Author: Trey Jackson

The Roundtable and Trade Associations Urge Congress to Pass Transportation Reauthorization before Sept. 2020 Expiration

Posted on by Trey Jackson

 

HIghway Infrastructure Houston

The Real Estate Roundtable and more than 150 national trade associations urged Congress this week to reauthorize the Highway Trust Fund – the nation’s primary source for road and mass transit funds – ahead of its September 30, 2020 expiration.  (Coalition letter, Sept. 30)

  • The coalition, led by the National Association of Manufacturers and the Associated General Contractors, wrote to Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Chuck Schumer (D-NY) on Monday supporting a long-term, robustly-funded surface transportation reauthorization bill.  (NAM news release, Sept. 30)
  • The Infrastructure Working Group’s letter notes the unanimous passage in July of S. 2302, America’s Transportation Infrastructure Act of 2019, by the Senate Environment and Public Works (EPW) Committee.  S. 2302 would authorize $287 billion over five years to repair and maintain the nation’s surface transportation.  (Roundtable Weekly, Aug. 2)
  • EPW’s bipartisan approval of S. 2302 may provide momentum for the full Senate to consider a package that addresses recommendations in the coalition’s letter, including:
    • Significantly increasing direct federal investments in infrastructure;
    • Fixing chronic challenges and recurring shortages in key federal infrastructure accounts such as the Highway Trust Fund;
    • Complementing and strengthening financing tools, such as municipal bonds, that successfully deliver infrastructure investments at the federal, state and local levels;
    • ‘Facilitating opportunities for private investment in U.S. infrastructure; and
    • Creating efficiencies in the federal permitting process, while continuing to provide environmental protections.
  • In related news, last week the Senate Appropriations Committee advanced a bill (31-0) to allocate federal dollars to fund the agencies responsible for transportation, housing assistance, and community development.  (Appropriations Committee news release, Sept. 19).  The spending bill – covering federal FY 2020, which started on Oct. 1 – supports the Gateway Program, a proposed $30 billion modernization of Amtrak’s Northeast Corridor connecting New Jersey and New York City.  Gateway would double rail capacity for the biggest train traffic bottleneck on the East Coast. (Senate Appropriations Markup, Sept. 26, and BGov, Sept. 24)

The Roundtable continues to provide infrastructure policy recommendations to Congress.  (Roundtable Weekly, May 3, 2019, and March 22, 2019).  Additionally, Roundtable President and CEO Jeffrey D. DeBoer discussed the role of public-private partnerships in modernizing the nation’s infrastructure on CNBC’s Squawk Box in June 2017.

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Trump Administration Allows Fannie, Freddie to Retain Earnings in Move Toward Privatization

Posted on by Trey Jackson

Fanne Mae and Freddie Mac logos

The Trump Administration took a key step on Sept. 30 to release Fannie Mae and Freddie Mac from conservatorship by allowing them to retain a total of $45 billion in earnings annually. (Wall Street Journal, Sept. 30)

  • Fannie and Freddie received $191 billion in government support during the financial crisis, but since entering conservatorship Sept. 6, 2008, they have paid the Treasury $292 billion in dividends, according to research from Keefe, Bruyette & Woods. (Reuters, March 27)
  • Under their modified governing agreements, Fannie Mae will now be allowed to retain $25 billion and Freddie Mac $20 billion annually (Bloomberg, Sept. 30)
  • The Treasury Department and Federal Housing Finance Agency (FHFA) jointly announced the modifications to the Government-Sponsored Enterprises’ (GSEs) Preferred Stock Purchase Agreements (PSPAs) – designed in the wake of the financial crisis to ensure Fannie and Freddie maintain positive net worth, meet outstanding obligations and continue providing liquidity to the multi-trillion dollar mortgage market.  (Fannie Mae Capital Agreement and Freddie Mac Capital Agreement)
  • “These modifications are an important step toward implementing Treasury’s recommended reforms that will define a limited role for the Federal Government in the housing finance system and protect taxpayers against future bailouts,” said U.S. Treasury Secretary Steven T. Mnuchin. (Treasury news release, Sept. 30)
  • FHFA Director Mark Calabria – Fannie and Freddie’s chief regulator – stated, “FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broader housing finance reform. These reform goals include limiting the government’s role in housing finance, increasing marketplace competition, focusing on affordable housing, and sustainable homeownership. The status quo is not an option. Now is the time to act.”
  • The Washington Post reported on Oct. 2 that Fannie, Freddie, and the Federal Housing Administration guarantee 33 percent more debt than before the housing crisis,  more than at any other point in U.S. history.
  • In Congress, Senate Banking Committee Chairman Mike Crapo (R-ID) on Feb. 1 released an outline for reforming the nation’s housing finance system, including the GSEs (Crapo Statement and Housing Reform Outline, Feb. 1).  At the end of March, Crapo’s committee held two days of hearings on reforming the multi-trillion dollar housing finance markets.  (Roundtable Weekly, March 29)

The Real Estate Roundtable and 27 industry organizations on March 1 submitted principles for reforming the GSEs.  The letter emphasized that compelling evidence must show the private market is capable of an expanded role before efforts are made to reduce the GSEs’ current housing finance footprint. “Ultimately, we believe any reform, be it administrative or legislative, must seek to further two key objectives: 1) preserving what works in the current system, while 2) maintaining stability by avoiding unintended adverse consequences for borrowers, lenders, investors, or taxpayers.”  (Roundtable Weekly, March 1)

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House Hearing on TRIA Reauthorization Announced for Oct. 16

Posted on by Trey Jackson

House Financial Services Committee Chairwoman Maxine Waters (D-CA)

House Financial Services Committee Chairwoman Maxine Waters (D-CA), above,  yesterday announced an Oct. 16 subcommittee hearing that will focus on “Protecting America: The Reauthorization of the Terrorism Risk Insurance Program.”  (Committee news release, Oct. 3)

  • Additionally, Financial Services Committee Member Carolyn Maloney (D-NY) will host a roundtable discussion on the reauthorization of the Terrorism Risk Insurance Act (TRIA) on Oct. 8 in New York City.
  • With TRIA currently set to expire at the end of 2020, a long-term, clean reauthorization is a top priority for The Real Estate Roundtable.  Yesterday, TRIA was a key topic of discussion during meetings of The Roundtable’s Homeland Security Task Force and Real Estate Capital Policy Advisory Committee in New York City. 
  • TRIA was originally enacted in 2002 in response to the inability of insurance markets to predict, price and offer terrorism risk coverage to commercial policyholders.  The law was extended in 2005, 2007 and again in 2015 – following a 12-day lapse when Congress failed to complete their work on reauthorization at the end of 2014.
  • The Roundtable and nearly 350 companies and organizations urged Congress last week to swiftly pass a long-term TRIA reauthorization. (Roundtable Weekly, Sept. 20)
  • The Sept. 17 coalition letter notes, “The American business community remembers all too well the twelve-day lapse in the program in early 2015 and the disruption that lapse played in a variety of markets.  We urge Congress to help provide much needed certainty by passing a long-term reauthorization of this important program without delay.”
  • Absent TRIA, there is not sufficient insurance and reinsurance capital available to provide comprehensive terrorism coverage to U.S. insurance buyers,” the coalition states.  (Reinsurance News, Sept. 17)
  • A 2019 Marsh study shows the highest “take-up” rates for terrorism risk insurance are in the education, media, financial institutions, real estate, hospitality and gaming, and health care sectors – all above 70%.

During an October 1 podcast episode of “Through The Noise,” Roundtable President and CEO Jeffrey DeBoer noted, “Businesses and facilities of all types need to see the terrorism risk insurance program extended. This need applies to hospitals, all commercial real estate buildings, educational facilities, sports facilities, NASCAR and theme parks, and really any place where commercial facilities host large numbers of people.”

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Congress Passes Government Funding Through November 21; President Trump Expected to Sign

Posted on by Trey Jackson

U.S. Capitol

A “Continuing Resolution” (CR) to fund the government at current levels through November 21 was approved by the Senate yesterday after House passage last week, sending the stopgap measure to President Trump for his signature. 

  • A senior White House official said President Trump will sign the CR, which avoids the threat of a government shutdown on October 1, the start of the government’s fiscal year.  The measure includes funding for programs of importance to commercial real estate, including the EB-5 Immigrant Investor Regional Center Program and National Flood Insurance Program.  (BGov, Sept. 26 and Roll Call, Sept. 23)

  • The CR gives lawmakers more time to negotiate spending levels and policy differences, since none of the 12 annual discretionary spending bills have been signed into law yet.  One of the most contentious issues in the appropriations process is funding for a wall on the southern border, which is overseen by the Department of Homeland Security.  Disagreements over wall funding led to the historic 35-day partial government shutdown in 2018–2019. (Politico, Jan. 25)

  • President Trump’s request for $5 billion for a southern border wall resulted in Democrats proposing an amendment in the Senate Appropriations Committee on Thursday to block the funds.  (Washington Post, Sept. 26)

  • Senate Appropriations Chairman Richard C. Shelby (R-AL) said, “As we close out this month, I think, we must acknowledge the progress we have made while also recognizing that we still have a long way to go in fulfilling our duty to fund the government.  Most importantly for those negotiations to end in success … my Democratic colleagues and the president will have to reach an agreement, once again, on border security.”

  • The appropriations dispute exists despite an agreement over the summer between Congress and the administration on a broad deal that allocated more than $2.7 trillion in discretionary federal spending over two years and suspended the debt ceiling until July 2021.  (Roundtable Weekly, Aug. 2)

Congress will return from a two-week recess on Oct. 15 to face the Nov. 21 funding deadline, or the prospect of another partial government shutdown.   The tight timeframe poses the possibility of more stopgap measures if differences over funding levels cannot be resolved.  Another scenario is the prospect of a full-year CR.  (CQ and Politico, Sept. 26)

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Senate Committee Advances Portman-Shaheen Energy Efficiency Bill

Posted on by Trey Jackson

Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH)

The Senate Energy and Natural Resources (ENR) Committee passed a bill on Wednesday that emphasizes voluntary measures and incentives to drive energy efficiency improvements in U.S. buildings, manufacturing, and other economic sectors. 

  • The Energy Savings and Industrial Competitiveness (ESIC) Act (S. 2137) – sponsored by Senators Rob Portman (R-OH), above left, and Jeanne Shaheen (D-NH), right, and long endorsed by The Real Estate Roundtable – was advanced by the panel, along with several other energy bills.
  • Senator Lisa Murkwoski (R-AK), chairman of the ENR Committee, noted during the hearing, “For several Congresses now, [S. 2137] has been the Senate’s flagship effort on energy efficiency.  I’m hopeful that we are going to be able to see this into law.”
  • The ESIC Act passed the committee by a substantial margin (14-6), although provisions regarding voluntary building energy codes failed to garner a majority of Republican votes.  Murkowski added that the codes sections still needed more work to gain fuller bipartisan support.  She was optimistic that the “prevailing concerns” of industry stakeholders could be resolved.  (Committee video, Sept. 25)
  • The ESIC Act would improve current laws by adding “open government” and transparency provisions that do not currently apply to the development of building energy codes.  Real estate and other stakeholders would be provided a platform to comment on DOE code proposals affecting the industry. The measure also includes a new requirement that would compel the U.S. Department of Energy (DOE) to consider costs and small business impacts as part of the codes development process.  (Roundtable support letter for S. 2137)
  • S. 2137 would also direct the two federal agencies that separately collect critical nationwide data on building energy use – namely, the Energy Information Administration and the Environmental Protection Agency – to coordinate on their respective programs and take steps to ensure higher quality, more consistent data.
  • The ESIC Act “is exactly the kind of smart, forward-looking policy that will help building owners respond to our modern, evolving economy” Roundtable President and CEO Jeffrey DeBoer stated in a Senate news release upon the bill’s introduction this summer.  (Roundtable Weekly, July 19) (Video of DeBoer’s statement)

Further negotiations to refine the ESIC Act are anticipated in the coming weeks before it might advance to the full Senate for a vote.  Companion legislation is pending in the House (H.R. 3962), sponsored by Peter Welch (D-VT) and David McKinley (R-WV).

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House Passes Legislation to Permit Banking Services for Legal Cannabis-Related Businesses

Posted on by Trey Jackson

Jeffrey DeBoer, Real Estate Roundtable President and CEO

Real Estate Roundtable President and CEO Jeffrey DeBoer

The House of Representatives on Sept. 11 passed the Secure and Fair Enforcement (SAFE) Banking Act [H.R. 1595 (116)] – a Roundtable-supported bill that would allow federally regulated banks to provide mortgage and financial services to state-licensed, cannabis-related businesses (“CRBs”) without the threat of federal penalties. (Wall Street Journal, Sept. 25)

  • The SAFE Banking Act would also provide protection from the threat of federal enforcement action for real estate owners, law firms and other businesses that provide services to state-approved CRBs.
  • The bill – authored by Reps. Ed Perlmutter (D-CO) and Denny Heck (D-WA) and cosponsored by Reps. Steve Stivers (R-OH) and Warren Davidson (R-OH) – passed by a vote of 321 to 103.
  • Today, 47 states, four U.S. territories, and the District of Columbia – representing 97.7 % of the U.S. population – have legalized some form of recreational or medical marijuana, including CBD oil.  (Rep. Perlmutter news release, Sept. 25)
  • Rep. Perlmutter stated, “Thousands of employees, businesses and communities across this country have been forced to deal in piles of cash because of the conflict between state and federal law. After six years of working on this bill, the SAFE Banking Act will go a long way in getting cash off our streets and providing certainty so financial institutions can work with cannabis businesses and employees.” 

  • The Real Estate Roundtable sent a letter urging swift enactment of SAFE Act in March to the leadership of the House Financial Services and Judiciary Committees.  Roundtable President and CEO Jeffrey DeBoer noted in the letter, “H.R. 1595 clarifies that banks could not take adverse action on a loan to a real estate owner solely because that owner leases property to a legitimate CRB.  The measure also protects sellers and lessors of real estate and other CRB ‘service providers’ by clarifying that proceeds from legitimate marijuana-related transactions do not derive from unlawful activity, and thus do not provide a predicate for federal criminal money laundering.” (Roundtable letter, March 25, 2019)
  • In the Senate, the Banking, Housing and Urban Affairs Committee in July held a hearing on the banking-related challenges faced by CRBs.  The hearing featured testimony by Sens. Cory Gardner (R-CO) and Jeff Merkley (D-OR), co-sponsors of the SAFE Banking Act (S. 1200). 

  • Sen. Gardner stated on Wednesday, “The conflicting federal and state marijuana laws make it difficult for legitimate businesses to use basic financial services, and this bipartisan legislation gets Washington out of the way and gives them the access they need to do business and pay taxes. Today’s historic action in the people’s House adds to the momentum the SAFE Banking Act gained following the Banking Committee’s hearing in July. The Senate should move forward with the SAFE Banking Act and deliver it to the President for his signature.” (Gardner news release, Sept. 25)
  • In an interview with Politico, Senate Banking Chairman Mike Crapo (R-ID) said, “”This is an issue in which I have seen strong support not only across the country from various banking institutions, even the small community banks in states that don’t have the issue, but also among colleagues on both sides of the aisle,” he said. “I think there will be good support for it.”  (Politico, Sept. 27)
  • Sen. Crapo also said he may consider new additions to a Senate cannabis banking bill that could include anti-money laundering measures. 

Amendments were added to the House SAFE Banking Act to make it more appealing to Senate leadership, yet prospects for the bill’s passage in the Senate remain uncertain.  (MarketWatch and Politico, Sept 26)

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Broad Business Coalition Urges Congress to Extend Terrorism Risk Insurance Act (TRIA)

Posted on by Trey Jackson

A broad business coalition urged Congress in a September 17 letter to swiftly pass a long-term reauthorization of the Terrorism Risk Insurance Act (TRIA), which is currently set to expire at the end of 2020.  Nearly 350 companies and organizations signed the letter including The Real Estate Roundtable.  (Coalition Letter ) 

  • TRIA was originally enacted in 2002 in response to the inability of insurance markets to predict, price and offer terrorism risk coverage to commercial policyholders.  The law was extended in 2005, 2007 and again in 2015 – following a 12-day lapse when Congress failed to complete their work on reauthorization at the end of 2014.
  • The coalition letter notes, “The American business community remembers all too well the twelve-day lapse in the program in early 2015 and the disruption that lapse played in a variety of markets.  We urge Congress to help provide much needed certainty by passing a long-term reauthorization of this important program without delay.”
     
  • The coalition emphasizes that TRIA has served as a vital public-private risk sharing mechanism, ensuring that private terrorism risk insurance coverage remains available to commercial businesses, educational institutions and non-profit organizations at virtually no cost to the taxpayer.  
  • According to a 2019 Marsh study, the education, media, financial institutions, real estate, hospitality and gaming, and health care sectors had the highest ‘take-up’ rates among the 17 industry segments surveyed – all above 70%.
  • Additionally, a 2018 Treasury Department report stated that “the Program has made terrorism risk insurance available and affordable in the United States, and the market for terrorism risk insurance has been relatively stable for the past decade.”
     
  • The letter emphasizes, “The undersigned organizations urge Congress to promptly enact a ‘clean’ long-term extension of this vital program.  Making changes to the TRIA mechanism to increase insurer retentions could affect the ability of many insurers, particularly smaller and mid-sized companies, to write risks or markets altogether, which ultimately impacts the ability of policyholders to secure adequate coverage.

Absent TRIA, there is not sufficient insurance and reinsurance capital available to provide comprehensive terrorism coverage to U.S. insurance buyers,” the coalition states.  (Reinsurance News, Sept. 17) 

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Treasury Releases Regulations Addressing National Security Concerns and Foreign Investment in Real Estate

Posted on by Trey Jackson

The Treasury Department yesterday issued proposed regulations to comprehensively implement the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which seeks to more closely scrutinize certain investments and real estate transactions potentially affecting national security. (New York Times, Sept. 17) 

  • The proposed regulations include reforms to the Committee on Foreign Investment in the United States (CFIUS) – an interagency committee authorized to review certain transactions involving foreign investment in the United States for national security concerns.  The CFIUS reforms in FIRRMA received broad support in Congress and were signed by President Trump on August 13 as part of a defense funding bill. (Wall Street Journal, Aug. 15 and Roundtable Weekly, August 17) 
  • The Treasury released the rules, which affect real estate and private equity transactions, in two parts:

Provisions Pertaining to Certain Investments in the United States by Foreign Persons (31 C.F.R. part 800)

Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States (31 C.F.R. part 802)

  • The second part of the regulations clearly demonstrate that the federal government is intent on reviewing more real estate transactions for security concerns, while considering country-specific exemptions for the first time. 
  • The text affecting real estate includes, “FIRRMA expands CFIUS’s jurisdiction to include certain types of real estate transactions involving the purchase or lease by, or a concession to, a foreign person of certain private or public real estate located in the United States.”
  • The rule continues, “FIRRMA focuses on two general categories of real estate and provides certain exceptions. The first category of real estate is described by its relation to airports and maritime ports. The second category of real estate is described by its relation to U.S. military installations and other facilities or properties of the U.S. Government that are sensitive for national security reasons.”
  • An analysis of the proposed CFIUS reform regulations is available via Bloomberg Law.
  • The full text of the proposed regulations and frequently asked questions can be found on the Department of the Treasury’s website. 

The Roundtable plans to prepare comments, which are due by October 17, 2019 before the law is scheduled to go into effect in February, 2020. 

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Roundtable Requests Regulatory Correction to Unfair Tax Rules Affecting New Condo Construction

Posted on by Trey Jackson

Condo-construction-shst-x475w

The Roundtable on August 21 wrote to Treasury Secretary Steven Mnuchin requesting regulatory relief from existing tax accounting rules that unfairly accelerate federal income tax liability for new condominium construction.  (Roundtable letter ) 

  • Current condo tax accounting rules require multifamily developers of condominium buildings with five or more residential units to recognize income and pay tax on their expected profit as construction is ongoing — well before pre-sale transactions are closed and full payment is due from the buyer.  The existing rules create a mismatch of cash flow and tax liability. Home builders of single-family homes, townhouses and row houses are not subject to this accounting rule restriction.  
  • Roundtable President and CEO Jeffrey DeBoer states in the letter, “The existing, discriminatory tax rule for condominium construction is particularly harmful in light of the significant and often measureable economic, environmental, and social benefits of high-density residential development.  High-density development brings down the costs of infrastructure, as well as the costs of key public services: police, fire, and emergency medical assistance.  The environmental benefits include reduced vehicle emissions and smaller ecological footprints that minimize encroachment on farms, forests, and other sensitive areas.  In addition, research links high-density growth to greater labor productivity and economic innovation.” 
  • The Roundtable’s letter details how the completed contract method of accounting – rather than the percentage of completion method – would more accurately fit the economics of condominium construction.  (Tax Notes, August 23)
  • In 2008 the IRS and Treasury released proposed regulations (REG-120844-07) under section 460 that would treat individual condo units as townhouses or rowhouses.
      
  • The Roundtable letter explains, “The Treasury Department can solve this problem, however, and provide a lift to homebuilding and the economy by simply finalizing a previously proposed regulation that regrettably fell off the Department’s regulatory agenda in the last Administration.  Pending, proposed Treasury regulations would modify what is considered a home construction contract and clarify that condominium construction qualifies for the completed contract method of accounting.” 

A House bill introduced in the last Congress by Reps. Carlos Curbelo (R-FL) and Joe Crowley (D-NY) aimed to correct this disparity.  Although the Fair Accounting for Condominium Construction Act (H.R. 3659) stalled in 2017, it could serve as a template for development of new legislation to correct current condominium tax accounting rules.  

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California Law Reflects National Affordable Housing Trend in Rent Regulations

Posted on by Trey Jackson

California lawmakers passed legislation (AB 1482) September 11 that imposes a statewide cap limiting annual rent increases to 5% after inflation – the latest measure from a growing list of jurisdictions seeking to address housing affordability though rent regulations.  California Governor Gavin Newsom (D) has said he will sign the bill. (New York Times, Sept. 11 and NMHC, Sept. 12)

  • In a state of nearly 40 million people, California’s rent control measure could affect an estimated 8 million residents of rental homes and apartments. (Realtor Magazine, Sept. 12).  The 5% rent increase cap would not apply to housing built within the last 15 years or to single-family homes that are not corporate-owned. 
  • National Multifamily Housing Council (NMHC) President Doug Bibby responded, “After Californians overwhelmingly rejected the rent control ballot initiative less than a year ago, lawmakers today went against their constituents by passing a measure that will discourage investment, shrink the availability of affordable housing that already exists and squeeze even more people struggling in the housing market. This makes the problem worse. The housing affordability crisis is real, real Americans are being harmed by it every day and we need real solutions – not restrictive policies that we know don’t work.” (NMHC news release, Sept. 12)
  • An interactive national map, above, by the NMHC details the trend in state capitals addressing rent control measures.   In New York, a rent control law signed by Governor Andrew Cuomo on June 14 directly impacts about 40 percent of New York City’s apartment stock; freezes “stabilized” NYC apartments from moving to market rental rates; and discourages owners from modernizing aging housing.  (Wall Street Journal, June 14 and Roundtable Weekly, June 21).
  • Meanwhile, candidates on the 2020 campaign trail are offering plans to address the nation’s affordable housing needs. (NPR, June 18)  
  • Affordable housing proposals in Congress include an expansion of the low-income housing tax credit program (e.g., S. 1703,  H.R. 3077), and a similar tax credit geared to moderate-income, workforce housing (S. 3365, 115th Cong.).

Housing and Urban Development Secretary Ben Carson recently offered a strategy to boost affordable housing by encouraging localities to ease their own building restrictions. (Politico, June 14).  Secretary Carson is scheduled to discuss housing policy issues with Roundtable members during the organization’s Fall Meeting on October 30 in Washington.

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