Author: Abigail Grenadier

Key House Democrats Urge SEC to Exempt Real Estate from Proposed Safeguarding Advisory Client Rule

Posted on by Abigail Grenadier
SEC logo and text

A group of seven key Democrats from the House Appropriations Committee on Jan. 22 urged Securities and Exchange Commission (SEC) Chair Gary Gensler to exempt real estate assets from a proposed “Custody” rule. The proposal would fundamentally change the ownership and transfer rights of real estate, and impose severe investment limitations on advisory clients. The congressional letter supports The Roundtable’s strong opposition to the rule. (Congressional letter)

Proposed “Qualified Custodian” Layer 

  • The SEC’s Safeguarding Advisory Client proposal would inject significant confusion into well-established transaction protections, rules, and procedures governing real estate transactions by imposing a new layer of unclear and unnecessary oversight. (SEC Rule proposal)
  • Current law (the “Custody Rule”) under the Investment Advisers Act of 1940 requires an investment adviser to maintain clients’ funds and securities with a qualified custodian. The new proposed SEC rule would expand this requirement to maintain all advisory client assets with a qualified custodian. It is not possible to maintain other physical investments such as real estate with a qualified custodian.
  • The letter, led by Rep. Joseph Morelle (D-NY), noted the SEC has acknowledged that real estate assets may not be easily subject to theft or loss and therefore may not need safeguarding protections. Additionally, the letter states, “The ownership of a real estate asset is tracked by mortgages and deeds recorded by municipalities, further decreasing the likelihood of theft.”
  • The House Democrats also emphasized that the SEC’s proposal would materially inhibit investors’ access to real estate investment strategies through an advisor. The additional layer of unnecessary oversight would also compound pressures on residential and commercial real estate markets, which are currently constrained by a lack of affordable housing, high interest rates, and increased office vacancies.

Real Estate Exemption

  • The Appropriations Committee members’ letter requested “the Commission exclude real estate from the scope of any final rule.” They also stated that the Commission should not place additional pressure on residential and commercial real estate markets.
  • An Oct. 30, 2023 letter from Real Estate Roundtable President and CEO Jeffrey DeBoer to the SEC reiterated the current legal protections that promote the safe-keeping of real estate assets held in advisory accounts or funds. DeBoer urged the SEC “… in the strongest possible terms to exclude real estate from the scope of any final [Safeguarding] rule,” citing the ample set of existing protections that prevent real estate assets from fraudulent transfer.  (Roundtable Weekly, Nov. 3, 2023)
  • The Roundtable and a diverse group of 25 trade associations previously wrote to SEC Chair Gary Gensler on Sept. 12, 2023 to oppose the Custody Rule proposal and explain the negative impacts it would have on investors, market participants, and the financial markets. 

Fed and OCC Voice Concerns

The Federal Reserve building in Washington, DC
  • Federal Reserve Chair Jerome Powell and acting Comptroller of the Currency Michael Hsu recently expressed concerns over the SEC’s proposed expansion of existing custody regulations. (PoliticoPro, Feb. 2)
  • Powell and Hsu responded to a Nov. 1 inquiry from Rep. Andy Barr (R-KY), who chairs the House Financial Services Committee Subcommittee on Financial Institutions and Monetary Policy. The Fed and OCC leaders stated that extending the SEC custody proposal to assets beyond “funds and securities” would require a significant change in custody practices at depository institutions.
  • Both regulators said their agencies are engaged with the SEC about the proposal. (Letters from Powell and Hsu via PoliticoPro)

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Custody Rule Working Group met with the SEC’s Division of Investment Management last November about the proposal and developed The Roundtable’s comments. Details about RECPAC’s next meeting this spring in New York City are forthcoming.

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Roundtable Policy Advisory Committees Drill Into Sustainability and Security Issues at 2024 SOI Meeting

Posted on by Abigail Grenadier
The Roundtable’s Sustainability Policy Advisory Committee (SPAC) meeting at the 2024 State of the Industry meeting

National policies and agency actions related to climate, environmental, and energy issues were among the many topics on The Roundtable’s Sustainability Policy Advisory Committee (SPAC) agenda at the SOI meeting. Additionally, The Roundtable’s Homeland Security Task Force (HSTF) and Risk Management Working Group (RMWG) met to discuss evolving security threats impacting CRE.

Special Roundtable SPAC workshop on EPA’s ENERGY STAR Portfolio Manager benchmarking tool.
  • SPAC members also attended a special session with EPA staff where Roundtable members provided detailed industry feedback about the first major enhancements in a decade that are under consideration for EPA’s ENERGY STAR Portfolio Manager benchmarking tool.
The Roundtable’s Homeland Security Task Force (HSTF) and Risk Management Working Group (RMWG)
  • The Roundtable’s HSTF and RMWG joint meeting on Jan. 24 addressed China’s espionage efforts impacting American corporations; the emerging use of Artificial Intelligence as a new risk vector; and the current dynamic in pricing and coverage in commercial insurance markets. (HSTF & RMWG joint agenda | Roundtable 2024 Homeland Security Priorities)

Next on The Roundtable’s 2024 meeting calendar is the Spring Meeting on April 15-16. This upcoming meeting is restricted to Roundtable-level members only. 

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Congressional Tax Package and Supreme Court Case Focal Points at Roundtable Meeting

Posted on by Abigail Grenadier

Tax policy issues impacting commercial real estate were front and center during This Roundtable’s Jan. 23 State of the Industry (SOI) meeting as policy discussions with congressional tax writers, issue experts, and Roundtable members ranged from specific measures in a recently approved tax package by the House Ways and Means Committee to a landmark Supreme Court case.

Tax: What Lies Ahead

Real Estate Roundtable President and CEO Jeffrey Deboer shakes hands with Senate Finance Committee Chair Ron Wyden (D-OR)
  • Senate Finance Committee Chairman Ron Wyden (D-OR), right with The Roundtable’s Jeffrey DeBoer, discussed the recent tax package passed by the House Ways and Means Committee and its uncertain path in the Senate. In addition to an expansion of the low-income housing tax credit, the $77 billion bill includes 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). It also contains an extension of 100% bonus depreciation through the end of 2025. (Roundtable Weekly, Jan. 19)
Tax panel with Ryan McCormick and congressional tax staff
  • “What’s in Front of Congressional Tax Writers: 2024 and Beyond” was explored by (left to right) Roundtable Senior Vice President and Counsel Ryan McCormick; Mark Roman, (Staff Director, Republican Majority House Ways and Means Committee); and Joshua Sheinkman (Staff Director, Democrat Majority Senate Finance Committee).  The congressional tax experts discussed measures in the recent tax package and noted the scheduled expiration of Tax Cuts and Jobs Act (TCJA) incentives at the end of 2025—and what proposals may emerge to extend them.

Supreme Court Challenge

• Roundtable Tax Policy Advisory Committee (TPAC) member Don Susswein (Principal, RSM US LLP)
  • Roundtable Tax Policy Advisory Committee (TPAC) member Don Susswein (Principal, RSM US LLP) presented an overview of an important Supreme Court case (Moore v. United States) that challenges the federal government’s constitutional authority to tax unrealized income. (Roundtable Weekly, Dec. 8)

TPAC holds monthly Zoom calls on timely, compelling tax policy issues affecting CRE. If you are interested in joining, contact The Roundtable’s Ryan McCormick.

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Policymakers Emphasize Affordable Housing Incentives, Increasing Supply 

Posted on by Abigail Grenadier

Three U.S. Senators discussed national housing policy with industry leaders and Roundtable members during this week’s State of the Industry (SOI) meeting. (See Meeting agenda)

Need for Housing Incentives

Sen. Ron Wyden (D-OR)
  • Senate Finance Committee Chairman Ron Wyden (D-OR) discussed the importance of expanding and extending the Low-Income Housing Tax Credit (LIHTC), which was included in a tax package advanced by the House Ways and Means Committee last week by a vote of 40-3. Sen. Wyden negotiated the $77 billion bill with Ways and Means Chairman Jason Smith (R-MO) and commended the overwhelming margin of bipartisan support in the committee vote. (Roundtable Weekly, Jan. 19)
Housing Panel at RER's 2024 State of the Industry Meeting. Moderator Kathleen McCarthy, Blackstone
  • Sen. Maggie Hassan (D-NH), center, discussed what can be done to address U.S. housing challenges with Kathleen McCarthy, left, (Chair-Elect, The Real Estate Roundtable | Global Co-Head of Real Estate, Blackstone), and Shaun Donovan, right, (CEO and President, Enterprise Community Partners |former HUD Secretary and OMB Director). Sen. Hassan spoke about the urgent need for national policy to encourage development of more workforce housing, while Mr. Donovan noted the congressional tax bill under consideration would create 200,000 new affordable housing units.
Sen. Debbie Stabenow (D-MI) at RER's 2024 State of the Industry meeting
  • Sen. Debbie Stabenow (D-MI)– introduced by Roundtable Chair Emeritus (2012-2015) Robert Taubman (Chairman, President & CEO, Taubman Centers, Inc.) – spoke about legislative efforts to revitalize downtowns. Sen. Stabenow referred to the recent tax package as an encouraging development for affordable housing, yet noted how more is needed to incentivize conversions of commercial properties to multifamily use. Stabenow is an original co-sponsor of the Revitalizing Downtowns Act (H.R. 4759) to encourage adaptive use of older buildings.

Housing policy and incentives advocated by The Roundtable to encourage more affordable housing supply are topics weaved throughout RER’s 2024 Policy Priorities. (See Executive Summary)

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Roundtable SOI Meeting Spotlights Monetary Policy, Liquidity, and Capital

Posted on by Abigail Grenadier

The Roundtable’s State of the Industry (SOI) meeting this week explored monetary policy, international capital flows, commercial real estate market sector updates, and other national capital and credit issues included in RER’s 2024 Capital and Credit Policy Priorities.

Policy and CRE Markets

Debra Cafaro (Ventas) with former Fed Vice Chairman Randal Quarles
  • Debra Cafaro (Chairman & CEO, Ventas, Inc. | Immediate Past Chair, The Real Estate Roundtable) led a policy discussion with former Fed Vice Chairman Randal Quarles (Chairman, The Cynosure Group) on the “Basel III Endgame“ regulatory proposal to increase banks’ capital requirements; CRE loan exposure to the financial system; and the importance of retaining Fed independence from the political landscape.
  • CRE industry leaders offered market sector reports, including Roundtable Board Member Jodie McLean (Chief Executive Officer, EDENS) on retail; Thomas Toomey (Chairman and CEO, UDR) on multifamily; Dan Letter (President, Prologis) on industrial; Roundtable Board Member Owen Thomas (Chairman & CEO, BXP) on office; and Michael Lowe (Co-CEO, Lowe) on hospitality.
Foreign Investment panel during The Real Estate Roundtable's 2024 State of the Industry Meeting
  • Roundtable members also discussed market liquidity and international investment in U.S. real estate, including the negative impact of the Foreign Investment in Real Property Tax Act (FIRPTA) of 1980. A panel of experts included (left to right) David Friedline (Partner, Deloitte Tax LLP); Steve Hason (Managing Director, Head of Americas Real Assets, APG Asset Management US Inc.); Adam Gallistel (Managing Director, GIC Real Estate); and Max O’Neill (Managing Director, Blackstone). 
  • A presentation by Roundtable Senior Vice President Clifton E. (Chip) Rodgers, Jr. about the major capital and credit issues facing the industry can be downloaded here.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) plans to meet next in New York this spring.  Details on date, time and venue will be provided soon.

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Senator Joe Manchin and Financier Michael Milken Among Roundtable’s SOI Meeting Guests

Posted on by Abigail Grenadier
2024 photo: left, Real Estate Roundtable President and CEO Jeffrey DeBoer with Roundtable Chair John Fish (Suffolk)

Roundtable Chair John Fish, right, (Chairman and CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer, left, launched this week’s Real Estate Roundtable 2024 State of the Industry (SOI) meeting, which focused on many of RER’s 2024 Policy Priorities. (See Executive Summary and the SOI meeting agenda)

  • The meeting featured a discussion with Sen. Joe Manchin (D-WV) and Financier Michael Milken on America’s leadership role in the world. Additional presentations by prominent policymakers and industry leaders focused on issues of importance to commercial real estate, including updates on select market conditions by Roundtable members. (See below)

Economic Leadership & Future Challenges

Sen. Joe Manchin, left, with Financier Michael Milken at The Real Estate Roundtable's 2024 State of the Industry Meeing
  • Sen. Manchin, left, and Mr. Milken, right, discussed the need to preserve American economic leadership; the crucial, long-term importance of an educated workforce; and global demographic trends that pose new challenges to U.S. strength.
  • Sen. Manchin noted that he is retiring from the Senate at the end of this Congress but not retiring from his efforts to encourage bipartisan policy solutions to America’s big challenges such as immigration, the national debt and deficit, and electoral system issues.
  • An international financier and philanthropist, Mr. Milken discussed a variety of his successful initiatives in access to capital, medical research, education, and public health. He leads a new DC-based initiative called the Milken Center for Advancing the American Dream while spearheading the Milken Institute, a nonpartisan think tank focused on financial, physical, mental, and environmental health issues affecting critical global issues.
The Real Estate Roundtable's 2024 State of the Industry Meeting was well attended.

Three additional U.S. Senators and other guests at the Jan. 23-24 SOI meeting addressed a variety of other policy issues, including affordable housing, tax policy, banking and climate regulations, evolving security threats, and the current election cycle. (RER’s 2024 SOI meeting agenda and stories below).

Next on The Roundtable’s 2024 meeting calendar is the Spring Meeting on April 15-16. The upcoming meeting is restricted to Roundtable-level members only. 

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Congress Extends Government Funding Until March, House Ways & Means Approves Tax Package with LIHTC and Business Provisions

Posted on by Abigail Grenadier

President Biden signed legislation today that averts a partial federal government shutdown by extending federal funding to March 1 and 8. The stopgap, passed by Congress yesterday, gives policymakers limited time to negotiate 12 additional bills at an agreed-upon $1.59 trillion limit to fund the government through the end of its fiscal year on Sept. 30. (Associated Press, Jan. 19 | (Politico and The Hill, Jan. 18)

Stopgap Funding

  • Today’s stopgap is the third “continuing resolution” Congress has cleared since the start of the current fiscal year on Oct. 1. Intense opposition from members of the conservative House Freedom Caucus led Speaker Mike Johnson (R-LA) to reach an agreement with Democrats to support the measure. (Wall Street Journal, Jan. 18)
  • A similar short-term spending bill last October led to the ouster of former Speaker Kevin McCarthy (R-CA) by House conservatives. (Wall Street Journal, Jan. 8)

Bipartisan Tax Package Advances

House Ways and Means Committee
  • Provisions in the 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. Even more importantly, the agreement reforms LIHTC’s tax-exempt bond financing requirement, which will allow more affordable housing projects to receive LIHTC allocations outside of the state cap, and without requiring projects be financed with 50% tax-exempt bonds.
       
    • 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.

Sen. Wyden and senior congressional staff will discuss tax legislation with Roundtable members during The Roundtable’s all-member 2024 State of the Industry Meeting in Washington next week.

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Roundtable and Industry Coalition Raise Concerns About Negative Impact of Basel III Endgame Proposal

Posted on by Abigail Grenadier

The Real Estate Roundtable has raised concerns about the negative impact that the “Basel III Endgame” regulatory proposal would have on real estate credit and capital markets, urging federal banking regulators to withdraw their proposed rulemaking to increase capital requirements for banks with at least $100 billion in assets. The Roundtable’s letter Jan. 12 outlines how the proposal would decrease real estate credit availability, increase costs to commercial and multifamily real estate borrowers, and negatively impact the U.S. economy. (Roundtable comment letter)

Industry Opposition

  • The Roundtable letter states, “The largest U.S. banks’ capital and liquidity levels have grown dramatically since the original Basel III standards were implemented in 2013 in response to the 2008 Global Financial Crisis. So it is not clear what problem regulators are trying to solve with this proposed capital hike.”
  • The letter also noted that raising capital levels at the largest U.S. banks will only limit credit and feed a downward spiral that will put additional pressure on the financial system.
  • Additionally, The Roundtable filed a Jan. 16 letter, along with a coalition of nine national industry trade groups in opposition to the proposal, citing its potential negative impact on available credit capacity for commercial real estate transactions, market liquidity, and economic growth. (Industry coalition letter)

Fed Weighing Possible Changes

The Federal Reserve in Washington, DC

Federal Reserve officials are considering possible adjustments to key parts of the proposal, “including operational risk calculations and potential offsets for mortgage servicing,” according to the Federal Reserve’s Vice Chair for Supervision Michael Barr. “The public comment(s) that we’re getting on this is really critical for us getting it right. We take it very, very seriously,” Barr said. (Reuters and PoliticoPro, Jan. 9)

  • The Roundtable joined a coalition of 17 national trade associations in a letter to the Federal Reserve to oppose the proposal on Nov. 14. (U.S. Chamber of Commerce-led coalition letter, Nov. 14 and Axios, Nov. 16)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer also stated in a March 2023 comment letter to Barr and other key regulators, “At this critical time, it is important that the agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values.”

Wave of Impending CRE Maturities

  • This month’s Roundtable and industry coalition letters emphasize the banking proposal’s negative impact on real estate. The regulators estimate their own proposal would raise capital on the target institutions by 16% on average, which could have a profoundly negative impact on the availability of credit for commercial and multifamily real estate development—especially as interest rates remain high and the need for more affordable housing continues to grow.
  • The coalition letter also notes that the commercial and multifamily real estate industry is a $20 trillion dollar market supported by $5.82 trillion of commercial real estate debt, of which 50% is held by commercial banks.
  • Of that total debt, more than $2 trillion of CRE loans are maturing over the next four years. The letters address how the risks of raising capital levels at the largest U.S. banks would limit credit and exert downward pressure on the financial system.

National Media Reports Focus on CRE Pressures

Scott Rechler, left, speaks with 60 Minutes
  • This week, The Wall Street Journal reported on the impending wave of commercial real estate debt, which increases “the prospect of a surge in defaults as property owners are forced to refinance at higher rates.” The article also cited Trepp data showing that $602 billion in total debt backed by office buildings and other commercial real estate comes due in 2027. (WSJ, Jan. 16)
  • Additionally, CBS’ 60 Minutes on Jan. 14 televised a report on the pressures facing CRE that featured Roundtable Board Member Scott Rechler (Chairman and CEO, RXR), above left. “This post-COVID world of higher interest rates, the changing nature of how people work and live, we’re not going back to where we were,” Rechler said. “And it’s going to be turbulent.”

Capital and credit issues facing CRE will be a focus of discussion at next week’s all-member Roundtable State of the Industry meeting on Jan. 23-24 in Washington, DC.

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RER President and CEO Jeffrey DeBoer Recognized with Commercial Property Executive’s Lifetime Achievement Award

Posted on by Abigail Grenadier
Roundtable President and CEO Jeffrey DeBoer

A “Lifetime Achievement Award” from the national publication Commercial Property Executive recognized the accomplishments of Roundtable President and CEO Jeffrey DeBoer, who spoke about current policy challenges facing the industry, The Roundtable’s evolution, and the industry’s historical effectiveness in Washington. (Watch the Jan. 18 webcast | Read DeBoer’s written comments | CPE article, Jan. 19)

  • DeBoer noted that real estate is entering a period of increased national public policy risks, which include issues such as liquidity, energy and resiliency, tax policy, and more.  
  • DeBoer stated, “[The Roundtable’s] job is to focus on these policy risks, gather the facts, prepare the analysis, develop sound messages, and fine-tune our messages and our message delivery system.”
  • DeBoer added, “It’s very important that everyone in the industry recognize that to ignore Washington in the coming years is to increase business risk.”

Current and upcoming challenges facing the industry will be the focus of The Roundtable’s Jan. 23-24 all-member State of the Industry Meeting in Washington, DC.

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Building Emissions Policies Picking Up Steam in 2024

Posted on by Abigail Grenadier

A confluence of mandatory rules and voluntary guidelines pertaining to real estate’s climate impacts—including a first-ever U.S. definition for the term Zero Emissions Building (“ZEB”) and an imminent Securities and Exchange Commission (SEC) greenhouse gas disclosure rule—will be a key focus of policy makers in 2024.

ZEB Definition

  • On Jan. 9, GlobeSt reported that The Roundtable supports the direction of the Biden administration’s recently released voluntary ZEB draft definition pertinent to private sector existing buildings and new construction. (Roundtable Weekly, Jan. 5)
  • The ZEB definition proposes voluntary criteria for buildings to be highly energy efficient and powered solely by clean energy sources to attain zero emissions status.

  • The Roundtable’s Sustainability Policy Advisory Committee (SPAC) is working on comments (due Feb. 5) in response to the Energy Department’s draft.

SEC & Scope 3

  • The SEC is expected to release its long-anticipated climate risk disclosure rule this spring. (Roundtable Weekly, March 10, 2023) On Jan. 11, Bisnow quoted Roundtable Senior Vice President and Counsel Duane Desiderio about the SEC’s impending rule and its impact on CRE and other industries. 
  • Desiderio explained to Bisnow, “Let’s hope the SEC delivers some workable rules and brings rationality to this space, especially regarding Scope 3 indirect emissions” that cover sources in a company’s supply chain beyond its immediate control. Desiderio added, “The market is certainly moving in the direction of the SEC rule.” (RER Fact Sheets: SEC’s Proposed Rule and California’s Climate Disclosure bills)

179D & BPS

  • Another federal rule expected in the coming weeks concerns the section 179D tax deduction for energy efficient buildings, substantially revamped by the Inflation Reduction Act (IRA). (Roundtable Weekly, Dec. 1).The Internal Revenue Service will propose a regulation for comment that addresses how existing building retrofits may qualify for this incentive.
  • Axios (Jan. 9) reported this week about trends at the local level to enact building performance standards (BPS) such as LL 97 in New York City. While Congress has not granted authority for a national emissions mandate on buildings, more cities and states are expected to run with these efforts in 2024. (Roundtable Weekly, Sept. 15).
  • A report from the Rhodium Group this week shows U.S. GHG emissions decreased nearly 2 percent year-on-year in 2023. The report also notes that emissions from commercial and residential buildings dropped by 4 percent, which the researchers attributed primarily to a mild winter. (PoliticoPro and The Hill, Jan. 10)  

SCOTUS to Consider Federal Agency “Deference”

The Supreme Court
  • A wild card in the effectiveness and durability of federal regulations—not just in the climate arena, but from any U.S. agency—will be at the fore this spring when SCOTUS renders a decision in Loper Bright Enterprises v. Raimondo.
  • Loper will consider whether an administrative law doctrine from 1984 known as “Chevron deference,” which grants wide latitude to federal agencies when crafting rules to implement laws passed by Congress, should be overruled. (SCOTUS Blog, May 1, 2023)
  • The Department of Commerce stated in their brief that overruling Chevron “would be a convulsive shock to the legal system.” Oral argument will take place next Wednesday, with a decision expected by early summer. (SCOTUS Blog, Jan. 8, 2024)

Officials from the White House, the Environmental Protection Agency, the Energy Department and leading non-governmental organizations will address issues at the nexus of buildings and climate policy on January 24 at the Roundtable’s all-member 2024 State of the Industry Meeting.

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