Treasury Testifies on New Rules for Investment Advisors to Combat Illicit Finance

Treasury Department's FinCEN logo

The director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) appeared before the House Financial Services Committee this week to address recent regulatory proposals for investment advisors to combat illicit finance activity and money laundering in U.S. residential real estate. Director Andrea Gacki testified, “We are also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector.” (Committee hearing and Gacki’s statement, Feb. 14)

FinCEN’s Business Regulatory Proposals

  • The hearing on Wednesday followed a new FinCEN proposal that would require investment advisors to report suspected money laundering to the U.S. government. (Wall Street Journal, Feb. 13)
  • A fact sheet on the proposal explains that although FinCEN is not proposing an obligation for investment advisers to collect beneficial ownership information at this time, it anticipates it will do so in the future. (FinCEN Proposal and Fact Sheet, Feb. 13 | Treasury’s 2024 Investment Adviser Risk Assessment)
  • Last week, FinCEN proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals.  (Roundtable Weekly, Feb. 9 | Reuters and AP, Feb. 7)
  • Another set of regulations that took effect on Jan. 1, 2024 is expected to collect personal information from owners of at least 32 million U.S. businesses into a beneficial ownership registry managed by the government.  A beneficial owner is described as individual who owns at least 25 percent of a company or enough to exert significant control over it. (Final Rule | Fact Sheet | RER background on beneficial ownership)
  • FinCEN Director Gacki told the House Committee that more than 430,000 businesses have submitted reports to the registry so far. (PoliticoPro, Feb. 14)

Concerns About Beneficial Ownership Registry

  • In his opening statement, Committee Chairman Patrick McHenry (R-NC), above, was critical of Treasury’s ongoing proposals and its beneficial ownership regulations affecting small businesses. McHenry added, “Until FinCEN can show Congress it can do its current job and appropriately use its existing authorities, I’m skeptical of providing greater authorities and resources.” (FinCEN’s background information and FAQs on beneficial ownership reporting)
  • McHenry added, “The administration has transformed what was a simple and direct program into Frankenstein’s monster of complexity. We now have a new, overly complex and less secure access regime.”

On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of the burdensome reporting requirements. (Coalition letter | Roundtable WeeklyOct. 20 and Sept. 30)

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Federal Initiatives on Buildings, Climate Gaining Momentum Ahead of 2024 Elections

The White House

The Biden-Harris administration is accelerating actions at the intersection of climate and real estate policy in the lead-up to November’s elections to implement its signature clean energy legislation passed during its first years in office. RER’s Sustainability Policy Advisory Committee (SPAC) remains engaged with policymakers on a variety of initiatives coalescing in 2024 that include the following:

Climate-Related Financial Risk

  • The U.S. Securities and Exchange Commission (SEC) is expected to issue a final rule this spring for registered companies to disclose financial risks from climate change.(RER fact sheet and Roundtable Weekly, March 10, 2023).
  • Scope 3 “indirect” emissions from sources in a company’s supply chain are controversial elements of the anticipated SEC rule. RER’s 2022 comments urged the Commission to drop its “back door mandate” for Scope 3 disclosures. (Roundtable Weekly, June 10, 2022)
  • Litigation against the SEC’s imminent rule is widely expected. A recent lawsuit filed by industry groups against a California disclosure package passed last summer (modeled after the SEC’s proposal) signals similar claims that the federal government might face in court. (Wall Street Journal, Jan. 30 and RER fact sheet)

Voluntary Frameworks

EPA's NextGen Building Label
  • NextGen certification may serve as an “intermediate step” for buildings that strive for a voluntary Zero Emissions Building (“ZEB”) definition coming from the U.S. Energy Department. Recent comments from RER and Nareit maintain that the federal ZEB definition can lend consistency to the confusing state-local regulatory patchwork of building performance standards. (Roundtable Weekly, Feb 2.)
  • EPA is acting on requests to update Portfolio Manager, CRE’s standard tool to measure metrics for building efficiency and emissions. Portfolio Manager upgrades announced at last month’s SPAC meeting will help real estate companies strive for NextGen or ZEB status. (Coalition letter, Sept. 14, 2023)
  • This spring, the influential GHG Protocol—an international framework heavily relied upon by the SEC, EPA, DOE, and institutional investors—will undertake its first revisions since 2015 to its guidance for companies to account for emissions from electricity use. RER will participate in the upcoming Scope 2 guidance public comment process.

Tax Incentives

Ben Myers, left, and Tony Malkin, right -- SPAC leadership
Roundtable Sustainability Policy Advisory Committee Chair Tony Malkin, right, and
Vice Chair Ben Myers
  • The Internal Revenue Service (IRS) has issued dozens of proposed rules and notices to implement clean energy tax incentives available to real estate and other sectors since Congress passed the Inflation Reduction Act (IRA) in 2022. (RER fact sheet)
  • The IRS is expected to release final rules before November on topics such as the ability of REITs to transfer certain tax credits, proposed rules on non-urban census tracts eligible for EV charging station credits, and the 179D deduction for building retrofits.
  • RER has submitted comments on these and other topics in response to initial IRS notices and will continue to provide feedback as opportunities arise. (RER letters Oct. 30 and July 28, 2023;  Nov. 4 and Dec. 2, 2022)

The Roundtable’s SPAC—led by Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust) and Vice Chair Ben Myers (Senior Vice President of Sustainability, BXP)—will press forward with RER’s climate and energy priorities for the remainder of the current administration and into the next.

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Roundtable and Housing Affordability Coalition Urge Senate to Pass Tax Package

Housing Affordability Coalition logos

This week, The Real Estate Roundtable and 21 other industry organizations urged the Senate to pass a tax package that was approved by the House in an overwhelming bipartisan vote (357-70) on Jan. 31. (Coalition letter, Feb. 15)

Tax Provisions in the Senate

  • The Housing Affordability Coalition’s letter to all Senators emphasized the importance of advancing provisions in The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) that strengthen the low-income housing tax credit (LIHTC)—along with various real estate investment measures that would benefit families, workers, and the national economy.
  • The coalition noted how the bill would increase the supply of housing as a positive response to the nation’s housing affordability crisis. It would also suspend certain tax increases on business investment that took effect in 2022 and 2023. 
  • The Feb. 15 letter focused on details of the bill’s provisions that positively impact the LIHTC, deductibility of business interest, bonus depreciation, and small business expensing.
  • The Roundtable also joined the National Multifamily Housing Council (NMHC) and a large coalition of housing and other real estate groups in a Jan. 26 letter to Congress in support of the tax package. That letter also focused on the bill’s important improvements to the LIHTC, which will significantly increase the construction and rehabilitation of affordable housing over the next three years.

Congressional Timing

U.S. Capitol building
  • Senate Republicans considering the House tax package have called for an amendment process that would be time consuming. (The Hill, Feb. 2)
  • With Congress in recess until the last week of February, there will be limited legislative vehicles available the bill could ride on, just days before a set of government funding deadlines hit on March 1 and 8. The best chances the package could have for inclusion in other legislation include a potential funding bill to prevent an early March government shutdown or a bill to reauthorize the Federal Aviation Administration on March 8.
  • If the tax package is pushed beyond March, it may not be considered until a lame duck session after what is expected to be a contentious election season.

SALT Reform Pinched

  • On Feb. 14, a procedural rule to advance the SALT Marriage Penalty Elimination Act (H.R. 7160) to a floor vote in the House fell short of a majority vote needed to pass.
  • The effort by House lawmakers to double the $10,000 cap on state-and-local tax deductions (SALT) for married couples earning up to $500,000 failed by a vote of 195-225. (RollCall and CQ, Feb. 14)

The tax package (H.R. 7024) passed by the House last month did not address the SALT cap, which led to this week’s consideration of a separate reform measure. The current SALT cap is scheduled to expire at the end of 2025, along with many other measures passed as part of the Tax Cuts and Jobs Act (TCJA) of 2017.

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Federal Reserve Supervisors Focused on Banks’ CRE Lending Risk

Michael Barr

Federal banking regulators are closely monitoring risk factors in commercial real estate bank lending throughout the United States, according to comments today from Federal Reserve Board Vice Chair for Supervision Michael Barr. This week, the Fed also released scenarios for its annual stress test for large banks that includes a 40 percent decline in commercial real estate prices—one of several hypothetical risks designed to assess the resilience of the banking system in the event of a severe recession. (Barr speech, Feb. 16 and Fed stress test, Feb. 15)

Managing CRE Risks

  • Barr stated today, “Let me turn to supervision of a specific risk: commercial real estate. The reduced demand for office space and higher interest rates have put pressure on some CRE valuations, particularly in the office sector.”
  • Barr noted that Fed supervisors are “closely focused on banks’ CRE lending in several ways.” He explained that regulators analyze how banks measure and report their risk, what steps they have taken to mitigate the risk of losses on CRE loans, and whether they have sufficient capital to buffer against potential CRE loan losses. (Barr speech, Feb. 16)
  • He also stated that today’s heightened financial risk environment has led the Fed to downgrade firms’ supervisory ratings at a higher rate in the past year and increase its issuance of enforcement actions. Barr said, “We continue to evaluate whether we should temporarily require additional capital or liquidity beyond regulatory requirements where the firm has trouble in managing its risks.” (PoliticoPro, Feb. 16)
  • Bloomberg reported that regulators determined that 22 regional banks late last year had CRE loan portfolios that merit greater scrutiny. (Connect CRE, Feb. 15)

Wave of CRE Refinance Meets Price Discovery

Roundtable Board Member Scott Rechler (Chair and CEO, RXR)
  • Bloomberg also reported this week that commercial property deals in the U.S. are starting to pick up at deep discounts, forcing lenders to brace for increased pressure on maturing loans. (Bloomberg, Feb. 14)
  • Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told Bloomberg that as more transactions add price discovery to the market, investors will have to recapitalize loans to reflect lower values.
  • Rechler said, “In 2024, we’re at that fifth stage of grief. People are now in acceptance.” He also commented on falling property values: “You can’t ignore that anymore. Depending on the severity of it, we’ll see who has actually marked appropriately and who hasn’t.”
  • RXR’s CEO told CNBC last week that “if you’re a borrower who’s willing to invest money, banks are willing to reduce their loan balances to reflect the current environment.” (CNBC, Feb. 6 and Roundtable Weekly, Feb. 9)
  • The Wall Street Journal reported this week that investors are starting to show interest in properties where building owners are unable to extend their loans. The article cites Trepp data that shows more than $2.2 trillion in commercial mortgages are scheduled to mature between now and the end of 2027. (WSJ, Feb. 12)

The Mortgage Bankers Association (MBA) reported this week that 20 percent ($929 billion) of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024. That represents a 28 percent increase from the $729 billion that matured in 2023, according to MBA’s Commercial Real Estate Survey of Loan Maturity Volumes.

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U.S. Appeals Court Blocks Law Restricting Foreign Investment in Florida Real Estate

Congressional Research Service Report - Foreign Investment State Laws

A federal appeals court recently blocked enforcement of a Florida law that could have negative consequences for foreign investment in U.S. property and agriculture land. The Real Estate Roundtable has urged Florida officials for months to consider changes to the interpretation of the law’s broad language. As currently written, the measure could prevent U.S.-managed funds from pursuing investment opportunities in the state if there is any level of investor participation in the fund from “countries of concern.” (Roundtable Weekly, Feb. 2 and Dec. 15 | Reuters and WFTV, Feb. 2)

Foreign Investment in U.S. Property

  • The outcome of the case (Shen v Simpson) involving the Florida law (SB 264) could have national ramifications. At least 15 other states enacted similar legislation restricting foreign investment in U.S. real estate during the first six months of 2023. An additional 20 states are considering the issue. (Congressional Research Service, July 2023 and Gibson Dunn, Sept. 2023)
  • On Feb. 5, BisNow quoted a Sept. letter from Real Estate Roundtable President and CEO Jeffrey DeBoer to the Florida Real Estate Commission. The letter emphasized that non-U.S. investors may include small investors from China, who routinely subscribe to funds controlled or advised by regulated U.S. asset managers. Third-party, passive investors ordinarily invest as limited partners in the partnership, and do not have the right to participate in the partnership’s management, or exercise control over its underlying investments.
  • “Our concern with the new law is that these U.S.-managed investment funds, which are controlled and managed by U.S. nationals, may now be precluded from pursuing investment opportunities in Florida if there is any level of investor participation in the fund from countries of concern like China,” DeBoer wrote. (Roundtable letter, Sept. 5, 2023)
  • The Roundtable also submitted a comment letter on Jan. 30 to the Florida Department of Agriculture and Consumer Services, which is considering implementing SB 264 measures addressing foreign investment in Florida’s agricultural land. The Roundtable’s letter raised concerns about the unintended and negative consequences for investment in Florida and future economic growth. (Roundtable letter and Roundtable Weekly, Feb. 2)

SB 264 & FIRRMA

11th U.S. Circuit Court of Appeals
  • The 11th U.S. Circuit Court of Appeals, above, considered a ban authorized by SB 264 restricting certain Chinese citizens from owning homes or land in the state. The U.S. Department of Justice filed a “statement of interest” in the case, noting that SB 264 violates federal law and the U.S. Constitution. (Politico and NBC News, Feb. 2)
  • The appeals court’s Feb. 1 order stated the Florida law is “preempted” by the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which is implemented by the U.S. Committee on Foreign Investment in the United States (CFIUS). (Appeals Court order)
  • CFIUS is an interagency federal committee authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons.
  • Roundtable Chairman John Fish (Chairman & CEO, Suffolk) was quoted in Bloomberg about Florida’s SB 264, stating, “The law is far-reaching, very, very confusing, and the unintended consequences would be very, very detrimental.” (Bloomberg, Dec. 11 | Bisnow and Inman, Dec. 12)

Oral arguments in Shen v Simpson are scheduled for this April. (Appeals Court order)

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Treasury Regulators Propose Beneficial Ownership Rule for All-Cash Residential Transactions

This week, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals. (Reuters and AP, Feb. 7)

FinCEN’s Initiatives

  • The proposed rule would require reporting on various types of residential real property transfers. Exceptions would apply for highly regulated types of entities and trusts that are less likely to be used by illicit actors to launder money through residential real property. (FinCEN Fact Sheet on NPRM, Feb. 6)
  • FinCEN expects that the obligation to file Real Estate Reports would generally apply to settlement agents, title insurance agents, escrow agents, and attorneys. 
  • Comments about the Notice of Proposed Rulemaking will be accepted for 60 days following publication in the Federal Register.

Small Business Registry

FinCEN insignia
  • Treasury has also pursued the development of a new small business ownership database called the beneficial ownership registry, which is expected to include personal information on the owners of at least 32 million U.S. businesses. (AP, Feb. 7 | FinCEN’s background information and FAQs on reporting)
  • The registry requires millions of companies to report information about persons who own at least 25% of a company or exert significant authority over it to the Financial Crimes Enforcement Network (FinCEN).These beneficial ownership regulations took effect on Jan. 1, 2024 under the Corporate Transparency Act (CTA). (Final Rule | Fact Sheet | Wall Street Journal and Bloomberg Law, Sept. 29) 
  • On Jan. 8, Treasury Secretary Janet Yellen announced that 100,000 businesses have registered for the new database. (AP, Jan. 8)

Industry Response

  • Ten national real estate industry organizations and The Roundtable submitted detailed comments to FinCEN on Feb. 21, 2022 about the proposed anti-money laundering regulations affecting real estate transactions. (Roundtable Weekly, Feb. 25, 2022)
  • On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of these burdensome reporting requirements. (Coalition letter | Roundtable Weekly, Oct. 20 and Sept. 30)

The Roundtable also signed onto a letter with approximately 70 business groups on Nov. 16, 2023 that urged Congress to pass a one-year delay in implementing the rules.

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Key Regulators View Banks’ Office Loan Concentrations as Manageable Risk

Fed Chair Jerome Powell and Treasury Secretary Janet Yellen this week said that federal regulators are closely monitoring bank loan concentrations in office properties for heightened economic risk but view the CRE sector’s financial challenges as manageable. (60 Minutes’ Powell transcript, Feb. 3 and Bloomberg video of Yellen testimony, Feb. 6)

Regulators Focus on CRE

Federal Reserve Chairman Jerome Powell on 60 Minutes
  • Chair Powell told CBS’ 60 Minutes, “We looked at the larger banks’ balance sheets, and it appears to be a manageable problem. It’s a secular change in the use of downtown real estate. And the result will be losses for the owners and for the lenders, but it should be manageable.”
  • Secretary Yellen also said economic pressures on office properties are “manageable” before the House Financial Services Committee on Feb. 6 and the Senate Banking, Housing and Urban Affairs Committee on Feb. 8.  Her testimony included a summary of findings from the Financial Stability Oversight Council’s annual report, which noted, “Elevated interest rates, high costs, and potential structural changes in demand for CRE have heightened concerns about CRE.”
  • CNBC’s Squawkbox interviewed Minneapolis Fed Pres. Neel Kashkari on Feb. 7 about the regulators’ CRE concerns. “It really is focused on the office sector. Many other segments within commercial real estate seem to be doing very well, so I think that delineation is important. And we think it’s going to be on a bank-by-bank basis where we see pressures flare up. Our bank supervisors are in very close contact with others around the country,” Kashkari said.

CRE Markets

Real Estate •	Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR)
  • Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told CNBC’s Squawkbox on Feb. 6 that commercial real estate markets in 2023 were “a little bit paralyzed” but that “if you’re a borrower who’s willing to invest money, banks are willing to reduce their loan balances to reflect the current environment.” (CNBC, Feb. 6)
  • A recent CRED iQ report found that more borrowers are modifying CRE loans. The report covers 441 loans with a total value of $13.6 billion (GlobeSt. Jan. 25)
  • CNBC’s Last Call interviewed House Financial Services Committee Member French Hill (R-AR) about capital and credit pressures on CRE on Feb. 1. Rep. Hill addressed the negative impacts of interest rates, fiscal policy, and inflation on the economy and the office sector—and the problems posed by the regulatory agencies’ Basel III “Endgame” proposal.

Separately, The Federal Reserve Board recently announced that its Bank Term Funding Program will cease making new loans on March 11. The program remains available as an additional source of liquidity for eligible institutions until that date. (Fed news release, Jan. 24)

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Bipartisan Tax Package with LIHTC and Business Provisions Passes House; Senate Challenges Ahead

A bipartisan $79 billion tax package overwhelmingly approved this week by the House still faces potential hurdles in the Senate. The bill contains Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC).  (Associated Press, and Wall Street Journal, Jan. 31 | The Hill, Feb. 2)

Industry Support for House Bill

  • On Wednesday, the House voted 357-70 to pass the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024). House GOP leaders gained additional support for the bill by allowing a floor vote next week on the SALT Marriage Penalty Elimination Act (H.R. 7160), which would increase the cap on state and local tax deductions to $20,000 from $10,000 for married couples. (PoliticoPro and TaxNotes, Feb. 2)
  • House Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) negotiated the larger tax package. Sen. Wyden and senior congressional staff discussed the legislation last week with Roundtable members during The Roundtable’s all-member 2024 State of the Industry Meeting in Washington. (Roundtable Weekly, Jan. 26)
  • Last Friday, The Roundtable joined the National Multifamily Housing Council (NMHC) and a large coalition of housing and other real estate groups in a letter to Congress in support of the tax bill.  The letter focused on the bill’s important improvements to the low-income housing tax credit, which will significantly increase the construction and rehabilitation of affordable housing over the next 3 years. (Coalition letter, Jan. 26)

Tax Measures Face Senate Scrutiny

  • In the Senate, the House-passed tax bill faces an uncertain path forward. Senate Finance Committee Ranking Member Sen. Mike Crapo (R-ID) and other Republican Senators have raised concerns regarding the lack of a work requirement for the child credit, the cost, the proposed pay-for, and other aspects of the bill. Senate Minority Whip John Thune (R-SD) added the bill would not be able to clear a possible Senate filibuster without amendment votes. (The Hill, Feb. 2)
  • Provisions in the House tax bill affecting real estate include:

    • Low-Income Housing Tax Credit
      A Roundtable-supported three-year extension (2023–2025) of the 12.5 percent increase in LIHTC allocations to states. The bill also reforms LIHTC’s tax-exempt bond financing requirement, which will allow more affordable housing projects to receive LIHTC allocations outside of the state cap.

    • Business Interest Deductibility
      A retroactive, four-year extension (2022–2025) of the taxpayer-favorable EBITDA standard for measuring the amount of business interest deductible under section 163(j). The changes do not alter the exception to the interest limitation that applies to interest attributable to a real estate business.

    • Bonus Depreciation 
      Extension of 100 percent bonus depreciation through the end of 2025. As under current law, leasehold and other qualifying interior improvements are eligible for bonus depreciation. In 2026, bonus depreciation would fall to 20 percent and expire altogether after 2026.  

Other provisions in the agreement include reforms to the child tax credit, the expensing of R&D costs, disaster tax relief, a double-taxation tax agreement with Taiwan, and a large pay-for that creates significant new penalties for abuse of the employee retention tax credit (ERTC) rules and accelerates the expiration of the ERTC.

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Roundtable and Nareit Comment on National Definition for a “Zero Emissions Building”

Department of Energy building in Washington, DC

The Real Estate Roundtable (RER) and Nareit submitted comments today to the U.S. Department of Energy (DOE) on its draft definition for Zero Emissions Buildings (ZEB). DOE’s initiative would impose no federal mandates while showing U.S. leadership on climate policy. (Joint comments cover letter and addendum | Roundtable Weekly, Jan. 5)

A “Path to ZEB”

  • The ZEB national definition aims to set voluntary criteria that could help building owners provide auditable, consistent statements to investors, tenants, and policy makers about long-term aspirations for a building’s decarbonization. (DOE announcement | National Definition Draft)
  • The RER/Nareit comments emphasize that few buildings today could meet zero emissions status. Rather, the ZEB definition can be a guideline to support lifecycle investments when boilers, water heaters, and other systems reliant on fossil fuels reach the end of their lives after years of use. (Joint comments cover letter and addendum)
  • Concrete actions that owners can take now to show an asset is “on the path” to zero emissions status are key to ZEB’s success as a long-term goal.
  • The joint comments urge DOE to recognize “NextGen”—the imminent label for low-carbon buildings from the Environmental Protection Agency (EPA)—as the intermediate step for a building that aspires to reach ZEB status.  

Comments on the National ZEB Definition

Comments from
The Real Estate Roundtable and Nareit®
Regarding the Draft National Definition of a Zero Emissions Building (“ZEB”)

Topline points from the RER/Nareit comments (cover letter and addendum) include:

  • ZEB should provide ambitious but attainable policy for individual buildings and portfolios, residential and commercial, across product types.
  • DOE’s national definition should be leveraged to bring consistency and uniformity to the patchwork of building related climate programs, which are imposed by state and local performance standards and pushed by international frameworks. (Roundtable Weekly, Sept. 15 and RER’s Climate and Energy Priorities, Jan. 2024)
  • DOE should not re-invent the wheel. It should align the ZEB definition with the ecosystem of federal data, methods, and guides that already pertain to buildings.
  • ZEB’s general nationwide definition must consider regional variables such as the climate and electric grid conditions pertinent to where a building is located.
  • A “zero” emissions standard requires a reasonable exclusion of emissions from emergency power generators. This exclusion to protect health and safety is necessary for building operations to continue when the electric grid fails.
  • Many buildings have physical and regulatory restrictions that preclude onsite solar panels, wind turbines, and battery storage. DOE’s draft correctly permits valid and credible “market-based” measures, such as the purchase of renewable energy certificates (“RECs”), to meet the definition’s renewable energy criteria.

A final ZEB definition is expected later this year. The real estate sector also awaits final climate risk corporate disclosure rules this spring from the U.S. Securities and Exchange Commission. (Roundtable Weekly, Jan. 12)

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Roundtable Recommends Changes to Implementation of Florida Law Limiting Certain Foreign Investments in Real Estate

Florida Department of Agriculture and Consumer Services

On Jan. 30, The Real Estate Roundtable urged the Florida Department of Agriculture and Consumer Services to consider several recommendations on implementing a new law that could have negative consequences for foreign real estate investment in the state. Twenty states have enacted restrictions on foreign investors in real estate or agricultural land, eight states are considering similar measures, and others are exploring the issue. (Roundtable letter)

Restrictions on Foreign Investment in U.S. Real Estate

  • The Florida agency is considering various aspects of the proposed rule, published on Sept. 21, which implements State Senate Bill 264 (SB 264). The law aims to limit and regulate the sale and purchase of certain Florida real property by “Foreign Principals” from “Foreign Countries of Concern.”
  • The Roundtable’s Jan. 30 letter commended the national security intentions of the Florida measure yet emphasized that the technical language of SB 264 is much broader in scope than the publicly stated intent of the law. The Roundtable also offered several recommendations to help achieve the law’s stated goals without discouraging U.S.-managed investment funds from pursuing investment opportunities in Florida.
  • Real estate and agricultural land are a critical element of Florida’s economy, with state property taxes contributing over 18% of its overall tax revenue. If legal language in SB 264 is not corrected, implementation of the law could have unintended and negative consequences for investment in Florida and the state’s economy.

Roundtable Recommendations

Real Estate Roundtable President and CEO Jeffrey DeBoer
Real Estate Roundtable President and CEO
Jeffrey DeBoer

The Real Estate Roundtable’s concerns with Section 204 (692.202) of SB 264 include:

  • The new law may prevent U.S. investment funds, controlled and managed by U.S. nationals, from pursuing investment opportunities in Florida if there is any level of investor participation in the fund from countries of concern like China. Non-U.S. investors routinely subscribe for small, generally passive minority interests in these funds. These third-party investors do not have the right to participate in the management of the funds in any way or exercise control over the partnership or its underlying investments.
  • A certain interpretation of a de minimis exception available for investment funds controlled by U.S. registered investment advisers could nullify the exception’s application to many different types of private funds controlled by U.S. asset managers that invest in Florida real estate.
  • Clarification is needed about the definition of a “controlling interest” that impacts exceptions to the law based on an investor’s meaningful ownership or influence. (SB 264 text).

This week’s letter from Roundtable President and CEO Jeffrey DeBoer urged the Florida agency to consider the impact of their interpretation and implementation effort carefully, so that they do not inadvertently prohibit major U.S. investments that are safe from control by foreign countries of concern. Clear legal clarifications to SB 264 can continue to promote safe real estate investment that encourages economic growth without sacrificing the security or economic interests of Florida.

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