National lawmakers and Real Estate Roundtable members met this week to discuss domestic and geopolitical issues affecting the economy and industry—including inflation and the Fed; the congressional legislative agenda; and the war in Ukraine. The Roundtable’s 2022 Spring Meeting also featured a discussion on climate-related financial and regulatory proposals. (Roundtable April 2022 Policy Issue Profiles and Executive Summary) 

Senator Sinema & Market Conditions 

• A discussion with Sen. Kyrsten Sinema (D-AZ), above, on policymaking in the Senate launched The Roundtable meeting on April 25. 

• Roundtable Chair John Fish (Chairman & CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer led a dialogue among industry executives and House and Senate members on CRE market conditions. Roundtable members offered their views on inflationary pressures, supply chain disruptions, and back-to-office challenges. 

Ukraine, Climate and the Fed 

• On April 26, Roundtable members convened for policy discussions with the following guests:
   
• Lieutenant Colonel (Ret.) Alexander Vindman
  A 20-year military veteran, former Director with the White House’s National Security Council, and now a senior advisor with VetVoice Foundation, Mr. Vindman addressed the war in Ukraine. “It is a geopolitical earthquake that will shape how power is used in the 21^st century,” Vindman said, adding that an eventual reconstruction effort will require a massive international effort involving public-private partnerships and private equity. (Photo: left to right, Jeffrey DeBoer, Mr. Vindman, and John Fish)
  
  
• Senator Bill Cassidy (R-LA) 
  
  As a member of the Senate’s Committee on Energy and Natural Resources, Finance, and Joint Economic Committee, Sen. Cassidy provided his insight on the congressional agenda, including economic and energy policy issues. “The real estate sector acts as both a leading indicator and a reflection of what is happening in our communities across the country,” said Cassidy, above left. At right is Roundtable Chair John Fish.
  
  
• Climate Panel
  A Roundtable panel addressed climate-related issues and their impact on investor demand, property values and interest rates. (Video of the discussion). The panel also discussed regulatory issues such as the SEC’s proposed climate risk disclosure rule. (Roundtable Weekly, March 25). Speakers included:

• Senator John Hickenlooper (D-CO) above right, part of a bipartisan group of Senators working on comprehensive energy reform legislation.
• Panel moderator Tony Malkin, left, (Chairman, President, and CEO,  Empire State Realty Trust and Chairman of The Roundtable’s Sustainability Policy Advisory Committee).

• Roy Hilton March (CEO, Eastdil Secured), above left,
• Kathleen McCarthy (Global Co-Head, Blackstone Real Estate), center, and
• Bill Stein (CEO, Digital Realty Trust), right. 

• Former Fed Board Member Kevin Warsh 
  Warsh, above left, a former member of the Fed Board of Governors (2006-2011), discussed the Fed’s potential actions to temper inflation and guide the economy to a “soft landing” with Roundtable Member Scott Rechler, right, (Chairman & CEO, RXR Realty), who serves on the Federal Reserve Bank of New York’s Board of Directors. 

Next on The Roundtable's meeting calendar is the all-member June 16-17 Annual Meeting in Washington, DC. 

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The Roundtable submitted comments this week to address the potential negative consequences of recently proposed Securities and Exchange Commission (SEC) regulations affecting real estate private equity investment fund advisers. (SEC comment letter, April 25) 

Negative Consequences 

• The Roundtable’s April 25 comments detail how the proposal could have a negative impact on real estate private fund disclosures, reporting, fees and expenses, and operations—with significant results for the $18-trillion private fund adviser marketplace.
  
  
• The letter also explains how the Commission’s extensive reporting requirements proposed under the new rules would increase compliance costs, decrease returns for all private fund investors and drive smaller fund sponsors away from the market. (SEC Feb. 9 News Release | Proposed Rule | Fact Sheet)
  
  
• The Roundtable letter raises concerns that the SEC proposal, if finalized, could hinder real estate capital formation; harm development and improvement of real properties; and curtail essential economic activity that encourages job creation. 

Interrelated, Multiple Rulemakings 

• The SEC, above, has proposed a number of other complex rules with potentially wide-ranging, significant consequences—all at the same time—and given the public abnormally short, 30-day comment windows to participate in these interrelated rulemakings. (Roundtable Weekly, April 8)
  
  
• The Commission’s private fund adviser proposal is one of many of these rulemakings. This rulemaking alone seeks open-ended and extensive information from stakeholders and the public, including more than 800 individual questions and more than 60 specific questions on the cost-benefit analysis portion.
  
  
• The Real Estate Roundtable and 24 other national business organizations recently submitted comments to SEC Chairman Gary Gensler regarding the need for more time to assemble meaningful stakeholder analysis as part of the rulemaking process. (Coalition letter, April 5) 

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to engage the SEC on its various rulemakings and address individual proposals in more detail at its next meeting on June 16 during The Roundtable’s all-member June 16-17 Annual Meeting.  

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• A PFIC is a foreign corporation that derives a significant share of its income from passive sources or primarily owns assets that are held for the production of passive income, including capital gains, interest, dividends and rent. PFICs commonly arise when structuring investment funds and pooling capital to invest in foreign real estate.

• Special U.S. tax rules apply to PFIC income. The rules generally accelerate the recognition of PFIC income by PFIC shareholders, or impose an interest charge if the income is deferred. PFIC shareholders can elect which tax regime to apply.

• Recently proposed Treasury regulations would require any U.S. partner of a partnership that directly or indirectly owns a PFIC to make PFIC-related tax elections at the individual partner level, in addition to other changes.

• The April 25 coalition letter suggests the proposed rules would result in an exponential increase in the number of separate PFIC filings, greater administrative burdens and a higher cost of compliance. The rules would also lead to inadvertent failures to file elections since small investors are less well-versed in the PFIC rules than the investment partnerships and their advisors.

• The letter also urges the IRS to allow partnerships to make PFIC elections at the entity level for all partners, including on behalf of indirect partners who own their interest through an upper-tier partnership. A partnership could make the election for a partner through a partner’s grant of a power of attorney to the general partner of the partnership. An implicit delegation of this authority (e.g., the authority in the partnership agreement to file tax returns) would be sufficient.

• “If Treasury incorporates these changes,” said Real Estate Roundtable President and CEO Jeffrey DeBoer, “the end result will be less friction and expense for real estate funds as they raise and deploy capital for productive real estate investment.”