Author: Trey Jackson

Republican Members Propose Shortening Depreciation Period of Buildings

Posted on by Trey Jackson

Modern buildings and American flag

Legislation introduced by a handful of influential Republicans in the House and Senate would shorten the depreciation period for structures to 20 years and adjust depreciation deductions upwards every year to account for inflation and a real rate of return on capital. (Tax Notes, April 13) 

Legislation vs. Biden Budget Proposal 

  • The Renewing Investment in American Workers and Supply Chains Act was introduced in the House by senior Ways and Means Committee Member Jackie Walorski (R-IN) and Republican Study Committee Chairman John Banks (R-IN). Senator Mike Braun (R-IN) introduced companion legislation in the upper chamber. (Joint news release, April 11)
  • The bill would reduce the cost recovery period for nonresidential property from 39 years to 20 years, and for residential rental property from 27.5 to 20 years.
  • In addition to shortening depreciation periods, the bill would enhance depreciation deductions by providing an adjustment for inflation and a return on capital (3%). The deduction adjustment would not be counted against the property’s basis or for purposes of depreciation recapture.
  • The changes would not be limited to new construction, but would apply to existing properties (adjusted for remaining basis), as well as properties that change ownership.
  • The nonpartisan Tax Foundation, a highly regarded research institution in Washington, estimated the bill would boost long-run GDP by 1.2 % and expand employment by 230,000 full-time equivalent jobs. Over the current 10-year budget window, when factoring in the positive macroeconomic feedback, the policy would increase federal revenue by $126.6 billion. (Tax Foundation, March 24)
  • The legislation stands in stark contrast to President Biden’s proposed budget, which would raise the tax burden on structures by eliminating the reduced 25% tax rate that applies to recaptured depreciation deductions when a property is sold. The Biden budget would tax depreciation recapture at a rate of 39.6%. (Roundtable Weekly, April 1)

The release of President Biden’s second budget launched the annual congressional appropriations process, which aims to fund the FY23 government budget starting Oct. 1. The prospects for tax increase proposals before the Nov. 8 mid-term elections are highly uncertain. (Politico, March 28 – “Here’s what’s in Biden’s $5.8 trillion budget proposal – and what’s next”)

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House and Senate to Consider Legislation Targeting Beneficial Ownership of Real Estate Assets

Posted on by Trey Jackson

House Financial Services Chair Maxine Waters (D-CA)

Legislation to strengthen anti-money laundering laws affecting real estate will be introduced soon by House Financial Services Chair Maxine Waters (D-CA), above, following a bipartisan bill targeting U.S. assets of Russian oligarchs that was introduced last week in the Senate. (Politico, April 11 and Senate news release, April 8) 

Beneficial Ownership 

  • In the Senate, the bipartisan “Kleptocrat Liability for Excessive Property Transactions and Ownership (KLEPTO) Act” was introduced by Sens. Sheldon Whitehouse (D-RI), Bill Cassidy (R-LA), Elizabeth Warren (D-MA), and Roger Wicker (R-MS). The bill (S.4075) includes:
    • Requirements for the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to mandate disclosure of beneficial ownership information (the identity of the real person behind an entity) for all real estate transactions through legal entities;

    • Requirements for FinCEN to extend anti-money laundering safeguards to the real estate sector;

    • Clarification that any foreign entity that buys or holds real estate in the U.S. should be considered a “reporting company” under the Corporate Transparency Act (CTA). 

FinCEN Efforts 

FinCEN logo

  • The congressional push to address anti-money-laundering measures in real estate follows FinCEN’s work on anti-money laundering regulations that were proposed long before Russia invaded Ukraine.
  • FinCEN solicited comments on a wide range of questions related to its implementation of the CTA – enacted on January 1, 2021 – that effectively bans the registration of anonymously owned shell companies in the United States. (JD Supra, April 26 and Lexology, April 28) 
  • Ten national real estate industry organizations, including The Roundtable, on Feb. 21 submitted detailed comments to FinCEN on proposed anti-money laundering regulations affecting real estate transactions. (Roundtable Weekly, Feb. 25)  

Industry Concerns  

  • The Feb. 21 industry letter supports the broad goal of preventing the use of LLCs or any form of real estate to finance illicit acts, money laundering, or terrorism – yet emphasizes that FinCEN should proceed cautiously to not harm legitimate real estate capital flows in the process.

  • The coalition also stated that anti-money laundering rules and requirements should focus on mitigating criminal activity while not burdening legitimate actors with unnecessary or duplicative compliance, which will only increase costs without meaningfully combating money laundering.
  1. Study the commercial and multifamily real estate markets to tailor future regulation to how those markets function;
  2. Leverage the CTA and the beneficial ownership database to reduce the necessary scope of further action; and
  3. Distinguish nonbank commercial real estate lenders from true all-cash transactions.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to work with industry partners to respond to FinCEN’s proposals. The industry will also continue to support a balanced approach that inhibits illicit money laundering activity while not restricting capital formation or increasing the regulatory burden on real estate. 

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Democrats Considering Spring Revisions to Build Back Better Act

Posted on by Trey Jackson

Rep. Joe Manchin (D-WV) and Sen. Kyrsten Sinema (D-AZ)

Democrats are planning to work with Senators Joe Manchin (D-WV), left, and Kyrsten Sinema (D-AZ), right, this spring to resuscitate parts of the moribund Build Back Better (BBB) Act, in hopes that a scaled-back domestic policy package can pass the 50-50 Senate under the budget reconciliation process. (Business Insider, April 13) 

The Manchin View 

  • Manchin and Sinema remain key votes in the Senate after their reluctance to approve the Biden Administration’s BBB social and climate policy package last year. (Roundtable Weekly, Jan. 21)
  • Manchin, chair of the Senate Energy and Natural Resources Committee, has signaled his support for a much smaller package that would include climate programs, prescription drug reform, and reversal of Trump-era tax cuts that would generate savings for deficit reduction. (Politico, April 4)
  • Manchin also issued a statement on April 12 about consumer inflation rising to 8.5%, the largest 12 month increase in four decades. “Getting inflation under control will require more aggressive action by a Federal Reserve that waited too long to act. It demands the Administration and Congress, Democrats and Republicans alike, support an all-the-above energy policy because that is the only way to bring down the high price of gas and energy while attacking climate change,” Manchin said.
  • Additionally, he commented this week about the possibility of revised BBB negotiations, “We’ll just see if there’s a pathway forward. We don’t know if there’s a pathway forward yet.” (Business Insider, April 13) 

Sinema & Taxes 

Capitol-Dome-night-flag

  • Sinema offered her views this week, commenting, “What I can’t tell you is if negotiations will start again or what they’ll look like. But what I can promise you is that I’ll be the same person in negotiations if they start again that I was in negotiations last year.” (Arizona Republic, April 13)
  • She added, “I am unwilling to support any tax policies that would put a break on  economic growth or stall personal or economic growth for America’s industries.” (Arizona Republic, April 13)
  • Sinema noted last week that she wants to ensure any spending package is “responsibly offset and that new revenue provisions protect qualified small business income where possible.” (NFIB Tax Summit, April 7)
  • Senate Minority Leader Mitch McConnell (R-KY) this week stated, “Sinema is unenthusiastic about tax hikes. Hopefully that will be enough to keep [BBB-related legislation] underwater permanently.” (Business Insider, April 12)
  • Sen. Tim Kaine (D-VA) noted Congress is on a tight deadline to pass a reconciliation package after they return from recess on April 25. “You either do it before Memorial Day or you’re not going to do it,” Kaine said. (Politico, April 4)

Sen. Sinema will be a guest at The Roundtable’s April 25-26 Spring Meeting in Washington, DC. (Roundtable-level members only)

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Roundtable and Broad Business Coalition Request SEC to Provide Appropriate Comment Time Periods for Multiple Rulemakings

Posted on by Trey Jackson

SEC Chairman Gary Gensler

A regulatory push on multiple fronts by the Securities and Exchange Commission (SEC) prompted The Real Estate Roundtable and 24 other national business organizations this week to submit comments to SEC Chairman Gary Gensler, above, about the need for more time to assemble meaningful stakeholder analysis as part of the rulemaking process. (Coalition letter, April 5)

SEC Proposals & CRE 

  • A long list of recent, overlapping SEC proposals affecting business are cited in the coalition letter, including four rulemakings that could significantly impact the real estate industry: 

1.)  Jan. 26 – the SEC issued a proposal that would impose new reporting requirements on real estate investment and private equity advisers, including a mandate to file reports (Form PF) within one business day of certain events. (SEC News Release | Fact Sheet | Proposed Rule)

  • The Roundtable’s March 21 response stated the SEC proposal “presents significant compliance and operational challenges for private real estate fund sponsors, with no added benefit to investors and no relation to the intent of Form PF in monitoring systemic risk.” (Roundtable Weekly, March 25)

2.)   Feb. 9 – the SEC also proposed new rules and amendments affecting private fund advisers. (SEC News Release | Proposed Rule | Fact Sheet)

  • The Roundtable plans to submit comments by April 25 to the SEC, which stated it is aiming to increase transparency and efficiency in the $18-trillion private fund adviser marketplace. (Roundtable Weekly, Feb. 11)

3.)   March 9 – the SEC issued another proposal that would require publicly traded companies to disclose a cybersecurity incident within four days of determining a breach is “material,” or important to the average investor. (SEC News Release | Proposed Rule | Fact Sheet)

  • The Roundtable is working on comments due by May 9 regarding the reporting requirement proposal addressing material cybersecurity incidents. (Roundtable Weekly, March 18)

4.)   March 21 – the SEC issued a proposed rule regarding the reporting and disclosure of material corporate financial risks related to climate change. (SEC News Release | Proposed Rule | Fact Sheet, March 22 and Roundtable Weekly with Roundtable Climate Proposal Fact Sheet, March 25)  

  • Stakeholder input on the proposed climate disclosure rule is due to the SEC around May 20. The Roundtable is working on a comprehensive response that will include information from a Roundtable member survey due this Monday, April 11. (see related Roundtable Weekly story on the survey, above)

 Coalition Request 

SEC logo - image

  • This week’s coalition letter to the SEC noted, “The hundreds-upon-hundreds of questions, and numerous catch-all requests for comment, posed in these rulemakings reflect the Commission’s recognition that it needs input from the public to properly craft the proposed rules, yet the Commission is refusing to allow the public the time it needs to answer the Commission’s questions satisfactorily.”
  • The business coalition requested that the SEC should not reflexively assign a 30-day or 60-day comment period to multiple rule proposals. The coalition commented, “Exceedingly short comment periods associated with numerous concurrent potentially inter-connected rule proposals … could result in rules that hurt investors, damage the financial system, and implicate the Commission’s obligations.” (Coalition letter, April 5)

The SEC’s various rulemaking proposals affecting CRE will be discussed during The Roundtable’s April 25-26 Spring Meeting (Roundtable-level members only) in Washington, DC. 

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Real Estate Roundtable Requests Member Feedback on SEC Climate Risk Disclosure Proposal

Posted on by Trey Jackson

SEC building

Monday, April 11 is the deadline for responses to a voluntary Real Estate Roundtable membership survey on a proposed rule issued by the U.S. Securities and Exchange Commission (SEC), above, that would require corporate disclosures of climate-related financial risks. (Roundtable Fact Sheet, March 25)  

  • The responses will influence The Roundtable’s comments to the SEC about the March 21 proposed rule. (Roundtable Weekly, March 25)
  • Roundtable members are encouraged to review The Roundtable’s fact sheet summarizing the SEC’s proposed rule before submitting responses.
  • The survey, originally sent on April 1, aims to obtain a high-level understanding of the existing practices and standards used by Roundtable members in assessing and quantifying:
    • greenhouse gas (GHG) emissions across portfolios,
    • buildings’ electricity use,
    • the impact of floods and rising sea levels to real estate assets,
    • tenant interactions about these issues, and
    • other questions that may require registered companies to report on their climate-related financial risks.
  • The proposed SEC rule has no immediate effect. If it is finalized, the action could have a significant impact on the real estate industry, requiring all SEC registered companies to report on climate-related risks through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22) 
  • If any Roundtable member has questions about the survey, please contact Roundtable Senior Vice President and Counsel, Duane Desiderio.

Policymakers & SEC Regulation

Capitol view from side - bright

  • Several Senate Democrats support a more stringent SEC climate disclosure rule, including Elizabeth Warren and Edward Markey of Massachusetts. (Politico, April 5 and Markey news release, March 21)
  • Senator Joe Manchin (D-WV), chairman of the Senate Committee on Energy and Natural Resources, sent a letter to Commission Chairman Gary Gensler on April 4 outlining his concerns with the 506-page proposed SEC rule.
  • A group of 19 Senate Republicans from the Senate Environment and Public Works (EPW) and Banking committees expressed their opposition to the SEC proposal in an April 5 letter to Gensler.
  • While some opposition to the SEC’s proposed rule is mounting in Congress, particularly from the GOP, the Biden Administration is nonetheless expected to push forward with a final rule that could be issued later this year.  

The Roundtable’s Sustainability Policy Advisory Committee (SPAC) will convene a working group that will review the SEC’s proposed climate rule and our comment letter response to the Commission.

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Biden Administration Submits FY2023 Budget to Congress, Proposes Tax and Other Measures Impacting Real Estate

Posted on by Trey Jackson

Budget FY23 visual

The Biden administration on Monday released its $5.8 trillion FY2023 Budget, a package of spending, tax, and policy proposals that will face extensive congressional scrutiny and revisions over the coming months. The March 28 budget was accompanied by the Treasury Department’s “Greenbook,” which details the Administration’s $2.5 trillion in tax increases on corporations, high-earning households, and certain business activities, including real estate investment. (New York Times and BGov, March 29) 

Billionaire Minimum Income Tax 

  • The new budget proposes to tax the wealthiest households on their unrealized capital gains, including real estate. The so-called “Billionaire minimum income tax” would impose a minimum levy of 20 percent on a comprehensive tax base that includes both realized income and the unrealized annual appreciation of a taxpayer’s assets.
  • The new tax would apply to future appreciation of assets and all unrealized, built-in gains at the time of enactment. The tax on pre-enactment, built-in gains would be collected over a 9-year transition period.
  • Although marketed as a tax on “billionaires,” the proposal would apply to any taxpayer with $100 million or more in wealth. This initial high threshold arguably represents a first step towards a wealth tax regime with much broader application. The original income tax applied to the top 1/3 of one percent of the U.S. population and now applies to over 150 million American households.
  • In certain cases, holders of illiquid assets like real estate could elect to defer the minimum tax until the property is sold, provided they pay an additional charge.
  • The budget leaves many of the most difficult questions unanswered, including:
     

    • How would the tax survive a constitutional challenge on the grounds that direct taxes must be apportioned among the states by population?
    • Why would taxpayers continue to make patient, long-term investments, knowing that they could be taxed before the investment generates cash income?
    • Will much of the tax burden fall on noneconomic inflationary increases in asset values? 
    • How will the IRS administer the tax without building a highly intrusive compliance system that is based on subjective valuation measures?
  • Another new revenue proposal in the budget relates is to tax depreciation recapture at ordinary income rates. The provision generally would treat gain on real estate held for more than one year as ordinary income to the extent of cumulative depreciation deductions taken in tax years beginning after 2022. Depreciation recapture is currently taxed at a rate of 25 percent.

The White House with Washington Monument

  • The White House budget also includes tax proposals recycled from last year that failed to pass congressional budget negotiations, including:
    • repealing the deferral of gain from real estate like-kind exchanges;
    • taxing long-term capital gains at ordinary income rates;
    • taxing carried interest in real estate partnerships as ordinary income; and
    • treating transfers of property at death as realization events subject to capital gains tax.

Immediate Congressional Pushback

  • The spending and revenue proposals faced immediate pushback on Capitol Hill by Republicans and Democrats, including Sen. Joe Manchin (D-WV), a key centrist who stated he opposes President Biden’s 20% minimum tax on unrealized capital gains for households worth at least $100 million. (CQ News, March 29)
  • Manchin told The Hill, “You can’t tax something that’s not earned. Earned income is what we’re based on. Everybody has to pay their fair share, that’s for sure. But unrealized gains is not the way to do it, as far as I’m concerned.”
  • Manchin also recently stated he is open to negotiating some limited remnants of the defunct Build Back Better (BBB) Act, with a focus on energy-related incentives, prescription drug costs ,and deficit reduction. (Business Insider, March 24) 

Other Measures Directly Affecting Real Estate 

President Joe Biden

  • Biden budget proposals impacting other aspects of The Roundtable’s 2022 Policy Agenda include:
     

    • Energy and Climate – the president’s budget request outlines $44.9 billion for increased spending on several climate-related initiatives, yet does not address specific clean energy provisions that were part of last year’s BBB bill. Instead, a “deficit neutral reserve fund” is noted in the FY23 budget to accommodate a potential future deal on clean energy legislation with Democratic Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (D-AZ). (E&E News, March 28 and Axios Generate, March 29)
    • Affordable Housing – the FY23 budget seeks to ease the nation’s affordable housing shortage with $50 billion in federal funding for housing construction and supply, including $35 billion for state and local housing finance agencies. (PoliticoPro, March 28)
    • SEC Reporting Requirements – The Securities and Exchange Commission would receive $2.15 billion in the FY2023 budget proposal, an 11.4% increase from FY2021 (BGOV, March 28). The SEC has ramped up its activity recently with proposed rules on reporting requirements for investment advisers, climate risks and cybersecurity incidents that may have significant impacts for the real estate industry. 

Issues outlined in The Roundtable’s recently released 2022 Policy Agenda in the areas of tax, climate, capital and credit and cybersecurity will be discussed during the April 25-26 Spring Meeting (Roundtable-level members only) in Washington DC. 

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Federal Aid Flowing to Transportation Infrastructure Projects, Including NY-NJ Gateway Program

Posted on by Trey Jackson

Department of Transportation (DOT) Secretary Pete Buttigieg and White House Infrastructure Coordinator Mitch Landrieu on March 24 announced $2.9 billion in combined funding under a new infrastructure grant program. The new “Multimodal Projects Discretionary Grant” will allow all communities pursuing major transportation infrastructure projects to submit one application for three major DOT funding sources. (DOT Twitter, March 23) 

Surface Transportation Funding Expansion 

  • DOT funds under the new program will be awarded on a competitive basis for surface transportation infrastructure projects that have significant national or regional impact, according to DOT’s March 22 Notice of  Funding Opportunity. (Transport Topics, March 24)
  • Secretary Buttigieg said he expects to announce winners by the fall after receiving final applications by May 23. (Washington Post, March 23 and DOT Notice of  Funding Opportunity)
  • Last November, the enactment of the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA) includes more than $350 billion over five fiscal years for surface transportation programs. (DOT news release, Jan. 14)
  • White House Infrastructure Chief Landrieu said about half of the IIJA’s $1.2 trillion will flow through the DOT during a presentation earlier this month at a Bipartisan Policy Center virtual forum. (Engineering News-Record, March 9)
  • This week, an additional $105 billion for the DOT was included in President Biden’s FY2023 budget request (see story above). The combined funding sources are expected to expand DOT’s discretionary grant programs for large, complex infrastructure projects that may involve more than one state. (DOT FY23 Budget Highlights document) 

Gateway Project & IIJA 

Gateway Hudson Tunnel Project

  • A March 28 announcement by DOT Secretary Buttigieg stated that the Administration’s budget recommends $4.45 billion to advance 15 major transit projects in FY2023. “This includes, for the first time, $100 million in recommended funding for the Hudson Tunnel commuter rail project, which is part of the Gateway Program, a series of strategic rail infrastructure investments along the Northeast Corridor.” (Railway Age, March 29 and The Center Square, March 30)
  • The Roundtable has long supported federal transportation infrastructure investments to spur economic growth, support local communities and enhance America’s competitiveness. (Roundtable Weekly, Nov. 12, 2021)
  • The Roundtable’s 2022 Policy Agenda states, “The IIJA allows $550 billion in new infrastructure investments, estimated to create around 2 million jobs per year over the next decade. This long-term investment in physical infrastructure can re-imagine how we can productively move people, goods, power and information from home to work, business to business, community to community – and building to building.”   

A guidebook to IIJA funding programs released on Jan. 31 provides a key tool for states and local governments to apply for federal grants, loans, and public-private partnership resources under more than 375 infrastructure investment programs.  (The Hill, Jan. 31 and Roundtable Weekly, Feb. 4) 

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Roundtable Survey Seeks Members’ Input on SEC Climate Risk Disclosure Proposal

Posted on by Trey Jackson

SEC building exterior

Real Estate Roundtable members received a survey earlier today that will help formulate comments in response to a proposed rule issued on March 21 by the U.S. Securities and Exchange Commission (SEC) regarding corporate disclosures of climate-related financial risks. (Roundtable Weekly, March 25) 

Roundtable Member Participation 

  • The Roundtable requests that members respond to the SEC climate issues survey by COB April 11.

  • Before submitting responses to the survey, members are encouraged to review The Roundtable’s fact sheet summarizing the SEC’s proposed rule.
  • The survey sent today aims to obtain a high-level understanding of the existing practices and standards used by Roundtable members in assessing and quantifying the following:
    • greenhouse gas (GHG) emissions across their portfolios,
    • their buildings’ electricity use,
    • impacts to their real estate assets from floods and rising sea levels,
    • how they interact with their tenants on these matters, and
    • similar questions that will likely require registered companies to report on their climate-related financial risks.
  • If any Roundtable member has questions about the survey, please contact Roundtable Senior Vice President and Counsel, Duane Desiderio.

SEC Climate Risk Proposal

Flooding of mixed used building

  • The proposed rule has no immediate effect. If the proposal is finalized, all companies registered with the SEC would be required to report, measure, and quantify “material” risks related to climate change in their annual Form 10-Ks and certain other filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
  • Compliance would phase-in over the next several years. For example, registrants with a global market value of $700 million or more would need to comply first for filings in FY 2024 (covering FY 2023 emissions).
  • “Limited assurance” from independent third party verifiers, regarding so-called Scope 1 and Scope 2 emissions, would be required for the first two compliance years. Thereafter, “limited assurance” would ramp-up to “reasonable assurance” at a level provided in a financial statement audit filed with a 10-K.
  • Indirect “supply chain” emissions – known as “Scope 3” – are considered the most difficult emissions to measure and quantify. Under the SEC’s proposal, reasonable efforts to report on Scope 3 emissions would receive a “safe harbor” from certain liability under federal securities laws. Also, third-party verification of Scope 3 reporting would be optional. 

The SEC proposal, formally titled “Enhancement and Standardization of Climate-Related Disclosures for Investors,” is considered a key component of the Biden Administration’s efforts to cut U.S. greenhouse gas emissions by as much as 52% (below 2005 levels) by 2030. (CBS-AP | Bloomberg | Axios, March 21)  

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Roundtable Convenes Town Hall on Ukraine With Alexander Vindman; Biden Administration Warns About Russian Cyberattacks

Posted on by Trey Jackson

Lieutenant Colonel (Ret.) Alexander Vindman, Senior Advisor of VetVoice Foundation, today discussed the conflict in Ukraine during a Real Estate Roundtable virtual town hall. In recent years, Vindman served on the White House’s National Security Council as the Director for Eastern Europe, the Caucasus, and Russia. (Watch video discussion)

Focus on Ukraine

  • Vindman and Roundtable President and CEO Jeffrey DeBoer addressed Ukraine in the context of Democracy vs. Authoritarianism, the spillover effects of the war, and the need for a future international reconstruction effort.
  • “It’s a geopolitical earthquake that has unfolded over the past year, culminating in a war between the largest country in the world and the largest country in Europe,” Vindman stated.
  • In addition to the devastating human and physical destruction, the war’s spillover effects include interruptions to the supply of crucial commodities such as neon and titanium, and food supplies for the Middle East and Africa.
  • “The longer this war continues, the greater the chance of spillover,” Vindman said, citing the Russian attack on a Ukrainian nuclear power plant, and the potential use of cyberwarfare and chemical weapons.
  • He added the war’s eventual outcome will be a significant setback to Authoritarianism – and that the West should keep a door open for a reconciliation with Russia after Putin is gone.
  • Vindman and DeBoer also discussed the need for an enormous reconstruction effort, which Vindman said could amount to $100 billion international fund that could take the form of a public-private partnership. (Watch video discussion)
  • Roundtable members can support Ukraine against the Russian invasion via the VetVoice Foundation.

U.S. Support

Zelensky before U.S. Congress
  • Since the invasion of Ukraine began, over 450 U.S. companies have announced their withdrawal from Russia, shutting down 25% of Russia’s gross domestic product (GDP), according to Professor Jeffrey Sonnenfeld at the Yale Chief Executive Leadership Institute. Sonnenfeld’s research team maintains a list of companies that have either withdrawn from Russia completely, suspended or scaled back operations, or delayed investments. (Fortune, March 16)
  • Many American Hotel & Lodging Association members, including Hilton and Marriott International, recently announced donations for humanitarian aid; the closure of their corporate offices in Moscow; and a suspension all future hotel development and investment in Russia. (TravelPulse, March 21 and Roundtable Weekly, March 18) 

White House CyberSecurity Warning 

WhiteHouse cyber warning
  • President Joe Biden alerted U.S. business leaders on March 21 that “based on evolving intelligence, Russia may be planning a cyberattack against us.” Biden added, “[I]t’s a patriotic obligation for you to invest as much as you can in making sure … you have built up your technological capacity to deal … with cyberattacks.” (Remarks by President Biden | White House Statement | Fact Sheet: Act Now to Protect Against Potential Cyberattacks, March 21)
  • The growing concern about a possible Russian cyberattack response over U.S. sanctions also led White House Deputy National Security Adviser for Cyber and Emerging Technology Anne Neuberger, above, to clarify that although “there is no certainty” of an attack, Biden’s warning was intended to focus attention on “critical infrastructure.” (White House Press Briefing video | BGov and Axios, March 21)

The Real Estate Roundtable’s Homeland Security Task Force and the Real Estate Information Sharing and Analysis Center (RE-ISAC) continue to work with its members, key law enforcement and intelligence agencies to help manage and mitigate cyber and physical threats to the commercial facilities sector. (Information on joining the RE-ISAC and Roundtable Weekly, March 4) 

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Roundtable Opposes SEC Proposals Impacting Real Estate and Private Fund Advisors

Posted on by Trey Jackson

SEC logo on wall with American flag

The Real Estate Roundtable on March 21 submitted comments to the Securities and Exchange Commission (SEC) opposing a proposal that would impose new reporting requirements on real estate investment and private equity advisers, including a mandate to file reports within one business day of certain events. The proposal “presents significant compliance and operational challenges for private real estate fund sponsors, with no added benefit to investors and no relation to the intent of Form PF in monitoring systemic risk,” according to The Roundtable’s letter.

Cost and Timing Burdens 

  • The SEC’s proposal would impose new requirements on Form PF, the confidential reporting form for certain SEC-registered private fund advisers. The proposal reflects the SEC’s experiences with recent market turmoil, including the COVID-19 crisis and the January 2021 market volatility impacting certain stocks. (SEC, Jan. 26 News Release | Fact Sheet | Proposed Rule)
     
  • New disclosure obligations in the Commission’s proposal include:
     
    • Additional reporting requirements for large hedge fund advisers and advisers to private equity funds, obligating such advisers to report a number of specified events to the SEC within one business day of their occurrence;
    • A lowered threshold for large private equity adviser reporting;
    • Certain revised reporting questions for private equity funds; and
    • Enhanced reporting requirements for large liquidity fund adviser. 

The Roundtable’s Response 

SEC building exterior

  • The Roundtable’s March 21 comment letter details why the proposed reporting requirements for Form PF should not be adopted. While the letter acknowledges the SEC’s intention to enhance the monitoring of systemic risk, it also outlines how the proposed reporting requirements present significant compliance and operational challenges for private real estate fund sponsors. Some of the key points made against the proposed new requirements include:
    • A one-day reporting requirement imposed on private equity advisers for any reason is unprecedented, and a requirement to report the specific transactions and events deemed by the SEC to be systemically important is wholly unsupported.
    • The proposed amendments to Section 4 of Form PF impose onerous new reporting requirements that force “large private fund advisers” to report sensitive information unrelated to monitoring for systemic risk.
    • The significant added cost and timing burdens of the proposed amendments are unreasonable and do not provide investors with commensurate benefits or protections or enhance systemic risk monitoring.
    • The reduced threshold for reporting private equity advisers is arbitrary. The SEC’s rationale for choosing 75% of committed capital as a meaningful threshold for purposes of FSOC’s systemic risk-monitoring function is unclear. 

A March 16 analysis of the proposed SEC amendments on Form PF is available from Dechert LLP. The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to respond to the SEC’s various proposed regulatory initiatives with its industry and coalition partners. 

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