The Biden administration on Thursday unveiled the “National Definition for a Zero Emissions Building,” or “ZEB.” This voluntary, long-term goal for commercial and residential buildings to slash carbon emissions has been anticipated for months. It is the first definition of its kind from the U.S. government and was developed with heavy input from The Real Estate Roundtable’s Sustainability Policy Advisory Committee (SPAC). (ZEB Definition | Press Release)

ZEB Criteria

• Three criteria define a ZEB asset under the new definition from the U.S. Department of Energy (DOE). To meet the guideline, a building must be:
  • Highly energy efficient, such as having an ENERGY STAR score of “75” or higher;
  • Free of on-site emissions from energy use, with an exception for emergency backup power generation; and
  • Powered solely from clean energy, which can be achieved through on-site renewable energy measures or the purchase of verified renewable energy certificates that increase off-site supplies of clean power.
• U.S. Energy Secretary Jennifer Granholm said, “With today’s announcement, DOE is helping bring clarity to our public and private sector partners to support decarbonization efforts and drive investment—paving the way for the cutting-edge clean energy technologies we need to make America’s buildings more comfortable and affordable.” (Press Release) 

• The Roundtable and Nareit collaborated closely on comments in February when the ZEB definition was proposed to shape the final version. (Roundtable Weekly, February 2)  

A U.S. Definition for U.S. Real Estate

• A voluntary definition with standard minimum criteria for what it takes for a building to be “zero emissions” will drive innovation, attract investment capital, and support workforce development, according to DOE.

• It is important for U.S. real estate to have energy and climate guidelines—like the ZEB definition—backed by the federal government that reflect building data, climate conditions, and the carbon intensity of the electric grid here at home.

• Climate-related building standards “have to be granular enough to accurately reflect the power and buildings infrastructure located in the United States,” said Duane Desiderio, Senior Vice President and Counsel with The Roundtable.  “We’re not getting that from the EU and global climate advocates.” (Bloomberg, June 6).

EPA Offers the “Path to ZEB”

• ZEB status is best considered a long-term aspiration. Few buildings will reach zero emissions levels today.

• Buildings have ways to show more immediate progress, such as through the ENERGY STAR “NextGen” program, recently announced by the U.S. Environmental Protection Agency. “NextGen” building certifications will be available starting this fall. (Roundtable Weekly, March 22)

• Investors need a market signal for buildings to indicate they are taking steps now to slash emissions and energy use. NextGen, a low-carbon building label, is the intermediate step before reaching ZEB’s zero emissions guideline.

• “A building has to be ‘NextGen’ before it can be ‘ZEB.’ They work together,” Desiderio told Bloomberg.

Speakers from the White House, DOE, EPA, and other leaders will discuss the ZEB definition and NextGen program at the upcoming SPAC meeting in Washington, DC on June 21.

The Fifth Circuit Court of Appeals in New Orleans ruled in favor of six private equity and hedge fund groups, finding that the Securities and Exchange Commission (SEC) exceeded its authority by adopting the Private Fund Adviser rule in August 2023. (WSJ, June 5)

Court Ruling

• The appellate panel stated in a 25-page opinion that the SEC had exceeded its authority by implementing the rule changes in a 3-0 decision.

• The rules adopted by the SEC required fund managers to submit quarterly reports detailing performance, compensation, and other fees. They also restricted the ability of fund managers to provide more favorable terms or information access to investors. (WSJ, June 5)

• The rule applied to private equity funds, hedge funds, venture capital funds, and fund managers for institutional investors.

• The industry groups challenging the SEC rule argued it was burdensome and would harm investors by suppressing capital formation and make it harder for smaller advisers to compete. (CNBC, June 6)

• The panel noted that the Dodd-Frank Act section used by the SEC to justify it “has nothing to do with private funds.” (Politico, June 6)

• A spokeswoman said that the SEC is reviewing the decision and will determine its next steps. (Reuters, June 5)

Roundtable Advocacy

• Since March 2022, The Roundtable has consistently advocated that the addition of reporting requirements presents significant compliance and operational challenges for private real estate fund sponsors with no added benefit to investors.

• While we support efforts to protect investors and monitor risk, we believe these proposals are unnecessary and would curb the entrepreneurialism, flexibility, and investment returns that make real estate private equity an increasingly attractive option for investors. (April 2022 Comment Letter)

• The Roundtable’s April 2022 letter stated, “As the real estate investment fund industry is required to bear more regulatory burdens and demands, the risk is that capital formation will be unduly hindered. We are therefore concerned that the Proposal, if finalized, could hinder real estate capital formation, the development and improvement of real properties, essential economic activity and jobs.”

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to monitor and respond to the SEC’s various proposed regulatory initiatives with its industry and coalition partners.

The Real Estate Roundtable, along with eleven other national real estate organizations, wrote to the Senate Banking, Housing, and Urban Affairs Committee urging them to advance the Protect Small Business and Prevent Illicit Financial Activity Act (S.3625), which would extend the deadline for companies to report ownership information to the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN).

Corporate Transparency Act (CTA) Delay Bills

• Beneficial ownership regulations that took effect on Jan. 1 under the Corporate Transparency Act (CTA) pose burdensome compliance and material cost challenges for real estate and the small business community.

• The Protect Small Business and Prevent Illicit Financial Activity Act (S.3625), introduced by Banking Committee Ranking Member Tim Scott (R-SC), would extend the deadline for companies to report beneficial ownership information to FinCEN to two years (current regulations require the report within 1 year).

• Additionally, it would prohibit FinCEN from allowing companies to withhold information that would obscure their true owners. (Press Release, Jan. 18)

• “Chinese shell companies cannot be allowed to operate discreetly in the United States – threatening our national security, harming our economy, and stealing sensitive information. At the same time, we must ensure U.S. small businesses have the time necessary to comply with new reporting requirements. This bill makes important changes to do both,” said Ranking Member Scott.

• The bipartisan companion to this legislation (H.R. 5119), introduced by Representatives Zach Nunn (R-IA) and Joyce Beatty (D-OH), passed the House of Representatives by a decisive vote of 420-1 on December 12, 2023.

• The coalition’s letter noted a one-year delay of the CTA’s filing deadline would:
  • Be consistent with congressional intent to give covered entities two years to comply with the CTA’s reporting requirements; and
  • Provide the business community and FinCEN additional time to educate millions of small business owners regarding the new reporting requirements and the onerous penalties resulting from non-compliance.

Roundtable Opposition

• The Roundtable has consistently opposed the beneficial ownership rules, the burdensome reporting requirements, and the negative impact on real estate transactions.  (Coalition letter, April 29)

• “Because there are more real estate partnerships in the U.S. than any other line of business, the beneficial ownership reporting requirements in the CTA have a considerable impact on the industry.  A one-year delay, as called for in S. 3625, would permit businesses much-needed time to fully understand these new reporting requirements,” said Clifton E. (Chip) Rodgers, Jr., Roundtable Senior Vice President.

• The Roundtable also joined more than 120 other national business organizations in a March 19 letter that urged Senate Banking Committee leaders to support a one-year filing delay for the new CTA beneficial ownership regulation requirements.

The Roundtable’s Real Estate Capital Advisory Committee (RECPAC) will continue to monitor developments related to beneficial ownership requirements and legal outcomes.

Recent studies show major investments that grow the single-family rental (SFR) market increase housing supplies for low-income and middle-class households, and create more educational opportunities for families with improved access to quality school districts.

Positive SFR Research

• Roundtable members discussed these results in a “listening session” on Wednesday with housing policy leads from the White House Domestic Policy Council and the National Economic Council.

• A report released last month by the U.S. Government Accountability Office (GAO) highlights the positive impact of major SFR investors in the aftermath of the 2007—2009 financial crisis. Large investors leveraged capital and technology to convert foreclosed homes into rentals, stabilizing neighborhoods and increasing housing availability. (GAO Report Highlights | Full GAO Report)

• Another study out of UNC Charlotte, also released in May, finds that children from low- and moderate-income households see improved achievements in school when they rent single-family homes in neighborhoods where they cannot afford to buy.  (UNC Study Highlights | Full UNC Report)

Key Findings

• Market Stabilization: The GAO explained that institutional investors bought foreclosed homes in bulk, converting them into rental properties, during the Great Financial Crisis. This helped stabilize neighborhoods and increased home values.

• Technological Efficiency: Advanced digital platforms and online management tools enabled investors to efficiently manage large property portfolios, improving tenant experiences and reducing costs, according to the GAO.

• Improved Housing Stock: Larger equity investors were able to underwrite substantial repairs and renovations to the units they purchase, “the cost of which is out of reach for many homebuyers,” according to a study cited by GAO.

• Educational Achievement: According to the UNC-Charlotte study, “low-income parents [are] taking advantage of these newly available rental units” and “their children are experiencing substantial achievement gains from attending high-performing schools.”

Clear SFR Benefits

• Expanding the supply of housing across the geographic and economic spectrum is essential for the nation’s economic vitality.

• Large-scale SFR investments have helped revitalize distressed properties and communities, contributing to economic growth and stability.

• "Changing lifestyles are driving people to seek more flexible housing options that also provide better education opportunities without the long-term financial commitment of homeownership. Large-scale single-family rental businesses are responding to meet this demand," said Jeffrey DeBoer, Roundtable President and CEO.

• As American households increasingly turn to the rental market for housing, a strong housing finance system should support homeowners and aid the expansion of affordable rental housing.

The Roundtable’s Annual Meeting on June 20-21 in Washington, DC, will feature discussions regarding the policies needed to help expand the supply of affordable and workforce housing.