Category: News

Commercial real estate activity in the Fed’s 12 regional districts show mostly positive results, yet concerns about trade tariffs are widespread, according to the Federal Reserve’s latest “Beige Book” report about economic conditions. (The Fed, April 18)

Commercial real estate activity in the Fed’s 12 regional districts show mostly positive results, yet concerns about trade tariffs are widespread, according to the Federal Reserve’s latest  “Beige Book” report  about economic conditions. (The Fed, April 18)

A new focus on the threat of a trade war appears in the report, with the word “tariff” used 36 times, compared with zero references in the prior survey.  The second line in the report states, “Outlooks remained positive, but contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed and/or proposed tariffs.”  (Reuters, April 18)

The report summary also notes that steel and aluminum prices rose, “sometimes dramatically” due to the new duties imposed by the Trump Administration. (Roundtable Weekly, March 9)  The Beige Book is one of the first official reports showing the economic impact of the new tariffs on domestic business. (Wall Street Journal, April 18)

Contacts in nine of the 12 districts commented directly on the impacts of tariffs, citing concerns related to rising prices, future uncertainty, investment decisions, and how to pass increased costs on to consumers.

A summary of each Fed district is included in the report, which shows economic expansion at a modest to moderate pace throughout March and early April, with the labor market described as “tight.”

Although the Fed reports that commercial real estate activity and construction has improved since March, prices have increased for building materials, especially for lumber, drywall, and concrete.  (GlobeSt, April 19)

The Fed will consider the Beige Book findings during its next meeting on May 1-2.  On Monday, New York Fed President William Dudley said the Fed would likely rise interest rates three or four times in 2018.  (Fed Calendar and CNBC, April 16)

Roundtable President and CEO Jeffrey DeBoer noted the commercial real estate industry’s concerns earlier this month, stating, “Proposed tariffs, coupled with the earlier tariffs on steel and ongoing dispute with China could have unfortunate and unintended effects on the U.S. economy by raising construction costs, and reducing jobs in real estate development.  China has continually taken advantage of trade practice laws, particularly intellectual property-vital for the U.S. to continue developing new technology, whether it be machinery, software, or energy efficient building solutions and should be held accountable but in a measured way.”  (Roundtable Weekly, April 6)

The economy and CRE will be a focus at The Roundtable’s Spring Meeting next week in Washington, which will include Senate Majority Leader Mitch McConnell (R-KY) as a featured guest.

Despite pushback from GOP leaders, congressional members and allies overseas, President Trump yesterday authorized levies of 25 percent on imported steel and 10 percent on aluminum to take effect March 23, while exempting Canada, Mexico and potentially other countries based on a country-by-country review of bilateral security agreements.  (MarketWatch, March 8 and Bloomberg, March 9)

President Trump authorized levies of 25 percent on imported steel and 10 percent on aluminum.

The Presidential Proclamation exempts Canada and Mexico based on renegotiation of terms in the North American Free Trade Agreement (NAFTA) and includes a degree of flexibility for exempting other nations.

Roundtable President and CEO Jeffrey DeBoer noted the commercial real estate industry’s concerns, stating “For every job in the steel production industry, there are more than 50 jobs in the US construction industry (140,000 vs. 7-10 million). New tariffs on construction materials like steel could have the unfortunate, unintended side effect of raising construction costs and reducing jobs in real estate development. Exemptions will be important to mitigating the harm to the US economy.”

In response to Trump’s initial tariff announcement last week, Senate Majority Leader Mitch McConnell (R-KY) commented on Tuesday, “There is a lot of concern among Republican senators that this could sort of metastasize into a larger trade war.” (NPR, March 8)

Roundtable President and CEO Jeffrey DeBoer: “New tariffs on construction materials like steel could have the unfortunate, unintended side effect of raising construction costs and reducing jobs in real estate development. Exemptions will be important to mitigating the harm to the US economy.”

A March 7 letter to Trump from 107 House Republicans, including Ways and Means Chairman Kevin Brady, expressed concern that “adding new taxes in the form of broad tariffs would undermine” the economic benefits in recently-passed Tax Cuts and Jobs Act legislation. The letter also suggests conditions for imposing tariffs to minimize negative consequences.  

European Central Bank (ECB) President Mario Draghi said in a news conference yesterday, “If you put tariffs against what are your allies, one wonders who the enemies are.”  Discussing the potential effects of the tariffs, he added, “Is there going to be a retaliation or not? What’s going to be the response of the exchange rate? …and the effect on confidence is very difficult to assess.” (CNBC, March 8)

The tariff announcement comes after a recent White House infrastructure proposal that seeks to leverage $200 billion in federal funding to leverage $1.5 trillion in local, state and private funding over the next decade. Higher tariffs on imported steel and aluminum could present new challenges to obtain the raw materials needed for extensive infrastructure projects.  Funding options for the Trump administration’s infrastructure proposal were discussed during a March 6 House Transportation and Infrastructure Committee that featured Transportation Secretary Elaine Chao. (Hearing, March 6)

Janet Yellen concluded her final meeting as chair of the Federal Reserve on Wednesday after four-years of overseeing a cautious approach to monetary policy at the central bank.  The Fed released a statement the same day about positive trends in the national economy, citing information “that the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” (Federal Reserve Statement, Jan 31)

The  Federal Reserve in Washington, DC

The Senate on Jan. 23 voted 84-13 to confirm Fed Governor Jerome “Jay” Powell as the next Fed chairman.  After the Fed’s Federal Open Market Committee (FOMC) this week unanimously affirmed Powell as its chair, he will be sworn into office for a four-year term on Feb. 5. 

President Trump now has the opportunity to fill four of seven seats empty on the Fed’s board.  

Powell is expected to continue monetary policies pursued in the Yellen-era.  In December, Ms. Yellen said, “There is strong consensus in the committee for the gradual approach that we’ve been pursuing, and governor Powell has been part of that consensus.”  (Wall Street Journal, Jan. 31) 

During her tenure, Yellen raised borrowing costs five times since late 2015 and recently initiated a reduction process in the central bank’s 4.5 trillion dollar balance sheet.  Most economists foresee another interest rate increase when the Fed meets for its next scheduled policy meeting in March under Chairman Powell.  (Los Angeles Times, Jan. 31) 

Before President Barack Obama appointed him to serve as Fed Governor in 2012, Powell served at the Treasury Department under President George H.W. Bush and served as a managing director at Carlyle Group.

Top U.S. policymakers and industry leaders met this week for The Roundtable’s State of the Industry (SOI) Meeting in Washington, DC to discuss policy issues of compelling interest to CRE.

Launching the SOI meeting on Wednesday, Roundtable Chair William C. Rudin (  Rudin Management Company, Inc.  ), right, and Roundtable President and CEO Jeffrey DeBoer, left,  noted how Roundtable efforts are the result of research and analysis to find correct answers that benefit economic growth and job creation.

The Roundtable also issued its 2018 National Policy Agenda: Building For The Future. Specific issues included in the Policy Agenda were identified after a comprehensive, annual membership survey; frequent meetings held by The Roundtable’s policy advisory committees (see below); and participation by The Roundtable’s Board of Directors. 

Launching the SOI meeting on Wednesday, Roundtable Chair William C. Rudin (Rudin Management Company, Inc.) noted how Roundtable efforts are the result of research and analysis to find correct answers that benefit economic growth and job creation.  Rudin also said that the organization consistently communicates positions to policymakers that illustrate how healthy real estate markets are intertwined with the entire economy.  This approach – “analysis first, followed by advocacy” – will continue to be the model for The Roundtable through 2018 and beyond, Rudin commented. 

Illustrating how The Roundtable relies on member participation, he commented on the organization’s successful 2017 policy year regarding tax policy, sustainability and other efforts: “This past year we had great participation from Roundtable members who traveled to Washington when needed to personally meet with policymakers and discuss the obvious, and sometimes not so obvious, consequences of a policy decision.”   

He added, “We testified, wrote comment letters, led industry coalitions, submitted economic analysis, organized targeted meetings, and continued to brand The Roundtable as a trusted voice on national policy issues.” 

Illustrating how The Roundtable relies on member participation, Rudin spoke about the organization’s successful 2017 policy year regarding tax policy, sustainability and other efforts to the SOI audience.

Rudin also outlined various policy initiatives The Roundtable will focus on in the upcoming fiscal year with the Trump Administration and Congress, including implementation of the new tax law; financial regulatory issues; internet sales tax; infrastructure; attracting overseas tourists through the “Visit U.S.” coalition; and high performance buildings — all vital to spurring job creation and sustaining economic growth. 

Roundtable President and CEO Jeffrey DeBoer then offered an overview of the recent changes in tax law, along with upcoming issues in play.  He also noted the vital role of The Roundtable’s 17 national real estate trade association partners in presenting a unified voice on issues to policymakers in Washington. 

Policy Issues and Meeting Speakers  

Five U.S. Senators were among the featured SOI guests, which included: 

Senate Minority Leader Chuck Schumer (D-NY) engaged Roundtable members on the need for a massive plan to revamp the nation’s airports, bridges, roads, seaports, broadband and other critical infrastructure.

• Senate Minority Leader Chuck Schumer (D-NY) engaged Roundtable members on the need for a massive plan to revamp the nation’s airports, bridges, roads, seaports, broadband and other critical infrastructure. Sen. Schumer emphasized how critical infrastructure improvements are to commercial real estate, job creation and the national economy.  He also spoke about the need to pass the Marketplace Fairness Act to bolster states’ collection of internet sales taxes, which could be used to assist state funding of infrastructure improvements. 

• Sen. Mark Warner (D-VA) emphasized the need for bipartisanship in Congress in light of the recent tax legislation passed by Republicans. He noted that bipartisan efforts on issues such as GSE and housing finance reform could provide relief to the housing affordability crisis, while encouraging capital flows and competition.  Sen. Warner said that regulatory relief on Dodd-Frank was also possible in upcoming months in Congress.  

• Sen. Ron Wyden (D-OR), ranking member of the Senate Finance Committee, spoke about the need for a bipartisan effort to address low income housing needs. Sen. Wyden described the “Build America Bonds” program, which he helped create, as an example of successful legislation that could spur infrastructure investment through innovative tax financing. Temporarily authorized in 2009 and now expired, 181 billion dollars in Build America Bonds were issued in the years immediately following the financial crisis. 
  

  Sen. Ron Wyden (D-OR), left, ranking member of the Senate Finance Committee, spoke about the need for a bipartisan effort to address low income housing needs.

• Sen. Ron Johnson (R-WI)  spoke with Roundtable members on the need for more deregulation and pro-growth policies.  He also described his central role in ensuring that tax reform provided relief for all job-creating businesses, including pass-throughs.  As the chairman of the Senate Homeland Security and Governmental Affairs Committee, Rep. Johnson also discussed the increasing need for cybersecurity in an age where future geopolitical conflicts will increasingly be conducted in cyberspace. 

• Sen. Doug Jones (D-AL)  commented about his recent election, appointment to the Senate Banking Committee and the need for broadband internet access in rural areas as part of an infrastructure program.  Serving his first month in Congress, Sen. Jones noted he is receptive to all approaches to policy that encourage economic growth and looks forward to working with The Roundtable. 

• Jim VandeHei — the co-founder of and CEO of Axios, gave a candid view of upcoming mid-term elections; prospects of the House flipping to Democrat majority; and the news dissemination role of large tech companies like FaceBook in past and future elections. 

• Bob Schieffer —  the former Face the Nation moderator participated in a discussion with incoming Roundtable Chair Deb Cafaro (Chairman & CEO, Ventas, Inc.) about the emerging era of “fake news” within a media landscape of fractured outlets and a deluge of partisan information.

Roundtable Policy Committees

In conjunction with the SOI Meeting, The Roundtable’s Policy Advisory Committees met on Jan. 24-25, discussing policy issues in detail with high-level congressional and agency staff.

In the wake of the most significant tax measures passed in 31 years, TPAC attracted a large audience to address the details of what lay ahead in implementing the new tax law.

• Research and Real Estate Capital Policy Advisory Committee (RECPAC) 
  During this joint committee meeting, two panels of industry experts addressed the current real estate market cycle and provided an update on the state of real estate capital and debt markets.  Participants also discussed High Volatility Commercial Real Estate (HVCRE) and the Roundtable’s response to the recently proposed High Volatility Acquisition, Development or Construction Loans (HVADC) rule, as well as potential GSE reform.
• Tax Policy Advisory Committee (TPAC) 
  In the wake of the most significant tax measures passed in 31 years, TPAC attracted a large audience to address the details of what lay ahead in implementing the new tax law.  A panel of experts from the congressional tax-writing committees described the evolution of the key partnership and real estate-related provisions. Following presentations by TPAC members, Dana Trier, Deputy Assistant Secretary of Treasury for Tax Policy, outlined the rulemaking process going forward and provided insight on how Treasury may resolve certain open questions important to real estate investment. 
  

  SPAC hosted Dr. Joseph Allen, Assistant Professor, Harvard T.H. Chan School of Public Health, right and John Mandyck, Chief Sustainability Officer, United Technologies Corporation, left, who presented new research on the health co-benefits of Green Buildings.

• Sustainability Policy Advisory Committee (SPAC) 
  In addition to other guests, SPAC heard updates from Environmental Protection Agency (EPA) staff on the ENERGY STAR building- and tenant-level recognition programs, which recognizes leased spaces for high-performance design, construction and energy efficiency in CRE assets. 
• Homeland Security Task Force meeting (HSTF) and Risk Management Working Group (RMWG) 
  Representatives of the FBI briefed the Joint Meeting on the current threat picture and discussed psychological profiles of the recent homegrown violent extremists (HVEs).  The Task Force was also briefed on current cyber threat picture and how businesses should be addressing this risk.

Next on The Roundtable’s FY2018 meeting calendar is the Spring Roundtable Meeting on April 25 at The Newseum in Washington, DC.  This meeting will be restricted to Roundtable-level members only.

Without a last-minute funding deal before midnight tonight, much of the federal government will shut down on the one-year anniversary of President Trump’s inauguration. The budget affects issues of importance to commercial real estate such as the National Flood Insurance and  EB-5 foreign investment programs.

In an effort to identify temporary or immediate guidance that would provide a boost to economic growth and jobs, Real Estate Roundtable President & CEO Jeffrey DeBoer yesterday wrote to Treasury Secretary Mnuchin, offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA).  [Roundtable Letter, Jan. 18]

Despite White House talks today between Minority Leader Chuck Schumer (D-NY) and President Trump, disagreements on immigration policies such as the Deferred Action for Childhood Arrivals (DACA, or “Dreamers”) program threaten to scuttle a possible Senate vote on a government funding bill.  If a deal is reached, the House is prepared to act again – after passing a fourth “Continuing Resolution” (CR) in FY2018 last night, which would extend government funding through Feb. 15. 

The budget battle comes on the heels of last December’s enactment of the largest overhaul of the tax code in 31 years. As businesses and individuals adjust to the new tax law’s various provisions, it is expected that the IRS will issue guidance on technical questions affecting commercial real estate and other industries.  

In an effort to identify temporary or immediate guidance that would provide a boost to economic growth and jobs, Real Estate Roundtable President & CEO Jeffrey DeBoer yesterday wrote to Treasury Secretary Mnuchin, offering several suggestions aimed at ensuring the long-term success of the Tax Cuts and Jobs Act (TCJA).  [Roundtable Letter, Jan. 18]

The Jan. 18 Roundtable letter is based on input received from real estate leaders across the country, who share the goals of avoiding economic disruptions and reducing inefficient business restructuring or inactivity pending the issuance of final rules.  

The Roundtable letter identifies several areas where rulemaking would reduce uncertainty and  facilitate continued investment, including: 

• the scope of the real estate exception to the new limitation on business interest deductibility;
• the requirements that apply when calculating a taxpayer’s eligibility for the new 20% deduction for pass-through business income; and 
• the applicable cost recovery periods under the new tax law.    

The letter describes each issue and suggests clarifications that would be useful, in the short term, to ensure the new tax law spurs investment, growth and job creation. 

In conjunction with next week’s Roundtable State of the Industry Meeting in Washington, DC, the Tax Policy Advisory Committee (TPAC) will analyze these areas in detail.  Additionally, The Roundtable’s business meeting will feature key congressional leaders, including Senate Minority Leader Schumer, who will engage attendees in a variety of policy discussions, including the current budget situation.

House Republicans this week said efforts on a two-year budget deal to fund government programs and agencies are progressing as the current, short-term government funding extension is set to expire on Jan. 19. 

Consensus on outstanding policy disagreements did not emerge this week, despite a bipartisan meeting at the White House on Tuesday between President Trump and congressional leaders.  (  White House video  , Jan. 9)

Congress may pass a fourth “Continuing Resolution” (CR) for FY2018 to fund the government until mid-February and buy time to address spending limits on military and nondefense programs – including immigration policies such as border security and the Deferred Action for Childhood Arrivals (DACA, or “Dreamers”) program. 

The budget affects other issues of importance to CRE such as the National Flood Insurance and  EB-5 foreign investment programs.  If an agreement among policymakers is not forged next week and another CR cannot be passed, the government will shut-down. 

House Minority Leader Nancy Pelosi (D-CA) told reporters yesterday that a negotiated solution on both spending caps and Dreamers is uncertain. “There is no point in having another CR unless we have an agreement on DACA and funding, disaster aid, a number of issues that have to be dealt with,” Pelosi said.  

House Majority Leader Kevin McCarthy (R-CA) this week said, “I believe we can get to a solution here in the next day or two so we can move forward.  If we’re able to have that budget agreement, we’ll need some time for appropriators to do their work, so we’d have a continuing resolution.” (CQ, Jan. 11) 

Consensus on outstanding policy disagreements did not emerge this week, despite a bipartisan meeting at the White House on Tuesday between President Trump and congressional leaders.  (White House video, Jan. 9)  

Other issues under discussion include the fate of a bill introduced by Senate Finance Committee Chairman Orrin Hatch (R-UT) late last year that would extend various expired energy and other temporary tax provisions. (Wall Street Journal, Dec. 21, 2017) 

A separate tax “technical corrections” bill to address gaps and inconsistencies in last year’s landmark Tax Cuts and Jobs Acts is expected this quarter.

House Ways and Means Chairman Kevin Brady (R-TX) said this week that several extenders may be included in an upcoming CR. “I think it’s important for Democrats and Republicans to really come together on a lot of key issues … I’m hopeful they all stay at the table and bring us either in one or two steps what we need to do,” Brady said. 

It is unclear whether Senate Majority Leader Mitch McConnell (R-KY), with only a slim one-vote majority in the chamber, will be able to attract enough votes to pass a budget resolution. 

A separate tax “technical corrections” bill to address gaps and inconsistencies in last year’s landmark Tax Cuts and Jobs Acts is also expected this quarter.  Republicans would need to attract Democratic votes to reach a 60-vote threshold to pass another tax measure. (Roundtable Weekly, Jan. 5) 

The Roundtable and its Tax Policy Advisory Committee will discuss these issues in detail during The Roundtable’s Jan. 24-25 State of the Industry Meeting in Washington. Among the prominent policymakers who will engage Roundtable members during the business meeting is Senate Finance Committee Ranking Member Ron Wyden (D-OR) and the Treasury Department’s Deputy Assistant Secretary for Tax Policy Dana Trier.