This week’s Real Estate Roundtable meeting focused on national policies impacting commercial real estate, with an emphasis on the economy, the need for increased federal support for property conversions, and capital and credit issues. Guests such as House Democratic Leader Hakeem Jeffries (D-NY) and other prominent policymakers also discussed the housing crisis, return-to-office issues, and the upcoming elections. (The Roundtable’ Spring 2024 Policy Priorities and Executive Summary)

Speakers & Policy Issues

• Democratic Leader Hakeem Jeffries (D-NY), center, with Roundtable Chair John Fish (Chairman & CEO, SUFFOLK), left, and Roundtable President and CEO Jeffrey DeBoer, right, discussed policymaking in the House, the need to balance geopolitical urgencies with pressing domestic priorities, and finding bipartisan paths to solve the nation’s problems.

• House Financial Services Committee Member French Hill (R-AR), right, engaged in a discussion moderated by Michelle Herrick (Head of Real Estate Banking, J.P. Morgan), left, that addressed the wave of maturing CRE loans and the future of a regulatory proposal to hike bank capital requirements known as “Basel III.” (Roundtable Weekly, March 8)

• White House Council of Economic Advisers Chair Jared Bernstein, above, emphasized that affordable housing is a high-priority focus of the Biden administration—and welcomed a series of recommendations by The Roundtable on how the Biden administration could further support commercial-to-residential property conversions. He also discussed inflation’s role in credit and capital markets. (See story below)

• Enice Thomas (Deputy Comptroller for Credit Risk Policy, Office of the Comptroller of the Currency), above, focused on economic risk for regional banks that service specific property types and locations within office and multifamily sectors. Thomas clarified that the OCC encourages bankers to work with borrowers early if any stress indicator arises in their portfolio. He added federal banking regulators are monitoring office markets closely as a wave of loan maturities looms. 

• Kevin Palmer (Head of Multifamily, Freddie Mac)—above right, with Roundtable Board Member Matt Rocco (President, Colliers Mortgage), left—spoke with Roundtable members about Freddie's role in the industry. He noted that the CMBS market is “humming” and added that planning for a significant refinance opportunity is important, although exceeding Freddie's caps is an FHFA issue.

Next on The Roundtable's meeting calendar is the all-member Annual Meeting on June 20-21 in Washington, DC, which will also feature meetings of RER’s Policy Advisory Committees.

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The Real Estate Roundtable urged the Biden administration to take a series of actions to support commercial-to-residential property conversions in an April 15 letter to Jared Bernstein, chair of the White House Council of Economic Advisors. (see Meeting story above)

Improving Agency Resources

• The Roundtable’s letter aims to harness various federal loan programs and tax incentives to provide financial support for CRE conversions.

• A “Commercial to Residential Conversions” guidebook released by The White House last year catalogued various federal resources that could support adaptive re-use projects. (White House fact sheet and Roundtable Weekly, Oct. 27, 2023)

• These programs, enhanced by President Biden’s Bipartisan Infrastructure Law and Inflation Reduction Act, can ideally be tailored to accelerate projects that transform underutilized assets into housing. 

• RER’s letter states, “The Federal Guidebook’s featured programs have not lived up to their promise—yet.” The Roundtable’s suggestions to improve these U.S. agency resources support goals to increase housing supply, revitalize urban downtowns, and cut carbon emissions.

Roundtable Recommendations

• The April 15 letter urges agency actions to streamline environmental reviews, hasten the federal loan underwriting process, and layer various agency loan platforms to help finance housing conversions.

• The letter recommends specific improvements to the Department of Transportation’s loan programs for transit-oriented development, which can also resonate for resources offered by HUD, DOE and EPA.

• The Roundtable letter also details changes to the tax code and exisiting incentives that can increase energy efficiency and renewable energy investments in commercial-to-residential building conversions.

The Roundtable will continue to coordinate with White House staff and encourage modifications to federal regulations and laws that can improve CRE conversion projects.

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A group of Senate Democrats introduced legislation this week that would tax carried interest capital gains income at ordinary income tax rates of up to 40.8%. (Bloomberg Tax April 16)

Carried Interest Proposals

• The Carried Interest Fairness Act was introduced on April 15 by Senate Banking Committee Chairman Sherrod Brown (D-OH) along with Sens. Tammy Baldwin (D-WI), Joe Manchin (WV), and several other Democratic co-sponsors.

• According to Sen. Brown, the change would raise $6.5 billion in revenue over 10 years. The Senators introduced a similar bill in 2021. (Sen. Brown news release; Crain Currency, April 16)

• This week’s carried interest bill is part of a broader effort by congressional Democrats to position legislative changes in anticipation of the expiration of 2017 Tax Cuts and Jobs Act provisions at the end of 2025. The approaching expiration of those individual provisionsis likely to drive tax negotiations next year into what some policymakers have referred to as the “Super Bowl of Tax.” (Bloomberg Tax, Jan. 4 and Axios, Feb. 16)

Democratic Proposals

• President Biden’s 2025 budget also proposes taxing all carried interest as ordinary income. Most of the Biden tax agenda is carried over from his prior budgets. (Roundtable Weekly, March 15 and March 8 | White House Fact Sheet, March 11)

• Senate Finance Chair Ron Wyden (D-OR) introduced legislation last year to treat the grant of carried interest as deemed compensation in the form of an interest-free loan from the limited partners to the general partner (GP). (Bloomberg Tax, Nov. 15, 2023)

• The Roundtable has consistently opposed these and similar proposals since 2007 for failing to recognize that carried interest is actually granted for the value a General Partner adds beyond routine services, such as business acumen, experience, and relationships.  Carried interest also reflects a recognition of the risks the GP takes with respect to the partnership’s liabilities—e.g., funding predevelopment costs, guaranteeing construction budgets, and potential litigation.

• Carried interest changes would also harm small businesses, stifle entrepreneurs and sweat equity, and threaten future improvements and infrastructure in neglected areas. They would increase the cost of building or improving infrastructure, workforce housing, and other socially desirable projects.

The Tax Cuts and Jobs Act of 2017 created a three-year holding period requirement for carried interest to qualify for the reduced 20% long-term capital gains rate.

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Dual Republican House and Senate resolutions introduced this week take aim at the recent climate risk disclosure rule from the U.S. Securities and Exchange Commission (SEC). As the 2024 election season gets underway, the resolutions delineate the parties’ different views on climate policy and their clashing perspectives on the scope of agencies’ regulatory authority. (Senate and House resolutions | PoliticoPro, April 17)  

Political Differences

• The partisan effort to overturn the SEC’s rule will not garner significant support from Democrats and the resolution is unlikely to pass the Senate. However, the resolutions have rallied Republicans to advance their message that the Biden administration’s SEC frequently steps outside the bounds of its regulatory authority. (The Hill and Bloomberg Law, April 17)

• Banking Committee Ranking Member Tim Scott (R-SC) leads the effort in the Senate. “The SEC’s mission is to regulate our capital markets and ensure all Americans can safely share in their economic success — not to force a partisan climate agenda on American businesses,” he said in a statement.

• Scott’s resolution has the support of 33 Republicans. Sen. Joe Manchin (D-WV) is the lone Democrat co-sponsor. (PoliticoPro, April 17).

• Democratic support for the SEC’s rule includes Senate Banking Committee Chairman Sherrod Brown (D-OH). “I applaud the SEC for acting to address climate risks to protect workers, investors, and our economy,” Brown said after the SEC rule was released last March. (Senate Banking news release)

• On the House side, Financial Services Committee Republicans advanced a similar resolution along a party-line vote on April 17. Committee Member Bill Huizenga (R-MI) introduced the House resolution. (Climate Wire, April 18)

Legal Pause in Effect

• Numerous lawsuits challenging the SEC’s rule are now consolidated in federal court. The SEC agreed to stay its climate rule while litigation is pending. (Climate Wire, April 5)

• House Financial Services Committee Chairman Patrick McHenry (R-SC) said “[t]he SEC’s stay of the rule is not enough” and that congressional action is warranted, crystallizing the political nature of the issue.

If the SEC’s rule eventually takes effect, registered companies would have to include certain climate-related disclosures in annual Form 10-Ks. Notably, the final SEC rule did not include Scope 3 disclosures, which affirmed a position strongly advocated by The Roundtable. (Roundtable Fact Sheet, March 12 and Roundtable Weekly, March 8)

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