall economy and real estate market conditions.  [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.]  Both the Current-Conditions Index of 53 and Future-Conditions Index of 48 for this quarter increased six points from Q1.  

The report’s Topline Findings include:

  • The Real Estate Roundtable Q2 2019 Sentiment Index registered 51 – a six point increase from the previous quarter.  Survey participants expressed increased optimism that real estate markets will remain healthy as positive economic conditions persist. Respondents are encouraged by the resilience of the market, but have questions about the length of the overall economic cycle.  

  • Many respondents expressed caution around the late cycle timing, but they also pointed to a high level of discipline on behalf of equity and debt providers. Lending standards have remained rigid and underwriting of new deals has been thoughtfully executed.

  • Respondents suggested that asset values for certain property types may be approaching peak. The perceived gap between buyer and seller expectations supports this view.

  • Debt and equity are viewed as widely available for quality investments. Despite plenty of capital flowing into the market, respondents pointed to the discipline exhibited by lenders as a factor contributing to their market confidence.

While 42% of survey participants reported Q2 asset values today are “about the same” compared to this time last year, 56% of respondents believe that one year from now, values will be “about the same.”  Many respondents noted asset values may continue to grow in some markets, yet core asset pricing may be tightening.

DeBoer noted, “Real estate markets are showing signs of impressive discipline, as commercial real estate executives carefully consider how the industry may be able to weather unpredictable economic challenges that are bound to arise.  Lawmakers in Washington should focus on bipartisan economic policies affecting infrastructure investment and development of opportunity zones, which can spur continued job creation and support healthy communities nationwide."

Data for the Q2 survey was gathered in April by Chicago-based FPL Associates on The Roundtable’s behalf.  Full survey report.

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