Author: Trey Jackson

The Real Estate Roundtable Approves Five New Board Members

Posted on by Trey Jackson

2024 RER Board - image

The Real Estate Roundtable’s membership has approved five new members to serve on its 25-member Board of Directors during the 2024 fiscal year (July 1, 2023 – June 30, 2024). The Roundtable’s Board is effective July 1, elected from the membership, and includes industry representatives from four of The Roundtable’s 18 national real estate trade partners.

Board Transition

  • Roundtable Board Chair John Fish (SUFFOLK Chairman and CEO) also enters the final year of his three-year term that began on July 1, 2021. Fish said, “We look forward to the contributions of five new commercial real estate leaders who have joined The Roundtable’s Board of Directors. Their individual expertise, insight, and broad skill sets will add to our organization’s highly regarded effectiveness on national policy issues affecting CRE. Our Board, supported by our policy advisory committees and general membership, will continue to engage policymakers in Washington with fact-based, non-partisan analysis. I look forward to working with them on issues such as the negative impact of remote work on municipalities and communities; capital and credit concerns in a high-interest rate environment; and a practical approach to the role buildings can play in helping to achieve climate goals.”
  • “I also offer my sincere gratitude to our Board members whose terms have expired. Their significant service to the industry during a global pandemic was essential, and we look forward to their continued participation as Roundtable members,” Fish said. 
  • Roundtable President and CEO Jeffrey DeBoer stated, “Roundtable members consistently bring innovative solutions to compelling policy challenges facing CRE. The Roundtable’s Board of Directors represents all major industry activities and asset types, and includes diverse voices from throughout the country. This inclusion ensures that our Board’s decisions are sustainable, flexible, and based in real-world economics. I am eager to continue working with the Board as we advance new recommendations on organizational and strategic policy direction.”

The five new members joining The Roundtable’s FY 2024 Board of Directors as of July 1 are:

Stepping down from The Roundtable Board as of July 1 are:

The Roundtable’s 2023 Annual Report—“Sustained Strength, Sustained Solutions”—will be sent to all members next week.

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Work-From-Home Arrangements Linger, Most Federal Agencies Using Less Than 25% of Office Space

Posted on by Trey Jackson

Empty office space

Overall workplace occupancy registered 49.1% last week, according to Kastle’s 10-city Back to Work Barometer, which showed return to office rates vary significantly over the course of the week. Additionally, a recent Department of Labor American Time Use Survey showed that nearly 35% of Americans worked from home on an average day in 2022, down from nearly 40% in 2021. (Axios, June 23)

Public Sector

  • In the public sector, federal government offices remain largely unoccupied, according to a new report issued by the Government Accountability Office (GAO) that revealed most agencies are using their headquarters less than a quarter of the time.
  • The GAO report shows that 17 of 24 agencies’ buildings were at 25% capacity or less after an analysis of 21.5 million square feet (SF) of usable federal office space during three weeks of Q1.
  • The empty federal offices have depressed local economies, according to a July 18 Federal News Network (FNN) broadcast. (Listen or read transcript of Federal Drive with Tom Temin)
  • The House Subcommittee on Economic Development, Public Buildings, and Emergency Management addressed the GSA report in a July 13 hearing called “When the Lights Are On but No One’s Home: An Examination of Federal Office Space Utilization”)

Roundtable Response

RER President and CEO Jeffrey DeBoer

  • In April, The Real Estate Roundtable wrote to members of the Senate about the need the federal government to end its “active encouragement of remote working for federal employees” and for federal agencies to return to their pre-pandemic workplace practices. (RER letter to the Senate, April 12)
  • Roundtable President and CEO Jeffrey DeBoer, above, sent a similar request to President Biden last December, noting that federal telework polices were ignoring “the negative impacts of remote work on cities and communities, labor productivity, and U.S. economic competitiveness, as well as the quality of government services.” (Commercial Observer, April 14 and RER letter to President Biden, Dec. 12, 2022).

A study released in May by New York University and Columbia University researchers shows how the disruption from remote work could impact municipalities. “The fiscal hole left by declining office and retail property tax revenues would need to be plugged by raising tax rates or cutting government spending. Both would affect the attractiveness of the city as a place of residence and work.” (Work From Home and the Office Real Estate Apocalypse, May 15 and Roundtable Weekly, May 26)

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Banks Increase CRE Workouts to Prevent Defaults

Posted on by Trey Jackson

Houston skyline

Banks are increasing their efforts to modify troubled commercial real estate loans to prevent defaults, according to recent media reports. (GlobeSt  and Bisnow, July 14)

Momentum on Modifications

  • “Lenders are offering borrowers loan extensions and modifications, selling derivatives to fix interest costs, and offering subsidized loans to investors to purchase defaulted loans” according to CRE analysts and industry data quoted by Reuters on July 12
  • The reported increase in modifications follows a joint policy statement from federal regulators last month that encouraged financial institutions to work with borrowers on pending loan maturities. (Agencies’ joint statement, June 29 and National Law Review, July 9)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer commented on the positive action by regulators. “This major step forward by federal regulators provides the flexibility that The Roundtable has consistently encouraged, and the relief many in the industry need, as the economy and communities struggle to move beyond the repercussions of the global pandemic,” DeBoer said. (Roundtable Weekly, June 30 and Roundtable letter to regulators, March 17)

Need for Liquidity

RER Board Member Scott Rechler

  • On July 20, Roundtable Chair John Fish (SUFFOLK Chairman and CEO) discussed the pressures facing CRE and the recent policy accommodation from regulators on Bloomberg’s What Goes Up podcast. “The biggest problem right now is the capital markets nationally have frozen,” Fish said.
  • On July 14, Roundtable Board Member Scott Rechler, above, (RXR Chairman and CEO) joined CNBC’s Closing Bell Overtime to discuss the impact of the credit crunch and the need for more liquidity in the market. (Watch interview)
  • A July 6 article by Carl White, senior vice president of the St. Louis Fed’s Supervision, Credit and Learning Division, shows that the proportion of nonperforming CRE loans remains low on an average basis and has continued to decline since 2020.

Low occupancy rates for downtown offices in various cities are leading municipal governments to incentivize adaptive reuse by encouraging the conversion of often-older office buildings into residential properties. A report this week from RentCafe forecasts that conversions may increase by 63% in coming years, after adaptive reuse peaked from 2019 to 2020. (GlobeSt, July 19)

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2023 Annual Report – Sustained Strength, Sustained Solutions

Posted on by Trey Jackson

View Full Report – 2023 Annual Report – Sustained Strength, Sustained Solutions

    Roundtable, Nareit Critique Proposed International Standard for Building Emissions

    Posted on by Trey Jackson
    Greenhouse gas emissions

    As the buildings sector makes progress on reducing greenhouse gas emissions to meet global climate goals, The Roundtable and Nareit submitted comments today about proposed guidance that would create “unworkable and unattainable” standards. (RER-Nareit joint comments)

    Science-Based Targets

    • A number of real estate companies use science-based protocols to establish portfolio-wide emissions reductions targets. The Roundtable convened a working group of its Sustainability Policy Committee (SPAC) to review and assess SBTi’s draft guidance. Nareit conducted a similar process with its members. These efforts resulted in the organizations’ unified position.

    RER-Nareit Position

    • The Roundtable and Nareit seek a constructive dialogue with SBTi, as their letter explains. However, the real estate groups expressed concern that SBTi’s proposal would require building stakeholders to set emissions targets for sources and operations they do not control, based too heavily on estimates and speculation as opposed to actual and verifiable data.

    • Key points raised in the joint comments include:

      Nareit and Real Estate Roundtable logos
      • Building owners must have options to purchase off-site renewable energy when they set science-based targets. Real estate in dense urban areas faces major barriers to deploy solar panels and similar measures on-site, so owners should be encouraged to increase overall clean energy supplies for broader market availability.

      • There should be no categorical, across-the-board mandate to set emissions targets based on tenants’ energy use because building owners do not control operations in leased spaces. Nor do owners have general access to meter data showing how much energy a tenant uses.

      • Emissions goals should not require, in all circumstances, reporting on “embodied carbon” in materials. Manufacturers do not uniformly provide such embodied emissions data for the concrete, steel, and other products they produce—so building stakeholders should not be required to guess this information in their climate reports.

      • Full-blown building electrification is not practicable, feasible, or even desirable for occupants’ safety and comfort in all cases. SBTi should abandon its proposed ban on all new fossil fuel building installations starting in 2025.    

    Why It Matters

    SBTi logo
    • There is no mandate in the U.S. at the federal level for real estate companies to set science-based emissions targets. However, anticipated rules from the U.S. Securities and Exchange Commission are expected to require registered companies to report to investors on material climate-related financial risks. Those disclosures could include corporate efforts to reduce emissions following SBTi’s and similar standards. (Roundtable Weekly, March 17, March 6 and June 10, 2022).
       
    • In addition, key aspects of SBTi’s proposal counter voluntary efforts underway at the U.S. Environmental Protection Agency and the U.S. Department of Energy that recognize advances in low-carbon buildings and portfolios. (Roundtable Weekly, March 3 and March 4, 2022)

    • Moreover, varying and often conflicting climate mandates on buildings are proliferating at the local level. (Roundtable Weekly, Dec. 9, 2022). SBTi’s proposed approach should not gain traction in regulatory building performance standards imposed by cities and states. 

    A final version of SBTi’s buildings sector guidance is expected this fall. The Roundtable will continue to track the issue, coordinate with Nareit and other allied groups, and educate policy makers as this matter develops. 

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    Fed Outlines Tighter Bank Capital Requirements Amid Congressional Concerns About Market Liquidity

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    The Federal Reserve in Washington, DC

    Federal Reserve Vice Chair for Supervision Michael Barr this week said higher capital requirements for banks with $100 billion or more in assets are likely to be one of several regulatory proposals expected soon from federal banking regulators. The Roundtable has warned that such a policy “would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on (commercial real estate) asset values.” (Barr’s speech, July 10 and Roundtable letter to federal regulators, March 17)

    Fed Proposals

    • Barr added that the rules would be the equivalent of requiring the largest banks to hold an additional $2 of capital for every $100 of their risk-weighted assets. He also commented that the changes—including long-term bank debt requirements and adjustments to how banks measure their financial market risks—“would not be fully effective for some years” because of the formal rulemaking comment process and a lengthy transition period for implementation. (Barr’s speech, The Wall Street Journal and Axios, July 10)
    • Roundtable President and CEO Jeffrey DeBoer noted during an April 6 Walker Webcast that “The concept of additional regulations and expanding liquidity are kind of counter to each other. [The financial turmoil] has to be allowed to settle through and transition. We ought to be working together and the federal government ought to be helping people transition to that new world.” (Roundtable Weekly, April 7)
    • The Roundtable’s June 13 Annual Meeting featured a joint RECPAC and Research Committee meeting discussion with Senate Banking Committee Member Bill Hagerty (R-TN) on liquidity concerns and possible new regulations, along with a presentation by CBRE industry experts on  CRE conditions.

    Bipartisan Congressional Concerns

    Sen. Mark Warner (D-VA)

    • During a June 21 Senate Banking Committee hearing on President Biden’s three nominations for the Federal Reserve Board, Sen. Mark Warner (D-VA), above, shared concerns raised by his Republican colleagues Bill Hagerty (TN), Tim Scott (SC), and Thom Tillis (NC) on Barr’s agenda to increase capital requirements for banks.
    • Sen. Warner stated, “I do worry, when we’ve got as aggressive a monetary policy as we have … that if there’s not a phase-in on some of these new capital standards, we could have the perfect storm of these two entities intersecting, and dramatically decreasing access to credit, at a moment when we’ve got large segments of our economy, commercial real estate in particular, could really be hit hard.”
    • House Financial Services Committee Chairman Patrick McHenry (R-NC) said during a June 21 hearing featuring Fed Chairman Jerome Powell that “… a massive increase in capital standards for medium and large institutions… would limit banks’ ability to lend money, exacerbating the looming credit crunch, and starving families and small businesses of the capital they need.” (Roundtable Weekly, June 23)
    • The top members of the House subcommittee focused on bank regulation—Reps. Andy Barr (R-KY) and Bill Foster (D-IL)—wrote to Barr on July 7, urging him to “minimize negative impacts as we enter a phase of potential credit tightening. We must strike the right balance between safeguarding our financial system and ensuring banks of all sizes can support communities’ access to credit.” The bipartisan letter also requested a “cost-benefit analysis, including supporting data, for any rulemaking you intend to propose.” (Letter to Barr and Politico Pro, July 7)

    What’s Next

    Former Federal Reserve Vice Chair for Supervision Randal Quarles

    • Barr added in his speech this week, “I will be pursuing further changes to regulation and supervision in response to the recent banking stress, including how we regulate and supervise liquidity. I expect to have more to say on these topics in the coming months.”
    • Former Fed Vice Chair for Supervision Randal Quarles, above, on July 12 criticized the Fed’s bank capital requirements proposal. Quarles said, “It’s a mistake. It will restrict the ability of the financial system to provide support for the real economy.” (Bloomberg, July 12). Prior to Barr, Quarles contributed to the Fed’s report on the failure of Silicon Valley Bank that concluded the central bank’s supervisory approach was partially to blame for the banking crisis. (Associated Press, April 28)
    • Fed Governor Michelle Bowman spoke out against tougher baking regulations on June 25, stating, “Increasing capital requirements simply does not get at this underlying concern about the effectiveness of supervision.” She added, “It is abundantly clear that regulatory and supervisory reform is on the way.” (Bowman speech and Bloomberg, June 25) 

    RECPAC will continue to work on Roundtable responses to potential federal regulatory proposals affecting bank liquidity and CRE. 

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    Senate Democrats Propose Tax Penalties on Institutional Owners of Single-Family Rental Homes

    Posted on by Trey Jackson
    SFR portfolio

    A group of eight Democratic Senators introduced legislation on July 11 that would prohibit for-profit owners of 50 or more single-family rental homes from taking depreciation or business interest expense deductions on their properties. 

    “Short-Sighted Proposal”

    • Senate Banking Committee Chairman Senator Sherrod Brown (D-OH), one of the bill’s sponsors, said, “big investors funded by Wall Street buy up homes that could have gone to first-time homebuyers, then jack up rent, neglect repairs, and threaten families with eviction.” Similar concerns were expressed by several cosponsors: Senator Ron Wyden (D-OR), chair of the Senate Finance Committee, along with Sens. Elizabeth Warren (D-MA), Tina Smith (D-MN), Jeff Merkley (D-OR), Jack Reed (D-RI), John Fetterman (D-PA), and Tammy Baldwin (D-WI).  (Senate Banking press release, July 11)

    • Real Estate Roundtable President and CEO Jeffrey DeBoer, below, said, “Improving and expanding housing affordability is a goal we all share, and any illegal or unjust actions by landlords should not be tolerated. However, this legislation is a short-sighted proposal that will drive up housing costs for working Americans, reduce property values for existing homeowners, and further discourage new home construction.”
    Real Estate Roundtable President and CEO Jeffrey DeBoer
    • “The bill deflects attention from the real, underlying causes contributing to high housing costs: inflation, labor shortages, and supply chain challenges; rising interest rates and tight credit conditions; NIMBY’ism, discriminatory zoning rules, and restrictive land-use policies; and insufficient investment in the low-income housing credit, to name just a few. Many of these factors are deep, structural challenges. Institutional investors are a convenient scapegoat and a distraction from the real work that must be done to address housing affordability,” DeBoer added.

    • By denying basic business expense deductions, the Stop Predatory Investing Act would distort housing markets and create additional, restrictive policies that exacerbate the current supply/demand imbalance.

    • Depreciation ensures that the cost of a capital investment is reflected in the measurement of income and recovered, for tax purposes, over the economic life of the investment. Depreciation deductions compensate property owners for the normal wear and tear that reduces the value of a structure over time. Interest expense deductions ensure that taxable income properly takes into account the cost of borrowing to invest in a trade or business.

    • Depreciation and interest expense deductions are not “tax breaks” as suggested by the bill’s sponsors. (Senate Banking one-page summary)

    House Tax Legislation

    House Majority Leader Steve Scalise (R-LA)
    • Tax legislation advanced by the House Ways and Means Committee in June is unlikely to receive a vote before Congress starts its August recess.

    • House Majority Leader Steve Scalise (R-LA), above, noted this week that the appropriations bills and reauthorization of the National Defense Authorization Act (NDAA), passed today in the House, are the chamber’s current priorities. “Getting the NDAA done and getting the appropriations bills are what are front and center right now. Then, we’ll really look forward to getting that economic agenda moving forward,” Scalise said. (Bloomberg Law, July 12)

    • Republican Ways and Means Committee members last month approved their proposed tax legislative package along party lines, including measures on business interest deductibility, bonus depreciation, and opportunity zones. (Tax Notes, June 14 | Ways and Means Committee, June 13 and Roundtable Weekly, June 9)

    Scalise added that Ways and Means Committee Chairman Jason Smith (R-MO) is still “working with other members on remaining issues with that bill.” (Bloomberg Law, July 12)

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    Federal Agencies Encourage Commercial Real Estate Loan Accommodations and Workouts in Major Step Forward for CRE

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    Jeffrey DeBoer - Real Estate Roundtable President and CEO

    In a positive development for the commercial real estate industry, federal regulatory agencies issued a joint policy statement yesterday on CRE loan accommodations and workouts that calls for “financial institutions to work prudently and constructively with creditworthy borrowers during times of financial stress.” (Agencies’ joint statement, June 29) 

    Real Estate Roundtable President and CEO Jeffrey DeBoer, above, said, “We enthusiastically welcome and applaud the action of federal regulators to accommodate commercial real estate borrowers and lenders as the industry endures a time of historic, post-pandemic transition. Maturing office loans in particular face a new environment of higher operating and financing costs, much tighter bank lending requirements, and uncertainty in business space needs. This major step forward by federal regulators provides the flexibility that The Roundtable has consistently encouraged, and the relief many in the industry need, as the economy and communities struggle to move beyond the repercussions of the global pandemic.”

    CRE Relief 

    Vacant office space NYC view
    • This significant action fulfills recent Real Estate Roundtable requests for regulators to provide more supervisory flexibility that would allow for the responsible restructuring of maturing CRE loans. The guidance is expected to encourage debt restructuring for certain office assets under pressure from remote work, high interest rates, and post-pandemic demand. (Roundtable Weekly, May 11 | Roundtable letter to regulators, March 17)

    • The June 29 joint agency statement was issued by the Office of the Board of Governors of the Federal Reserve System (the Fed), the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and National Credit Union Administration (NCUA).

    • The agencies noted that their policy statement builds on existing supervisory guidance issued in 2009, updates existing interagency supervisory guidance on commercial real estate loan workouts, and adds a section on short-term loan accommodations.

    • The new section on accommodations includes an agreement to defer one or more payments, make a partial payment, or provide other assistance or relief to a borrower who is experiencing a financial challenge. The statement also addresses recent accounting changes for estimating loan losses and provides examples of how to classify and account for loans affected by workout activity. (See 90-page policy statement on “Prudent Commercial Real Estate Loan Accommodations and Workouts”)

    • Approximately $1.5 trillion in CRE mortgages will mature in the next three years were originally financed when base rates were near zero. Refinancing this wave of maturing loans is complicated by the current debt environment, characterized by much higher interest rates, uncertain asset values, and illiquid capital markets. 

    CRE Part of Fed Stress Test 

    2023 Federal Reserve Stress Test results
    • This week, the Federal Reserve also released the results of its annual bank stress tests, which included a severe hypothetical scenario of global recession, a 40% decline in commercial real estate prices, a substantial increase in office vacancies, and a 38% decline in house prices. The Fed noted the stress test focus on CRE illustrates that 23 large banks would be able to continue lending in the hypothetical scenario, despite heavy losses. (2023 Fed stress test results and CNBC, June 28)

    • “Today’s results confirm that the banking system remains strong and resilient,” Vice Chair for Supervision Michael S. Barr said. “At the same time, this stress test is only one way to measure that strength. We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses.” (Fed news release, June 28)

    • The 2023 adverse test scenario model stated that declines in CRE prices should be assumed to be concentrated in properties most at risk of a sustained drop in income and asset values—offices that may be affected by remote work or hospitality sectors that continue to be affected by reduced business travel.

    • The Fed’s stress test report added, “The May 2023 Financial Stability Report highlighted elevated prices on CRE and the possibility of a large correction in property values that could lead to substantial losses for banks. The demand for offices, downtown retail, and hotels has seen dramatic and countervailing changes over the past several years due largely to the pandemic and resulting changes. While many bank CRE loans are held by smaller banks not subject to the supervisory stress test, the banks subject to the stress test hold approximately 20% of office and downtown retail CRE loans.”

    • Regulators have also recently signaled they are likely to adopt increased capital requirements for the nation’s biggest banks, while Fed governor Michelle Bowman this week spoke out against tougher regulations. (Axios, June 21 and June 26) 

    “We need to consider whether examiners have the appropriate tools and support to identify important issues and demand prompt remediation,” Bowman stated. “Increasing capital requirements simply does not get at this underlying concern about the effectiveness of supervision.” She added, “It is abundantly clear that regulatory and supervisory reform is on the way.” (Bowman speech and Bloomberg, June 25) 

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    Bipartisan Bill to Extend and Reform National Flood Insurance Program Introduced in Senate, House

    Posted on by Trey Jackson

    National Flood Insurance Program (NFIP) logo

    Bipartisan legislation recently introduced in the Senate and House would reauthorize and extend the National Flood Insurance Program (NFIP) for five years, providing greater stability for real estate markets, homeowners, and small business owners as the nation continues to struggle with inflationary pressures and increased threats of extreme weather. The National Flood Insurance Program Reauthorization (NFIP-RE) Act of 2023 would also implement a series of sweeping reforms to reduce program costs, make generational investments in communities to reduce flood risk, and establish a fairer claims process for policyholders. (Legislative text and PoliticoPro, June 22)

    Risk Mitigation

    • A new flood rating methodology (Risk Rating 2.0) established by the Federal Emergency Management Agency (FEMA) attracted the attention of policymakers from coastal and flood-prone areas after it was reported that resulting rate hikes may result in the loss of coverage for hundreds of thousands of policyholders. (Associated Press, July 22)
    • Sens. Bob Menendez (D-NJ) and Bill Cassidy (R-LA), alongside Reps. Frank Pallone (D-NJ) and Clay Higgins (R-LA), introduced the NFIP-RE Act (S. 2142 and H.R. 4349) to put the program on solid fiscal ground. The Senate Banking Committee is leading this bicameral and bipartisan reform effort. (One-page summary of the bill)
    • The Roundtable is a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms that create long-term stability for policyholders, improved accuracy of flood maps, mitigation reforms, enhanced affordability, and the acceptance of non-NFIP policies for commercial properties. (Roundtable Weekly, May 27, 2022)

    Proposed Changes

    Person building sandbag barrier

    • Congress has enacted 25 short-term NFIP reauthorizations since 2017. The NFIP-RE Act of 2023 would:
      • Extend the program for five years and cap annual rate increases at 9%.

      • Provide a comprehensive means-tested voucher for millions of low- and middle-income homeowners and renters if their flood insurance premium becomes prohibitively expensive.

      • Increase the maximum limit for Increased Cost of Compliance (ICC) coverage to reflect more accurately the costs of rebuilding and implementing mitigation projects.

      • Boost funding for mitigation grants and modernize mapping to identify and reduce flood risks.

      • Create new oversight measures for insurance companies and vendors.

      • Reform the claims process based on lessons learned from Superstorm Sandy and other disasters, to level the playing field for policyholders during appeal or litigation, hold FEMA accountable to strict deadlines so that homeowners get quick and fair payments, and ban aggressive legal tactics preventing homeowners from filing legitimate claims.

    Sen. Menendez said, “With disastrous flooding events becoming all the more common, we must work to create a more sustainable, resilient, and affordable flood insurance program that invests in prevention and mitigation efforts, and all while ensure hard-working Americans can have peace of mind in the event of a disaster.” (Menendez news release, June 22)

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    Roundtable Comments on Clean Energy Tax Credits for Low-Income Communities, Housing

    Posted on by Trey Jackson
    Low-income housing development in New Jersey

    The Real Estate Roundtable submitted comments today on a proposed rule from the IRS and Treasury Department regarding “bonus” tax credits for renewable energy investments in low-income communities, passed by Congress as part of the Inflation Reduction Act (IRA). (Roundtable Comment Letter, June 30) 

    Solar, Wind Bonus Credits 

    • IRA Section 48(e) establishes a Low-Income Communities Bonus Credit Program to address climate, affordable housing, and environmental justice challenges. (Treasury news release, Feb. 13, 2023)

    • Taxpayers must apply to the IRS through a competitive process to receive any bonus credits under the Program.

    • The bonus can provide extra tax credits to help cover the costs of solar, wind, and storage facilities. See The Roundtable’s chart, “Base” and “Bonus Rate” Amounts Relevant to Commercial and Multifamily Buildings (May 25, 2023).

    • Taxpayers who qualify can layer an extra 10% bonus—above “base rate” credit amounts—for renewable projects in low-income communities defined in the IRA as census tracts that qualify for new markets tax credits.

    • The bonus can increase to an extra 20% for clean energy investments that are part of low-income rental housing—such as housing supported by LIHTCs or Section 8 “housing choice” vouchers. 

    Roundtable Comments 

    RER chart on Section 48(e)
    • Treasury and IRS proposed a rule on June 1 to implement the low-income bonus program. Today’s comments from The Roundtable seek greater clarity and certainty for building owners that may access the bonus credits, raising the following points:

      • The bonuses are available only for solar or wind projects that generate under 5 megawatts of electrical output. The Roundtable requested a more straightforward rule for what constitutes a “single project” for purposes of this output threshold.

      • The IRA’s text requires that multifamily building owners must share “financial benefits” of renewable energy produced on-site with tenants. The Roundtable’s comments stressed that any such benefits should not depend on utility bill savings that accrue directly to tenants—because owners cannot measure, track or control energy consumption in sub-metered leased units.

      • Low-income housing supported by non-federal programs through state- and local-level housing finance agencies or public housing authorities should also be eligible for the IRA’s low-income bonuses.

      • The proposed rule would offer a preference, not based in the statute, for non-profit owners to receive bonus credit allocations. The Roundtable’s comments urge there should be no bias against business taxpayers to receive the bonus to further the Biden administration’s climate policy goals for rapid deployment of renewable energy investments in low-income communities.  

    • Future Roundtable comments on IRA topics are in the works. Feedback on a proposed rule to buy-and-sell certain clean energy credits is due August 14. In addition, proposed rules to implement the 179D tax deduction for energy efficient retrofits of commercial buildings are expected this summer. 

    Prior comments, information and summaries on The Roundtable’s advocacy efforts regarding clean energy tax incentives are available on our Inflation Reduction Act resources page and in Roundtable Weekly (Dec. 2, 2022 and Nov. 4, 2022).  

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