National lawmakers and industry leaders this week discussed a wide range of policy issues – including cybersecurity, infrastructure, climate, taxes, and post-pandemic reopening of businesses – during The Real Estate Roundtable’s 2021 Annual Meeting, where John F. Fish (Chairman and CEO, Suffolk) was elected as Roundtable Chair, effective July 1. (Watch Incoming Chair Fish’s remarks) 

Leadership:

• The successful leadership of Roundtable Chair Debra A. Cafaro (Chairman and CEO, Ventas, Inc.) was acknowledged in video segments from industry leaders and policymakers, including Senate Majority Leader Chuck Schumer (D-NY) and Sen. Bob Casey (D-PA).
• The Roundtable approved the nominees for its FY22 board of directors and policy advisory committee officers, which were announced by Roundtable Chairman Emeritus Christopher J. Nassetta (President & Chief Executive Officer, Hilton Worldwide). 

Policy Issues & Featured Speakers  

• Sen. Chris Coons (D-DE) discussed the administration’s infrastructure proposal, aid for low-income renters, and more.
• Sen. Ben Sasse (R-NE) focused on bipartisan congressional efforts on infrastructure, return-to-work issues, and national security threats.
• White House National Climate Advisor Gina McCarthy, above, and Roundtable Sustainability Policy Advisory Committee Chair Tony Malkin (Chairman, President and Chief Executive Officer, Empire State Realty Trust) focused on the commercial real estate industry’s role in climate policy. (watch the discusssion)
• Rep. Stephanie Murphy (D-FL) discussed tax policies that could encourage economic recovery and avoid unintended consequences.

• “Current Market Challenges and Coming Opportunities” – above – featured the following industry leaders in a discussion on challenges facing markets during a recovering economy, reopening strategies, and cybersecurity concerns for CRE: (watch the discussion)
  • Thomas M. Flexner (Vice Chairman and Global Head of Real Estate, Citigroup)
  • Kathleen McCarthy (Global Co-Head of Blackstone Real Estate)
  • Mark J. Parrell (President & Chief Executive Officer, Equity Residential) and
  • Owen D. Thomas (Chief Executive Officer, Boston Properties)

Policy Advisory Committees

• Sustainability Policy Advisory Committee (SPAC) – above
  The outlook for energy efficiency legislation was a focus of discussion with key Hill staff representing Senator Jeanne Shaheen (D-NH). Additionally, officials from the Department of Energy’s Better Buildings initiative and the Environmental Protection Agency’s ENERGY STAR program updated SPAC.  

• Research and Real Estate Capital Policy Advisory Committees (RECPAC)
  Sen. Steve Daines (R-MT) discussed the importance of enacting measures to encourage job creation and pro-growth tax policy, and the importance of developing a clear strategy to address global and national security threats, including cyber and ransomware attacks.
• Tax Policy Advisory Committee (TPAC)
  Tax legislative priorities affecting CRE were the focus of discussion with congressional staffers – including proposals to eliminate or limit the use of carried interest and Like-Kind Exchanges, along with increasing the capital gain rate.
• Homeland Security Task Force (HSTF) and Risk Management Working Group (RMWG)
  This joint meeting was briefed on “Civil Unrest: Challenges for Communities” by Terry Monahan, Senior Advisor for Recovery and Safety Planning for New York City – and an FBI official discussed the current threats of ransomware and cyber challenges.

The Roundtable’s 2021 Annual Report will be distributed in July. Next on The Roundtable’s Meeting Calendar is the Oct. 5 Fall Meeting in Washington, DC. (Roundtable-level members only)

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Senate members announced this week that they are pursuing a two-track approach in assembling an infrastructure package in response to President Biden’s original multitrillion dollar proposal – a pared-down bipartisan plan, and a much larger Democratic plan that could advance on a narrow, party-line vote path. 

Bipartisan Framework

• In the wake of failed negotiations last week between the White House and Senate GOP leaders, a group of five Democrats and five Republicans began work on an alternative plan focused on “core, physical infrastructure.” The bipartisan Senate group expanded this week to 21 members, including 11 Republicans. At least 10 Republicans in the 50-50 Senate must approve a bill to reach the 60-vote threshold for passage. (Bloomberg and Washington Post, June 16)
• A draft outline of the bipartisan group’s infrastructure proposal published on June 16 by Politico revealed a framework that would cost $974 billion over five years, including $579 billion in new spending.
• President Biden originally proposed $2 trillion in new infrastructure spending, then signaled a compromise closer to $1 trillion. (Roundtable Weekly, June 11)
• The Senate group’s framework also includes numerous funding sources, such as unspent coronavirus relief aid and public-private partnerships. Since the document’s release, Republicans have provided assurances that a final framework would not include indexing the national gasoline tax to inflation, a proposal opposed by President Biden and House Speaker Nancy Pelosi (D-CA). (Politico and The Hill, June 17)

The Reconciliation Path

• Meanwhile, Senate Majority Leader Chuck Schumer (D-NY) this week met with Democratic senators on the Budget Committee to trigger the budget reconciliation process, which would allow a party–line majority vote of an infrastructure package, eliminating the need for Republican votes. (Associated Press, June 17)
• According to the AP, “Sen. Tim Kaine (D-VA) said the Budget Committee was unified in putting together a package that ‘gives us a latitude to do what we need to do — we can shrink it if there’s a bipartisan deal, we could do the broader deal if there isn’t.’”
• Schumer said he would like to pass next month both a bipartisan infrastructure package and a larger budget blueprint, which would address a follow-up Democratic legislative. (BGov, June 17)
• Additionally, Senate Budget Chairman Bernie Sanders (I-VT) said he is seeking a $6 trillion measure that would fund both Biden’s infrastructure proposals, including reforms targeting climate change and an expansion of Medicare. (Wall Street Journal and Washington Post, June 17
• Sen. Mark Warner (D-VA), a member of the bipartisan group leading infrastructure negotiations, said, "I know there needs to be reconciliation. But that also doesn't mean that I accept all of what the president proposed and all of what Sen. Sanders has proposed." (BGov, June 17)
• The Real Estate Roundtable, along with 16 other national real estate trade organizations submitted detailed comments in May to the Senate Finance Committee and House Ways and Means Committee as part of hearings on how to fund the administration’s infrastructure proposals. (Roundtable Weekly, May 21)

The Roundtable’s Annual Meeting this week also featured discussions with policymakers on the evolving infrastructure debate – and the organization plans to remain fully engaged with lawmakers on any eventual legislative proposal that could affect commercial real estate. 

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Legislators in both the Senate and House this week continued to work on stand-alone bills designed to lower U.S. energy consumption and reduce the risks posed by GHG emissions, in tandem with the administration’s emphasis on climate change and building “retrofits” through the comprehensive American Jobs Plan proposal. (Roundtable Weekly, May 28 and June 11)

Senate: The INSULATE Buildings Act

• A bipartisan bill introduced by Sens. Joe Manchin (D-WV) and Lisa Murkowski (R-AK) on June 15 would seek to improve the energy efficiency of buildings and homes by providing financial resources to state-level energy agencies.
• The INSULATE Buildings Act (summary) would establish a new U.S. Department of Energy “revolving loan program.” State agencies would then use these federal proceeds to distribute loans and grants to eligible businesses and homeowners to upgrade and retrofit to commercial and residential buildings.
• The program would also seek to provide states that have the poorest efficiency in their commercial and residential building stock with additional aid.  States could also use up to 25% of their capitalization grant to provide direct grants to small businesses and low-income homeowners.
• Manchin, who chairs the Senate Energy and Natural Resources Committee, remarked that his INSULATE Buildings Act “provides a significant opportunity to improve energy efficiency and reduce energy consumption in buildings.” (News release, June 15)

Davis-Bacon Wage Requirements

• Both the Manchin-Murkowski bill and a recent Senate Finance Committee energy tax incentives bill would require construction projects receiving federal financial support through these measures to comply with “Davis-Bacon” prevailing wage standards. (Roundtable Weekly, May 28)
• The Finance Committee, chaired by Ron Wyden (D-OR), in May advanced an improved energy efficiency tax deduction for commercial buildings (Section 179D) that would make the incentive more usable for “retrofits” of older buildings, multifamily structures, and REITs. (Clean Energy for America Act (S. 1298), mark-up video and supporting documents)
• A May 26 Roundtable letter opposed new prevailing wage mandates proposed by the Senate committee bill. The letter warned that the excessive costs from Davis-Bacon compliance will greatly exceed the amount of any tax deduction that Section 179D might provide to incentivize an energy efficient construction project.

House: Climate Risk Disclosures

•  The House on June 16 passed the Corporate Governance Improvement and Investor Protection Act (H.R. 1187) on a partisan vote, which incorporated the texts of several bills with support from the White House.
  
• Among its provisions, the Act would require companies to disclose greenhouse gas emissions and describe their climate risk mitigation strategies. It would also direct the Securities and Exchange Commission (SEC) to issue specific rules within two years that address the disclosures.  (House Financial Services Committee summary and section-by-section overview)
• At the regulatory level, The Real Estate Roundtable on June 9 commented to the SEC on the unique challenges facing commercial real estate businesses if the Commission eventually requires corporate issuers to report on climate-related financial risks. (Roundtable Weekly, June 11).
• The bill would also require disclosures to the SEC on matters relating to companies’ political action contributions, lobbying efforts, executive compensation and pay raises, and offshore tax havens.

The measure barely passed the House with only Democrats showing support on a 215-214 vote, indicating that the prospects for passage in the Senate are slim.

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The need for policymakers to preserve longstanding tax law governing partnerships and profits interests – carried interest – was the focus of a June 16 letter sent by The Real Estate Roundtable and 14 other national real estate organizations to congressional tax writers. 

Pending Proposals

• The Biden administration’s budget includes a proposal to tax carried interest as ordinary income.  The Biden proposal, as well as pending House legislation (the Carried Interest Fairness Act, H.R. 1068), would result in an enormous tax increase on Americans who use partnerships to develop, own, and operate real estate. (Roundtable Weekly, Feb. 27 and April 30)
• The real estate coalition’s letter emphasized that the proposed changes to taxation of carried interest would:
  • Increase the cost to construct or improve real estate and infrastructure, including workforce housing, senior living communities, industrial properties or investments that support economic inclusion or bring environmental benefits; 
  • Create unintended consequences for local communities. Property taxes on real estate contribute 75 percent of local tax revenue and provide a stable and reliable source of funding for critical public services like education and law enforcement; 
    
  • Create new tax barriers during the post-COVID era as buildings throughout the country need to be repurposed and converted.

Reality vs. Perception

• The industry letter to policymakers also countered the false narrative that the carried interest issue targets only a handful of hedge fund billionaires and Wall Street executives. The letter notes the following realities:
  • The IRS reports that real estate partnerships represent half of the four million partnerships in the United States. These two million partnerships and their 8.6 million partners who own and operate multifamily rental housing, office buildings, shopping centers, hotels, distribution centers, senior living communities, and other commercial real estate in every town, city, and region of the country would face damaging impacts.
  • Carried interest involves recognition of the risks a general partner takes, including the funding of predevelopment costs; guaranteeing construction budgets and financing; and exposure to potential litigation.

Retroactive Change

• The letter also notes that current proposals would limit capital gain treatment only to taxpayers who have cash to invest. Those who invest entrepreneurial innovation, risk taking, and sweat equity would no longer receive capital gain treatment.
• The proposals would also apply retroactively to partnership agreements executed years, often decades, earlier.  Changing the tax treatment of proposals agreed to years earlier would undermine the predictability of the tax system and discourage long-term investment that encourages economic growth, according to the letter.

The Roundtable’s Tax Policy Advisory Committee (TPAC) met June 16 during The Roundtable’s Annual Meeting to discuss the carried interest proposals and the current tax legislative landscape in Washington. 

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