Author: Trey Jackson

Fannie, Freddie Regulator to Propose New Affordable Housing Rules, Takes Steps Away from LIBOR and Toward Privatization of GSEs

Posted on by Trey Jackson

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The federal regulator of Fannie Mae and Freddie Mac – the Government Sponsored Enterprises (GSEs) who own or guarantee $5.6 trillion in single and multifamily mortgages – will propose new affordable housing requirements and duty-to-serve plans this year. 

  • Federal Housing Finance Agency Director Mark Calabria, above, told Politico this week that the regulator’s Division of Research and Statistics will first study how effective the current rules have been, which expire at the end of 2020.   “I don’t know whether they’ve (the requirements) made a difference in getting anybody into a home who wouldn’t have been otherwise; I mean unless you have a strong evaluative function, how do you know whether what you’re doing makes a difference?” Calabria said.    (PoliticoPro, Feb. 10)
  • Calabria also discussed the timeline for when Fannie and Freddie will stop acquiring adjustable rate mortgages tied to the London Interbank Offered Rate (LIBOR) as loans will begin to be tied to the Secured Overnight Financing Rate (SOFR) as the global benchmark for interest rates.  FHFA’s steps away from LIBOR will include:

*  New language will be required for single-family Uniform Adjustable Rate Mortgage (ARM) instruments closed on or after June 1, 2020;  

*  All LIBOR-based single-family and multifamily ARMs must have loan application dates on or before September 30, 2020 to be eligible for acquisition; and,

*  Acquisitions of single-family and multifamily LIBOR ARMs will cease on or before December 31, 2020.

  • “These steps represent important milestones in the Enterprises’ transition away from LIBOR to a more robust reference rate.  We will continue to monitor exposure to LIBOR and ensure the Enterprises manage the risks associated with the transition in a safe and sound manner,” said Calabria.  (FHFA news release, Feb. 5)
  • FHFA also continues to take steps toward recapitalizing Fannie and Freddie before returning the GSEs to private ownership after their $190 billion government bailout in 2008.  Calabria announced on Feb. 3 that FHFA has selected Houlihan Lokey Capital, Inc. as a financial advisor to assist in the development and implementation of a roadmap to responsibly end the GSEs conservatorships. 
  • Houlihan Lokey will consider business and capital structures, market impacts and timing, and available capital raising alternatives, among other items as outlined in a previously published Statement of Work.

  • “Hiring a financial advisor is a significant milestone toward ending the conservatorships of the Enterprises,” Calabria said. “The next major milestone for FHFA is the re-proposal of the capital rule, which will happen in the near future.”  (FHFA news release, Feb. 3)
  • Director Calabria spoke during The Real Estate Roundtable’s Jan. 28, 2020 State of the Industry Meeting in Washington.  He addressed his agency’s need to responsibly privatize Fannie and Freddie while ensuring sufficient private capital is in place to protect taxpayers, along with access to affordable rental housing.

The Roundtable wrote to the leadership of the Senate Committee on Banking, Housing and Urban Affairs in September 2019 regarding reform of the nation’s house finance system.  The letter notes the Treasury Department’s constructive proposal for both legislative and administrative reforms to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and urges both Treasury and the FHFA to work with Congress to end conservatorship through comprehensive, bipartisan, legislative reforms.  (Roundtable GSEs comment letter, Sept. 9, 2019)

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Minneapolis Fed President Neel Kashkari Endorses More Private Sector Development to Counter Affordable Housing Crisis, Echoing Roundtable’s Policy Agenda

Posted on by Trey Jackson

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The increasing cost burden of rental housing is now reaching middle-income Americans, according to a Harvard University Joint Center for Housing Studies (JCHS) report, America’s Rental Housing 2020.   Federal Reserve Bank of Minneapolis President and CEO Neel Kashkari introduced the report at a Jan. 31 event.  “We need a lot more private sector development to come in, build many, many more units across the spectrum, create more supply, that’ll make things more affordable for everyone.  Unless we unlock the private sector, we’re never going to help the vast majority of people who are struggling with affordability today,” Kashkari said.  (KSTP video, Jan. 31)

  • Kashari noted the challenge is how to encourage the private sector to create and preserve affordable housing alternatives at scale so that other targeted government programs can also do their part.  “Our research has shown, as many others have shown, that if the private sector builds more units, even market-rate units, it adds supply to a city or region that ends up creating space for everybody, Kashkari said. (YouTube video of JCHS event and ULI’s Urban Land Magazine, Feb. 5)

     

  • The latest research from Harvard shows rising rental demand and constricted supply have reduced the stock of low- and moderate-cost units.  This shift has significantly altered the profile of the typical renter household, resulting in a growing number of renters with incomes between $30,000 and $75,000 paying more than 30 percent of their income for housing – meeting the definition of “cost-burdened.” (JCHS interactive map of the U.S.).

     

  • The report also notes that the rising cost of affordable rentals has resulted in a majority of lower-income renters spending more than half of their monthly income on housing – conditions that have led to increases in homelessness, particularly in high-cost states. (Bloomberg, Jan. 31 and JCHS chart)

     

  • According to the JCHS, climate change also poses a threat to the stability of American renter households.  Between 2008 and 2018, 10.5 million of the country’s 43.7 million renter households live in zip codes that incurred at least $1 million in home and business losses due to natural disasters.  Additionally, 8.1 million renter households report that they do not have the financial resources to evacuate their homes if and when a disaster strikes.

 

  • The report’s Executive Summary concludes, “Local governments have found themselves on the front lines of the rental affordability crisis. In response, many jurisdictions have adopted a variety of promising strategies to expand the affordable supply, including increased funding and reform of zoning and land use regulations to allow higher-density construction. Organizations ranging from hospitals and universities to tech companies have also started to address the crisis. Ultimately, though, only the federal government has the scope and resources to provide housing assistance at a scale appropriate to need.” (PDF of entire JCHS report)

     

    Industry Response

     

    The Real Estate Roundtable’s recently released 2020 Policy Agenda addresses affordable housing challenges facing the nation’s communities.   The policy agenda states, “The Roundtable aims to galvanize policy makers and like-minded real estate organizations around a set of pro-housing recommendations designed to increase the dearth of affordable units across the nation. ‘One-sizefits-all’ rent control mandates and anti-eviction laws will only further distort the housing supply-and-demand curve without addressing the underlying conditions that create market shortages in the first place.”

     

  • The Roundtable recommends more enduring solutions, such as:

     

    • Federal grants could put a premium on local commitments to high-density zoning, the expansion of by-right multifamily zones, transit-oriented growth and affordable housing.

       

    • Ensure that banks receive “credit” under the Community Reinvestment Act for lending to middle class families.

       

    • Support the production of manufactured housing.

       

    • Free up under-utilized federal properties for affordable housing development.

       

    • Consider the impact of student loan debt on federally-backed mortgage qualification.

       

    • Short-term housing rentals must be regulated to combat long-term housing shortages.

       

  • The Roundtable also remains focused on legislative and regulatory action that will increase the availability of housing, like a more robust low-income housing tax credit program from Congress and a plan to reasonably reform Fannie Mae and Freddie Mac.  On Jan. 21, The Roundtable submitted a suite of policy suggestions to the Department of Housing and Urban Development (HUD) to improve access to affordable housing.  (Roundtable Weekly, Jan. 17) 

     

  • The Roundtable’s comments to HUD offer policies intended to bring more safe, decent, and affordable housing within reach of indigent and low-income households.  It also urges HUD to focus on the scarcity of homes accessible to middle class families, and recommends policies to increase both purchase and rental options for teachers, first responders, and other contributors in America’s workforce. 

 

During The Roundtable’s State of the Industry meeting last week in Washington, DC, a discussion of housing availability and affordability featured Federal Housing Finance Agency Director Mark Calabria and Rep. Patrick McHenry (R-NC), Ranking Member of the House Financial Services Committee. (Roundtable Weekly, Jan. 31)

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House Democrats Aim for 100 Percent “Clean Energy Economy” by Mid-Century; Proposal Includes Ramped-Up Building Codes

Posted on by Trey Jackson

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Democratic leaders on the House Energy and Commerce (E&C) Committee released a far-reaching bill on January 28, signaling their plans for climate legislation based on the outcome of next November’s elections.  The bill includes rigorous efficiency targets for building energy codes and a framework to drive the U.S. electric grid toward net-zero carbon emissions. [E&C press release]

  • “The CLEAN Future Act,” sponsored by E&C Chairman Frank Pallone (D-NJ) — above in photo — and Subcommittee Chairmen Paul Tonko (D-NY) and Bobby Rush (D-IL), would implement a climate policy framework announced last month.  [See Roundtable Weekly, January 10]  The 622-page “discussion draft”  sets an overall target for a “100 percent clean energy economy” by 2050. 

  • The draft proposes a number of de-carbonization and renewable energy mandates and incentives affecting the real estate, power generation, transportation, and manufacturing sectors of the U.S. economy.  [CLEAN Future Act section-by-section analysis]
  • Commercial and residential buildings would be subject to increasingly stringent “model” energy codes for new construction and major retrofit projects.  States and localities typically adopt these model codes into law, but they have authority to alter them.
  • The CLEAN Future Act would require codes to reach a target for buildings to save 50 percent more energy by 2030 (relative to a 2016 baseline).  The bill’s 50-percent-improvement target would not consider the expenses incurred by owners and developers to install more costly – but efficient – HVAC, windows, lighting, and other equipment in their assets.  In contrast, a competing bipartisan proposal pending in the House and Senate — known as the Energy Savings and Industrial Competitiveness (ESIC) Act — would evaluate cost effectiveness and small business impacts as iterations of energy codes are developed.  

  •  The Roundtable has long-supported the ESIC Act, sponsored by Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH), and Representatives Peter Welch (D-VT) and David McKinley (R-WV).   [Roundtable Weekly, Sept. 27, 2019].

  • While the CLEAN Future Act’s building-related provisions emphasize increasingly stringent energy codes, it does not impose energy consumption, carbon reduction, or “labeling” mandates on building owners that have gained traction at the state and local levels.  [E.g., Roundtable Weekly, April 19, 2019].  Nor does the bill propose a “tax on carbon” as a means to cut greenhouse gas emissions.
  • Other notable elements of the CLEAN Future Act include: 
  • Creation of a market to buy and sell “clean energy certificates,” to drive more renewable energy to the U.S. electric grid and render the electricity sector “net-zero” carbon emissions by 2050;
     
  • New federal loan and other incentive programs to help finance microgrids and “distributed energy” projects, which would trigger Davis-Bacon prevailing wage requirements;  
     
  • Mandate connection of renewable energy facilities to the electric grid, and eliminate any monopolies in the U.S. where public utilities control all levels of production, transmission, and sale of power in wholesale electricity markets; and
     
  • Projects supported with federal funds must “buy clean” construction materials and products that generate lower greenhouse gas emissions during their manufacture. 

In addition to the CLEAN Future Act, the House’s Select Committee on the Climate Crisis is expected to release its own principles for legislation by the end of March. [Roundtable Weekly, Nov. 22, 2019]. 

Prospects to advance the CLEAN Future Act through Congress this year are virtually zero, as the bill does not presently align with Republican priorities in the Senate.  Nonetheless, as Democrats are soliciting input on their climate framework, The Real Estate Roundtable’s Sustainability Policy Advisory Committee (SPAC) has convened a “task force” process to review the omnibus package and provide comments to the bill’s House majority sponsors.

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National Multifamily Housing Council President Doug Bibby Announces 2021 Departure

Posted on by Trey Jackson

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National Multifamily Housing Council (NMHC) President Doug Bibby – an industry leader for nearly two decades who has played a major role in advancing real estate’s policy agenda in Washington, DC – announced on Jan. 29 that he will depart the organization in 2021. 

  • “It has been, and continues to be, a great honor and privilege to serve in this position,” said Bibby. “Representing the apartment industry has been one of the most fulfilling and gratifying experiences of my career. I am proud of the work the team at NMHC has done and the strides the industry has taken during my tenure,” he added.  (NMHC’s bio on Doug Bibby)
  • Roundtable President and CEO Jeffrey DeBoer noted, “Among the 18 national real estate trade associations that The Real Estate Roundtable works with on common issues of importance to commercial real estate, NMHC is one that has shown outstanding leadership on important policies such as housing affordability, regulatory reform and the recent reauthorization of the Terrorism Risk Insurance Act.  Doug Bibby has played an essential and exemplary role in his large organization’s successes on the policy front since June 2001.  He deserves the thanks of the entire industry and we wish him well as he prepares for his next endeavor.”

NMHC’s officers have engaged an executive search firm, Russell Reynolds Associates, and hope to introduce Bibby’s successor at its January 2021 Annual Meeting.

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House Democrats Propose $760 Billion Infrastructure Framework as Ways and Means Committee Considers Pay-Fors

Posted on by Trey Jackson

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House Democratic leaders on Jan. 29 released a five-year, $760 billion framework to improve the nation’s highways, bridges, transit and broadband as the Ways & Means (W&M) Committee held a hearing to consider how to pay for the plan. (Factsheet and Framework text)

  • The 19-page “Moving Forward Framework” was unveiled by House Speaker Nancy Pelosi (D-CA) and the chairs of three House committees – Transportation Committee Chair Peter DeFazio (D-OR), Energy Committee Chair Frank Pallone (D-NJ), and W&M Committee Chair Richard Neal (D-MA).  (Video of news conference)
  • Elements of the “Moving Forward” blueprint, estimated to create 10 million jobs, include:
    • $434 billion for highways, bridges, transit and other surface transportation – comprising the package’s financial bulk – with incentives for projects that reduce carbon pollution and improve resiliency to climate change impacts;
    • Streamlining the Transportation Department’s underwriting process for low-interest TIFIA loans;
    • Prioritizing spending from the national Highway Trust Fund (“HTF”) with a “Fix It First” strategy to repair crumbling roads and bridges ;
    • A pilot to sustain the long-term solvency of the HTF (which is frequently bailed-out by Congress) through a “vehicle miles traveled” user fee;
    • Quicker federal grant approvals for transit projects of national and regional significance, to support critical investments like the NY-NJ Gateway program;
    • Priorities for investments that help transform U.S. rail and airport networks;
    • Expansion of renewable energy infrastructure and investments to de-carbonize the electric grid; and
    • New infusions of capital for Brownfields re-development.
  • The Roundtable has long supported legislation for a comprehensive infrastructure overhaul.  It has recommended a number of measures reflected in the Democratic framework. (E.g., March 20, 2019 W&M comments; April 29, 2019 T&I comments.)
  • Projects supported by federal dollars in the “Moving Forward” plan would trigger prevailing wage requirements for laborers and contractors under Davis-Bacon standards.
  • Meanwhile, the W&M Committee held a hearing Jan. 29 on “Paving the Way for Funding and Financing Infrastructure Investments.”  The hearing explored potential funding options for a national infrastructure effort, including raising the gasoline tax; expanding tax-exempt bonds; establishing a vehicle-miles traveled user fee; and greater use of public-private partnerships (P3s).  The Congressional Budget Office reported last week that P3s have accounted for only 1 to 3 percent of spending for highway, transit, and water infrastructure since 1990.
  • Chairman Neal and Ranking Member Kevin Brady (R-TX) both endorsed an expansion of dynamic budget scoring beyond tax cuts for infrastructure investments.  In his opening statement, Neal cited tax-preferred bonds, including Build America Bonds, as an important infrastructure financing tool, while also highlighting the new markets tax credit, the low-income housing tax credit, and the historic tax credit.  Rep. Brady proposed creating Opportunity Zones for infrastructure.  (Politico, Jan. 30)

The Trump Administration and Congressional Democrats have long touted a comprehensive infrastructure package as an area for bipartisan agreement.  Senate Majority Leader Mitch McConnell recently stated that infrastructure policy could advance after the impeachment trial ends. (Roundtable Weekly, Jan. 24)

However, during this election year, prospects for a more modest infrastructure plan (compared to the expansive Democratic framework) are higher.  The current Highway Trust Fund of approximately $226 billion – the main funding source for roads, bridges and transit – is set to expire on September 30, 2020.  Shoring-up the HTF is expected to be the main focus of Congress and stakeholders for the rest of FY 2020.  (Roundtable Weekly, Oct. 4)  

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Policymakers and Industry Leaders Address Affordable Housing and Other National Issues as The Roundtable Rolls Out 2020 Policy Agenda

Posted on by Trey Jackson

The Real Estate Roundtable’s 2020 State of the Industry (SOI) Meeting this week in Washington featured discussions with policymakers and industry leaders on affordable housing solutions, economic development and job creation, infrastructure, tax regulations affecting CRE and other national issues. 

Policy Issues & Featured Speakers   
The SOI meeting included the following speakers: 

  • Federal Housing Finance Agency Director Mark Calabria addressed his agency’s oversight of Fannie Mae and Freddie Mac – the Government Sponsored Enterprises (GSEs) – who own or guarantee $5.6 trillion in single and multifamily mortgages. Dr. Calabria spoke about the conservatorships the GSEs have operated under since 2008 and the need to responsibly privatize them while ensuring sufficient private capital is in place to protect taxpayers, along with access to affordable rental housing.
  • House Financial Services Committee Ranking Member Patrick McHenry (R-NC) focused on affordable housing in the discussion with Dr. Calabria, moderated by Willy Walker, chairman & CEO, Walker & Dunlop.  Rep. McHenry has served as Chief Deputy Whip to build consensus for the House Republican Conference’s agenda – including passage of the Tax Cuts and Jobs Act last year.  He spoke about his committee’s recent hearings on challenges for effective affordable housing policies, which include a decrease in available housing supply due in part to counterproductive regulations and zoning laws at local and state levels.
  • House Ways and Means Committee Member Stephanie Murphy (D-FL) is the first Vietnamese-American woman elected to Congress and a member of the powerful House Ways and Means Committee that originates tax legislation affecting the industry.  Rep. Murphy spoke of her efforts to build consensus among her House colleagues by co-chairing the Blue Dog Coalition, a bloc of Democrats who emphasize fiscal restraint – and her efforts to build a solutions-oriented policy approach that can bridge the gap between left and right.
  • Rhode Island Governor Gina Raimondo (D), recently re-elected, discussed her state-wide successes in attracting increased economic investment, decreasing unemployment and implementing innovative solutions to the challenges of homelessness and affordable housing.  Gov. Raimondo spoke of her recent proposal to build more affordable housing using a housing bond and dedicated funding stream, along with her support for the federal Opportunity Zones program.  She also discussed her executive order committing Rhode Island to be powered by 100 percent renewable electricity by the end of the decade. 
  • Mike Allen, co-founder and Executive Editor of Axios – a three-year old digital media company delivering news and insights on policy, politics, business and tech – discussed the confluence of this election cycle, social media and the “War for Attention” to gain consumer, and voter, brand loyalty.
  • George Will, syndicated columnist and political commentator, concluded the meeting’s evening event with comments on how historical, economic and societal trends directly influence the current political environment, providing a bellwether for what can be anticipated in future elections.

Roundtable Policy Committees 
SOI also included meetings of The Roundtable’s policy advisory committees, which analyzed policy issues in detail with high-level congressional and agency staff.

  • Research and Real Estate Capital Policy Advisory Committee (RECPAC):
    During this joint meeting, two panels of industry experts addressed  investment and market insights into the current real estate market cycle, along with the state of real estate capital and debt markets.
  • Tax Policy Advisory Committee (TPAC):
    The chief tax counsels from the Senate Committee on Finance discussed what lay ahead for tax legislative priorities affecting commercial real estate.  The discussion, moderated by Russ Sullivan (Brownstein Hyatt Farber Schreck), included Mark Warren, chief tax counsel for Senate Finance Committee Republicans and Tiffany Smith, chief tax counsel for Senate Finance Committee Democrats.  Additional discussions delved into recent and future real estate-related tax regulations with Treasury Department Attorney-Advisor Bryan Rimmke, as well as new Opportunity Zone rules, proposed LIBOR tax regulations, and the tax challenges confronting foreign investment in US real estate.  
  • Sustainability Policy Advisory Committee (SPAC):
    U.S. Environmental Protection Agency speakers provided an update on the ENERGY STAR for Tenants program.  Additionally, U.S. Energy Information Administration speakers provided SPAC information on the Commercial Building Energy Consumption Survey (CBECS) and its impact on ENERGY STAR scores. The New York Independent System Operator (NYISO) discussed its efforts to create a carbon pricing market — an emerging issue as the real estate sector confronts rising obligations to draw clean power from a de-carbonized electric grid.  
  • Homeland Security Task Force meeting (HSTF) and Risk Management Working Group (RMWG):
    The joint meeting attendees heard briefings by government officials on challenges presented by homelessness – and the risk picture posed by the coronavirus to the United States.  The Task Force was also briefed on cyber threats and the state of insurance markets after the recent seven-year reauthorization of the Terrorism Risk Insurance Act (TRIA), enacted one year before its scheduled expiration date – a major policy accomplishment of The Roundtable in 2019.

Next on The Roundtable’s FY2020 meeting calendar is the Spring Meeting on March 31 in Washington, DC.  This meeting is restricted to Roundtable-level members only.

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House Ways and Means Committee Signals Green Energy Tax Bill; Trump Administration Developing “Tax 2.0” Proposal

Posted on by Trey Jackson

House Ways and Means Committee Chairman Richard Neal (D-MA) recently confirmed plans to advance legislation in 2020 that would expand and create new renewable energy and energy-efficiency tax incentives.  “We talked about (the markup) this morning,” Neal told reporters on Jan. 14. He added, “We are scheduling events.” (BGov, Jan. 15 and Jan. 24) 

  • The starting point for green energy tax legislation in the Ways and Means Committee is likely a draft bill unveiled last November by Rep. Mike Thompson (D-CA), who chairs the Subcommittee on Select Revenue Measures. 
  • Rep. Thompson’s discussion draft of the Growing Renewable Energy and Efficiency Now (GREEN) Act would modify the enhanced deduction for energy-efficient commercial building property (section 179D);create an expanded tax credit for the developers of new, energy-efficient home (section 45L); and modify the tax credit for energy-efficient improvements to existing homes (section 25C).  (Roundtable Weekly, Nov. 22) (Rep. Thompson news release with link to the GREEN tax draft legislation, Nov. 19) 
  • The Real Estate Roundtable and other real estate and environmental organizations are encouraging Members of Congress to consider an additional proposal that would incentivize existing buildings to purchase and install energy-efficient upgrades that reduce greenhouse emissions, generate taxpayer savings, and spur innovation and investment.    
  • Specifically, draft legislation under review would create a new category of energy-efficient qualified improvement property (E-QUIP) that is subject to an accelerated 10-year depreciation period.  The E-QUIP benefit would apply to purchases of modern and energy-efficient HVAC, lighting, and building envelope improvements, such as energy-saving roofs and windows. (Roundtable Weekly, May 10)

Separately, President Trump on Jan. 22 said a substantial middle-class tax cut – referred to as “Tax Cut 2.0” – will be released within 90 days, during an interview with Fox Business’ Maria Bartiromo at the World Economic Forum in Davis, Switzerland.  (Reuters, Jan. 22)

  • Treasury Secretary Steven Mnuchin told CNBC at the same conference, “The president has asked us to start working on what we call ‘tax 2.0,’ and that will be additional tax cuts. They’ll be tax cuts for the middle class, and we’ll also be looking at other incentives to stimulate economic growth.”  (CNBC, Jan. 23)
  • Larry Kudlow, director of the White House National Economic Council, told FOX Business’ Liz Claman on Jan. 17 that “The president directed me to produce what we’re calling ‘tax cuts 2.0.’  It will be published sometime during the campaign, has a message for future Trump economic growth policies, particular emphasis on the middle class in his second term.”
  • A legislative path toward passage of individual tax bills in an election year is very narrow, but separate tax proposals by Congress and the White House could culminate in an end-of year compromise package. 

Tax issues for 2020 will be a focus at next week’s Roundtable State of the Industry Meeting in Washington – both during the Jan. 28 business meeting and the Jan. 29 Tax Policy Advisory Committee (TPAC) meeting.  

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House Democrats to Introduce Infrastructure Proposal

Posted on by Trey Jackson

Infrastructure public transit bridge outside Denver CO

A proposal to improve the nation’s infrastructure and surface transportation will be unveiled by House Democratic leaders next week – as the House Ways and Means Committee considers how to pay for it during a Jan. 29 hearing on “Paving the Way for Funding and Financing Infrastructure Investments.” (Deloitte Tax News & Views, Jan. 17)

  • Ways and Means Committee (W&M) Chairman Richard Neal (D-MA) and Transportation and Infrastructure Committee (T&I)  Chairman Peter DeFazio (D-OR) will be tasked with considering how to offset the costs of a national infrastructure improvement effort and surface transportation bill.  (BGov, Jan. 23)
  • The Ways and Means Committee hearing will explore potential funding options, including raising the gasoline tax; expanding tax-exempt bonds; establishing a vehicle-miles traveled tax; and greater use of public-private partnerships (PPPs).  The Congressional Budget Office reported this week that PPPs have accounted for only 1 to 3 percent of spending for highway, transit, and water infrastructure since 1990.
  • The Roundtable submitted extensive comments on infrastructure policy to both committees last year.  (March 20, 2019 W&M comments; April 29, 2019 T&I comments.)
  • The nation’s largest financing source for roads, bridges, tunnels, and mass transit – the federal Highway Trust Fund (HTF) – expires on Sept. 30, the end of the government’s 2020 fiscal year. 
  • With HTF reauthorization considered a “must do” legislative priority during this election year, a transportation funding bill will likely become part of the broader infrastructure proposal, which could total $1 trillion or more.
  • The Roundtable and more than 150 national trade associations also wrote to Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY), on Sept. 30 to reauthorize the HTF before its scheduled expiration. (Roundtable Weekly, Oct. 4)  Chairman DeFazio said his possible funding sources could incorporate federal gas tax revenues and a bonding proposal. (BGov, Jan. 17)
  • In the Senate, four committees will play a role in crafting a long-term HTF package.  Last summer, the Senate Environment and Public Works (EPW) Committee unanimously advanced a bill (S. 2302) that would authorize $287 billion over five years to repair and maintain the nation’s surface transportation. (EPW Committee news release, July 30)
  • Senate Majority Leader Mitch McConnell (R-KY) recently discussed with GOP committee leaders possible transportation and infrastructure agendas that could be advanced after the impeachment trial ends.
  • Additionally, the Trump Administration on Jan. 9 proposed changes to federal environmental review requirements to speed major infrastructure projects such as highways, airports, tunnels and pipelines. (Roundtable Weekly, Jan. 10)
  • The proposal by the White House’s Council on Environmental Quality (CEQ) to streamline the infrastructure approval process complements the similar, bipartisan efforts in the Senate to speed-up delivery for infrastructure projects. (Roundtable Weekly, Aug. 2)

Federal infrastructure efforts, and their vital importance to commercial real estate, are a focus of The Roundtable’s 2020 Policy Agenda, which will be discussed at the organization’s State of the Industry Meeting on January 28-29 in Washington.

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U.S. Labor Department Adopts “Joint Employer” Rule, Returns to “Direct and Immediate Control” Standard

Posted on by Trey Jackson

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The Labor Department on Jan. 12 released its final “joint employer” rule, returning to a standard where businesses can only be held responsible for workplace violations and collective bargaining obligations regarding workers over which they have “direct and immediate” control.  (Final Rule, Federal Register and Fact Sheet, Dept. of Labor).

  • This week’s rule takes effect on March 16.  It upholds a federal labor standard that was in effect for more than thirty years, before it was upended by a National Labor Relations Board (NLRB) decision in 2015. 
  • That 2015 NLRB decision instituted an expansive interpretation of workplace relationships, where employees hired by a local franchise operator (or subcontractor) could also be considered an employee of the “parent” company (or general contractor) that had no role in hiring decisions.  The new regulation revives the long-standing rule that two separate employers are considered “joint employers” only where they both have “direct and immediate control” over hiring standards, employment terms and working conditions. 

  • In practical terms, the Jan. 12 rule means that a local franchisee remains obligated to sit down and negotiate with unionized employees – but the remote franchisor company that never hired the workers has no collective bargaining responsibilities to them.  Similarly, a subcontractor that commits workplace safety violations is responsible to its laborers, but a general contractor is not similarly responsible unless it has “direct and immediate” control over job site conditions.

  • Advocacy over the joint employer rule has spanned the Obama and Trump Administrations.  For example, as part of a broad multi-industry coalition, The Roundtable wrote to congressional leaders back in 2017 about the harm to businesses caused by the NLRB’s Obama-era position, essentially advocating for the Labor Department’s rule handed down this week. (See past Roundtable Weekly stories – March 2, 2018 / Dec. 15, 2017 / Nov. 10, 2017 / Sept. 11, 2015)

  •  On Jan. 12, DOL Secretary Eugene Scalia and White House Chief of Staff Mick Mulvaney wrote in the Wall Street Journal about the new joint employer rule.

“The new rule also gives companies in traditional contracting and franchising relationships confidence that they can demand certain basic standards from suppliers or franchisees—like effective antiharassment policies and compliance with employment laws—without themselves being deemed the employer of the other company’s workers. That will help companies promote fair working conditions without facing unwarranted regulatory costs,” according to the two Trump Administration officials. (Wall Street Journal, Jan. 12)

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Treasury Issues Final Regulations Affecting National Security Concerns Over Foreign Investment, Including Real Estate Transactions

Posted on by Trey Jackson

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The Treasury Department on Jan. 13 issued two final regulations that increase the U.S. executive branch’s ability to address national security concerns arising from certain foreign investments, including real estate transactions.  (Treasury’s full text of the final regulations & related resources)

  • The new rules, which go into effect Feb. 13, will comprehensively implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA).  The Act authorizes the Committee on Foreign Investment in the United States (CFIUS) to review certain transactions involving foreign investment to determine potential effects on U.S. national security.
  • FIRRMA, enacted with bipartisan support in August 2018, established CFIUS’ jurisdiction over certain real estate transactions.  It also broadened CFIUS’ jurisdiction over certain non-controlling investments into certain U.S. businesses involved in critical technology, critical infrastructure, or sensitive personal data.
  • The new regulations were released in two parts: Provisions Pertaining to Certain Investments in the United States by Foreign Persons (31 C.F.R. part 800); and Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States (31 C.F.R. part 802).  (Skadden, Jan. 16 – “CFIUS’ Final Rules: Broader Reach, Narrow Exceptions and Foretelling Future Change“)
  • “These regulations strengthen our national security and modernize the investment review process,” said Treasury Secretary Steven T. Mnuchin. “They also maintain our nation’s open investment policy by encouraging investment in American businesses and workers, and by providing clarity and certainty regarding the types of transactions that are covered.”  (Treasury statement, Jan. 13)
  • The new rules create exemptions to CFIUS jurisdiction for so-called “excepted foreign states” that include nationals, entities, and governments of certain countries.  The current list of eligible foreign states includes Australia, Canada and the United Kingdom, but may expand to include other nations in the future.
  • The Real Estate Roundtable submitted comments to Treasury last year about the original, proposed CFIUS rules and requested clarifications about how investments in commercial real estate would be affected.  (Roundtable Weekly, Sept. 20, 2019 and Roundtable Letter, Oct. 17, 2019)
  • FIRRMA expands the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities.  Responding to concerns raised by The Roundtable and other industry groups, language is included in the rules that exempts real estate located in an ‘urbanized area’ from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people.
  • The new rules include other modifications to the proposed rules affecting real estate transactions.  The final rules lower the threshold for investors to qualify as “excepted investors.”  A foreign person who now qualifies as an excepted investor will not be subject to CFIUS’ jurisdiction for non-controlling investments regarding real estate transactions.  (Law 360, Jan. 15)
  • A Ropes & Gray Jan. 15 summary – “CFIUS Issues Final Rules Implementing FIRRMA: Key Changes and Developments” – reports that an entity may be deemed an “excepted investor” if, among other requirements:
    • 75 percent or more of the members and 75 percent or more of the observers of the board of directors (or comparable body) are citizens of either the United States or an excepted foreign state – instead of the 100 percent requirement articulated in the Proposed Rules, and
    • All investors that hold a 10 percent or greater equity interest are citizens of either the United States or an excepted foreign state – instead of the 5 percent or greater requirement set forth in the Proposed Rules.

According to a Jan. 16 JD Supra report — “Key Takeaways from CFIUS Final Rules Implementing FIRRMA  — the final rules also broaden the covered real estate exception for retail trade, accommodation, and food service stores.  The new rules apply the exception to leases and concessions of real estate that are “used only for the purpose of engaging in the retail sale of consumer goods or services to the public.”

CFIUS also intends to make a web-based tool available in the near term to assist the public with assessing what qualify as “covered real estate transactions” that are potentially subject to CFIUS review.

With these final rules, investors and companies now face a more complicated CFIUS framework that accounts for evolving national security risks involving foreign investments and real estate transactions.   

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) and Homeland Security Task Force (HSTF) plan to study the 132-page rule (part 802) affecting foreign transactions in U.S. real estate for more insight into how the new rules may impact commercial real estate investment.

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