Proposed Carried Interest Provisions, Opposed by Real Estate Industry, Cut From Reconciliation Bill
Senate Democrats Strike Deal to Speed-Up Federal Permits for Major Energy Projects
Business Coalition Succeeds in Extending the Comment Period for NASAA Proposal Affecting REITS
Roundtable Weekly
August 5, 2022
Proposed Carried Interest Provisions, Opposed by Real Estate Industry, Cut From Reconciliation Bill

Senator Kyrsten Sinema (D-AZ) at RER's 2022 Spring MeetingProposed changes to the taxation of carried interest were cut from Senate Democrats’ broad Inflation Reduction Act (IRA) yesterday at the request of centrist Sen. Kyrsten Sinema (D-AZ). The Roundtable and 14 other national real estate organizations wrote to all members of Congress on Aug. 3 in strong opposition to the measure. (Coalition letter, Aug. 3 | Wall Street Journal, Aug. 4 |Tax Notes, Aug. 5). Photo above: Sen. Sinema at The Roundtable's 2022 Spring Meeting.

Vote on Revised Reconciliation Bill 

  • Sinema announced her decision in a statement released Thursday night, commenting she would “move forward” with the $790 billion reconciliation bill after removal of the carried interest provision—subject to the Senate Parliamentarian’s review of the revised bill.

  • Yesterday, Senate Majority Leader Chuck Schumer (D-NY) announced that the chamber will begin consideration of the bill on Aug. 6, setting up a weekend process of around-the-clock votes on hundreds of amendments to the bill.

  • Real Estate Roundtable President and CEO Jeffrey DeBoer commented today, “The wide-ranging climate measures in the revised bill include the most extensive clean energy investments ever considered by Congress—a positive step welcomed by the real estate industry. We are also pleased to see that carried interest provisions in the original version of the Inflation Reduction Act are out, since they would have clearly harmed the residential and commercial real estate industries, job creation and the economy.” 

Real Estate’s Carried Interest Opposition 

Construction mixed use real estate
  • The real estate coalition urged policymakers to preserve current carried interest law and detailed major concerns with the proposed changes to carried interest that were in the original IRA, brokered last week between Sens. Schumer and Joe Manchin (D-WV). (Coalition letter, Aug. 3 and Roundtable Weekly, July 29)

  • The Aug. 3 coalition letter noted, “The carried interest proposal would slow housing production, discourage the capital needed to reimagine buildings to meet post-pandemic business needs, hamper job creation and create an additional unknown in an already confusing economic environment.”

  • The real estate coalition letter concluded, “Now is not the time to impose a tax increase on the countless Americans who use partnerships to develop, own, and operate housing and other commercial real estate. We urge you to preserve current tax law as it relates to carried interest.” 

Senate Considers Changes 

Capitol 3 flags flying
  • Senate Democrats are making additional changes to the package, including adjusting the minimum tax on corporations and adding a 1% excise tax on stock buybacks. (New York Times, Aug. 4 and Punchbowl News, Aug. 5)

  • Before a final Senate vote can be held, the Senate Parliamentarian must ensure the bill complies with special budget reconciliation rules, which require provisions directly relate to spending and revenue—not policy.

  • One hurdle before the Parliamentarian is a clean energy tax credit that proposes a bonus incentive to developers who pay prevailing wages on certain projects. If it is determined to be a policy change, it will be dropped from the bill. (POLITICO Power Switch, Aug. 3)

  • A number of the IRA’s proposed revisions to the federal tax code could leverage greater private sector investments in clean energy building technologies, including:

    • A deduction to help make commercial and multifamily buildings more energy efficient (Section 179D),

    • A credit to encourage investments in renewable energy generation and other low carbon equipment such as solar panels, energy storage, and combined heat and power systems (Section 48), and

    • A credit to incentivize installations of EV charging stations (Section 30C). 

The Roundtable continues to work with its policy advisory committees and national real estate organization partners to assess how details in the bill language could impact CRE. These policies will be a focus of discussion during The Roundtable’s Sept. 20-21 Fall Meeting in Washington, DC. 

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Senate Democrats Strike Deal to Speed-Up Federal Permits for Major Energy Projects
Department of Energy building in Washington, DC

Sen. Joe Manchin (D-WV) and Democratic Senate leadership reached a side deal on federal energy permitting this week, separate from the larger reconciliation bill agreement addressing climate, taxes, and drug pricing reform. (PoliticoPro, One-page summary of agreement and Washington Post, Aug. 1)

Energy Permitting Provisions

  • An outline of the energy permitting agreement shows that an eventual bill would direct the President to designate and periodically update a list of at least 25 high-priority energy infrastructure projects and prioritize their approvals by federal agencies.
  • The agreement could lead to policies that accelerate federal approvals for long-distance transmission lines needed to help β€œclean the grid” and deliver renewable energy generated in rural areas to cities.
  • The agreement would also limit National Environmental Policy Act (NEPA) reviews for major federal projects to two years, and one year for lower-impact projects. NEPA requires federal agencies to assess alternatives to their proposed actions that have lesser environmental impacts. (EPA fact sheet)
  • The Democratic senators agreed with House Speaker Nancy Pelosi (D-CA) that the permitting agreement could be added to a stopgap spending measure to fund the government after Sept. 30. (BGov, Aug. 3)
  • In May, the Biden administration released a Permitting Action PlanΒ to strengthen and accelerate Federal permitting and environmental reviews. Another package of White House changes to permitting rules is expected later this year. (Roundtable Weekly, April 22 | White House news release, May 11 | BGov, Aug. 4).

Climate Financial Risk Tool

OFR Climate and Analytics Hub
  • The Treasury Department launched its Climate Data and Analytics Hub pilot, which aims to provide regulators with data, software and tools to gauge climate change risk to the financial system. (Treasury Department Fact Sheet)

Initial access to the pilot will be limited to the Federal Reserve Board of Governors (FRB) and the Federal Reserve Bank of New York (FRBNY), with the goal of expanding access to all of the Financial Stability Oversight Council (FSOC) member agencies.

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Business Coalition Succeeds in Extending the Comment Period for NASAA Proposal Affecting REITS

NASAA logo border

A coalition of 17 business organizations, including The Real Estate Roundtable, wrote this week to the North American Securities Administrators Association, Inc. (NASAA) requesting an extension of the comment period on proposed revisions to the NASAA Statement of Policy Regarding Real Estate Investment Trusts.  In response to our coalition letter, NASAA has extended the comment period from August 11 to September 12, 2022. (NASAA extension request, Aug. 2)

The coalition is also preparing to submit a comment letter raising concerns about these proposed revisions to the NASAA Statement of Policy Regarding Real Estate Investment Trusts. (NASAA Request for Public Comment, July 12)

Proposed Changes

  • The NASAA proposal would negatively impact publicly registered, non-traded REITs by linking conduct standards for brokers selling non-traded REITs to the SEC’s Best Interest conduct standard, according to the coalition letter.

  • Specifically, the proposal has four revisions that would affect individual net income and net worth requirements; add a uniform concentration limitation; and include a new prohibition against using gross offering proceeds to fund distributions. (Roundtable Weekly, July 29 and the Institute for Portfolio Alternatives)

Wide Impact

San Franciso
  • The NASAA rules would also negatively impact highly regulated investment vehicles—including mutual funds, exchange-traded funds, interval funds, tender offer funds and business development companies.

  • These investment funds direct long-term capital to geographically diverse opportunities across a range of property types—office, industrial, multifamily, retail, self-storage, medical, and real estate debt—throughout the United States and its territories.

  • The funds would face arbitrary restrictions within the proposal that, if implemented, would limit investor choice during a time of stock market volatility and high inflation.

  • Additionally, the NASAA proposal would affect federally regulated, non-traded REITs— particularly NAV REITs. These investment vehicles are a growing source of capital to the acquisition and development of affordable housing, commercial properties for small businesses, and other types of real estate that support economic growth and employment.

Other Investment Concerns

  • The proposed revisions also have the potential to influence other sets of NASAA Guidelines under development, including those for Asset-Backed Securities, Commodity Pools, Equipment Leasing, Mortgage Programs and Real Estate Programs other than REITs. (NASAA Request for Public Comment, July 12)

  • With the deadline extended to Sept. 12, the coalition is continuing to refine its comment letter and welcomes input from our members.

The Real Estate Roundtable is working with several other organizations on the coalition’s responses to NASAA. Roundtable members can direct their comments and questions to Roundtable Senior Vice President Chip Rodgers or call 202-639-8400.

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