The Roundtable advocates for tax policies that promote capital formation, reward risk-taking, and create jobs while . The U.S. must maintain a competitive tax code grounded in enduring, pro-growth principles to move our economy forward.
Outside of one brief period, the United States has traditionally taxed long-term capital gains at a lower rate than ordinary income (wages, rent, and other compensation). Today, long-term capital gains are taxed at a top rate of 20%, but the rate rises to 23.8% if the income is subject to the 3.8% tax on net investment income. Currently, the net investment income tax applies to real estate gains earned by passive investors and not the income earned from the active conduct of professionals in real estate.
Like-kind exchange rules allow taxpayers to defer tax when they exchange one property held for investment or business use for another property of a “like kind.” Since 1921, the tax code has allowed taxpayers to defer capital gains on these exchanges, marking LKEs an essential feature of our current tax system. Today, LKEs are central to real estate markets and play a critical role in financing the improvement and modernization of U.S. real estate.
Real estate generally is owned through “pass-through” entities that allow income to pass through to individual owners rather than taxing the income at the entity level. Partnerships promote and attract investment by allowing owners to allocate economic returns based on investors’ appetite for risk. Our pass-through tax and regulatory rules create greater flexibility in the ownership and operation of businesses, support risk-taking, and contribute to the economic dynamism that differentiates the United States from other countries.
A “carried” interest is the interest in partnership profits a general partner receives from the investing partners for successfully managing the investment and bearing the entrepreneurial risk of the venture. Carried interest may be taxed as ordinary income or capital gain, depending on the type of revenue the partnership generates. Legislation proposing to change the tax treatment of carried interest has been introduced in various forms since 2007.
When an individual dies, the U.S. levies a comprehensive tax on his or her wealth and assets, including unrealized gains, through the estate tax. When wealth exceeds an exemption amount ($12.9 million in 2023), it is generally taxed at a rate of 40%. Separately, for income tax purposes, the basis of assets in the hands of an heir is “stepped up” to fair market value at the time of the decedent’s death.
An Opportunity Zone is a low-income, economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. The tax benefits can include the deferral of tax on invested capital and the exclusion of capital gains tax on fund investments held for 10 years or more.
President Biden and certain key lawmakers, including Senate Finance Committee Chairman Ron Wyden (D-OR), have proposed a mark-to-market regime for capital assets in which built-in gain is taxed on an annual basis, regardless of whether the asset is sold.
Reducing our carbon footprint is good for the environment and the economy. Policies that promote cost-effective investments to optimize building energy efficiency, increase the nation’s supply of renewables, and decarbonize the electric grid will help the real estate sector combat climate change, create “green jobs,” and enhance the resilience of our communities. As a voice for commercial real estate, The Roundtable continues to advocate for national guidelines, incentives, and data to accelerate the economy’s and our industry’s transition toward decarbonization.
Tax incentives that assist clean energy projects deployed by the real estate sector are crucial to reducing the built environment’s carbon footprint and achieving national climate goals.
The Inflation Reduction Act of 2022 (IRA) was signed into law by President Biden on August 16, 2022. The $790 billion legislation — the largest federal clean energy investment in U.S. history — includes nearly $370 billion in climate spending that affects “clean energy” incentives important to commercial real estate.
Rules proposed by the Securities and Exchange Commission (SEC) in March 2022 would require excessive reporting by registered companies to exactly quantify emissions and financial risks from climate change — through metrics that are unknown, unknowable, and premised on speculations and hypotheticals.
The SEC’s proposal would impose “one size fits all” requirements on companies to disclose in their 10-Ks climate-related risks and emissions, including Scope 3.
The U.S. Environmental Protection Agency’s ENERGY STAR for Certification for Buildings program is a proven platform for building owners and managers to “label” their assets as top energy efficiency performers in the marketplace.
Investors, tenants, and employees seek buildings and workplaces with ENERGY STAR ratings because they signal well-managed, profitable assets with reduced carbon footprints.
To complement its “whole building” rating program, in 2018, the EPA issued its first labels to recognize commercial tenants for high-performance design and construction of leased spaces.
The behavior, space design, and equipment choices of tenants can account for more than 50% of energy consumed in commercial buildings—beyond the owner’s ability to control. Expanding EPA’s ENERGY STAR program to add tenant-based recognition is thus a key objective to achieve better efficiency, lower energy use, and a reduced carbon footprint attributable to U.S. real estate.
States, cities, and other localities are increasingly passing laws and ordinances that impose regulatory mandates on buildings to reduce greenhouse gas (GHG) emissions, energy consumption, or both. These local laws are known as Building Performance Standards (BPS).
The effect of BPS laws, and the energy consumption and emissions “targets” they would impose on buildings, can require asset owners to pay for energy efficiency “retrofits,” electrification projects, and install solar panels or other clean energy technologies. If an owner does not take such steps to reduce emissions or energy use, they could pay fines or penalties.
A number of real estate companies use science-based protocols to establish portfolio-wide emissions reductions targets. As the buildings sector makes progress on reducing greenhouse gas emissions to meet global climate goals, The Roundtable and Nareit have submitted joint comments about specific, proposed guidance that would create “unworkable and unattainable” GHG standards.
There is no mandate in the U.S. at the federal level for real estate companies to set science-based emissions targets. However, anticipated rules from the U.S. Securities and Exchange Commission are expected to require registered companies to report to investors on material climate-related financial risks. Those disclosures could include corporate efforts to reduce emissions.
In 2022, an estimated 72% of office workers worldwide worried about air quality in their workplaces’ buildings—emphasizing the importance of improved ventilation, filtration, and air cleaning in buildings.
The federal government has a role to play in ensuring that the needs of tenants can be met by building owners and managers.
The Roundtable supports policy measures that promote the availability of credit and the formation of capital in the commercial and multifamily real estate industry.
Sustaining reliable credit capacity and robust capital formation requires policies that minimize regulatory burden, support reliable market valuations, encourage appropriate transparency, and maintain suitable systemic safeguards.
There are $1.5 trillion of commercial real estate loans maturing in the next three years (2023, 2024, 2025) as CRE markets face economic pressures from a high-interest rate environment, lingering reluctance by employees to return-to-the-office, and new needs for space in the post-pandemic landscape. In order to address this wave of maturing CRE debt that was financed when base interest rates where near zero, market liquidity needs to be restored and the ability to raise capital in this challenging economic environment must be preserved.
In the wake of the U.S. banking turmoil in March 2023, federal bank regulators are considering a sweeping set of proposed changes that would increase capital requirements for the nation's largest banks by as much as 20%, which could significantly affect liquidity available for commercial real estate transactions, impact asset values, and influence economic growth.
The proposed changes to large bank capital requirements would implement the final components of international banking regulations known as the Basel III “endgame.” The agencies’ proposal, if adopted, would have a long phase-in period and not impact community banks.
The dissenting votes of some regulators on the proposed rulemaking revealed rare disagreement, and Fed Chairman Jerome Powell signaled a cautious approach to consideration of any final rule as a public comment period continues.
The Treasury Department is expected to issue new rules in 2023 that will require real estate professionals to report the identities of the "beneficial owners" of companies buying real estate to the Treasury Department's Financial Crimes Enforcement Network (FinCEN). A beneficial owner refers to an individual who owns at least 25% of an entity or indirectly exercises “substantial control” over it.
The Corporate Transparency Act (CTA) authorizes the Treasury's FinCEN to collect beneficial ownership information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and controls. Enacted in January 2021, the CTA’s reporting requirements go into effect on January 1, 2024.
The Corporate Transparency Act (CTA) amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies) to FinCEN.
Due to the far-reaching scope of the CTA, there is concern about the impact it could have on many commercial residential real estate businesses that are frequent users of the LLC structure for conducting business.
The evolving threats and crises of today's world, primarily COVID-19 and the increasing occurrences of natural disasters, has highlighted the lack of – and need for – insurance capacity and various lines of commercial insurance. Expanding coverage gaps present challenges for businesses across many industries, including real estate. A lack of adequate coverage will lead to economic uncertainty, harm stakeholders and undermine the growth of communities.
Pandemic-related coverage in various lines of commercial insurance has been withdrawn or restricted going forward. Additionally risks from natural disasters like floods, hurricanes, wildfires, hail, tornadoes, and drought cost the U.S. billions of dollars each year.
Legal cannabis-related businesses (CRBs) face the challenge of obtaining bank accounts, and commercial property owners face legal challenges of taking on CRB tenants without safe harbor protections.
Federal and state law differences on cannabis policy leave banks and real estate providers trapped between their mission to serve lawful businesses in local communities — and the threat of federal enforcement action.
The Roundtable's Homeland Security Task Force (HSTF) and Real Estate Information Sharing and Analysis Center (www.reisac.org) remains focused on measures that businesses can take-such as creating resilient infrastructure that is resistant to physical damage and cyber breaches - through increased cross-agency information sharing and cooperation with key law enforcement and intelligence agencies.
The Real Estate Roundtable's Homeland Security Task Force (HSTF) is focused on enhancing the commercial facilities sector's ability to meet its current and future security-related challenges by analyzing threats, sharing information, and fostering resilience through a broad threat matrix of physical and cyber risks.
The Real Estate Information Sharing and Analysis Center (RE-ISAC) is a public-private partnership between the U.S. commercial facilities sector and federal homeland security officials.
The RE-ISAC continues to be one of the most effective weapons in protecting the nation's critical infrastructure by use of its information-sharing network.
Through this network, the RE-ISAC engages in operational efforts to coordinate activities supporting the detection, prevention, and mitigation of a full range of physical, data, and cyber threats to the nation’s critical infrastructure.
Growing geopolitical conflicts have raised security concerns around cyberattacks and exposed existing vulnerabilities in the nation’s cybersecurity regime, heightening the necessity to build robust domestic cyber defense systems for commercial facilities.
Additionally, Congress and federal agencies have mandated or proposed many new cyber incident reporting requirements for critical infrastructure and public corporations.
Commercial real estate faces numerous threats from natural catastrophes, international and domestic terrorism, and organized retail crime. These threats cost businesses, cities, and the economy billions in losses. The Roundtable continues to help build a more secure and resilient industry through our Homeland Security Task Force (HSTF) and active role in the Real Estate Information Sharing and Analysis Center (RE-ISAC).
Our work remains focused on tangible measures — developed through increased cross-agency information sharing and cooperation with law enforcement and intelligence agencies — that CRE can take to guard against these threats. As the nature of threats evolve, The Roundtable will remain a central advocate and conduit of information to ensure the places where our friends, family, and neighbors live, work, shop, and play are safe and secure.
Cities and the commercial real estate industry are at the forefront of a post-pandemic transition centered on return-to-office, commercial property conversions, and the role of infrastructure investment. Public policies that support these issues are crucial to the health of cities and CRE.
Cities house CRE, yet rely on tax revenues generated from property assets to finance first responders, police, schools, healthcare, roads, bridges, mass transit, and other critical services. Commercial property assets also enhance the value of cities by attracting businesses, which provide additional tax funds for municipal services and infrastructure projects. The well-being of America’s communities, businesses, families, and workforce depends on these networks.
The Roundtable supports policies that promote the healthy return of employees to their pre-pandemic workplace practices including return-to-office directives for federal government employees. We also encourage federal and local incentives for converting commercial properties to other uses, including affordable housing. And we support physical infrastructure investments that benefit those who work, live, and recreate in cities.
The work-from-home trend continues to exert negative pressure on commercial real estate property values, reducing municipal tax revenues, harming local businesses, and threatening the viability of public transit systems. On the federal government level, agencies’ actions to promote permanent remote working are out of step with the direction of private sector employers, who are increasingly recognizing the importance of bringing employees back to the workplace.
Certain commercial real estate assets like office buildings are under significant stress due to pandemic-related issues, including employers’ greater reliance on remote work arrangements. These economic pressures have led asset owners to explore the conversion of offices to other uses, including affordable housing. The Roundtable is encouraging lawmakers to help revitalize cities, boost local tax bases, and address market challenges by enacting incentives that encourage adaptive uses of older, under-utilized buildings.
Investments in infrastructure and the strength of real estate markets share a synergistic, mutually beneficial relationship. Infrastructure investment throughout the country was sparked when The Infrastructure Investment and Jobs Act (IIJA) was signed into law in Nov. 2021 by President Biden – after the House and Senate cleared the measure with bipartisan support in a rare show of congressional consensus.
The IIJA is a historic, $1.2 trillion bill that allocates $550 billion in new spending to improve the nation’s “physical” infrastructure (transportation, water, sewer, electric grid, and broadband systems). Ninety percent of funding authorized by the IIJA will be implemented by governors and mayors. The investments in local infrastructure made by possible by the law will help make our communities safe, productive, and supportive of healthy real estate markets.
Effective Public-Private Partnerships (P3s) can unlock private investment capital and finance major infrastructure projects across the country. Examples of P3s that should be encouraged and improved are low-interest-rate loan programs created by the Transportation Infrastructure Finance Innovation Act (TIFIA).
Policies that encourage appropriate Public-Private Partnerships (P3s) can unleash private equity investments, improve budget certainty, accelerate project delivery, and achieve greater efficiencies and innovations in project design and construction.
Permit delays dampen private sector investment in infrastructure projects and add to overall costs. A report by the nonprofit organization Common Good estimates that a six-year delay in starting construction on public projects costs the nation more than $3.7 trillion.
The need to enact permitting reform policies is an area of general agreement among Washington policymakers, but legislative proposals under consideration in the House and Senate are far apart and have become part of intense discussions over federal budget priorities.
Safe, decent, and affordable housing is critical to the well-being of America’s families, communities, and businesses. The COVID-19 pandemic has intensified the nation’s persistent housing crisis, prompting The Roundtable to mobilize with our national real estate organization partners and jointly advocate for policies that increase housing supplies to serve the causes of equity, resiliency, job growth, and modernizing our nation’s critical infrastructure.
In many parts of the country, there is a severe shortage of affordable and workforce housing. Supply constraints, often related to restrictive state and local policies, exacerbate the problem.
The impact of this growing undersupply of affordable housing is far-reaching and undermines economic growth – particularly in urban areas.
Fannie Mae and Freddie Mac (the Government Sponsored Enterprises, or GSEs) play a crucial role in addressing the affordable housing crisis in our nation by backing multifamily property loans, which increase housing supply and create successful apartment communities. Yet over a decade after the GSEs were put into conservatorship, the U.S. housing finance system still has not been reformed.
The federal regulator and conservator of Fannie and Freddie — the Federal Housing Finance Agency (FHFA) — should remain focused on leveraging federal incentives to bolster new affordable housing supply, instead of considering the imposition of new or expanded federal obligations on private rental housing providers such as rent control.
The low-income housing tax credit (LIHTC) is a federal incentive for new construction and redevelopment. It is an efficient, market-based housing solution that relies on the private sector to finance, build, and operate affordable housing.
Under the successful LIHTC program, states can award housing credits based on their own affordable housing priorities. They can target credits to housing units dedicated to certain populations such as seniors or veterans, or to specific regions most in need of affordable housing.
In many parts of the country, there is a severe shortage of affordable and workforce housing. Supply constraints, often related to restrictive state and local policies, exacerbate the problem.
Tax-exempt private-activity bonds (PABs) are proven tools to mobilize public and private co-investment in affordable housing. States and cities use PABs to borrow on behalf of private companies and nonprofits, lowering borrowing costs for entities that might otherwise turn to corporate bonds or bank loans. Interest on PABs is not excluded from gross income unless it is a qualified bond, which must meet strict requirements and serve a public benefit — such as affordable rental housing or mortgage provisions for first-time lower-income borrowers.
A federal "YES In My Backyard" (YIMBY) approach when awarding grants to states and municipalities is needed to counter local “Not In My Backyard” policies that drive up costs and create barriers to the development of affordable housing. YIMBY is also needed to counter burdensome and duplicative federal government reviews that are necessary to obtain real estate development and transportation permits.
The Biden administration recently announced a variety of federal action actions to lower housing costs and boost the supply of affordable Housing. As part of this government-wide effort, the General Services Administration (GSA) will launch an effort to identify and market surplus federal properties that represent the best opportunities for commercial-to-residential conversions to create affordable housing. The GSA initiative will continue to convene developers, municipalities, and other stakeholders to learn about opportunities and challenges.