Category: News

Real Estate Coalition Raises Concerns Over Cyber Reporting Requirements

Posted on by Trey Jackson

A coalition of national real estate associations submitted comments to the Cybersecurity and Infrastructure Security Agency (CISA) expressing concerns over a new proposed rule: Cyber Incident Reporting for Critical Infrastructure Act (CIRCIA) Reporting Requirements. As currently drafted, the rule imposes overly burdensome requirements and requires companies to assume unnecessary but significant legal and cybersecurity risks. (Letter)

Cyber Incident Reporting Rule

  • Under the current proposal, companies would be required to report significant cyber incidents to the Department of Homeland Security or CISA within 72 hours as well as any ransomware payments within 24 hours.
  • Given the ever-expanding cyber-threat landscape, the rental housing and real estate industry has prioritized defense against vulnerabilities.
  • The industry has undertaken efforts to mitigate cybersecurity risks, implement policies to prevent and mitigate such risks and encourage investments in bolstering cyber defenses to protect data.

  • The letter noted, “We support a unified but flexible regulatory framework for data security and incident notification, and believe it is important to have a balanced approach to providing consumers with meaningful information about material cybersecurity risks and incidents, while also not imposing overly burdensome regulations on the real estate/rental housing industry or unintentionally exposing our members to substantially greater cybersecurity risks.”

Industry Concerns and Recommendations

  • Overly burdensome requirements: CISA should revise the definition of “covered cyber incident” to a higher threshold for reporting to prevent unnecessary administrative load.
  • Disproportionate compliance costs: the estimated compliance cost of over $1.4 billion is seen as disproportionate to the benefits. These funds could be better spent on actual cybersecurity measures rather than on reporting.
  • Reporting deadlines are unclear and increase the risk of attack: the proposed rule’s 72-hour reporting requirement and 24-hour ransom payment reporting deadline could hinder effective incident response and increase vulnerability to additional attacks.
  • The proposed rule adds another reporting requirement to an already cluttered landscape. CISA should harmonize its reporting requirements to reduce compliance burdens.

The Real Estate Roundtable’s Homeland Security Task Force and RE-ISAC will continue to be resources and assist CISA in the development of clear, effective, and secure cyber incident reporting rules.

Roundtable Weekly Will Resume Publication on July 12, 2024

Posted on by Trey Jackson

The Roundtable’s policy news digest will resume publication on Friday, July 12, 2024.

Recent issues of Roundtable Weekly can be searched by keyword here.

Supreme Court Rules in Case of Federal Taxation of Unrealized Income

Posted on by Trey Jackson

On Thursday, the Supreme Court ruled 7-2 to uphold the constitutionality of mandatory repatriation tax (MRT) enacted in 2017, but chose to sidestep and not rule on the issue of whether the Constitution imposes a realization requirement on the taxation of income. (Moore v. United States)

Background & The Decision

  • The petitioners in Moore argued that the MRT exceeds Congress’s authority under the 16th Amendment to lay and collect taxes on income. The Moore’s were shareholders of a foreign corporation. The corporation never distributed its earnings, but the MRT taxed the Moore’s on their deemed share of the corporation’s income. The Moore’s argued that the federal government could not tax them on income they never realized. (Roundtable Weekly, Oct. 13)
  • A decision in favor of the Moore’s could have important consequences for both legislative proposals to tax unrealized gains, but also existing aspects of the tax code and pass-through taxation. 
  • The Ninth Circuit ruled against the Moore’s on the grounds that there is no realization requirement in the Constitution. 
  • The Roundtable has consistently opposed proposals to tax unrealized gains on several grounds, including their constitutionality and the damage they would cause to the economy, entrepreneurship, and productive investment. 
  • The Supreme Court, in a decision authored by Justice Brett Kavanaugh, stepped back from the sweeping holding by Ninth Circuit and concluded that it did not need to rule on the realization question because the foreign company’s operating income was clearly “realized” by the foreign company. In passing the MRT, Congress was simply attributing (or passing through) that income to its U.S. shareholders. 
  • The 7-2 opinion by Justice Kavanagh was accompanied by two concurring opinions, one from Justice Jackson and one from Justice Barrett (joined by Justice Alito). Justices Thomas and Gorsuch dissented. 
  • While the Real Estate Roundtable’s Tax Policy Advisory Committee (TPAC) and its members are still parsing the language of the various opinions to understand the broader implications, at the end of the day, there appear to be at least four justices willing to uphold a realization requirement (Barrett, Alito, Thomas, and Gorsuch), one justice prepared to hold that realization is not required (Jackson), and four justices who have not yet tipped their hand (Kavanaugh, Roberts, Sotomayor, and Kagan).  See analysis of Moore decision by TPAC member Don Susswein (Principal, RSM US LLP)

The Moore ruling is unlikely the last word in the heated debate over the constitutionality of taxing unrealized gains.

IRS and Treasury Unveil New Rules Aimed at Partnership “Basis-Shifting” Transactions

Posted on by Trey Jackson

This week, the IRS and Treasury Department announced a multistage regulatory initiative aimed at regulating certain partnership transactions that shift the tax basis of assets and generate additional depreciation deductions, reduce taxable gains, or increase deductible losses. (IRS-Treasury Press Release, June 17)

Guidance Package

IRS building in Washington DC
  • In Notice 2024-54, Treasury and the IRS indicated they intend to issue proposed regulations governing certain transactions that affect the basis of property held by a partnership or distributed by a partnership. The guidance will focus on partnerships that involve related parties or tax-indifferent parties. 
  • Related parties could include family members, corporations and their shareholders, and other entities and businesses with common or overlapping ownership.  It is unclear from the guidance where the administration believes the targeted abuses generating inappropriate tax benefits are most likely to arise (e.g., corporate mergers, family offices, real estate, etc.). 
  • The rules will apply to cost recovery deductions and gain/loss calculations for tax years ending after June 17, 2024, thus covering deductions, gains, or losses attributable to transactions completed in prior years. 

Roundtable Concerns

  • A principal concern voiced at this week’s RER Tax Policy Advisory Committee meeting is related to the broad scope of the new rules. Rather than focusing specifically on identifiable, abusive transactions, Notice 2024-54 states that the forthcoming regulations will provide “mechanical rules applicable to all covered transactions without regard to the taxpayer’s intent and without regard to whether the transactions could be abusive or lacking in economic substance.”
  • Moreover, the Notice states that the regulations will only apply if the transaction results in a basis increase for the relevant property.  “If, and to the extent, property has been allocated a basis decrease, the proposed rules would not apply.”
  • The new rules thus apply to a transaction regardless of whether the transaction is abusive or lacking in economic substance, but only if they result in a negative outcome for the taxpayer.  If the same mechanical rules would generate a positive result for another taxpayer, they are disregarded.  In sum: Heads, IRS wins; tails, taxpayer loses. 

Additional Developments:

Other elements of the regulatory initiative include:

  • Proposed regulations (REG-124593-23) identifying some partnership-related-party basis adjustment transactions as transactions of interest and requiring disclosures by participants and material advisers. 
  • Revenue Ruling 2024-14 notifying taxpayers that it will apply the codified economic substance doctrine to challenge certain basis-shifting transactions. 
  • The IRS Office of Chief Counsel also announced the formation of a new associate office focused exclusively on partnerships, S corporations, trusts, and estates. (TaxNotes, June 17)

The Roundtable’s Tax Policy Advisory Committee will continue its discussion of the partnership basis-shifting issue and how best to respond on its next TPAC Zoom meeting.

Housing Coalition Calls on Lawmakers to Address Rising Insurance Costs

Posted on by Trey Jackson

On Monday, The Roundtable as part of a broad housing coalition wrote to policymakers offering solutions to address rising insurance premiums across the nation’s housing market and its significant impact on all stakeholders throughout the commercial real estate industry. (Letter)

Coalition Policy Solutions

  • The lack of affordability and availability of insurance options has both short- and long-term implications for the real estate industry’s ability to address the housing crisis.
  • The letter suggests several measures to mitigate these issues, including regulatory reforms, public-private partnerships, and innovative insurance products tailored toward affordable housing projects.
    • Federal Backstop for Catastrophic Coverage: A federal backstop, similar to terrorism risk and national flood insurance, could help stabilize the market.
    • Adjust Operating Cost Adjustment Factor (OCAF) Methodology at HUD: Use industry data for property and casualty insurers to reflect actual insurance costs for rental housing.
    • Modernize Insurance Requirements: Revise stringent insurance requirements for federally-backed loans to provide more flexibility.
    • Expand Federal Grants and Programs: Leverage existing federal programs to subsidize insurance costs and support resiliency investments.

Unprecedented Insurance Rates

  • The volatility in the insurance market, driven by more frequent natural catastrophes and inflation, has led insurers to raise premiums, increase deductibles, and limit coverage.
  • Rising insurance premiums significantly impact housing providers, developers, and renters across the U.S., exacerbating housing affordability challenges and disincentivizing providers from participating in the affordable housing market.
  • Insurance rates have surged dramatically, with property insurance rates increasing for 25 consecutive quarters and casualty insurance rates for 17.
  • Over the past three years, affordable rental housing communities have seen premium increases ranging from 30% to 100%.

  • An October 2023 survey and report, commissioned by the National Leased Housing Association (NLHA), found that affordable housing providers are facing much higher premiums, with nearly one in every three policies experiencing rate increases of 25% or more in the most recent renewal period.

National Flood Insurance Program (NFIP)

  • A recent report by the Joint Economic Committee Democrats found that the total annual economic burden of flooding in the United States is between $179.8 and $496 billion—equivalent to 1-2% of U.S. GDP in 2023. (JEC Report on Flooding)
  • Congress has enacted 30 short-term extensions of the NFIP. The most recent stopgap spending bill extended the NFIP’s funding through September 2024. (PoliticoPro, June 10)
  • The Roundtable has been a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms.
  • A long-term reauthorization of the NFIP is essential for residential markets, overall natural catastrophe insurance market capacity, and the broader economy.

The Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs through targeted policy solutions that can help alleviate the burden on housing providers and ensure the availability of affordable housing nationwide.

Roundtable Founding Member and TPAC Chairman Frank G. Creamer, Jr. Passes

Posted on by Trey Jackson
Frank G. Creamer, Jr.

Frank G. Creamer, Jr., a founding member of The Real Estate Roundtable and long-serving chairman of its Tax Policy Advisory Committee (TPAC), passed away on May 17. (Obituary)

Industry Mentor

  • “Frank Creamer offered his deep expertise and knowledge to so many in the industry during his 25 years of involvement with RER,” said Jeffrey DeBoer, Roundtable President and CEO. “In his long-time role as TPAC Chairman, Frank was a tremendous mentor and reliable guide who cared deeply about The Roundtable, its role in the industry, and its members. His dedication was exemplary, and he will be remembered as the consummate gentleman he most certainly was, who always had time for others. We will sorely miss Frank and extend our heartfelt condolences to his family and friends.”
  • Mr. Creamer held various executive positions during his career in the global commercial real estate lending business, rising to oversee all real estate banking at Citibank. After his tenure at Citibank, he became a principal and owner of his company, FGC Advisors, LLC, a real estate advisory firm.

A memorial service is scheduled for June 5 in Center Moriches, NY followed by a June 6 funeral Mass at St. John the Evangelist Roman Catholic Church. In lieu of flowers, a donation in his memory can be made to the Tunnels to Towers Foundation. (See obituary for details)

CRE Executives Express Tempered Optimism Despite High Interest Rates and Tight Liquidity

Posted on by Trey Jackson

(WASHINGTON, D.C.) — Commercial real estate executives expressed tempered optimism about property markets in The Real Estate Roundtable’s Q2 2024 Sentiment Index as high interest rates and liquidity challenges linger. The Q2 Sentiment Index registered the same overall score of 61 from the previous quarter as uncertainty persists about future asset values and availability of capital.

The Roundtable’s Current Sentiment Index registered 55, a 2-point increase over Q1 2024. The Future Index posted a score of 66 points, a decrease of 4 points from the previous quarter. Any score over 50 is viewed as positive. ­­­­The Overall Index this quarter of 61—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of the Current and Future Indices.­­­­

The Q2 Sentiment Index topline findings also include:

  • Evolving market trends continue to shape the real estate landscape. A majority (66%) of Q2 survey participants expect general market conditions to show improvement one year from now. Additionally, 45% of respondents said conditions are better now compared to this time last year. Only 11% of Q2 participants expect general market conditions to be somewhat worse in a year, a slight increase from 6% in Q1.

  • Class B office properties are facing ongoing challenges, attributed to an ongoing “flight to quality.” Industrial and multifamily sectors show tempered growth, yet their underlying fundamentals remain robust. Retail sectors are healthy, propelled by consumer spending, while interest in data centers continues to ascend.

  • A significant 75% of Q2 survey participants expressed optimism that asset values will be higher (44%) or the same (31%) one year from now, indicating some semblance of expected stability.

  • The real estate capital markets landscape remains challenging. For the current quarter, 65% believe the availability of equity capital will improve in one year, while 64% said the availability of debt capital will improve in one year. The 36% of participants who said the availability of debt capital would be worse in one year is an increase from 24% in Q1 who voiced the same expectation.

  • Regarding sentiment on the availability of equity capital, 65% of survey respondents expect conditions to improve, compared to 26% who stated that availability of equity capital was better a year ago.

Some sample responses from participants in the Sentiment Index’s Q2 survey include:

“Real estate fundamentals are shaping up to be very strong in one to two years. Companies that have a long-term perspective and can be patient will benefit from strong employment growth, demographic shifts, and stable occupancies.”

“The mom-and-pop investors who own class B office are hurting the most. The institutional investors are diversified, so they are faring better.”

“Stability in asset values isn’t just about reaching pre-2022 levels; it’s about establishing a new norm based on sustainable growth.”

Data for the Q2 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in April. See the full Q2 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

Key Regulators View Banks’ Office Loan Concentrations as Manageable Risk

Posted on by Trey Jackson

Fed Chair Jerome Powell and Treasury Secretary Janet Yellen this week said that federal regulators are closely monitoring bank loan concentrations in office properties for heightened economic risk but view the CRE sector’s financial challenges as manageable. (60 Minutes’ Powell transcript, Feb. 3 and Bloomberg video of Yellen testimony, Feb. 6)

Regulators Focus on CRE

Federal Reserve Chairman Jerome Powell on 60 Minutes
  • Chair Powell told CBS’ 60 Minutes, “We looked at the larger banks’ balance sheets, and it appears to be a manageable problem. It’s a secular change in the use of downtown real estate. And the result will be losses for the owners and for the lenders, but it should be manageable.”
  • Secretary Yellen also said economic pressures on office properties are “manageable” before the House Financial Services Committee on Feb. 6 and the Senate Banking, Housing and Urban Affairs Committee on Feb. 8.  Her testimony included a summary of findings from the Financial Stability Oversight Council’s annual report, which noted, “Elevated interest rates, high costs, and potential structural changes in demand for CRE have heightened concerns about CRE.”
  • CNBC’s Squawkbox interviewed Minneapolis Fed Pres. Neel Kashkari on Feb. 7 about the regulators’ CRE concerns. “It really is focused on the office sector. Many other segments within commercial real estate seem to be doing very well, so I think that delineation is important. And we think it’s going to be on a bank-by-bank basis where we see pressures flare up. Our bank supervisors are in very close contact with others around the country,” Kashkari said.

CRE Markets

Real Estate • Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR)
  • Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told CNBC’s Squawkbox on Feb. 6 that commercial real estate markets in 2023 were “a little bit paralyzed” but that “if you’re a borrower who’s willing to invest money, banks are willing to reduce their loan balances to reflect the current environment.” (CNBC, Feb. 6)
  • A recent CRED iQ report found that more borrowers are modifying CRE loans. The report covers 441 loans with a total value of $13.6 billion (GlobeSt. Jan. 25)
  • CNBC’s Last Call interviewed House Financial Services Committee Member French Hill (R-AR) about capital and credit pressures on CRE on Feb. 1. Rep. Hill addressed the negative impacts of interest rates, fiscal policy, and inflation on the economy and the office sector—and the problems posed by the regulatory agencies’ Basel III “Endgame” proposal.

Separately, The Federal Reserve Board recently announced that its Bank Term Funding Program will cease making new loans on March 11. The program remains available as an additional source of liquidity for eligible institutions until that date. (Fed news release, Jan. 24)

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Roundtable Policy Advisory Committees Drill Into Sustainability and Security Issues at 2024 SOI Meeting

Posted on by Trey Jackson
The Roundtable’s Sustainability Policy Advisory Committee (SPAC) meeting at the 2024 State of the Industry meeting

National policies and agency actions related to climate, environmental, and energy issues were among the many topics on The Roundtable’s Sustainability Policy Advisory Committee (SPAC) agenda at the SOI meeting. Additionally, The Roundtable’s Homeland Security Task Force (HSTF) and Risk Management Working Group (RMWG) met to discuss evolving security threats impacting CRE.

Special Roundtable SPAC workshop on EPA’s ENERGY STAR Portfolio Manager benchmarking tool.
  • SPAC members also attended a special session with EPA staff where Roundtable members provided detailed industry feedback about the first major enhancements in a decade that are under consideration for EPA’s ENERGY STAR Portfolio Manager benchmarking tool.
The Roundtable’s Homeland Security Task Force (HSTF) and Risk Management Working Group (RMWG)
  • The Roundtable’s HSTF and RMWG joint meeting on Jan. 24 addressed China’s espionage efforts impacting American corporations; the emerging use of Artificial Intelligence as a new risk vector; and the current dynamic in pricing and coverage in commercial insurance markets. (HSTF & RMWG joint agenda | Roundtable 2024 Homeland Security Priorities)

Next on The Roundtable’s 2024 meeting calendar is the Spring Meeting on April 15-16. This upcoming meeting is restricted to Roundtable-level members only. 

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Senator Joe Manchin and Financier Michael Milken Among Roundtable’s SOI Meeting Guests

Posted on by Trey Jackson
2024 photo: left, Real Estate Roundtable President and CEO Jeffrey DeBoer with Roundtable Chair John Fish (Suffolk)

Roundtable Chair John Fish, right, (Chairman and CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer, left, launched this week’s Real Estate Roundtable 2024 State of the Industry (SOI) meeting, which focused on many of RER’s 2024 Policy Priorities. (See Executive Summary and the SOI meeting agenda)

  • The meeting featured a discussion with Sen. Joe Manchin (D-WV) and Financier Michael Milken on America’s leadership role in the world. Additional presentations by prominent policymakers and industry leaders focused on issues of importance to commercial real estate, including updates on select market conditions by Roundtable members. (See below)

Economic Leadership & Future Challenges

Sen. Joe Manchin, left, with Financier Michael Milken at The Real Estate Roundtable's 2024 State of the Industry Meeing
  • Sen. Manchin, left, and Mr. Milken, right, discussed the need to preserve American economic leadership; the crucial, long-term importance of an educated workforce; and global demographic trends that pose new challenges to U.S. strength.
  • Sen. Manchin noted that he is retiring from the Senate at the end of this Congress but not retiring from his efforts to encourage bipartisan policy solutions to America’s big challenges such as immigration, the national debt and deficit, and electoral system issues.
  • An international financier and philanthropist, Mr. Milken discussed a variety of his successful initiatives in access to capital, medical research, education, and public health. He leads a new DC-based initiative called the Milken Center for Advancing the American Dream while spearheading the Milken Institute, a nonpartisan think tank focused on financial, physical, mental, and environmental health issues affecting critical global issues.
The Real Estate Roundtable's 2024 State of the Industry Meeting was well attended.

Three additional U.S. Senators and other guests at the Jan. 23-24 SOI meeting addressed a variety of other policy issues, including affordable housing, tax policy, banking and climate regulations, evolving security threats, and the current election cycle. (RER’s 2024 SOI meeting agenda and stories below).

Next on The Roundtable’s 2024 meeting calendar is the Spring Meeting on April 15-16. The upcoming meeting is restricted to Roundtable-level members only. 

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