News Type: Roundtable Weekly

House Ways and Means Committee Signals Green Energy Tax Bill; Trump Administration Developing “Tax 2.0” Proposal

Posted on by Trey Jackson

House Ways and Means Committee Chairman Richard Neal (D-MA) recently confirmed plans to advance legislation in 2020 that would expand and create new renewable energy and energy-efficiency tax incentives.  “We talked about (the markup) this morning,” Neal told reporters on Jan. 14. He added, “We are scheduling events.” (BGov, Jan. 15 and Jan. 24) 

  • The starting point for green energy tax legislation in the Ways and Means Committee is likely a draft bill unveiled last November by Rep. Mike Thompson (D-CA), who chairs the Subcommittee on Select Revenue Measures. 
  • Rep. Thompson’s discussion draft of the Growing Renewable Energy and Efficiency Now (GREEN) Act would modify the enhanced deduction for energy-efficient commercial building property (section 179D);create an expanded tax credit for the developers of new, energy-efficient home (section 45L); and modify the tax credit for energy-efficient improvements to existing homes (section 25C).  (Roundtable Weekly, Nov. 22) (Rep. Thompson news release with link to the GREEN tax draft legislation, Nov. 19) 
  • The Real Estate Roundtable and other real estate and environmental organizations are encouraging Members of Congress to consider an additional proposal that would incentivize existing buildings to purchase and install energy-efficient upgrades that reduce greenhouse emissions, generate taxpayer savings, and spur innovation and investment.    
  • Specifically, draft legislation under review would create a new category of energy-efficient qualified improvement property (E-QUIP) that is subject to an accelerated 10-year depreciation period.  The E-QUIP benefit would apply to purchases of modern and energy-efficient HVAC, lighting, and building envelope improvements, such as energy-saving roofs and windows. (Roundtable Weekly, May 10)

Separately, President Trump on Jan. 22 said a substantial middle-class tax cut – referred to as “Tax Cut 2.0” – will be released within 90 days, during an interview with Fox Business’ Maria Bartiromo at the World Economic Forum in Davis, Switzerland.  (Reuters, Jan. 22)

  • Treasury Secretary Steven Mnuchin told CNBC at the same conference, “The president has asked us to start working on what we call ‘tax 2.0,’ and that will be additional tax cuts. They’ll be tax cuts for the middle class, and we’ll also be looking at other incentives to stimulate economic growth.”  (CNBC, Jan. 23)
  • Larry Kudlow, director of the White House National Economic Council, told FOX Business’ Liz Claman on Jan. 17 that “The president directed me to produce what we’re calling ‘tax cuts 2.0.’  It will be published sometime during the campaign, has a message for future Trump economic growth policies, particular emphasis on the middle class in his second term.”
  • A legislative path toward passage of individual tax bills in an election year is very narrow, but separate tax proposals by Congress and the White House could culminate in an end-of year compromise package. 

Tax issues for 2020 will be a focus at next week’s Roundtable State of the Industry Meeting in Washington – both during the Jan. 28 business meeting and the Jan. 29 Tax Policy Advisory Committee (TPAC) meeting.  

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House Democrats to Introduce Infrastructure Proposal

Posted on by Trey Jackson

Infrastructure public transit bridge outside Denver CO

A proposal to improve the nation’s infrastructure and surface transportation will be unveiled by House Democratic leaders next week – as the House Ways and Means Committee considers how to pay for it during a Jan. 29 hearing on “Paving the Way for Funding and Financing Infrastructure Investments.” (Deloitte Tax News & Views, Jan. 17)

  • Ways and Means Committee (W&M) Chairman Richard Neal (D-MA) and Transportation and Infrastructure Committee (T&I)  Chairman Peter DeFazio (D-OR) will be tasked with considering how to offset the costs of a national infrastructure improvement effort and surface transportation bill.  (BGov, Jan. 23)
  • The Ways and Means Committee hearing will explore potential funding options, including raising the gasoline tax; expanding tax-exempt bonds; establishing a vehicle-miles traveled tax; and greater use of public-private partnerships (PPPs).  The Congressional Budget Office reported this week that PPPs have accounted for only 1 to 3 percent of spending for highway, transit, and water infrastructure since 1990.
  • The Roundtable submitted extensive comments on infrastructure policy to both committees last year.  (March 20, 2019 W&M comments; April 29, 2019 T&I comments.)
  • The nation’s largest financing source for roads, bridges, tunnels, and mass transit – the federal Highway Trust Fund (HTF) – expires on Sept. 30, the end of the government’s 2020 fiscal year. 
  • With HTF reauthorization considered a “must do” legislative priority during this election year, a transportation funding bill will likely become part of the broader infrastructure proposal, which could total $1 trillion or more.
  • The Roundtable and more than 150 national trade associations also wrote to Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY), on Sept. 30 to reauthorize the HTF before its scheduled expiration. (Roundtable Weekly, Oct. 4)  Chairman DeFazio said his possible funding sources could incorporate federal gas tax revenues and a bonding proposal. (BGov, Jan. 17)
  • In the Senate, four committees will play a role in crafting a long-term HTF package.  Last summer, the Senate Environment and Public Works (EPW) Committee unanimously advanced a bill (S. 2302) that would authorize $287 billion over five years to repair and maintain the nation’s surface transportation. (EPW Committee news release, July 30)
  • Senate Majority Leader Mitch McConnell (R-KY) recently discussed with GOP committee leaders possible transportation and infrastructure agendas that could be advanced after the impeachment trial ends.
  • Additionally, the Trump Administration on Jan. 9 proposed changes to federal environmental review requirements to speed major infrastructure projects such as highways, airports, tunnels and pipelines. (Roundtable Weekly, Jan. 10)
  • The proposal by the White House’s Council on Environmental Quality (CEQ) to streamline the infrastructure approval process complements the similar, bipartisan efforts in the Senate to speed-up delivery for infrastructure projects. (Roundtable Weekly, Aug. 2)

Federal infrastructure efforts, and their vital importance to commercial real estate, are a focus of The Roundtable’s 2020 Policy Agenda, which will be discussed at the organization’s State of the Industry Meeting on January 28-29 in Washington.

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U.S. Labor Department Adopts “Joint Employer” Rule, Returns to “Direct and Immediate Control” Standard

Posted on by Trey Jackson

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The Labor Department on Jan. 12 released its final “joint employer” rule, returning to a standard where businesses can only be held responsible for workplace violations and collective bargaining obligations regarding workers over which they have “direct and immediate” control.  (Final Rule, Federal Register and Fact Sheet, Dept. of Labor).

  • This week’s rule takes effect on March 16.  It upholds a federal labor standard that was in effect for more than thirty years, before it was upended by a National Labor Relations Board (NLRB) decision in 2015. 
  • That 2015 NLRB decision instituted an expansive interpretation of workplace relationships, where employees hired by a local franchise operator (or subcontractor) could also be considered an employee of the “parent” company (or general contractor) that had no role in hiring decisions.  The new regulation revives the long-standing rule that two separate employers are considered “joint employers” only where they both have “direct and immediate control” over hiring standards, employment terms and working conditions. 

  • In practical terms, the Jan. 12 rule means that a local franchisee remains obligated to sit down and negotiate with unionized employees – but the remote franchisor company that never hired the workers has no collective bargaining responsibilities to them.  Similarly, a subcontractor that commits workplace safety violations is responsible to its laborers, but a general contractor is not similarly responsible unless it has “direct and immediate” control over job site conditions.

  • Advocacy over the joint employer rule has spanned the Obama and Trump Administrations.  For example, as part of a broad multi-industry coalition, The Roundtable wrote to congressional leaders back in 2017 about the harm to businesses caused by the NLRB’s Obama-era position, essentially advocating for the Labor Department’s rule handed down this week. (See past Roundtable Weekly stories – March 2, 2018 / Dec. 15, 2017 / Nov. 10, 2017 / Sept. 11, 2015)

  •  On Jan. 12, DOL Secretary Eugene Scalia and White House Chief of Staff Mick Mulvaney wrote in the Wall Street Journal about the new joint employer rule.

“The new rule also gives companies in traditional contracting and franchising relationships confidence that they can demand certain basic standards from suppliers or franchisees—like effective antiharassment policies and compliance with employment laws—without themselves being deemed the employer of the other company’s workers. That will help companies promote fair working conditions without facing unwarranted regulatory costs,” according to the two Trump Administration officials. (Wall Street Journal, Jan. 12)

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Treasury Issues Final Regulations Affecting National Security Concerns Over Foreign Investment, Including Real Estate Transactions

Posted on by Trey Jackson

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The Treasury Department on Jan. 13 issued two final regulations that increase the U.S. executive branch’s ability to address national security concerns arising from certain foreign investments, including real estate transactions.  (Treasury’s full text of the final regulations & related resources)

  • The new rules, which go into effect Feb. 13, will comprehensively implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).  The Act authorizes the Committee on Foreign Investment in the United States (CFIUS) to review certain transactions involving foreign investment to determine potential effects on U.S. national security.
  • FIRRMA, enacted with bipartisan support in August 2018, established CFIUS’ jurisdiction over certain real estate transactions.  It also broadened CFIUS’ jurisdiction over certain non-controlling investments into certain U.S. businesses involved in critical technology, critical infrastructure, or sensitive personal data.
  • The new regulations were released in two parts: Provisions Pertaining to Certain Investments in the United States by Foreign Persons (31 C.F.R. part 800); and Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States (31 C.F.R. part 802).  (Skadden, Jan. 16 – “CFIUS’ Final Rules: Broader Reach, Narrow Exceptions and Foretelling Future Change“)
  • “These regulations strengthen our national security and modernize the investment review process,” said Treasury Secretary Steven T. Mnuchin. “They also maintain our nation’s open investment policy by encouraging investment in American businesses and workers, and by providing clarity and certainty regarding the types of transactions that are covered.”  (Treasury statement, Jan. 13)
  • The new rules create exemptions to CFIUS jurisdiction for so-called “excepted foreign states” that include nationals, entities, and governments of certain countries.  The current list of eligible foreign states includes Australia, Canada and the United Kingdom, but may expand to include other nations in the future.
  • The Real Estate Roundtable submitted comments to Treasury last year about the original, proposed CFIUS rules and requested clarifications about how investments in commercial real estate would be affected.  (Roundtable Weekly, Sept. 20, 2019 and Roundtable Letter, Oct. 17, 2019)
  • FIRRMA expands the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities.  Responding to concerns raised by The Roundtable and other industry groups, language is included in the rules that exempts real estate located in an ‘urbanized area’ from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people.
  • The new rules include other modifications to the proposed rules affecting real estate transactions.  The final rules lower the threshold for investors to qualify as “excepted investors.”  A foreign person who now qualifies as an excepted investor will not be subject to CFIUS’ jurisdiction for non-controlling investments regarding real estate transactions.  (Law 360, Jan. 15)
  • A Ropes & Gray Jan. 15 summary – “CFIUS Issues Final Rules Implementing FIRRMA: Key Changes and Developments” – reports that an entity may be deemed an “excepted investor” if, among other requirements:
    • 75 percent or more of the members and 75 percent or more of the observers of the board of directors (or comparable body) are citizens of either the United States or an excepted foreign state – instead of the 100 percent requirement articulated in the Proposed Rules, and
    • All investors that hold a 10 percent or greater equity interest are citizens of either the United States or an excepted foreign state – instead of the 5 percent or greater requirement set forth in the Proposed Rules.

According to a Jan. 16 JD Supra report — “Key Takeaways from CFIUS Final Rules Implementing FIRRMA  — the final rules also broaden the covered real estate exception for retail trade, accommodation, and food service stores.  The new rules apply the exception to leases and concessions of real estate that are “used only for the purpose of engaging in the retail sale of consumer goods or services to the public.”

CFIUS also intends to make a web-based tool available in the near term to assist the public with assessing what qualify as “covered real estate transactions” that are potentially subject to CFIUS review.

With these final rules, investors and companies now face a more complicated CFIUS framework that accounts for evolving national security risks involving foreign investments and real estate transactions.   

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) and Homeland Security Task Force (HSTF) plan to study the 132-page rule (part 802) affecting foreign transactions in U.S. real estate for more insight into how the new rules may impact commercial real estate investment.

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Roundtable Submits Comments to HUD on Barriers to Affordable Housing Development; NMHC Releases 2020 Outlook on States’ Rent Control Efforts

Posted on by Trey Jackson

The Real Estate Roundtable today submitted a suite of policy suggestions (revised January 21, 2020) to the Department of Housing and Urban Development (HUD) to improve access to affordable housing.  The comments respond to HUD’s Request for Information seeking public feedback on laws, regulations, land use requirements and administrative practices posing barriers to housing affordability and availability.

Roundtable Recommendations

The Roundtable’s comments offer policies intended to bring more safe, decent, and affordable housing within reach of indigent and low-income households.  It also urges HUD to focus on the scarcity of homes accessible to middle class families, and recommends policies to increase both purchase and rental options for teachers, first responders, and other contributors in America’s workforce. 

Recognizing “there is no single, best solution to promote housing affordability and increase housing supplies,” The Roundtable suggests a number of strategies to address the challenges and opportunities for public, low-income, and middle-class housing, including:

  • Expand the Low-Income Housing Tax Credit (LIHTC) program, and provide a similar tax incentive focused on housing development for America’s middle class;

  • Use GSE reform to re-focus the mission of Fannie Mae and Freddie Mac on liquidity in the mortgage markets for low- and middle-income home buyers, while also encouraging GSE interventions to enhance middle-class rental housing;

  • Reform procedures and rules under the Community Reinvestment Act (CRA), so banks can receive “credit” when they serve lending needs and increase housing supplies in middle-class neighborhoods (80-120 percent of Area Median Income);

  • Foster a Yes in My Backyard – or “YIMBY” – environment whenever states and cities seek the “carrot” of federal grants, that obliges localities to implement land-use laws to deliver high density zoning needed to entitle affordable housing projects;

  • Promote greater production of manufactured housing as a high quality, less costly alternative to site-built homes; and

  • Direct the General Services Administration to prioritize increasing affordable housing supplies when it disposes of surplus federal properties for re-development by states, localities, and the private sector.

The comments conclude with an assessment of rent control laws which have “a long-term effect to worsen the housing crisis,” The Roundtable wrote to HUD.  The letter notes that numerous studies show these laws decrease housing supplies and can illogically benefit high-income earners who have no incentive to move out of controlled units.

In a related development this week, the National Multifamily Housing Council (NMHC) released a report on “Rent Control: A 2019 Recap and a 2020 Look Forward,” which provides a national assessment of rent cap efforts by multiple states. The new report supplements NMHC’s Housing Affordability Toolkit that explains the cost drivers behind apartment development and delves into best practices to address the affordability challenge. 

During The Roundtable’s January 28 State of the Industry meeting in Washington, DC, a discussion of housing availability and affordability will feature Federal Housing Finance Agency Director Mark Calabria and Rep. Patrick McHenry (R-NC), Ranking Member of the House Financial Services Committee.

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Industry and Federal Agencies Share Threat Information Amid Recent International Tensions and Homeland Security Concerns

Posted on by Trey Jackson

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During recent military actions between the United States and Iran, the real estate industry engaged in intensive information-sharing efforts with government agencies on a variety of homeland security concerns.

  • As international tensions increased, informational bulletins on the potential for homeland security threats were shared by federal homeland security officials through the Real Estate Information Sharing and Analysis Center (RE-ISAC) – a public-private information sharing partnership organized and managed by The Real Estate Roundtable.

     

  • The Roundtable’s Homeland Security Task Force (HSTF) – co-chaired by Roundtable members Dan Kennedy (URW) and Charlie McGonigal (Brookfield) – works closely with the REISAC and federal agency partners on protective measures that CRE businesses may consider as they implement infrastructure resistant to physical damage and cyber breaches. HSTF also addresses a variety of CRE homeland security issues, including the recently reauthorized Terrorism Risk Insurance Act (TRIA).

     

  • The REISAC sends a Daily Report to members to raise awareness on domestic concerns and cyber threats affecting the U.S. commercial facilities sector, while sharing guidance from the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA).

     

  • On Jan. 3, CISA conducted a situational update on Iranian-U.S. tensions with industry contacts. The conference call also addressed planning and preparedness efforts related to cyber, physical, and communications readiness – and coordinating information for reporting suspicious activity and/or events related to the events.

     

  • On Jan. 6, CISA released an alert on “Potential for Iranian Cyber Response to U.S. Military Strike in Baghdad.”  The same day, The New York Post reported that a senior adviser to Iran’s president posted a tweet on Sunday with a link to a Forbes article listing all of The Trump Organization’s significant properties, along with a quote from the late Ayatollah Khomeini threatening revenge against any enemies of Islam.

     

  • The Daily Beast reported on Jan. 7 that an anonymous senior member of the U.S. intelligence community said Trump Tower in Midtown Manhattan could be more effective a target than even the White House.
  • The RE-ISAC on Jan. 8 shared the retail-focused BMAP Special Advisory Bulletin which warned that, “individuals inspired to commit acts of terrorism may try to acquire or legally purchase common household items such as explosive precursor chemicals (EPCs), explosive powders, and IED components at retailers in your community to construct IEDs for use against infrastructure targets.”  The bulletin also provided a list of “Suspicious Activity and Purchasing Behavior: Recognize and Report.”

     

  • The RE-ISAC also recently distributed an announcement regarding a collaboration with the FBI and InfraGard National Capital Region to launch the Commercial Facilities Cyber Working Group (CCWG).  Those who work at the intersection of commercial facilities and information security are invited to join the new Working Group by registering at https://cf.epicplatform.com.  Additional ontact information for the REISAC is available here.

 

The next Homeland Security Task Force (HSTF) meeting is scheduled for Jan. 29, in conjunction with The Roundtable’s State of the Industry Meeting on Jan. 28 in Washington, DC.   

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Trump Administration Proposes Changes to Environmental Reviews to Speed Federal Infrastructure Projects

Posted on by Trey Jackson

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The Trump Administration – in a continuing effort to streamline government approvals of major infrastructure projects such as highways, airports, tunnels and pipelines – yesterday proposed the most significant changes in over four decades to federal-level environmental review requirements.  (Watch White House news conference video) . 

  • The proposal by the White House’s Council on Environmental Quality (CEQ) would affect implementation of the National Environmental Policy Act (NEPA).  Comments on the proposal are due by March 10, 2020.
  • ”[W]e want to build new roads, bridges, tunnels, highways bigger, better, faster, and we want to build them at less cost.  That is why, for the first time in over 40 years, we are issuing a proposed new rule … completely overhaul the dysfunctional bureaucratic system that has created these massive obstructions,” President Trump said yesterday at a news conference unveiling the proposal.
  • He added, “In the past, many of America’s most critical infrastructure projects have been tied up and bogged down by an outrageously slow and burdensome federal approval process. The builders are not happy.  Nobody is happy.  These endless delays waste money, keep projects from breaking ground, and deny jobs to our nation’s incredible workers.”  (White House remarks, Jan. 9)
  • According to CEQ, U.S. federal agencies prepare approximately 170 Environmental Impact Statement per year, which average 600 pages in length and take 4.5 years to conclude.  (Reuters, Jan. 9)
  • White House Council on Environmental Quality Chairwoman ,Mary Neumayr, stated at yesterday’s event, “It’s important to note that the proposal would reform the process of gathering information on environmental effects, but would not change any substantive environmental law or regulation, such as the Clean Air Act, the Clean Water Act, and the Endangered Species Act.”
  • Transportation Secretary Elaine Chao also noted during the news conference, “We all care about the environment.  What we are talking about are cumbersome, unnecessary, overly burdensome, duplicative, and outdated regulations.  Many of these regulations have not been updated, modernized, in decades.  What we’re seeking is commonsense solutions.” (White House remarks, Jan. 9)
  • The Administration’s proposal to streamline the infrastructure approval process complements similar, bipartisan efforts passed by the Senate Public Works Committee in July to speed-up delivery for infrastructure projects.  (Roundtable Weekly, Aug. 2, 2019)
  • Secretary Chao has addressed the need to streamline the government approval process affecting infrastructure projects for years, including at The Roundtable’s Spring 2017 Meeting in Washington, DC.
  • The Roundtable has been a long-standing advocate of increased national infrastructure investment to benefit the economy, job creation and local communities.  In June 2017, Roundtable President and CEO Jeffrey D. DeBoer addressed the infrastructure permitting issue on CNBC’s Squawk Box.  “We need to streamline and make a lot more efficient the permitting process in a lot of these infrastructure projects.  That’s something the President wants to do and it’s hard to argue against it.”  DeBoer added, “Permitting is a key part of lowering the costs, lowering the timeframe and reducing the amount of money that is needed for these projects.”  (DeBoer on Squawk Box) 

It is unlikely that the Administration’s proposal will be finalized before the 2020 general election so that federal agencies can begin applying the updated review criteria.  A core issue regarding the proposed changes is whether the government must incorporate climate change concerns as it analyzes an infrastructure project for approval. 

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House Democrats Outline Climate Legislation, Address Buildings and Energy Efficiency

Posted on by Trey Jackson

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House Democrats on Jan. 8 released a legislative framework on climate policy that addresses buildings and energy efficiency among its sector-specific proposals. The goal for the House Energy and Commerce Committee’s Climate Leadership and Environmental Action for Our Nation’s (CLEAN) Future Act is to achieve overall net-zero greenhouse gas emissions (GHG) for the United States by 2050.

  • The legislative text of the draft CLEAN Future Act will be released by the end of this month while hearings and stakeholder meetings continue throughout the year. (Committee news release, Jan. 8).
  • The proposal addresses the efficiency of new and existing buildings, as well as the equipment and appliances that operate within them.  The bill proposes national energy savings targets from continued stringency of model building energy codes (frequently adopted into law at the state and local level), with a requirement of “zero-energy-ready buildings” by 2030.
  • The legislative framework also proposes requirements on utilities and other retail electricity suppliers to de-carbonize the U.S. electric grid.  Under the proposal, they must provide an increasing supply of clean electricity to consumers starting in 2022, rising to 100 percent clean energy by 2050.
  • The legislative framework will also direct the Federal Energy Regulatory Commission (FERC) to facilitate the integration of localized distributed energy, energy storage, and renewable energy resources into the electric grid.
  • While the CLEAN Future Act proposal is not expected to garner support from Republicans, measures that would “clean” the electric grid and direct FERC to modernize energy markets could theoretically impact emerging obligations on building owners to comply with certain local-level carbon reduction mandates (such as New York City’s Local Law 97.)  (See Roundtable Weekly, April 19, 2019)
  • Meanwhile, the House Select Committee on the Climate Crisis is expected to issue legislative policy recommendations by March 31, 2020.  (See Roundtable Weekly, October 25, 2019)
  • The Real Estate Roundtable submitted detailed energy and climate policy recommendations to the House Select Committee on November 21, 2019.  The comments offer a suite of priorities developed by The Roundtable’s Sustainability Policy Advisory Committee (SPAC), including:

* Improve the model building energy codes process by enacting the Portman-Shaheen Energy Savings and Industrial Competitiveness (ESIC) Act. (Roundtable Weekly, September 27, 2019)
 

* Enhance EPA’s voluntary ENERGY STAR incentive programs for both commercial buildings and tenants.

* Create meaningful accelerated depreciation periods to encourage investments in high performance equipment to retrofit existing commercial and multifamily buildings. (Roundtable Weekly, May 10, 2019)

  • House Speaker Nancy Pelosi (D-CA) has stated the House will act on a climate bill in 2020 (Bloomberg Environment, Dec. 6, 2019).  Majority Leader Steny Hoyer (D-MD) also told reporters this week that climate policy would be a “huge issue” this year. (E&E News, Jan. 9)
  • In the Senate, a different approach to energy policy has evolved over the past year.  The Senate Energy and Natural Resources (ENR) Committee passed 52 bills in 2019 on a largely bipartisan basis.  Several of these bills address commercial and residential real estate, including the Energy Savings and Industrial Competitiveness Act (ESIC) Act (Portman-Shaheen), long-supported by The Real Estate Roundtable.
  • The ESIC Act “is exactly the kind of smart, forward-looking policy that will help building owners respond to our modern, evolving economy” Roundtable President and CEO Jeffrey DeBoer stated in a Senate news release upon the bill’s introduction this past summer.  (Roundtable Weekly, July 19) (Video of DeBoer’s statement)

Energy and climate legislation will be a focus of discussion during The Roundtable’s upcoming January 28 State of the Industry Meeting in Washington.  The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will also meet on January 29.

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Seven-Year TRIA Reauthorization Passed as Part of $1.4 Trillion Spending Bill

Posted on by Trey Jackson

A seven-year reauthorization of the Terrorism Risk Insurance Act (TRIA) was approved this week by the House and Senate as part of a year-end funding bill (H.R. 1865).  The provision reauthorizes TRIA through 2027, a year ahead of its slated sunset date of Dec. 31, 2020. (TRIA provisions on pages 1233–1236 of the year-end funding legislation). 

The measure is part of a massive $1.4 trillion congressional spending deal to fund the government until the end of the fiscal year – Sept. 20, 2020.  President Trump is expected to sign two separate funding bills to keep the government open past midnight tonight. 

Roundtable Chair Debra Cafaro (Ventas, Inc.) stated, “The Real Estate Roundtable is pleased that TRIA will be extended until 2027.  This federal terrorism insurance backstop was enacted following 9-11 and has been extended and reformed several times since. We cannot overstate the valuable safety and liquidity that the program brings to the US economy, businesses of all manner and commercial real estate markets.”

A long-term, “clean” reauthorization of TRIA, well in advance of its expiration, has been a top policy goal of The Roundtable.  This was achieved a full year ahead of schedule.  (Roundtable background on TRIA)

In addition to TRIA, the omnibus appropriations bill (H.R. 1865) contains several other positive measures affecting real estate.  The tax and funding extensions include: 

  • The EB-5 Regional Center Program, which provides visas to foreign nationals who pool their investments in regional centers to finance U.S. economic development projects.  The program would be extended until Sept. 2020.  Department of Homeland Security (DHS) regulations that took effect in November presently govern key elements of the EB-5 program regarding investment levels and Targeted Employment Area (TEA) definitions.   
  • The National Flood Insurance Program.  Without the extension, the program’s borrowing authority would have been reduced from $30.4 billion to $1 billion. The program would also be extended until Sept. 2020.   (BGov and CQ, Dec. 20)
  • Tax measures would be extended through the end of 2020.  They include (1) the section 179D tax deduction for energy efficient commercial building property; (2) the section 25C tax credit for energy efficient improvements to principal residences; (3) the section 45L tax credit for construction of new energy efficient homes; (4) the tax exclusion for home mortgage debt forgiveness; (5) the tax deduction for mortgage insurance premiums; and (6) the New Markets Tax Credit;
  • The Brand USA program would be extended through fiscal year 2027.  Brand USA promotes travel to the U.S. through a public-private partnership that is funded through private-sector donations and funds collected from foreign visitors to the U.S.

This week also saw the House pass legislation (H.R. 5377) that would temporarily raise and then eliminate for two years the $10,000 cap on state and local tax (SALT) deductions, which would be paid for by permanently raising the top individual tax rate to 39.6%.  This “messaging” bill is unlikely to be taken up in the GOP-controlled Senate and President Trump has also threatened to veto it.

After a flurry of year-end policymaking amid impeachment proceedings, both chambers of Congress recessed today and will return in early January.

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Final Opportunity Zones Regulations Remove Uncertainty, Should Mobilize Real Estate Investment in Low-Income Communities

Posted on by Trey Jackson

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The Treasury Department yesterday released final regulations implementing Opportunity Zones (OZ) tax incentives.  The details of the 544 pages of regulations are still under review, but the highly anticipated rules appear to embrace key Roundtable recommendations aimed at spurring capital formation and economic development in low-income communities.  (Roundtable comment letter, July 1, 2019)

The final regulations provide helpful guidance in several areas that should remove taxpayer uncertainty and allow productive real estate investments in low-income communities to move forward. 

Specifically, the final rules:

  • Clarify the types of gains that may be invested in opportunity funds and when.  For example, they amend a general rule in the proposed regulations that only capital gain may be invested in an opportunity fund.  The rules allow a taxpayer to invest the entire amount of gain from the sale of business property, which can include gain from the sale of real estate.
  • Clarify when gain may be excluded from tax after an investment is held for a 10-year period.  The proposed rules did not allow an investor to exclude gain when the subsidiary of an opportunity fund sold an asset.  The final regulations liberalize these rules, which should greatly facilitate the formation and operation of real estate-focused opportunity funds that invest in multiple properties.
  • Include important changes to how an investment is measured when testing whether an opportunity fund has substantially improved real estate.  The rules provide opportunity funds with greater flexibility to aggregate multiple assets.  For example, they permit a group of two or more buildings located on the same parcel(s) of land to be treated as a single property—thus eliminating the need to increase the basis of each building by 100 percent.
  • Allow a vacant property to be treated as being put to its original use in an opportunity zone if the property has been vacant for a continuous period beginning one year prior to the census tract’s designation as an opportunity zone.  The proposed regulations would have required a property to be vacant for five years.  A property that meets the original use requirement is not subject to the substantial improvement requirement.
  • Provide important refinements to the previously proposed working capital safe harbor.  The safe harbor provides opportunity funds with a minimum of 31 months to invest their working capital in qualified opportunity zone property, rather than the six months suggested in the statute. This longer runway aligns better with the practical realities of real estate investment.  The final regulations ensure that an opportunity fund that is using working capital to improve real estate will be able meet the opportunity zone requirement that it be engaged in a trade or business.

The most recent Roundtable regulatory recommendations were submitted on July 1, 2019.  The Roundtable also submitted prior letters on the OZ tax incentives in June 2018 and December 2018. 

The Roundtable has strongly supported the Opportunity Zone tax incentives since their enactment as a potentially powerful catalyst for transformative real estate investment in economically struggling parts of the country.  (GlobeSt.com interview with Roundtable President and CEO Jeffrey DeBoer and Roundtable SVP and Counsel Ryan McCormick –July 16, 2018).

The Roundtable’s Tax Policy Advisory Committee and its Opportunity Zone Working Group will be analyzing fully this week’s 544 pages of rules and will report on the details during The Roundtable’s Jan. 28-29 State of the Industry meeting. 

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