The Real Estate Roundtable (RER) is focused on advancing a tax code that encourages investment, supports economic growth, and ensures fair treatment for commercial real estate. With significant provisions of the 2017 Tax Cuts and Jobs Act (TCJA) set to expire, tax policy is already dominating early Congressional discussions.

Congressional Dynamics

• The tax debate is set to kick off on Tuesday, Jan. 14, with the House Committee on Ways and Means’ first hearing on extending key provisions of the TCJA led by Chairman Jason Smith (R-MO).

• Congress faces the dual challenge of addressing expiring tax provisions while managing fiscal pressures. While bipartisan cooperation is possible on certain issues like affordable housing, divisions over business tax rates, SALT deductions, and the debt ceiling could stall progress.

• House Speaker Mike Johnson and top House leaders doubled down on their plan to bundle border, tax, and energy policies into a single bill. Meanwhile, Senate leaders are continuing with their two-bill approach, aiming for faster legislative wins for the new administration. (The Hill, Jan. 10)

• The two chambers are effectively competing to see which strategy can deliver results more quickly.

• Trump indicated he can live with either approach. "I like one, big, beautiful bill," Trump said at a press conference on Tuesday. On Wednesday after meeting with Senate Republicans, he told reporters “Whether it’s one bill or two bills, it’s going to get done one way or the other. The end result is the same.” (Axios, Jan. 8 | The Hill, Jan. 8)

• Speaker Johnson and Republicans are determined to pass their budget blueprint by the end of February. Johnson told reporters Thursday that he’s still working with the Senate to properly “sequence” the massive effort. (PoliticoPro, Jan. 9)

• On Thursday, Senate Majority Leader John Thune refused to commit to the House's preferred approach and called it an ongoing conversation. "Obviously we want to give the House as much space as possible," he told reporters. "They believe they can move and execute on getting a bill across the finish line fairly quickly. But we are prepared to move here, as well." (PoliticoPro, Jan. 9)

• “We’re going to be having conversations with each chairman to make sure that the targets they’re given are achievable within their committee, and then ultimately get pulled back into budget reconciliation to give us the ability to do all the things you want to do,” House Majority Leader Steve Scalise told Punchbowl News. (Punchbowl News, Jan. 10)

Senate Bipartisan Outreach

• Eleven moderate Senate Democrats, led by Sens. Catherine Cortez Masto (D-NV) and Mark Warner (D-VA) wrote to Republican leaders, offering to work with them on extending expiring tax cuts and raising the debt ceiling, proposing bipartisan reforms to balance tax policy and fiscal responsibility. (PoliticoPro, Jan. 10)

• The letter stated the group was willing to cut spending, protect family-oriented tax policies, maintain competitive business tax rates, — and indicated that they could provide enough votes to allow Republicans to overcome a filibuster in the Senate without having to go through the reconciliation process.

• While the GOP is unlikely to accept the offer amid internal divisions, the proposal highlights potential avenues for compromise on tax reform and debates ahead.

Roundtable Tax Priorities for 2025

RER encourages lawmakers to ensure that any major tax legislation in 2025 retain or include:

• The reduced tax rate on capital gains. 
• Tax fairness for partnerships and pass-through entities.
• Safeguard like-kind exchanges.
• Extend, improve, and enact smart tax policies to address the severe housing shortage.
• Tax rules that encourage, rather than deter, foreign investment in U.S. real estate.

As negotiations and debates continue, RER remains committed to working with lawmakers to ensure the U.S. maintains a competitive tax code that encourages capital formation, rewards entrepreneurial risk-taking, and supports policy objectives, including accessible and affordable housing and safe and healthy communities.

Demands for artificial intelligence (AI), advanced manufacturing, electric vehicles, and building electrification are straining the U.S. electric grid—creating challenges and opportunities for commercial real estate (CRE). (Deloitte, Dec. 9)

Why it Matters

• The grid is at a “tipping point.” Heightened demands for power by consumers, businesses, and government are posing significant risks to energy reliability and driving data center construction to meet the needs. (PoliticoPro, Dec. 18)

• The organization authorized by Congress to assess grid capacity highlighted last month the “critical reliability challenges” needed to satisfy “escalating energy growth,” as retiring power plants age-out of service. The report also noted the need to accelerate construction of transmission projects to bring electricity to the nation’s cities and suburbs. (N. American Electric Reliability Corp., 2024 Assessment.)

• President Joe Biden is expected to issue an executive order as soon as today to boost the construction of data centers on federal land to support AI, while also aiming to increase geothermal and nuclear energy production to power them. (PoliticoPro, Jan. 9)

• Data center construction is surging to meet demand with site selection largely driven by power availability. Microsoft and Meta recently announced billions of data center investments. (E&E News, Jan. 10 | CBRE, Aug. 2024)

• The Department of Energy (DOE) estimates data centers could consume up to 12% of U.S. electricity by 2028, largely attributed to demand from cloud and AI providers. (DOE News Release, Dec. 20)

• As The Roundtable’s Policy Guide on building performance standards states, the transition to a digital economy raises serious concerns about electricity availability. “AI could soon need as much electricity as an entire country” as “[v]ast swaths of the U.S. are at risk of running short of power.” (Roundtable Weekly, Oct. 11)

Bipartisan House Report on AI

• Policymakers and industry leaders are focusing more than ever on solutions to expand power generation and modernize the grid.

• The Bipartisan House Task Force on AI released a report last month finding that AI's critical role in U.S. economic and national security interests hinges on a robust power grid. (House AI Report, December 2024).

• Recommendations from the Bipartisan House AI Task Force report include:
  • Develop metrics and standards to measure energy use and efficiency.
  • Allocate infrastructure costs to customers who benefit most from upgrades.
  • Use AI to improve energy infrastructure, production, and efficiency.

EPA’s Energy Data Campaign

• Looking ahead, utilities, policymakers, and data center operators must collaborate to balance priorities such as grid upgrades, renewable energy procurement, water resource management, and equitable cost allocation. (Deloitte, Dec. 9)

• This week, EPA continued its building energy data campaign to assist real estate owners in coordinating with utilities to access tenant space energy data.

• To aid both owners, operators, and utility representatives in understanding this issue and potential solutions, EPA has prepared a number of energy data resources that can be found here.

A resilient electric grid is critical to sustaining economic growth. These issues will be featured in discussions at The Roundtable’s State on the Industry meeting on Jan. 22-23.

While CRE leaders are optimistic about 2025, clear headwinds emerging from escalating construction costs and trade policies threaten to slow development activity and increase strain on industry stakeholders. These challenges demand coordinated efforts between policymakers and the private sector to stabilize costs, address labor shortages, and promote balanced trade measures.

Market & Financial Headwinds in CRE Construction

• The commercial construction sector is facing mounting challenges that could reshape its trajectory.

• Labor Shortages: Baby boomer retirements are thinning the skilled workforce, with an estimated 5.4% of construction workers aged 65 or older and poised to exit the industry.

• Simultaneously, a larger share of young adults is pursuing college over the trades, creating a gap in new talent pipelines. Overall, the national number of job vacancies in construction has doubled between 2017 and 2023. (ConnectCRE, Jan. 2 | Construction Dive, Jan. 2)

• Rising Capital and Material Costs: Construction loans are difficult to get and relatively expensive, with interest rates hovering above 8%, while material costs remain elevated due to inflation and lingering tariffs on construction imports like lumber, steel, copper, and cement. (ConnectCRE, Jan. 2)

Tariff Proposals

• Recent trade and policy developments could exacerbate these challenges.

• Trump Administration’s Tariff Proposals: President-elect Trump has proposed sweeping tariff increases, including a 60% tariff on Chinese imports and an additional 25% tariff on goods from Mexico and Canada.

• These measures could raise U.S. tariffs to their highest levels since 1934 and result in an $800 billion annual increase in tariffs across markets, according to PwC estimates​​. (Barron's Jan. 3, Construction Dive)

• Steel Supply Chain Disruption: President Biden’s decision to block Nippon Steel’s acquisition of U.S. Steel has raised concerns about the future of one of America’s largest steelmakers.

• The acquisition would bolster U.S. Steel’s production capacity and supply chain stability with investments such as $2.7 billion in capital for aging U.S. steel plants, a shared $500 million annual research & development budget, and the transfer of cutting-edge blast furnace technology to U.S. Steel.

• With construction being the primary steel-consuming sector, accounting for over 50% of steel consumption, U.S. Steel's uncertain trajectory could pose challenges for steel-dependent CRE projects. (The Washington Post, Jan. 3 | The Wall Street Journal, Jan. 3)​​

Office Markets & Return to Work

• The U.S. office market faces a stark divide: while overall vacancy rates remain high due to aging buildings and remote work policies, demand for top-tier office space with modern amenities is surging in major cities. (Axios, Jan. 10 | WSJ, Jan. 7)

• Tenants occupied 22% more premium office space in late 2023 compared to pre-pandemic levels, according to CBRE. (WSJ, Jan. 7)

• Many outdated buildings have the potential for conversion to residential use, while landlords of premium properties have regained leverage, scaling back tenant concessions for the first time in four years. (WSJ, Jan. 7)

• JPMorgan Chase may soon require all employees to return to the office. This move follows a growing trend among major corporations, including Amazon, AT&T, and Walmart, that are ending remote work and returning to pre-pandemic office norms. (Axios, Jan. 1 | Forbes, Jan. 9)

• RER Board Member Scott Rechler (Chairman & CEO, RXR) highlighted stronger office markets, despite vacancies, and increased transactions and property conversions for New York City in 2025 this week on CNBC’s Squawk Box. (CNBC Squawk, Jan. 8)

As rising costs and shifting policies reshape the CRE landscape, RER is committed to working with policymakers to stabilize material costs, innovate solutions to labor shortages, and adjust trade policies to avoid disproportionate impacts on the CRE sector.