House to Vote on Senate-Approved “Omnibus” Funding Package
The House of Representatives is expected to pass a Senate-approved $1.65 trillion fiscal 2023 bill by tomorrow to avert a government shutdown. President Biden needs to sign the 4,155-page “omnibus” package before midnight on Dec. 23 to fund the government through Sept. 30, 2023. (CNBC and Politico, Dec. 22 | The Hill, Dec. 20)
Omnibus & Taxes
The omnibus passed by the Senate today includes $858 billion in military spending and approximately $772.5 billion in nondefense discretionary spending. The $1.65 trillion legislative package is a slight increase over the previous fiscal year’s $1.5 trillion omnibus. (Wall Street Journal, Dec. 22)
The massive funding bill also includes a bipartisan package of retirement savings provisions, but not other proposals on lawmakers’ shortlist of end-of-year tax priorities, such as an expansion of the low-income housing tax credit (LIHTC). The Roundtable’s support for the LIHTC and other provisions such as modernizing the rules for REITs and facilitating condominium construction will continue into the 118th Congress. (Tax Notes, Dec. 21 and Roundtable Weekly, Oct. 21)
The outlook for policy in the new Congress will be a topic for discussion during The Roundtable’s Jan. 24-25 all-member State of The Industry Meeting in Washington.
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Hybrid Work Arrangements Impacting Office Vacancy Rates
This week, rising U.S. office vacancy rates were the focus of several media reports as a result of the ongoing, negative impact of hybrid work arrangements.
On Dec. 20, CNBC’s Squawkbox reported that 100 million square feet of office space is now available in Manhattan.
The article included a quote from Real Estate Roundtable Chairman and SUFFOLK CEO John Fish and The Roundtable’s President and CEO Jeffrey DeBoer, who stated in their letter, “We are concerned that certain administration policy guidance is encouraging federal agencies to adopt permanent work-from-home policies for federal employees and thereby actually magnifying negative economic and social consequences for cities.” (Roundtable Weekly, Dec. 16)
On Dec. 17, the New York Times reported on office vacancy rates in San Francisco. “Office buildings are at about 40 percent of their prepandemic occupancy, while the vacancy rate has jumped to 24 percent from 5 percent since 2019,” according to the article, “What Comes Next for San Francisco’s Emptied Downtown.”
Commercial real estate trends and potential policy responses will be discussed during The Roundtable’s Jan. 24-25 State of the Industry Meeting in Washington, DC.
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Treasury Issues Proposed Beneficial Ownership Regulations on Info Retention and Disclosure
The Treasury Department issued a set of proposed rules this month that address how government officials could access information about the “beneficial owners” of most corporations, limited liability companies, and other entities created in or registered to do business in the United States. (Fact Sheet, Dec. 15 and Federal Register, Dec. 16)
The Roundtable and three other national real estate organizations submitted detailed comments to FinCEN on May 5, 2021 addressing several implementation concerns related to the beneficial ownership registry. (Roundtable Weekly, May 7)
FinCEN Acting Director Himamauli Das said, “The beneficial ownership information reporting rule finalized earlier this year is a major step forward in unmasking shell companies and protecting the U.S. financial system from abuse by money launderers, drug traffickers, sanctioned oligarchs, and other criminals.”
“In this next step, the proposed rule would provide the highest standards of security and confidentiality while ensuring that the new beneficial ownership database is highly useful to law enforcement agencies in its efforts to combat financial crime.” Das added, “As we drive toward full implementation of the Corporate Transparency Act, we move closer to exposing criminals, corrupt actors, and anyone trying to hide ill-gotten gains in the United States.” (Treasury news release and FinCEN Fact Sheet, Dec. 15)
House Republican Opposition
The Chairman-elect of the House Financial Services Committee, Patrick McHenry (R-NC), above, raised concerns about the proposed regulations, stating that protecting Americans’ financial privacy will be a top priority of Committee Republicans’ oversight and legislative initiatives next Congress. (McHenry news release, Dec. 15)
“Today’s Notice of Proposed Rulemaking issued by FinCEN does not prioritize Americans’ financial privacy in the way Congress intended,” McHenry said. “FinCEN must include the appropriate protections to prevent unauthorized access and use of the sensitive information collected under this new regime. Until we see a real effort to protect this confidential information, Republicans remain concerned about FinCEN’s commitment to privacy and civil liberties.”
The Roundtable is part of a broad coalition of business trade groups that supports a legal challenge by the National Small Business Association (NSBA v. Janet Yellen), which challenges the constitutionality of the CTA. (Coalition statement of support, Dec. 7 and NSBA’s website on the CTA)
The coalition stated, “It is clear whatever marginal benefit the CTA affords law enforcement will be far outweighed by the costs borne by small businesses and their owners.”
The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to work with industry partners to address the implications of FinCEN’s proposed rules and the impact it could have on capital formation and the commercial real estate industry. Written comments on the NPRM are due by Feb. 14, 2023.
RECPAC will meet on Jan. 24, 2023 in conjunction with The Roundtable’s State of the Industry Meeting in Washington.
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Fed Adopts SOFR as Fallback Benchmark Rate to Replace LIBOR on Certain Legacy Contracts
The Federal Reserve Board on Dec. 16 adopted SOFR (Secured Overnight Financing Rate) as the fallback benchmark rate to replace LIBOR (London Interbank Offered Rate) in certain financial contracts after the use of LIBOR expires on June 30, 2023. (Federal Register notice and Bloomberg Law, Dec. 16)
LIBOR to SOFR
LIBOR was the dominant reference rate used in recent decades for financial contracts—including commercial real estate debt, mortgages, student loans and derivatives—worth an estimated $223 trillion. (Roundtable Weekly, Dec. 10, 2021.)
The Fed’s action this month implements a final rule from the Adjustable Interest Rate (LIBOR) Act (H.R. 4616)—passed by Congress in March to provide a uniform, nationwide solution for so-called tough legacy contracts that do not have clear and practicable provisions for replacing LIBOR. (Roundtable Weekly, March 11, 2022)
The Real Estate Roundtable and 17 national trade groups submitted letters in 2021 on April 14 and July 27 to policymakers in support of measures to address “tough legacy” LIBOR-based contract issues. (Roundtable Weekly, Dec. 10, 2021)
Final LIBOR Rule
The final rule identifies replacement benchmark rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR in contracts subject to the LIBOR Act. These contracts include U.S. contracts that do not mature before LIBOR ends and that lack adequate "fallback" provisions that would replace LIBOR with a practicable replacement benchmark rate. (Fed Reserve Board’s memo, Dec. 2 and Fed news release, Dec. 16)
The final rule also restates safe harbor protections contained in the LIBOR Act for market participants who need to switch existing LIBOR-referencing financial contracts to a replacement benchmark for debt instruments before the replacement date on June 30, 2023. (Federal Register notice on LIBOR)
The LIBOR transition will be among the issues discussed during The Roundtable’s Real Estate Capital Policy Advisory Committee’s (RECPAC) next meeting on Jan. 24 in Washington, DC during The Roundtable’s State of the Industry Meeting.