Author: Trey Jackson

Roundtable Board Selects Suffolk’s John Fish as Chair-Elect, Establishes Equity, Diversity & Inclusion Committee; Industry Leaders Discuss Investment Trends, Engage Lawmakers on National Policy Issues

Posted on by Trey Jackson

Fall Roundtable Meeting 2020

The Real Estate Roundtable’s Fall Meeting on Sept. 22 featured top-of-mind issues, including the latest economic and political forecasts; real estate’s diversity and inclusion efforts; prospects for pandemic risk insurance; and future economic stimulus initiatives, particularly those related to housing, rent and infrastructure.

Advocacy:  Roundtable Chair Debra Cafaro (Chairman and CEO, Ventas, Inc.) welcomed Roundtable members to the virtual meeting by summarizing The Roundtable’s effective, yet remote, advocacy work with industry stakeholders and Washington policymakers on the multi-faceted policy responses to the coronavirus – as well as on issues in the tax, capital and credit, sustainability and homeland security areas. (See for example, The Roundtable’s written statement for the committee and testimony before the Senate Banking Committee regarding the Federal Reserve’ Main Street Loan Facility. (Video of Sept. 9 testimony and Q&A )

Deb Cafaro and John Fish remote RER meeting

Leadership: Cafaro, above left, also announced that The Roundtable’s 24-member Board of Directors has selected John F. Fish, above right, (CEO & Chairman, Suffolk) as the organization’s Chair-Elect; appointed Jodie W. McLean (CEO, Edens) as its Secretary; and named Jeff T. Blau (CEO, Related Companies) as the inaugural Chair of the organization’s newly-established Equity, Diversity and Inclusion (ED&I) committee. 

Reference: 

  • Video on FY 2021 nominations for The Roundtable Board and comments by John Fish 
  • Video on The Roundtable’s ED&I committee and comments by Jeff Blau  

Investment-Panel-Intro-Screen


Investment Trends: Roundtable Chair Debra Cafaro led a discussion regarding “Emerging Global Real Estate Investment Trends” with Christoph Donner (Chief Executive Officer, Allianz Real Estate of America); Adam Gallistel (Managing Director, GIC Real Estate); Steven Hason (Managing Director, Head of Americas Real Assets, APG Asset Management US Inc.) and Roundtable Board Member Kathleen McCarthy (Global Co-Head of Blackstone Real Estate, Blackstone) – video of panel discussion.

Special Guests: The Roundtable’s Fall Business Meeting included virtual visits from the following guests: 

  • Senate Majority Leader Mitch McConnell (R-KY) – video
  • Senator Tim Kaine (D-VA) – video
  • Rep. Steve Stivers (R-OH) – video

See below for more details about this discussion regarding pandemic risk insurance. 

Next on The Roundtable’s meeting calendar is the all-member January 26-27 State of the Industry Meeting.

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EPA Launching “ENERGY STAR Tenant Space” Process on October 13; CBECS Requests Stakeholder Feedback; House May Vote on Building Codes Bill Next Week

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Energy Start Tenant Space Charter Tenant Award

Recognition for office tenants who collaborate with their landlords on design and construction of high performance leased spaces will be the focus of the voluntary ENERGY STAR Tenant Space program, scheduled to launch on October 13. 

  • The launch marks the second occasion that the U.S. Environmental Protection Agency (EPA) will certify energy efficient office suites, following inaugural awards granted to “charter tenants” in 2018 and legislative authorization for the program from the so-called “Tenant Star” law passed by Congress in 2015. (Commercial Property Executive, May 4, 2015).
  • EPA’s application process, opening October 13, will require office tenants seeking certification to estimate their suites’ energy use, separately meter their spaces, use efficient office equipment, and share energy usage data with their landlords.  See EPA’s “How to Prepare for Tenant Space Recognition” guide.
  • EPA will also offer access to a new tool for estimating lighting energy usage intensity within the ENERGY STAR “Portfolio Manager” platform. Use of this new lighting assessment function will be a prerequisite for Tenant Space awards.  EPA has plans for on-line demonstrations in the coming weeks.
  • The ENERGY STAR label impacts nearly 35,000 buildings and plants nationwide, representing more than 5 billion square feet of commercial space. (ENERGY STAR Facts and Stats)   

Real Estate Stakeholders Requested to Provide Input on CBECS Process

EIA logo

  • The Roundtable requests that our members respond to a short questionnaire (6 questions) currently on the Commercial Building Energy Consumption Survey (CBECS) website.
  • An ENERGY STAR “whole building” score (registered on a scale of 1 to 100) is generally based on data from the Commercial Buildings Energy Consumption Survey (CBECS), conducted periodically by the U.S. Energy Information Administration (EIA).  EIA speakers have provided The Roundtable with information on CBECS data and its impact on ENERGY STAR scores for years.
  • The Roundtable estimates that EPA will next update its ENERGY STAR building scoring methods sometime around 2023, based on CBECS data collected in 2018-2019.  However, that data is pre-COVID.  It does not reflect the likely changes that have taken place in building occupancy and energy use since the pandemic struck in 2020.
  • Answers to the current CBECS questionnaire may have a significant impact in EIA’s data collection efforts regarding the U.S. buildings.  It is crucial that EIA capture data from all types and sizes of buildings – such as larger buildings over 500K square feet that have historically been under-represented in past surveys.
  • RER members responding to the CBECS questionnaire should also explain that EIA’s data collection should account for possible changes in building occupancy, energy consumption, ventilation protocols, and HVAC equipment since the COVID-19 pandemic started.  

House May Vote on Energy Bill Next Week

U.S. Capitol

Issues regarding CBECS data are also part of legislation reintroduced by House Democrats on September 15, The Clean Economy and Jobs Innovation Act (H.R. 4447).  The omnibus bill includes sections on building energy codes, grant programs for underserved communities and green infrastructure.  The bill may come to a vote in the House next week.

  • The bill includes a section, strongly supported by The Roundtable, which would direct EPA and EIA to enter into an “information sharing agreement.”  Such an agreement would direct the agencies to publicly and systematically address the relationship between CBECS data and ENERGY STAR buildings scores, as discussed above.
  • The bill also includes provisions, long-supported by The Roundtable, that would bring greater transparency to the process by which the U.S. Department of Energy provides federal recommendations to develop building energy codes that state and local governments may ultimately adopt. (Roundtable Weekly, June 19, 2019)
  • One of the major goals of the comprehensive, nearly 900-page legislative package is to reduce carbon dioxide emissions by 80% by 2050.  (BGov, Sept. 16)

In the Senate, Energy and Natural Resources Chair Lisa Murkowski (R-AL) is working to reintroduce energy reform legislation, but has once again run into delays due to long-standing objections over housing affordability issues.  (E&E News, Sept 17)

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House Vote on Stopgap Funding Bill Expected Next Week; White House Signals Possible Compromise on Pandemic Relief Package

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Capitol Dome Stormy weather

Congressional policymakers struggled today to finalize a bipartisan spending bill to fund the government past September 30 and avoid a shutdown.  House and Senate lawmakers disagree on when the temporary funding would expire – Republicans want the stopgap to end on Dec. 18 while Democrats are pushing for Feb. 26.  (RollCall, Sept. 14 and Politico, Sept. 18)

  • House Majority Leader Steny Hoyer (D-MD) stated on September 15 that a vote on the continuing resolution (CR) would be held sometime next week.  He added the CR will include language to extend the authorization for surface transportation and the National Flood Insurance Program.  “I am going to bring it to the floor early next week and hope that the Senate passes it either later next week or the first part of the following week,” Hoyer said. (BGov, Sept. 18)

COVID-19 Package Negotiations

Congressional leaders remained at an impasse this week on another coronavirus stimulus package, although the Trump Administration signaled compromise is possible.  Negotiations between Democrats and White House officials stalled in August.  (Roundtable Weekly, Aug. 4)

  • GOP lawmakers initially proposed a $1 trillion coronavirus stimulus proposal in July.  Last week, Senate Republicans attempted to advance a “skinny” COVID-19 aid bill for approximately $500 billion less that was blocked by Democrats. (Roundtable Weekly, Sept. 11).
  • Democrats are currently advocating a package of at least $2.2 trillion following passage of the $3.4 trillion HEROES Act by the House of Representatives in May.  (Axios, Sept. 10)
  • Speaker Nancy Pelosi (D-CA) said on Tuesday that the House would remain in session until an agreement is reached and Hoyer clarified that lawmakers would be on call to return to the Capitol on short notice in the event a deal is reached. (BGov, Sept. 15)
  • After a compromise $1.5 trillion pandemic aid proposal from the bipartisan House Problem Solvers Caucus was rejected on Tuesday by congressional Democrats and Republicans, the White House signaled the following day it was open to further negotiations.  (New York Times, Sept 15 and Vox, Sept. 16)
  • President Trump tweeted on Sept 16, “Go for the much higher numbers, Republicans, it all comes back to the USA anyway (one way or another!).”  White House Chief of Staff Mark Meadows added there was support for more aid to state and local governments and that the Administration would be willing to consider a $1.5 trillion package.  (CNBC, Sept 16.

Schumer and Pelosi joint statement

  • Speaker Pelosi and Senate Minority Leader Chuck Schumer (D-NY) said in a joint statement after Trump’s tweet, “We look forward to hearing from the President’s negotiators that they will finally meet us halfway with a bill that is equal to the massive health and economic crises gripping our nation.”
  • Treasury Secretary Steven Mnuchin said earlier this month that the next stimulus bill could be closer to $1.5 trillion.  Larry Kudlow, director of the White House National Economic Council, said yesterday in response to a question about a $1.5 trillion package: “I would say that’s in the range of plausibility.”  (Wall Street Journal, Sept. 18)
  • Senate Finance Committee Chairman Chuck Grassley (R-IA) yesterday told Bloomberg TV,  “The White House has been making some statements here recently that would never get hardly any Republicans in the United States Senate.  So this used to be the White House versus Pelosi up until about now.  Now the president’s coming in and saying ‘we can maybe go to $1.5 trillion.’ He better be careful of that because I don’t think that bill could get through the United States Senate.”
  • Today, Pelosi told Bloomberg Television that Democrats remain committed to a $2.2 trillion relief package but indicated they may include aid for “airlines, transportation in other forms, restaurants, retail, issues like that” in a relief  package.  (Transcript of Pelosi Interview on Bloomberg’s Balance of Power with David Westin, Sept. 18)

The need for policymakers to produce a pandemic aid package before the November elections will be a focus of discussions during The Roundtable’s Fall Meeting on Sept. 22.  Confirmed speakers include Senate Majority Leader Mitch McConnell (R-KY) and House Financial Services Committee Member Steve Stivers (R-OH).

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Roundtable Members and Business Leaders Urge NYC Mayor to Address Deteriorating Quality-of-Life Conditions as Part of Economic Recovery and Reopening

Posted on by Trey Jackson

Scott Rechler, Chairman & CEO, RXR Realty LLC

More than 160 business leaders – including 16 Real Estate Roundtable members – yesterday sent a letter to New York City Mayor Bill de Blasio urging him to address crime and deteriorating quality-of-life issues as part of the city’s efforts to ease pandemic restrictions, encourage economic recovery and reopen businesses.  (New York Times and Forbes, Sept. 10)

  • The letter states, “We need to send a strong, consistent message that our employees, customers, clients and visitors will be coming back to a safe and healthy work environment.”  It adds that what must be confronted by city management is a “widespread anxiety over public safety, cleanliness and other quality of life issues that are contributing to deteriorating conditions in commercial districts and neighborhoods.”   (Partnership for New York City letter, Sept. 10)
  • The letter explains that if steps are not taken quickly to address security and other livability conditions, then people will be slow to return to the city and a establish a degree of normalcy.
  • Mayor de Blasio responded on twitter yesterday, stating, “To restore city services and save jobs, we need long term borrowing and a federal stimulus — we need these leaders to join the fight to move the City forward.”
  • One of the signatories of the letter, Roundtable Member Scott Rechler (Chairman & CEO, RXR Realty LLC and Trustee of the 9/11 Memorial Museum) appeared on CNBC’s Squawkbox this morning to discuss the business leaders’ concerns about the city’s economic recovery and reopening.  (Rechler in photo above)
  • “We don’t have a plan to build a brighter, better future for our city like we did post 9-11 and its eerily scary.  While I know we have a crisis and its going to need support from the federal government, that’s not the only solution. We need to manage our city better,” Rechler stated during the Squawkbox interview.

  • An op-ed in the New York Daily News today by Rechler also encourages individuals “to safely fill our city streets, our parks, our stores, our restaurants, and our business districts.”  Rechler calls for a safe return, especially by those “… who stayed home or left the city to protect themselves and their loved ones by slowing the spread of the coronavirus.”
  • New York City’s coronavirus infection rate has been reduced to a low level in recent months after a phased reopening of its economy started in June.  The infection rate in the city has been below 1% for more than one month, due to strict emergency regulations.  (Wall Street Journal, Sept. 11 and New York Gov. Cuomo’s website, Sept. 9)

Rechler’s op-ed adds, “Every lawyer, software engineer and banker working in New York’s office buildings supports five additional service jobs in retail, restaurants and small businesses, but this partnership, hundreds of thousands of jobs and livelihoods, falls apart if we all stay home.”

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Senate Democrats Block Republicans’ COVID-19 Relief Package as Sept 30 Deadline Looms to Fund the Federal Government

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Capitol Building Dusk

Senate Democrats yesterday blocked Republicans’ attempt to advance a scaled-back COVID-19 relief package. The 52-47 procedural vote, mostly along party lines, did not meet the 60-vote threshold to pass, diminishing the possibility that Congress will enact another pandemic recovery measure before the November elections.  (AP, Sept. 10 and Summary of GOP bill)

  • The Republican “skinny” bill (S. 178) proposed this week is approximately $500 billion less than the GOP’s $1 trillion July coronavirus stimulus proposal.  Democrats are currently advocating a package of at least $2.2 trillion following passage of the $3.4 trillion HEROES Act by the House of Representatives in May. (Axios, Sept. 10)
  • Previously, Congress passed coronavirus relief in March with the $2 trillion CARES Act, which increased unemployment benefits until July 31.  Prospects that unemployed Americans may receive an additional $1,200 stimulus check remain uncertain.  (Roundtable Weekly, August 14 and C/Net, Sept. 10)
  • Treasury Secretary Steven Mnuchin on Sunday stated the Trump Administration favored another COVID-19 aid package.  “We want to help businesses that are particularly impacted by this, and we’ll continue to work on proposed new legislation,” Mnuchin told Fox News.  (Real Clear Politics, Sept. 6)
  • Senate Minority Leader Charles E. Schumer (D-NY) yesterday said Republicans “may yet be forced to come back to the table because COVID is the major issue that’s facing the American people.”  (AP, Sept. 10)
  • Congressional negotiations on another round of pandemic stimulus between Democrats and White House officials stalled in August.  President Trump then signed four executive orders aimed at providing unemployment aid, eviction protections, student loan relief and payroll tax deferments.  (Roundtable Weekly, August 14)
  • One executive order authorized an additional $300 per week to unemployed beneficiaries from disaster relief funds. The Federal Emergency Management Agency recently announced those funds are near depletion and the program is closed to new applications. (BGov, Sept. 10)
  • White House officials are considering additional unilateral actions to provide targeted relief, according to The Washington Post.  Stephen Moore, an economic adviser to the White House, said, “They’re trying to figure out what they can do legally, what authorities they have, and there are differences of opinion on that. Trump would like to do another flurry of executive orders that would jump-start the economy.”

U.S. Capitol Dome

Government Funding Expires Sept. 30

Lawmakers returned to Washington this week with a five-week legislative schedule in the Senate and four-weeks for the House.  In addition to COVID-19 related legislation, Congress has until Sept. 30 to pass a funding bill to keep the federal government open beyond the end of FY2020 or face a shutdown before the November elections. 

  • House Speaker Nancy Pelosi (D-CA) and Secretary Mnuchin have reportedly agreed to work on a temporary funding bill without unrelated policy riders.  A spending bill would likely include continued funding for the National Flood Insurance Program and the EB-5 Regional Center Program, which provides visas to foreign nationals who pool their investments to finance U.S. economic development projects.  (CQ, Sept. 3)
  • A Continuing Resolution (CR) would fund the government at current levels, yet how long such a measure would last is uncertain. Senate Majority Leader Mitch McConnell (R-KY) on Wednesday said he supports a stopgap spending bill through December, although Senate Minority Leader Schumer indicated no decisions have been made about the length of a CR.  (The Hill, Sept. 9)

Sen. Roy Blunt (R-MO), chairman of the Senate Republican Policy Committee, said yesterday, “My guess would be that if we leave in September with a CR we will not come back to do anything before the election.”  (Washington Post, Sept. 9)

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Roundtable Testifies on State of Commercial Real Estate, Presents Industry’s Shared Agenda and Recommendations for Action to Senate Banking Committee

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Real Estate Roundtable President and CEO Jeffrey DeBoer

Recommendations on how to encourage a national recovery from the economic effects of the pandemic – and improve access to Federal Reserve credit facilities for businesses such as manufacturing, retail, restaurants, real estate owners, and other asset-based borrowers – was the focus of testimony by Roundtable President & CEO Jeffrey DeBoer (above) on Sept. 9 before the Senate Banking, Housing and Urban Affairs Committee. (International Council of Shopping Centers news release)

The Roundtable’s written statement and oral presentation also provided the commercial real estate industry’s shared recommendations on how to provide critical federal assistance to the U.S. workforce, renter households, and business tenants to help them weather the COVID-19 crisis.  (Hearing video and witness statements)

  • The Senate hearing focused on the effectiveness of the Federal Reserve’s Main Street Lending Program (MSLP) – a $600 billion loan facility established in March as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act to assist small and mid-sized businesses weather the economic fallout from the pandemic.  (CQ News, Sept. 9)
  • Chairman Mike Crapo (R-ID), Ranking Member Sherrod Brown (D-OH) and other Banking Committee Members heard testimony from DeBoer; Hal Scott, President of the Committee on Capital Markets Regulation; and William Spriggs, Professor of Economics, Howard University and Chief Economist, AFL-CIO. (Witnesses written testimony)
  • Chairman Crapo (photo below) noted in his opening statement that the hearing would provide an update on “why the (commercial real estate) CRE market lacks access to needed support, including through the Main Street Program; and recommendations for options to get support to commercial real estate.”  (Sen. Crapo’s Opening Statement, Sept. 9)

Senate Banking Committee Chairman Mike Crapo (R-ID)

  • DeBoer emphasized the goal of the MSLP is to provide capital to mid-sized businesses that are disproportionally owned by minorities, women and veterans, who are unable to obtain capital due to COVID-related economic problems. (Law360, Sept. 9)
  • The Main Street program is not working, DeBoer testified, because there is little incentive for banks to make the loans – and the program’s eligibility, affiliation and underwriting rules are not designed to meet the needs of the businesses in need.
  • “The result: countless mid-sized retail businesses, restaurants, hotels, commercial and multifamily building owners are moving closer to shutting their doors forever,” DeBoer stated. (Roundtable Oral Comments)
  • DeBoer recommended that to incentivize banks to participate on a larger scale, the Fed should purchase 100 percent of a Main Street loan, instead of the current 95% limit.
  • He also encouraged administrative actions to expand the MSLP’s eligibility rules “… to stabilize the weakening condition of many businesses, particularly real estate owners whose businesses support millions of jobs nationwide and whose health is directly related to the health of local communities.”  (Washington Post, Sept. 9)
  • “The recommendations that I have made on the Main Street Lending Program … really require no additional funds from the federal government,” DeBoer said. “They are administrative. They could be done tomorrow by the Treasury and the Fed if they wanted to.” 
  • Sen. Chris Van Hollen (D-MD) commented, “I wish there was a broader recognition that getting funds into the hands tenants to pay their landlord on the residential side and also on the commercial side is something that would be very important at this time.”  (American Banker, Sept. 9)
  • During Q&A with several committee members, DeBoer also addressed the importance of preserving the “rent obligation chain” – the stream of tenant rent revenues that travel through the financial system to support business workers, local government services and mortgage markets, safeguarding billions in Americans’ pension and retirement savings invested in real estate assets.  (Video of DeBoer’s Testimony and Q&A with Senators)
  • Committee Chairman Crapo on July 31 sent a letter to Secretary Mnuchin and Chairman Powell urging them to quickly expand the Main Street Program by setting up an asset-based lending facility, and to address commercial real estate either through access to the Main Street Program or in a separate facility.”  (Roundtable Weekly, August 14)

DeBoer’s testimony, the Fed’s efforts and prospects for congressional action regarding the economic repercussions of the coronavirus will be a focus of discussion during The Roundtable’s September 22 Virtual Fall Meeting.  (Video of DeBoer’s Testimony and Q&A with Senators)

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Oversight Commissioners Emphasize Increasing CRE Access to Fed Credit Lending Facility; Congressional Committee Leaders Urge MSLP Expansion

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Congressional Oversight Commission logo

The need for commercial real estate companies to have greater access to Federal Reserve lending facilities during the ongoing pandemic was addressed during an August 7 hearing before the bipartisan Congressional Oversight Commission – a five-person panel tasked with monitoring the use of coronavirus aid funds.  (New York Times, August 8)

  • The panel focused on the shortcomings of the Fed’s Main Street Lending Program (MSLP), a $600 billion loan facility established in March as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act to assist mid-market businesses respond to the negative impact of COVID-19.
  • The MSLP is administered by the Federal Reserve Bank of Boston, whose president, Eric Rosengren, testified before the Commission on the MSLP and other credit facilities.
  • Rosengren explained the MSLP is structured to assist businesses that are too small to raise money by issuing bonds and stocks, yet too large to qualify for the Small Business Administration’s (SBA) Paycheck Protection Program loans. (AP, August 7)
  • Banks who participate in the program must make loans for at least $250,000, with strict requirements, and loans cannot be approved for highly indebted companies. (Roundtable Weekly, August 7)
  • Hotels that pursue loans using the Fed’s MSLP must adhere to restrictive criteria based on Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).  (Reuters / Yahoo News, Aug 12)
  • “This program is designed as a cash flow program, so it’s designed for a business that expects to be able to pay off the debt,” Rosengren said. (Roll Call, August 7)

MSLP and CRE

Rep. French Hill (R-AR), below, a member of the Commission, asked Rosengran if there are discussions at the Fed “to expand a different Main Street facility that would be more of an asset-based loan rather than a cash flow loan?”

Rep. French Hill (R-AR)

  • Rosengran responded, “I know there are discussions about asset-based financing and some of the difficulties experienced, for example, in commercial real estate. So, there have been ongoing discussions about this, but there is no term sheet that is imminent.” (Watch hearing video and read testimony)
  • Another Commission member, Sen. Pat Toomey (R-PA), said, “I want to underscore a point that Congressman Hill raised … about considering asset based facilities. I think you’re very well aware there are some real challenges in the commercial mortgage backed security market right now, in particular, the hotel subset of the commercial mortgage backed sector is experiencing some real difficulties. Do you have any thoughts on whether we ought to stand up a facility specifically designed, it would be designed generally for the broad category of real estate I think and other categories that would be more suitable for an asset based lending than they are for an EBITDA constraint?”
  • Rosengran answered, “Yes, so an asset program would differ from what we have for Main Street. Most of that type of lending has a much longer maturity than five years. So as though these are five-year loans with a balloon payment at the end of the five years, that’s probably not appropriate for example, for retail or for commercial real estate such as hotels. So the nature of that program would be quite different. I know there is work being done thinking about how asset based can be addressed, including through the SBA.”
  • He added, “So I think there are a number of proposals that are being considered. I’m certainly aware that there are many concerns in the commercial real estate industry and those concerns will get even worse if the pandemic gets worse.”  (Watch hearing video and read testimony)

MSLP Revisions

Senate Banking Committee Chairman Mike Crapo (R-ID), below, and House Committee on Financial Services Ranking Member Patrick McHenry (R-NC) on August 10 wrote to Fed Chairman Jay Powell and Treasury Secretary Steven Mnuchin about utilizing the MSLP to support businesses and their employees struggling with the pandemic’s impact. 

Sen. Mike Crapo (R-ID)

  • The congressional committee leaders proposed utilizing the remaining funds appropriated by Congress for the Exchange Stabilization Fund “to expand MSLP and support more businesses.”
  • Sen. Crapo also submitted a letter to Treasury Secretary Mnuchin and Fed Chair Jay Powell encouraging the expansion the Main Street Lending Program (MSLP) by setting up an asset-based lending program and commercial real estate program.  (Sen. Crapo’s letter, July 31)
  • Four other U.S. senators recently wrote to Mnuchin and Powell with several recommendations on reforming the Fed’s MSLP credit facilities.  (Senators’ letter, Aug. 4)

  • “Many banks seem disinterested in the program because they either wish to retain more than 5 percent of a profitable loan or they have no interest in retaining any stake at all in an unprofitable loan,” according to Sens. Mike Braun (R-IN), John Cornyn (R-TX), Kelly Loeffler (R-GA) and Thom Tillis (R-NC).
  • A coalition of nine real estate industry groups, including The Real Estate Roundtable, on July 21 submitted a set of recommendations to the Senate Banking Committee aimed at improving the Fed’s MSLP for commercial real estate owners and tenants.  (Real estate coalition letter,  July 21 and Roundtable Weekly,  July 24)

The Fed’s efforts to support commercial real estate businesses and their employees struggling with the pandemic – especially in the hospitality and retail sectors – will be a focus of discussion during The Roundtable’s September 22 Virtual Fall Meeting.

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President Trump Signs Executive Orders to Provide COVID-19 Relief As Congressional Negotiations Stall

Posted on by Trey Jackson

Capitol Dome Dusk

President Donald Trump signed four executive orders (EOs) on August 8 that seek to counter the negative economic repercussions of the pandemic by preventing residential evictions and foreclosures; providing additional unemployment payments; and deferring the collection of payroll taxes and student-loan payments.

  • The EOs were signed after White House officials and Democratic leadership could not agree on a fourth comprehensive coronavirus aid package. (Roundtable Weekly, Aug. 7) Republicans and Democrats urged each other this week to continue negotiations. (Wall Street Journal, Aug 10.)
  • Whether the president has the authority to issue some of these Executive Orders is questionable, since taxing and spending power is generally under the purview of Congress. (NPR, Aug. 8) President Trump’s four executive orders include: 

Assistance to Renters and Homeowners

This order calls upon several federal agency heads to take steps within their existing authorities and programs to minimize evictions and foreclosures. These efforts would apply only to federally originated, backed, or securitized mortgages.

  • The order does not purport to reauthorize the CARES Act federal eviction moratorium that expired at the end of July.  (Wall Street Journal, July 16)
  • The EO instructs the Secretary of the Treasury, the Secretary of Housing and Urban Development (HUD) and the Director of the Federal Housing Finance Agency (FHFA) to take all lawful measures to prevent evictions and foreclosures of residential tenants and owners who have been financially impacted by the pandemic.  
  • The HUD Secretary is also instructed to encourage and provide assistance to landlords, public housing authorities, federal grant recipients and affordable housing owners to minimize evictions and foreclosures. 
  • Roundtable President and CEO Jeffrey DeBoer commented on federal rental assistance efforts: “Seeking to optimize existing programs and resources to minimize evictions and foreclosures makes sense.  For example, the existing Section 8 housing choice voucher program successfully provides housing assistance to lower income tenants.”
  • DeBoer continued, “However, millions of additional families have pre-qualified for rental assistance yet are on stand-by wait lists for Section 8 housing vouchers and therefore do not receive the assistance for which they qualify. HUD should work quickly to reduce what are, in many cases, multi-year Section 8 housing assistance wait times.” 
  • The residential relief EO complements a series of FHFA guidance for lenders and servicers since the start of the pandemic, collected on the agency’s  “COVID-19 Information and Resources” website.  For example, FHFA announced on August 6 that multifamily owners with mortgages backed by Fannie Mae or Freddie Mac who enter into forbearance agreements must inform tenants in writing about eviction protections.
  • FHFA Director Mark Calabria, below right, addressed his agency’s oversight of Fannie and Freddie, which own or guarantee $5.6 trillion in single and multifamily mortgages, during The Roundtable’s January 2020 State of the Industry Meeting in a discussion with Roundtable Member Willy Walker, chairman & CEO, Walker & Dunlop, left.

Willy Walker and Mark Calabria

 

Unemployment Payments 

Weekly federal unemployment payments of $600 that were authorized in the CARES Act expired on July 31.

  • This order directs a $400 weekly payment to those unemployed due to the pandemic through December 6, 2020 – or whenever $44 billion from the Department of Homeland Security’s Disaster Relief Fund is depleted to $25 billion.
  • The benefit would be funded 75% by the federal government and 25% by states, who are encouraged – but not required – to provide their share of $100 per week. Several governors this week insisted their states do not have the funds budgeted for the proposed allocation. (Roll Call, Aug. 10)
  • A senior Labor Department official said the additional $300 weekly federal share would likely take weeks to reach the unemployed and could run out six weeks after initial disbursement. (Wall Street Journal, Aug. 12)

Deferring Payroll Tax Obligations 

This order directs the Treasury Department to defer the withholding, deposit, and payment of the employee-share of payroll taxes for Sept. 1, 2020 through Dec. 31, 2020 – essentially suspending the 6.2% Social Security tax on wages for employees making less than about $104,000 annually on a pre-tax basis. (Brownstein Hyatt Farber Shreck EO Summary, August 12)

  • The president said that if he is reelected, he will work to turn the temporary deferral into a permanent tax cut while also seeking to reduce the payroll tax going forward. (Washington Post, Aug. 8)  Treasury Secretary Mnuchin later clarified that the payroll tax deferral would be optional for employers and not mandatory.  (Forbes, Aug. 12).  

Payroll Taxes Chart

  • The CARES Act previously authorized businesses to defer the employer-share of payroll taxes until the end of the 2020.  (Click to enlarge image above )
  • The executive action on payroll taxes, along with recent comments by President Trump in support of a capital gains tax cut, has renewed speculation that the President could act to reduce capital gains taxes administratively by directing Treasury to allow taxpayers to adjust the basis of assets for inflation when measuring gain.  (MarketWatch, Aug. 12)

Deferring Student Loan Payments

  • Student loan payment relief granted under the CARES Act expires on Sept. 30, 2020.  This EO instructs the Secretary of Education to pause monthly payments and interest for student loan borrowers until Dec. 31.

September 30th Funding Deadline

  • Most policymakers have left Washington for the August recess, but senators and House members will receive a 24-hour notice to return if a coronavirus deal is reached or if a vote is scheduled.  Both chambers are scheduled to return on September, and no votes are scheduled until the week of September 14 – just weeks before government funding is scheduled to expire on September 30.
  • Referring to the executive orders signed by President Trump, DeBoer states in the article, “The presidential executive orders are positive measures, but they are not a full substitute for legislation.  Legislation that builds on the short-term relief enacted this spring is sorely needed.”

DeBoer also notes, “Congress will face even greater relief needs when they return in September, but at the same time politics will make negotiations even more difficult.”  (Bisnow, August 14) 

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Proposed Carried Interest Regulations Would Create Complex Regime for Taxing Partnership Profits’ Interests

Posted on by Trey Jackson

Proposed carried interest regulations released by the Treasury Department on July 31 would implement the three-year holding period requirement enacted in the Tax Cuts and Jobs Act (TCJA) of 2017.  TCJA restricted eligibility for the reduced long-term capital gains rate in the case of certain capital gain allocated to a profits interest in a partnership if the investment is held for less than three years. 

  • The proposed rules under section 1061 represent the first formal Treasury regulations on the issue of carried interest since it emerged as a controversial political issue in 2007.
  • The 3-year holding period requirement reflects a compromise approach developed by key tax-writers during the 2017 tax reform debate.
  • Members of The Roundtable’s Tax Policy Advisory Committee (TPAC) reviewed and discussed the proposed carried interest regulations on August 3. Critically, the 3-year holding period would not apply to property used in a trade or business (section 1231 gain).  In addition, the rules would permit REITs to report capital gains dividends in a manner that facilitates look-through treatment.  Thus, REIT shareholders could take into account whether the underlying REIT gain relates to property that meets the 3-year requirement or relates to property excluded from the rule because it gives rise to section 1231 gain.
  • Certain other aspects of the proposed rules appear less favorable.  For example, the regulations take an expansive view of what constitutes an “applicable partnership interest” subject to the regime.  The exemption for capital gain that relates to a partner’s capital interest involves complex rules and restrictions that may complicate its use.  The regulations appear to import a rule from pending legislation that would prevent partners from crediting partnership capital contributions that are attributable to a loan from other partners or the partnership.
  • Other important aspects of the new regime including detailed rules for: determining the “recharacterization amount” and the applicable holding period, anti-abuse measures, and reporting requirements. 

A TPAC working group will be convening in the days ahead to develop comments and recommendations for Treasury and IRS officials related to the proposed regulations. 

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Final Treasury Rules on Deducting Business Interest Preserve and Strengthen the Real Estate Exception

Posted on by Trey Jackson
U.S. Treasury Department
US Treasury Department in Washington

Final Treasury regulations released on July 28 create a detailed legal framework to implement the new limitation on the deductibility of business interest enacted in the Tax Cuts and Jobs Act of 2017.  The underlying provision—section 163(j) —caps the deduction for business interest expense at no more than 30 percent of modified gross income but allows real estate businesses to elect out of the regime altogether. 

  • The deductibility of business interest expense was front and center in the 2017 tax reform debate.  Elimination of the deduction was viewed by some as a necessary “pay-for” to help offset the cost of immediately expensing capital investment and reducing the corporate rate from 35 to 21 percent.  The Roundtable worked to preserve the full deduction, noting that it was necessary to accurately measure income and critical to the normal financing of real estate investment and activities.  (Roundtable President & CEO Jeffrey DeBoer Statement for the Record before Senate Finance Committee, video clips and full hearing on September 19, 2017)
  • During the rulemaking process, The Roundtable focused on ensuring that the regulations would not restrict unnecessarily the ability of a real property trade or business (RPTOB) to elect out of the provisions of the new limit (section 163(j)).  Previously proposed regulations clarified, as requested, that interest on debt incurred by a partner to fund an investment in a partnership engaged in a real estate business would be allocable to that business and therefore qualify for the RPTOB election.  The proposed regulations also clarified that an RPTOB election by a partnership did not bind a partner with respect to any activity conducted by the partner outside the partnership.
  • The 575 pages of final rules unveiled last week favorably address and resolve several outstanding issues raised in Roundtable comment letters submitted at various times during the two and a half year regulatory process.  (The Roundtable’s Interest Deductibility webpage)
  • For example, the regulations clarify that a business entity can be in a real property trade or business even if it is not in a trade or business under the general tax rules of section 162 (the provision that authorizes taxpayers to deduct ordinary and necessary expenses paid or incurred in carrying on a trade or business).  Unlike the proposed rules, the final regulations provide that a small business that is exempt from the business interest limit can still make a RPTOB election.
  • This clarification is important because individual partners in a small business may not qualify for the exemption once their interests in multiple properties are aggregated.  The final regulations favorably revise troubling language in the proposed rules that suggested the RPTOB exception was only available for trades or businesses involved in rental real estate activities.
  • Consistent with Roundtable recommendations, the Treasury guidance also includes a notice (IRS Notice 2020-59) with a proposed revenue procedure that creates a safe harbor for assisted living facilities so they can qualify for the RPTOB exception – notwithstanding their provision of other services, such as nursing and routine medical services.  Other elements of the Treasury guidance include new proposed regulations on specific issues, such as application of the rules to foreign taxpayers.

Collectively, the final regulations should provide greater certainty to real estate owners and investors that debt used to acquire, improve, and operate commercial real estate remains fully deductible for federal income tax purposes, provided the taxpayer complies with specific tax and filing requirements. 

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