News Type: Roundtable Weekly

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.

Treasury Issues Proposed Rule to Expand CFIUS Coverage of Real Estate Transactions Near Military Installations

Posted on by Trey Jackson

This week, the U.S. Department of the Treasury, as Chair of the Committee on Foreign Investment in the United States (CFIUS), issued a Notice of Proposed Rulemaking (NPRM) that would expand CFIUS’s jurisdiction over certain transactions by foreign persons involving real estate in the United States. (Treasury Press Release, July 8)

Proposed Rule

  • As chair of the Committee on Foreign Investment in the United States (CFIUS), the Treasury has the authority to review certain real estate transactions near specified military installations and to act in appropriate circumstances.
  • Under the new proposal, foreign land transactions within a mile of 40 additional military installations and within 100 miles of 19 additional military sites would trigger a CFIUS review.
  • The proposed rule would add over 50 military installations across 30 states to the existing list of installations for which CFIUS has jurisdiction.
  • The national security review panel has the power to block transactions entirely or impose restrictions on foreign transactions.
  • The U.S. Department of Defense (DOD), a member of CFIUS, continuously assesses its military installations and the geographic scope established under the CFIUS regulations to ensure appropriate application in light of national security considerations.
  • This proposed rule is the result of a recent comprehensive assessment conducted by the DOD regarding its military installations.

Other Key Changes

  • This latest update would vastly expand the reach of CFIUS’s real estate jurisdiction while maintaining its sharp focus on national security.
  • The proposed rule would also make other key changes:
  • Expand CFIUS’s jurisdiction over real estate transactions between 1 mile and 100 miles around eight military installations already listed in the regulations; and
  • Update the names or locations of 21 military installations already listed in the regulations to better assist the public in identifying the relevant sites.

Implications and Next Steps

  • The rulemaking comes amid growing bipartisan concern in Congress over the purchase of U.S. agricultural land and other property by China and other foreign adversaries.
  • Several GOP-led states have considered or enacted new restrictions on foreign ownership of land, targeting investors with ties to China and other countries. (PoliticoPro, July 8)
  • In response to the proposed rule, written comments will be accepted for 30 days following the NPRM’s publication in the Federal Register.

The Real Estate Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to monitor the proposed rulemaking and plans to submit comments.

Roundtable Employee Nancy G. Pitcher Retiring After 47 Years

Posted on by Trey Jackson

Nancy G. Pitcher will retire on June 28, 2024, after a distinguished 47-year career with the National Realty Committee and The Real Estate Roundtable.

  • Nancy began her career with NRC in 1977, as Office Manager. In 2001, she was promoted to Office Manager and Assistant Secretary, and in 2002, she was promoted to Director of Administration.
  • In recognition of her dedication, exceptional skills, professionalism, and unwavering commitment to The Roundtable staff, the Board of Directors honored Nancy with a gift and presented her with a Board Resolution, among other acknowledgments, at last week’s Annual Meeting. (Watch Presentation)
  • Roundtable President & CEO Jeffrey DeBoer remarked, “We have worked together for 32 years and through it all, Nancy has always been someone the industry, our team and I could rely on. She has been an inspiration and a role model to all our employees. She is hard-working, caring, focused, team-oriented, and can’t be replaced.”
  • Nancy has earned the admiration and respect of The Roundtable members, her colleagues, and everyone she has worked with over the years.
  • The Roundtable is proud to acknowledge her significant professional achievements and extends heartfelt congratulations on her well-deserved retirement. We wish her continued success, happiness, and good health in the years to come.

We are honored to have called her a friend and colleague all these years and wish her a wonderful retirement.

Real Estate Coalition Urges House Members to Support Bipartisan CRE Conversions Bill

Posted on by Trey Jackson

A Roundtable-led coalition of 17 national real estate organizations wrote to members of the House of Representatives voicing their support for the introduction of the Revitalizing Downtowns and Main Streets Act, which would create a market-based tax incentive for converting older commercial buildings to residential use.  (Coalition letter)

 Revitalizing Downtowns and Main Streets Act

  • The House Ways and Means Committee Members Mike Carey (R-OH) and Jimmy Gomez (D-CA) will introduce the Revitalizing Downtowns and Main Streets Act in the coming weeks.
  • If enacted, the bill would be a step forward in the effort to modernize U.S. real estate, create new and affordable housing, and strengthen cities and neighborhoods that continue to suffer from the aftereffects of the pandemic and changing business needs. 
  • Currently, only 2% of vacant offices are undergoing the conversion process (CBRE). However, 15% of office buildings are suitable for residential conversion. (White House, Oct. 2023)
  • The bill would create a new and temporary 20% tax credit for qualified property conversion expenditures, modeled after the historic rehabilitation credit.
  • The total credit authority would be limited to $15 billion, allocated by state housing finance agencies based on feasibility and impact.
  • Larger credits would be available for projects in rural areas, low-income census tracts, and economically distressed areas.

Roundtable Advocacy

  • The Real Estate Roundtable has supported similar versions of conversion legislation, such as the Revitalizing Downtowns Act (S. 2511, H.R. 4759), introduced by Sen. Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA) to encourage the conversion of older buildings into new uses.
  • The new bill addresses and incorporates most of the recommendations the coalition made collectively to the Revitalizing Downtowns Act in the October 2022 letter.  (June 2024 letter  | October 2022 letter)
  • Since then, many states and localities have taken bold action to support property conversion efforts.
  • Both letters are the product of a property conversions working group created by The Roundtable’s Tax Policy Advisory Committee (TPAC). The working group has reviewed and considered the challenges and impediments confronting potential property conversion activities. 

The Roundtable’s Tax Policy Advisory Committee will continue to respond to legislative proposals affecting potential property conversion activities.

Roundtable Announces FY 2025 Leadership; Kathleen McCarthy Takes Over As New Chair

Posted on by Trey Jackson

Roundtable Leadership

  • Kathleen McCarthy, Chair of the Real Estate Roundtable (above), said, “I am incredibly honored to step into the role of Chair of the Real Estate Roundtable. The real estate industry touches every aspect of our economy—from affordable housing and shopping centers to warehouses and data centers. Strong collaboration between the public and private sectors will enable the country to meet the challenges we face and capitalize on the opportunities ahead. John, Jeff, and the entire Roundtable team have advocated for policies to help drive growth and innovation across communities in the U.S., and I look forward to building on their important work.” (Press Release)
  • John Fish, Immediate Past Chair, stated, “It has been a privilege to serve as Chair during such a pivotal period for our industry. I am pleased to hand over the reins to Kathleen. Her expertise and leadership, along with Jeff DeBoer’s vision and guidance, will undoubtedly guide The Roundtable to new heights. The focus on recovery, resilience, and innovation remains crucial as this important organization works with our partners in government to advance our shared interests and strengthen the American economy.”
  • “The Real Estate Roundtable and its members have always risen to meet the challenges of the times, and I am confident that under Kathleen’s leadership, we will continue to make impactful strides,” said Jeffrey DeBoer, Roundtable President and CEO. “The real estate industry is a cornerstone of economic vitality, job creation, and community development. Kathleen’s extensive experience and strategic vision will be invaluable as we address critical policy issues and advocate for a shared, prosperous future.”

Roundtable Board of Directors

  • The 26-member FY2025 Roundtable Board of Directors is elected from the membership and includes three elected leaders of national real estate trade organizations from The Roundtable’s 18 partner associations.
  • Joining The Roundtable’s Board of Directors as of July 1 are:
    • Conor Flynn, CEO, Kimco Realty Corporation; First Vice Chair, Nareit
    • Michelle Herrick, Head of Real Estate Banking, J.P. Morgan
    • Diane Hoskins, Global Co-Chair, Gensler; Chairman, The Urban Land Institute
    • Michael H. Lowe, Co-CEO, Lowe
    • Andrew P. Power, President & CEO, Digital Realty

  • Stepping down from The Roundtable Board as of July 1 are:
    • Michael D. Brown, Travel & Leisure Co. President & CEO, Immediate Past Chair, American Resort Development Association
    • Debra A. Cafaro, Chairman and Chief Executive Officer, Ventas, Inc., Immediate Past Chair, The Real Estate Roundtable
    • W. Matthew Kelly, CEO, JBG Smith, Chair, Nareit

The Roundtable will release its 2024 Annual Report: Dynamic Policy for Evolving Needs in the coming weeks, which highlights the organization’s advocacy efforts over the past year and future policy solutions.

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.

Public Officials and Industry Leaders Discuss National Policy Challenges Affecting CRE

Posted on by Trey Jackson

The Real Estate Roundtable’s 2024 Annual Meeting this week included discussions with key public officials and industry leaders on issues affecting commercial real estate, including market conditions, the upcoming elections, affordable housing solutions, tax policy, sustainability issues, rebuilding cities, and evolving security threats.

Roundtable Leadership

  • During the meeting, Roundtable Chair Emeritus Robert Taubman (Chairman, President & CEO, Taubman Centers, Inc.) presented outgoing Chair John Fish (Chairman & CEO, SUFFOLK) with a gift from The Roundtable Board of Directors and membership, for his outstanding leadership and successful time as Chair.
  • In his outgoing speech as now-Immediate Past Chair, Fish thanked Jeffrey DeBoer, The Roundtable Board of Directors, membership, and staff for their hard work, and reiterated a key lesson from his time as Chair: “What’s good for America is good for our business.”
  • Kathleen McCarthy (Global Co-Head of Blackstone Real Estate) will begin her three-year term as Roundtable Chair on July 1, 2024.

Meeting Speakers

  • (L-R): Kenneth T. Rosen (Chairman of the Fisher Center for Real Estate and Urban Economics at the Haas School of Business at the University of California, Berkeley; Chairman, Rosen Consulting Group) presented and led a panel discussion on the economy and market conditions with Scott Rechler (Chairman & CEO, RXR), Bryan McDonnell (Managing Director, Chair of Global Debt & Agriculture, PGIM Real Estate), and Andrew P. Power (President & CEO, Digital Realty).
  • The Honorable Elliot Doomes (Commissioner, Public Buildings Service, U.S. General Services Administration) discussed public-private partnership opportunities and sustainable building practices.
  • “We urge the Public Buildings Service to accelerate their process to catalogue and sell to the private sector underutilized federal buildings.  The private sector can convert those buildings to much needed housing, reduce unnecessary emissions, and help revitalize communities still struggling to recover from the pandemic,” said Roundtable President & CEO Jeffrey DeBoer.
  • Dr. Frank Luntz (Founder and President, FIL Inc.)
  • Bruce J. Katz (Director, Nowak Metro Finance Lab, Drexel University, former Inaugural Centennial Scholar and Vice President of the Brookings Institution)

Policy Advisory Committee Meetings

Joint Real Estate Capital Policy Advisory Committee (RECPAC) and Research Committee

  • During a joint meeting, Research Co-Chair Spencer Levy (Global Chief Client Officer & Senior Economic Advisor, CBRE) and Darin Mellot (CBRE) briefed members on current real estate market conditions. RECPAC Co-Chair Michael Lowe (Co-CEO, Lowe) led a discussion about real estate credit and capital markets with: Kathleen S. Briscoe (Dermody Properties); Christina Chiu (Empire State Realty Trust); John Kessler (Mitsui Fudosan America); and Rex Rudy (U.S. Bank).  Roundtable Senior Vice President Chip Rodgers moderated a discussion with Terry Haines (Pangea Policy) and Alex Sternhell (Sternhell Group) on key policy issues affecting the industry.  (Agenda & Speakers)

Tax Policy Advisory Committee (TPAC)

  • TPAC Vice Chair David Friedline (Partner, Deloitte Tax LLP) led panels on tax legislation at the forefront of policy debates in Washington, including the Revitalizing Downtowns Act 2.0, the Foreign Investment in Real Property Tax Act (FIRPTA), partnerships, and pass-throughs. (Agenda & Speakers)

Sustainability Policy Advisory Committee (SPAC)

  • SPAC Chair Anthony E. Malkin (Chairman and CEO, Empire State Realty Trust, Inc.) and Vice Chair Ben Myers (Vice President, Sustainability, BXP) led discussions on the recently announced national definition of a Zero Emissions Building (ZEB), the SEC’s climate risk reporting rule, US-EPA ENERGY STAR, and NextGen. (Agenda & Speakers)

Homeland Security Task Force (HSTF)

  • Co-Chairs Amanda S. Mason (Executive Director, Global Intelligence, Related Companies) and Keith Wallace (VP, Global Safety & Security, Marriott International) led a series of discussions on a number of key areas of concerns for the commercial facilities sector. Dr. Todd C. Helmus (Senior Behavioral Scientist, RAND) discussed issues related to the 2024 U.S. election; Dr. Michael Doran (Senior Fellow and Director, Center for Peace and Security in the Middle East at the Hudson Institute) discussed risks posed by Iran; and FBI special agent Matthew Drummond briefed the Task Force on the current threat picture. (Agenda & Speakers)

Next on The Roundtable’s FY 2025 meeting calendar is the Fall Meeting on October 8-9. The Fall Meeting is restricted to Roundtable-level members only. 

Federal Reserve Leaves Rates Unchanged

Posted on by Trey Jackson

The Federal Reserve’s Federal Open Market Committee voted unanimously this week to maintain the federal funds rate at the 5.25%-5.5% range where it has been since July of last year. (Federal Reserve Press Release)

Federal Open Market Committee (FOMC) Meeting

  • After the meeting Wednesday, Fed chair Jerome Powell said at a news conference that he saw either one or two rate cuts this year as “plausible” scenarios. (Axios, June 12)
  • “What everyone agrees on is it’s going to be data dependent,” Powell added.
  • The FOMC issued a statement indicating that lowering inflation to 2 percent is their primary objective before reductions can occur.
  • The FOMC currently anticipates making four quarter-point cuts next year, bringing the federal funds rate down by 1.25 percentage points from its current level.

Congressional Pushback

  • Senators Elizabeth Warren (D-MA), Jacky Rosen (D-NV), and John Hickenlooper (D-CO) wrote to Fed chair Jerome Powell, urging the Fed to cut the federal funds interest rates from its current, two-decade-high of 5.5 percent, citing that other major central banks around the globe have made cuts or are leaning toward lowering interest rates. (Press Release | Letter)
  • Their letter also raises concerns that high interest rates are increasing the costs of housing and insurance, continuing to hurt Americans as rates remain unchanged.
  • On housing prices, the senators wrote: “The country is already facing a severe housing shortage, and the Fed’s refusal to bring down interest rates is exacerbating this shortage and driving higher inflation rates…Lower mortgage rates would encourage more people to sell their homes, which would in turn increase housing supply, decrease prices, ease the costs of renting, and ultimately increase homeownership.”
  • Sen. Sheldon Whitehouse (D-RI), chairman of the Senate’s Budget Committee, and Rep. Brendan Boyle (D-PA), ranking member of the House Budget Committee, also wrote to Chairman Powell echoing their concerns that high interest rates are exacerbating the housing supply crisis. (Letter)

Next week, at The Roundtable’s all-member Annual Meeting, we will hear economic and market forecasts from a panel of Roundtable members and Kenneth T. Rosen, Chairman, Fisher Center for Real Estate and Urban Economics at the Haas School of Business at the University of California, Berkeley; Chairman, Rosen Consulting Group.