Author: Abigail Grenadier

Revitalizing Post-Pandemic Cities Through Building Conversions

Posted on by Abigail Grenadier

Recent reports show property conversions are on the rise as commercial real estate and cities continue to undergo significant transformations to adapt to new post-pandemic realities. (Multihousing News, May 20 | (CBRE Report, May 29)

Construction skyline

Report Data

  • Adaptive reuse projects are on the rise, with 17.6% more apartments converted from outdated buildings in 2023 than the prior year, according to a recent RentCafe report.
  • There are currently 151,000 units underway in various stages of conversion projects across the U.S., of which 58,000 are to be redeveloped from office properties. (CRE Daily, May 30)
  • Adaptive reuse projects from former hotels are at an all-time high in the U.S., with a 38.8% increase since the previous year and almost double the volume of 2021. (RentCafe report).
  • CBRE’s “Shaping Tomorrow’s Cities” report identified six key factors that can help cities rebuild and thrive: economic dynamism, demographic potential, lifestyle vibrancy, distinctive identity, responsive governance, and resilient infrastructure.

Rebuilding Strategies

  • Converting underutilized buildings to residential use can be a cost-effective means of developing new housing, creating jobs, and generating critical sources of local property tax revenue while saving energy and reinvigorating communities.
  • However, conversions can be costly, and local governments and developers must work together to bridge the gap and aid in rebuilding cities and communities.
  • For example, Chicago is providing $150 million in public subsidies to property developers to convert four buildings in the business district to more than 1,000 apartments, with the assurance that one-third are set aside as affordable units. (WSJ, May 28)
  • In New York City, Mayor Adams created the Office Conversion Accelerator Program, which brings city agencies together to work collaboratively with developers and aims to streamline converting offices into housing. (CRE Daily, May 30)
  • “Public and private stakeholders have an integral role to play in shaping American cities. By having an all-hands-on-deck approach, the collective impact of experiences and rich data will drive insights and strategies to transform our cities,” the report said. (CBRE Report, May 29)

Roundtable Recommendations

  • The Roundtable has urged policymakers to create a robust tax incentive to help overcome the significant financial, architectural, and engineering hurdles associated with repurposing older commercial buildings as housing.
  • The incentive should complement actions taken by state and local governments to encourage property conversions.
  • The Roundtable is working with the House and Senate sponsors of the Revitalizing Downtowns Act (H.R.419) to update and improve the bill, which would create a 20-30 percent tax credit for qualifying conversion costs.
  • The credit is based on the highly successful historic rehabilitation tax credit and would apply to buildings that set aside 20 percent of their housing units for low- and moderate-income tenants.
  • In April, The Roundtable recommended a series of actions to the Biden administration to support commercial-to-residential property conversions, including leveraging various federal loan programs and tax incentives to provide financial support for CRE conversions. (Roundtable Weekly, April 19)

Property conversions and the Revitalizing Downtowns Act (H.R.419) will be discussed at The Roundtable’s Annual Meeting on June 20-21 in Washington, DC.

Administration Unveils Principles for Carbon Offset Markets

Posted on by Abigail Grenadier

The Biden administration on Tuesday released principles to enhance the integrity and effectiveness of voluntary carbon markets (VCMs) and incentivize companies to prioritize reducing their emissions. These principles can guide real estate businesses that seek to offset greenhouse gas (GHG) emissions. (White House fact sheet, May 28)

All-of-Government Approach

  • The principles and joint policy statement were signed by the Treasury, Energy and Agriculture Secretaries, and White House officials directing national economic and climate policy.
  • VCMs can “channel a significant amount of private capital to support the energy transition and combat climate change, with the right incentives and guard rails in place,” they wrote
  • Markets that provide credits for greenhouse gas (GHG) mitigation are crucial for meeting the administration’s climate goals to cut emissions in half by 2030 and reach net zero by 2050.

Focus on Market Integrity

  • The principles support carbon markets based on independently verified emissions savings. “[S]takeholders must be certain that one credit truly represents one tonne of carbon dioxide (or its equivalent) reduced or removed from the atmosphere.”
  • The principles reflect the U.S.’s intentions to play a leadership role in standardizing international carbon markets.
  • Today, VCMs are around $2 billion annually. With the potential of more private capital into climate projects through VCMs, Morgan Stanley projected that the voluntary market could grow to $100 billion by 2030. (Axios, May 28)

Relevance for CRE

  • Companies may finance GHG mitigation projects such as reforestation, carbon capture, and increasing renewable energy supplies. (WSJ, May 28)
  • These tools can help real estate and other companies offset their Scope 1 “direct” emissions, as well as controversial Scope 3 emissions from supply chain sources.
  • “Concerns about the credible use of credits (for example, to address a portion of Scope 3 emissions) must also be adequately addressed for VCMs to truly drive decarbonization.” (Joint Policy Statement, May 28)
  • Specific instruments known as Renewable Energy Certificates (RECs) are commonly used in U.S. markets to address Scope 2 emissions, which are generated by power plants for the electricity used by tenants and other building occupants. (US-EPA, “Offsets and RECs – What’s the Difference?”)

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) continues to work closely with the White House on climate initiatives impacting commercial real estate.

Roundtable Founding Member and TPAC Chairman Frank G. Creamer, Jr. Passes

Posted on by Abigail Grenadier
Frank G. Creamer, Jr.

Frank G. Creamer, Jr., a founding member of The Real Estate Roundtable and long-serving chairman of its Tax Policy Advisory Committee (TPAC), passed away on May 17. (Obituary)

Industry Mentor

  • “Frank Creamer offered his deep expertise and knowledge to so many in the industry during his 25 years of involvement with RER,” said Jeffrey DeBoer, Roundtable President and CEO. “In his long-time role as TPAC Chairman, Frank was a tremendous mentor and reliable guide who cared deeply about The Roundtable, its role in the industry, and its members. His dedication was exemplary, and he will be remembered as the consummate gentleman he most certainly was, who always had time for others. We will sorely miss Frank and extend our heartfelt condolences to his family and friends.”
  • Mr. Creamer held various executive positions during his career in the global commercial real estate lending business, rising to oversee all real estate banking at Citibank. After his tenure at Citibank, he became a principal and owner of his company, FGC Advisors, LLC, a real estate advisory firm.

A memorial service is scheduled for June 5 in Center Moriches, NY followed by a June 6 funeral Mass at St. John the Evangelist Roman Catholic Church. In lieu of flowers, a donation in his memory can be made to the Tunnels to Towers Foundation. (See obituary for details)

Roundtable to House Committee: Balance Housing and Energy Efficiency Priorities

Posted on by Abigail Grenadier

The Real Estate Roundtable asked House lawmakers on Wednesday to direct the U.S. Department of Housing and Urban Development (HUD) to reconsider a recent federal energy codes rule because it does not adequately consider impacts on affordable housing. (Roundtable Statement, May 22 for House Hearing)

HUD’s Energy Codes Rule

  • Last month, HUD and the U.S. Department of Agriculture (USDA) issued a joint rule that applies the most recent, stringent—and costly—model energy code standards to new residential construction receiving the agencies’ financial support. (Roundtable Weekly, May 3)
  • The rule would apply to both single- and multifamily homes covered by HUD and USDA programs, including homes backed with federal mortgage insurance. HUD itself estimated the rule would add at least $7,229 to the cost of building a new single-family home. (HUD’s rule | House subcommittee memo)
  • The May 22 House hearing considered how HUD’s rule and other green building policies impact homeownership, price buyers out of the market, and burden renters. The National Association of Home Builders testified at the hearing, and the National Multifamily Housing Council and National Apartment Association submitted a joint statement. (Subcommittee hearing YouTube video)

Roundtable Recommendations

  • The Roundtable’s statement explained that policymakers must prioritize both the climate crisis and our nation’s housing crisis, but that HUD’s federal codes rule is not balanced and should be re-considered.
  • The new nationwide rule imposing the highest energy efficiency standards, currently adopted by only a handful of states, must be assessed in light of the Biden-Harris administration’s goals to address the serious U.S. housing shortage and create two million affordable units. (Biden Administration Affordable Housing Policy Fact Sheet, March 7)
  • RER’s letter also explained how the new federal codes rule adds yet another layer to a stacked mix of stringent government rules and other headwinds that have made single- and multifamily housing construction a “hyper-regulated business.”
  • Reducing buildings’ energy use and climate emissions are critical policies, but the Administration should not pass new regulations that “make the housing crisis worse,” The Roundtable explained. A more balanced re-assessment of HUD’s and USDA’s action is warranted.

This week’s hearing follows House testimony recently delivered by Roundtable President and CEO Jeff DeBoer, who reinforced the messages that the health of commercial and residential real estate markets are intertwined—and excessive regulations that make housing prices and rents unaffordable for working-class families must be avoided. (DeBoer’s April 30 oral statement and written testimony | Roundtable Weekly, April 30)

#  #  #

CRE Executives Express Tempered Optimism Despite High Interest Rates and Tight Liquidity

Posted on by Abigail Grenadier

Commercial real estate executives expressed tempered optimism about property markets in The Real Estate Roundtable’s Q2 2024 Sentiment Index as high interest rates and liquidity challenges linger. The Q2 Sentiment Index registered the same overall score of 61 from the previous quarter as uncertainty persists about future asset values and availability of capital.

  • The Roundtable’s Current Sentiment Index registered 55, a 2-point increase over Q1 2024. The Future Index posted a score of 66 points, a decrease of 4 points from the previous quarter. Any score over 50 is viewed as positive. ­­­­The Overall Index this quarter of 61—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of the Current and Future Indices.­­­­

The Q2 Sentiment Index topline findings also include:

  • Evolving market trends continue to shape the real estate landscape. A majority (66%) of Q2 survey participants expect general market conditions to show improvement one year from now. Additionally, 45% of respondents said conditions are better now compared to this time last year. Only 11% of Q2 participants expect general market conditions to be somewhat worse in a year, a slight increase from 6% in Q1.

  • Class B office properties are facing ongoing challenges attributed to an ongoing “flight to quality.” Industrial and multifamily sectors show tempered growth, yet their underlying fundamentals remain robust. Retail sectors are healthy, propelled by consumer spending, while interest in data centers continues to ascend.

[The healthy momentum of the retail sector was affirmed by ICSC CEO and President Tom McGee, above left, this week during an interview with DLC Management. He stated that the demand for physical retail is incredibly strong, but the supply of net new construction is constrained because of the cost of capital and construction. “Retailers are just not using stores for conventional shopping purposes but also increasingly using them as fulfillment centers, so the demand for space is quite high.” (DLC Management on X, May 23)]

  • A significant 75% of Q2 survey participants expressed optimism that asset values will be higher (44%) or the same (31%) one year from now, indicating some semblance of expected stability.

  • The real estate capital markets landscape remains challenging. For the current quarter, 65% believe the availability of equity capital will improve in one year, while 64% said the availability of debt capital will improve in one year. The 36% of participants who said the availability of debt capital would be worse in one year is an increase from 24% in Q1 who voiced the same expectation.

  • Regarding sentiment on the availability of equity capital, 65% of survey respondents expect conditions to improve, compared to 26% who stated that the availability of equity capital was better a year ago.

Data for the Q2 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in April. See the full Q2 report.

# #  #

Commerce Department Announces Voluntary Industry Pledge to Increase Women in Construction Workforce

Posted on by Abigail Grenadier

RER Chairman and Suffolk CEO John Fish, above, convened a meeting this week of leading construction company CEOS to sign on to the “Million Women in Construction Community Pledge,” led by U.S. Commerce Department Secretary Gina Raimondo. (UPI, May 21 and ConstructionDive, May 22)

Committed to Workforce Expansion

  • Fish said, “The construction industry continues to face significant labor challenges due to the aging workforce and dwindling number of young people entering the construction field. There is a critical need to attract more talent and diversify our workforce to ensure we have the resources to build our cities and grow our economy.” (Commerce Department news release)
  • He added, “Suffolk is honored and privileged to be one of the first companies to commit to Secretary Raimondo’s inspiring Million Women in Construction Pledge. As an organization that has long been committed to rebuilding the ratio of women in the construction industry, we are proud to play a leadership role in inspiring other organizations to commit to this effort and help position our American workforce for future growth and success.”
  • The Million Women in Construction Community Pledge is a nationwide call to action for the construction industry to commit to bold steps aimed at increasing the number of women in the construction workforce. Secretary Raimondo launched the initiative after participating in The Real Estate Roundtable’s Spring 2023 Meeting. (Roundtable Weekly, April 28, 2023)
  • In addition to Suffolk, other leading construction companies committed to the Pledge include Baker Construction, Gilbane Building Company, McKissack & McKissack, Mortenson, Power Design, and Shawmut Design and Construction.

Call for Greater Industry Participation

Left to Right: RER Chairman John Fish, Commerce Sec. Raimondo, RER President & CEO Jeffrey DeBoer
  • Secretary Raimondo is seeking more industry companies, unions, and training organizations to sign the Pledge. She emphasized the need for the industry to recruit, train, hire, and retain thousands of new and non-traditional workers as the next generation of skilled laborers and leaders—and prepare them to rebuild U.S. infrastructure and supply chains to complement the Federal government’s investment.
  • Secretary Raimondo said, “President Biden’s Investing in America agenda is creating a construction boom all over the country, and with that boom comes a huge increase in jobs and opportunities for workers in construction and the trades. But right now, women make up less than 11% of jobs in construction and only 4% in skilled trades.”
  • She added, “Many of these are good-paying, quality jobs you can get without a college degree, and women deserve equal opportunity for these jobs. I’m calling on everyone—contractors, labor unions, training organizations—to join our Community Pledge to commit to solutions and support proven strategies that help overcome barriers faced by women and underserved communities in construction and the trades.”

For questions about the program or to pledge, email WomenInConstruction@doc.gov

#  #  #

Federal Regulators Signal Significant Changes for Proposed Bank Capital Hikes

Posted on by Abigail Grenadier
The Federal Reserve in Washington, DC

Proposed regulations that would dramatically hike capital requirements for the nation’s largest banks may undergo significant changes, which could include a 50 percent reduction in the current mandated increase, according to sources cited by The Wall Street Journal on May 19.

Proposed Capital Requirements

  • Top officials from the Fed are working with regulators from the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) on “negotiating substantive and technical revisions” to the current proposal, known as the “Basel III Endgame.” (WSJ, May 19)
  • The Real Estate Roundtable strongly opposes the current proposal, which would hike capital requirements by approximately 19 percent for banks with at least $100 billion in assets. (Roundtable Weekly, March 29)
  • Barclay estimates the proposal, if approved without changes, would require eight U.S. global systemically important banks to hold approximately $150 billion more in capital. (WSJ, May 23)

Roundtable Response

Real Estate Roundtable President and CEO Jeffrey DeBoer testifies before House Oversight Subcommittee on April 30, 2024
  • Roundtable President and CEO Jeffrey DeBoer testified this month before a House subcommittee on the health of CRE markets and offered Roundtable policy recommendations, which included rejection of the Basel III Endgame—along with other pro-cyclical regulatory measures that would restrict credit and capital formation. (Roundtable Weekly, May 3 | DeBoer’s oral statement and written testimony)
  • Additionally, a Jan. 12 Roundtable letter and Jan. 16 industry coalition letter urged federal banking regulators to withdraw the proposed rule, emphasizing its potential negative impact on available credit capacity for commercial real estate transactions, market liquidity, and economic growth. (Roundtable Weekly, Jan. 19)

Policymakers Signal Adjustments

Federal Reserve Vice Chair for Supervision Michael Barr
  • The proposal has been met by internal disagreement and concerns among the seven-member Fed Board. (Roundtable Weekly, March 29)
  • Michael Barr, the Fed’s Vice Chair for Supervision, said in a May 20 speech that the central bank is exploring “targeted adjustments” to bank liquidity rules, including Basel III.  In March, Fed Chairman Jerome Powell testified before congressional committees that he expects regulators to “make broad and material changes” to the Basel III proposal. (PoliticoPro, May 20 and Roundtable Weekly, March 8)

The Roundtable’s all-member Annual Meeting on June 20-21 in Washington, DC will address Basel III Endgame and other capital and credit issues impacting CRE.

#  #  #

CRE Executives Express Tempered Optimism Despite High Interest Rates and Tight Liquidity

Posted on by Abigail Grenadier

(WASHINGTON, D.C.) — Commercial real estate executives expressed tempered optimism about property markets in The Real Estate Roundtable’s Q2 2024 Sentiment Index as high interest rates and liquidity challenges linger. The Q2 Sentiment Index registered the same overall score of 61 from the previous quarter as uncertainty persists about future asset values and availability of capital.

The Roundtable’s Current Sentiment Index registered 55, a 2-point increase over Q1 2024. The Future Index posted a score of 66 points, a decrease of 4 points from the previous quarter. Any score over 50 is viewed as positive. ­­­­The Overall Index this quarter of 61—a measure of senior executives’ confidence and expectations about the commercial real estate market environment—is scored on a scale of 1 to 100 by averaging the scores of the Current and Future Indices.­­­­

The Q2 Sentiment Index topline findings also include:

  • Evolving market trends continue to shape the real estate landscape. A majority (66%) of Q2 survey participants expect general market conditions to show improvement one year from now. Additionally, 45% of respondents said conditions are better now compared to this time last year. Only 11% of Q2 participants expect general market conditions to be somewhat worse in a year, a slight increase from 6% in Q1.

  • Class B office properties are facing ongoing challenges, attributed to an ongoing “flight to quality.” Industrial and multifamily sectors show tempered growth, yet their underlying fundamentals remain robust. Retail sectors are healthy, propelled by consumer spending, while interest in data centers continues to ascend.

  • A significant 75% of Q2 survey participants expressed optimism that asset values will be higher (44%) or the same (31%) one year from now, indicating some semblance of expected stability.

  • The real estate capital markets landscape remains challenging. For the current quarter, 65% believe the availability of equity capital will improve in one year, while 64% said the availability of debt capital will improve in one year. The 36% of participants who said the availability of debt capital would be worse in one year is an increase from 24% in Q1 who voiced the same expectation.

  • Regarding sentiment on the availability of equity capital, 65% of survey respondents expect conditions to improve, compared to 26% who stated that availability of equity capital was better a year ago.

Some sample responses from participants in the Sentiment Index’s Q2 survey include:

“Real estate fundamentals are shaping up to be very strong in one to two years. Companies that have a long-term perspective and can be patient will benefit from strong employment growth, demographic shifts, and stable occupancies.”

“The mom-and-pop investors who own class B office are hurting the most. The institutional investors are diversified, so they are faring better.”

“Stability in asset values isn’t just about reaching pre-2022 levels; it’s about establishing a new norm based on sustainable growth.”

Data for the Q2 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in April. See the full Q2 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

Roundtable Members Featured in Commercial Observer’s “Power 100” List of 2024 Most Influential Leaders in CRE

Posted on by Abigail Grenadier
Commercial Observer's Power 100 list for 2024

This week, the publication Commercial Observer released their “Power 100” list of prominent industry influencers, which includes Real Estate Roundtable Chair-Elect Kathleen McCarthy (Global Co-Head of Blackstone Real Estate, Blackstone), Chairman Emeritus (2015-2018) William C. Rudin (Co-Executive Chairman, Rudin), Roundtable President and CEO Jeffrey DeBoer, and nearly 30 other Roundtable members. (Power 100 2024 – Commercial Observer)

CRE Industry Leadership

  • Commercial Observer notes that the industry has been through a great deal of turbulence this year. “For better or worse, the biggest cliché that seeped into the commercial real estate conversation over the last year was: ‘Survive until ’25.’ This year’s honorees have shown the pluck, the determination, and the fortitude to make their ways onto this list.” (Power 100 2024 – Commercial Observer)
  • The article also notes how The Roundtable effectively represents the industry while partnering with 18 national trade associations to educate Washington, D.C. policymakers on national issues impacting the industry.

The Roundtable’s Role

Commercial Observer's Top 100 Most Influential Leaders in CRE for 2024
  • DeBoer comments within his profile, “Helping federal regulators understand the whiplash of very quickly moving from the historically long period of artificially low interest rates to a much higher interest rate environment was critical to the flexibility they ultimately provided to banks to modify or extend a great deal of the roughly $1 trillion in maturing commercial real estate loans.”
  • He also notes that significant stress on CRE remains, especially the pressures of remote work. Yet, “a systemic crisis for the banking industry and real estate markets seems to have been averted,” DeBoer states. (See DeBoer’s listing)

#  #  #

EPA Seeks Building Owners’ Input on Whole-Building Energy Data

Posted on by Abigail Grenadier

A new Environmental Protection Agency (EPA) campaign seeks to assist building owners in obtaining data from utilities on energy used by tenants in leased spaces. Stakeholders are encouraged to complete EPA’s brief Whole-Building Energy Data survey by Friday, June 7.

Access to Whole-Building Data is Critical

  • A challenge shared by owners and managers across the CRE industry is obtaining leased space energy data particularly where tenants operate under “triple-net” (NNN) leases and pay their electricity, gas, and other power bills directly to utilities.
  • Difficulties accessing whole-building energy data are acute in multifamily, offices, retail, logistics, life sciences, and any building type that leases spaces to numerous tenants.
  • Nonetheless, owners are expected to capture data on tenants’ energy use as a simple matter of proper building management, and for myriad policy and regulatory reasons such as:
  • Reports to investors and lenders, including disclosures to the US-SEC and state agencies;
  • Attaining voluntary certifications such as EPA’s ENERGY STAR and NextGen building “labels”; and
  • Qualifying for the 179D tax deduction for building retrofits enacted by the Inflation Reduction Act (IRA) of 2022. [Roundtable Weekly, Jan. 20, 2023 and  IRA fact sheet, July 31, 2023]

Roundtable Advocacy

  • The Roundtable supported a Jan. 18 open letter from leaders of the EPA, Department of Housing and Urban Development (HUD), and Department of Energy (DOE) to utilities and their regulatory commissions about the national importance of obtaining tenant-level consumption data.
  • The Roundtable also submitted comments to EPA on Jan. 20 that emphasized how utilities should be eligible for EPA grants to develop technologies that provide owners of multi-tenant assets with whole-building energy data.

EPA’s Campaign

  • EPA has posted online tools including a “Multitenant Buildings and Federal Incentives” fact sheet. This resource explains the importance of whole-building data to building owners (with a focus on federal funding opportunities requiring this data), as well as solutions available to utilities to provide the data.
  • More than 90% of utilities currently do not provide whole-building energy use data. (See EPA’s data access map.) The EPA campaign aims to:
  • Gather input from building owners and others on where they need this data most and why, via the survey.
  • Create resources that support building owners in engaging utilities nationwide, including a summary of the survey’s input.
  • Organize meetings between utilities and building owners in priority locations to facilitate discussion.
  • EPA will support utilities that are interested in providing the data in line with industry best practices.

EPA’s campaign will be among the topics discussed during The Roundtable’s Sustainability Policy Advisory Committee (SPAC) Meeting on June 21 in Washington, D.C., held in conjunction with the RER’s all-member Annual Meeting on June 20.

#  #  #