Author: Trey Jackson

Treasury Designates More than 8,700 Census Tracts as Opportunity Zones

Posted on by Trey Jackson

The Treasury Department on June 20 designated more than 8,700 low-income census tracts in the United States, Puerto Rico, and territories as qualified Opportunity Zones. (IRS Notice 2018-48)

A Roundtable Tax Policy Advisory Committee working group is finalizing a comment letter to the Treasury Department and IRS with recommendations on how to structure implementing rules that facilitate productive real estate investment.

  • Congress created the Opportunity Zone tax incentive program in the Tax Cuts and Jobs Act. Incentives reward Opportunity Fund investors with a capital gains deferral or exclusion on their invested capital in low-income communities.
  • Opportunity Funds must invest in tangible business property located in a qualifying zone, which can include real estate, and the tax benefits are tied to the investment holding period.  The capital gain on an Opportunity Fund investment is excluded from tax altogether if the asset is held for 10 years or more. (Opportunity Zones: An Innovative Investment Vehicle Created by the TCJA , Accounting Today, June 6, 2018).
  • Real estate investment aligns with the underlying objectives of the Opportunity Zone program – job creation, infrastructure development and growth in the tax base supports local public services. 
  • Opportunity Zones were the topic of a panel discussion at The Roundtable’s Tax Policy Advisory Committee (TPAC) meeting last week. Speakers included Shay Hawkins, Tax Counsel for Senator Tim Scott (R-SC), the original author or Opportunity Zone legislation. Treasury’s Tax Legislative Counsel Tom West also addressed a number of questions related to Opportunity Zones. 

A TPAC working group is finalizing a comment letter to the Treasury Department and IRS with recommendations on how to structure implementing rules that facilitate productive real estate investment.  The letter will address topics such as the Opportunity Fund certification process, the requirements necessary for real estate to be treated as a qualified Opportunity Zone investment, and the tax consequences of real estate asset sales and acquisitions by an Opportunity Fund during the holding period.

Supreme Court Rules States Can Collect Sales Tax from Online Retailers; Uniform Collection Standards Present Significant Challenge

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The Supreme Court yesterday ruled 5-4 in South Dakota v. Wayfair to expand States’ authority to collect sales and use taxes on Internet consumer purchases from retailers who do not have a physical presence in a state. 

The Supreme Court yesterday ruled 5-4 in South Dakota v. Wayfair to expand States’ authority to collect sales and use taxes on Internet consumer purchases from retailers who do not have a physical presence in a state.

  • Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer commended the Court’s long-anticipated ruling.  He noted the decision “rejects an antiquated ‘physical presence’ standard. That test exempted on-line retailers from collecting sales and use taxes – yet imposed those obligations on traditional ‘brick-and-mortar’ retailers.  DeBoer also noted the ruling “will enable states to collect much-needed revenue to provide public services and invest in local infrastructure projects.”  (Roundtable Statement, June 21)
  • The Roundtable on March 5, 2018 joined The International Council of Shopping Centers (ICSC), Investment Program Association, Nareit®, the National Association of REALTORS® , the National Multifamily Housing Council, NAIOP, the American Farm Bureau Federation and the South Dakota Farm Bureau Federation in filing an amicus curiae brief.  (Roundtable Weekly, March 9) 
  • While the Wayfair decision overturns previous case law, it also creates the potential for a patchwork of state-level collect and remit statutes, which may lead to efforts by Congress to simplify States’ tax collection practices. 
  • Justice Anthony Kennedy wrote in the majority opinion: “Eventually, software that is available at a reasonable cost may make it easier for small businesses to cope with these problems. Indeed, as the physical presence rule no longer controls, those systems may well become available in a short period of time, either from private providers or from state taxing agencies themselves. And in all events, Congress may legislate to address these problems if it deems it necessary and fit to do so.” (Supreme Court opinion, South Dakota vs. Wayfair) 
  • In the dissent, Chief Justice John Roberts reflected his belief that the decision could preclude a federal solution from Congress: “Armed with today’s decision, state officials can be expected to redirect their attention from working with Congress on a national solution, to securing new tax revenue from remote retailers.” (Supreme Court opinion, South Dakota vs. Wayfair) 

ICSC President and Chief Executive Officer Tom McGee said, “We understand this is a major step in a long process, but look forward to working with policymakers and business owners to find state-level legislative solutions which promote fairness and competition.” (CoStar News, June 21) 

The Roundable’s DeBoer added, “We stand ready to assist policymakers should they respond to today’s decision with legislation that provides our nation’s businesses with fair standards to collect the tax that is owed on online sales.”  (Roundtable Statement, June 21)

Real Estate Roundtable Commends Supreme Court Decision to End Tax Discrimination Against Main Street Retailers

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(WASHINGTON, D.C.) — Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer released the following statement on today’s Supreme Court decision  (5-4) in South Dakota v. Wayfair expanding States’ authority to collect sales and use taxes on Internet consumer purchases from retailers who do not have a physical presence in a state.

“The Real Estate Roundtable commends the Supreme Court for their decision today that ends tax discrimination against Main Street retailers by expanding States’ authority to collect sales taxes on e-commerce purchases. 

Today’s ruling is long overdue and rejects an antiquated “physical presence” standard.  That test exempted on-line retailers from collecting sales and use taxes – yet imposed those obligations on traditional “brick-and-mortar” retailers. 

The ruling will enable states to collect much-needed revenue to provide public services and invest in local infrastructure projects.  Research data from The National Conference of State Legislatures and International Council of Shopping Centers shows that nearly 26 billion dollars in state and local sales taxes from online sales went uncollected in 2015. 

Many issues remain for Congress to craft a uniform, efficient system. We stand ready to assist policymakers should they respond to today’s decision with legislation that provides our nation’s businesses with  fair standards to collect the tax that is owed on online sales.”

The Roundtable on March 5, 2018 joined The International Council of Shopping Centers, Investment Program Association, Nareit®, the National Association of REALTORS® , the National Multifamily Housing Council, NAIOP, the American Farm Bureau Federation and the South Dakota Farm Bureau Federation in filing an amicus curiae brief.  

The Real Estate Roundtable brings together leaders of the nation’s publicly-held and privately owned real estate ownership, development, lending and management firms with the leaders of national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

Six-Month Anniversary of Tax Reform Showing Success; House Ways and Means Committee Chairman Kevin Brady Awarded Roundtable’s “Champion of the Economy” Award

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Marking the half-year anniversary of the final passage of the Tax Cuts and Jobs Act (TCJA), House Ways and Means Committee Chairman Kevin Brady (R-TX) joined Speaker Paul Ryan (R-WI) and Secretary of the Treasury Steven Mnuchin in recognizing the law’s benefits to American taxpayers and businesses.  (Video, National Association of Manufacturers, June 21)

  House Ways and Means Committee Chairman Kevin Brady (R-TX), center, was awarded The Real Estate Roundtable’s Champion of the Economy Legislative Leadership Award for his efforts on the Tax Cuts and Jobs Act. 

 

  • “In the six months since we reformed the tax code, we have the fastest growth in investments, new equipment, and technology since 2011. We’ve now seen almost nine out of ten manufacturers increase their investments—investing in their business, workers and their future.”  (Brady remarks, June 21).  Brady also touted tax reform’s results to-date in a Wall Street Journal commentary, “Six Months After Tax Reform, Something Big Is Happening.” 
  • Chairman Brady was awarded The Real Estate Roundtable’s Champion of the Economy Legislative Leadership Award last week for his efforts on the TCJA. 
  • Roundtable President and CEO Jeffrey DeBoer and Roundtable Chair William C. Rudin (Co-Chairman & CEO, Rudin Management Company, Inc.) presented the award during The Roundtable’s 2018 Annual Meeting.  DeBoer said, “Consumer confidence is at a 17-year high. Nearly one million jobs have been created since tax reform passed.  The 3.8 percent unemployment rate has been matched only once since 1969.  Wage growth is accelerating – 2.8 percent year-over-year last month.  GDP growth is widely expected to come in well over 3 percent in the second quarter.  All of this is happening as inflation remains stable near the Fed-targeted rate of 2 percent. In short, the bill has kick started the American economy and extended the economic cycle.”
  • DeBoer added, “Chairman Brady successfully achieved what he set out to achieve—a positive investment environment, greater job growth, and more money in the pockets of American families and businesses.”

In his acceptance comments, Brady noted that the Ways and Means Committee is “continuing to clarify new parts of the tax code, work with Treasury and get technical corrections made.”  Brady also said his goal is to continue encouraging growth and investment.  “Early signs are very encouraging. The best is yet to come.” 

EPA Recognizes Roundtable Members with “ENERGY STAR for Tenants” Award for High Performance Office Spaces

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The Environmental Protection Agency (EPA) on June 12 announced the first-ever federal government awards for energy efficiency in leased office spaces. Many Roundtable members and their tenants are recognized among the award’s inaugural winners.  (EPA list of tenants and landlords) 

SPAC Chairman Tony Malkin (Chairman and CEO,  Empire State Realty Trust ) stated, “This is a great example of the Roundtable at work. We took best industry practice, formulated policy around it, and worked with staff and members of Congress to develop legislation for the good of the economy, our industry and the environment.”

  • Originally envisioned by The Roundtable’s Sustainability Policy Advisory Committee (SPAC), EPA’s ENERGY STAR for Tenants program has been long-supported by the industry.  After the enactment of the 2015 “Tenant Star” law, EPA was tasked with piloting the branding program for energy-efficient tenant spaces that met certain design criteria.  (Roundtable Weekly, June 30, 2017) 
  • SPAC Chairman Tony Malkin (Chairman and CEO, Empire State Realty Trust) stated, “This is a great example of the Roundtable at work.  We took best industry practice, formulated policy around it, and worked with staff and members of Congress to develop legislation for the good of the economy, our industry and the environment.  At the same time, our Sustainability committee worked with the Department of Energy and the EPA within their structures, rules, and regulations for years to create a new label for energy efficient tenant spaces, to complement existing programs that award whole-building efficiency.  This voluntary program will lead to a significant increase in cost-saving leased spaces as companies vie for EPA’s tenant label in the future.” 
  • Roundtable President and CEO Jeffrey DeBoer noted the national value of the new federal recognition program. “Without any tax credit or subsidy, EPA’s new seal of approval can motivate tenants and landlords across the country to demonstrate their commitment to energy efficiency in leased commercial building space.  As EPA’s new office space program expands, CRE leaders  will have more opportunities to distinguish their buildings for investors, tenants, and the Millennial workforce who place a premium on sustainable assets.”  
  • To earn the label, applicants must verify how they drive energy efficiency in five key areas in the design and construction of high performance leased spaces.     (EPA Documents and Tools for Tenants) 
  • As funding for the federal ENERGY STAR program also affects the new EPA Charter Tenant program, a Senate Appropriations subcommittee on Tuesday affirmed the Trump Administration’s recommendation to continue ENERGY STAR program funding for FY2019 (starting October 1, 2018).  For the agency’s programs overall, the Senate panel recommended that appropriations be maintained at the status quo for the next fiscal year.  (The Hill, June 12) 

The 2018 ENERGY STAR Charter Tenants program was a focus during today’s SPAC’s meeting in Washington, which included presentations from EPA and other key federal agency officials.

“Building Success” Reports on The Roundtable’s FY2018 Policy Activities in Tax, Capital and Credit, Homeland Security, Energy and Infrastructure Issue Areas

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The Real Estate Roundtable has released its FY2018 Annual Report “Building Success,” which reports on the organization’s policy activities from July 1, 2017 to June 30, 2018 and outlines its policy priorities for the coming year.

  • “We are extremely proud of our success this past year and equally eager to build on its foundation as we move into our new fiscal year. As always, we will continue to inform lawmakers with consistent and credible policy analysis that encourages economic growth, job creation, and a healthy national real estate market,” said Roundtable President and CEO Jeffrey D. DeBoer.
  • Immediate Past Roundtable Chair (2015-2018) William C. Rudin (Co-Chairman and CEO, Rudin Management Company, Inc.) noted the continued efforts of promoting greater diversity throughout the organization and his efforts during his tenure as Chair. “We have made measurable progress at identifying and recruiting more highly qualified women and people of color to join, and participate at The Roundtable. With greater membership diversity, we ensure that our decisions are better informed and more sustainable.”

The Report includes summaries showing continued progress on the policy front, including:

  • In late 2017, the most comprehensive tax reform in over 30 years, the Tax Cuts and Jobs Act, was signed into law.  Due in large part to the Roundtable’s advocacy efforts, TCJA preserved interest deductibility; retained like-kind exchanges for real estate; and maintained depreciation and cost recovery rules. The Roundtable and its Tax Policy Advisory Committee is continuing its efforts with Treasury and the Administration to ensure appropriate implementation of the comprehensive law.
  • Congress passed financial deregulation legislation – Economic Growth, Regulatory Relief, and Consumer Protection Act (S.2155) – that included important reforms to the Basel III High Volatility Commercial Real Estate (HVCRE), which promote sustainable development and lending, and lowers financial barriers for job-creating projects.
  • The Federal Reserve and four other federal agencies approved a proposal to simplify and ease the Volcker Rule.  The proposal, known as Volcker 2.0, seeks to simplify regulatory requirements by giving banks new quantitative “bright-line rules” to provide more clarity on what activities are prohibited and permitted.
  • As a long-time supporter of the ENERGY STAR Program, The Roundtable was a key player in the creation and ongoing development of the EPA’s new charter tenant program “ENERGY STAR for Tenants” labeling platform of high-performance leased office spaces.
  • Anticipating infrastructure as a policy issue for possible compromise after the upcoming midterm elections, The Roundtable offered comments to the Administration and Congressional committees on real estate’s role in creating public-private partnerships to help repair the roads, transit, broadband, power grid and other systems needed to make our communities safe, productive and competitive.

Newly elected Roundtable Chair Debra A. Cafaro (Chairman and Chief Executive Officer, Ventas, Inc.) emphasized that The Roundtable’s policy agenda remains full of key issues that require our engagement as a non-partisan industry voice. “Above all, we must uphold our independent and respected position on Capitol Hill, emphasizing our optimism about the economy and the positive contributions the real estate industry provides as a job creator and as a cornerstone for retirement savings. We are committed to proactively advancing policies that promote a healthy balance of capital and people flows to create sustainable economic growth that is good for our members, our industry and our national economy,” said Cafaro.

The publication includes a listing of all Roundtable members, as well as the FY2019 Board of Directors and Committee Leadership, and has been mailed to all Roundtable members, congressional offices on Capitol Hill, and is available online.

Strong Commercial Real Estate Conditions Persist Despite Concerns Over Interest Rates and Trade Tariffs

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Near-term optimism about commercial real estate market conditions are tempered by concerns over expected increases in interest rates and uncertainty about the effects of international trade tariffs, according to several recent economic and industry reports.  

The Federal Reserve is expected next week to raise its target interest rate above the rate of inflation for the first time in a decade.

  • The Federal Reserve is expected next week to raise its target interest rate above the rate of inflation for the first time in a decade. The Federal Open Market Committee in March raised the fed funds rate a quarter point to 1.75 percent, signaled rates will climb to 2 percent in 2018, and projected three additional hikes for 2019. (Reuters, June 7, “Fed Clambers Back to Positive Real Rates, Now Debate is When to Stop” and Politico, March 21) 
  • Interest rates and economic uncertainty are top concerns for the commercial real estate industry, despite near-term optimism from improved economic conditions, changes in the tax code and the promise of a loosening regulatory environment. ( 2018 Akerman U.S. Real Estate Sector Report, June 5) 
  • Nareit reports that the U.S. real estate market is likely to continue to grow for the next three to five years as current policies such as tax reform benefit the industry, according to a panel at a Capital Markets Update during REITweek: 2018 Investor Conference. (Nareit, June 6) 
  • The Fed’s latest “Beige Book” of current economic conditions shows positive growth and widespread concerns about trade tariffs.  The report also notes that steel and aluminum prices rose, “sometimes dramatically” due to recent duties imposed by the Trump Administration. The Beige Book is one of the first official reports showing the economic impact of the new tariffs on domestic business. (Roundtable Weekly, March 9 and  The Wall Street Journal, April 18)  
  • Commenting on these concerns, Roundtable President and CEO Jeffrey DeBoer noted the findings of The Real Estate Roundtable’s Q2 2018 Economic Sentiment Index: “There are fears about political uncertainty, trade wars, and interest rate increases, which are having some impact and creating a manageable amount of uncertainty for the markets for the remainder of 2018 and looking ahead to 2019.”  (Roundtable News Release, May 10) 

Economic policies that support economic growth will be a focus of discussion during next week’s 2018 Roundtable Annual Meeting in Washington, DC, which will feature special guests such as House Majority Leader Kevin McCarthy (R-CA), House Ways and Means Chairman Kevin Brady (R-TX) and Senate Minority Leader Chuck Schumer (D-NY).

Five Regulatory Agencies Clear Path for Volcker Rule Changes

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The Securities and Exchange Commission (SEC) this week became the fifth and final regulatory agency to advance possible reforms to the Volcker Rule, which aims to restrict proprietary trading practices at banks. The Federal Reserve became the first agency to move a proposal to simplify and ease the Volcker Rule forward last week, followed by the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Commodity Futures Trading Commission.  If adopted, this proposed revision is expected to enhance liquidity to commercial mortgage-backed securities (CMBS) markets.  (Roundtable Weekly, June 1)

SEC Chairman Jay Clayton

  • SEC Chairman Jay Clayton said, “The proposal seeks to simplify and tailor the 2013 final rule. I strongly encourage all interested parties to comment on the many questions proposed in the release and I look forward to commentator input about implementing the Volcker Rule in a more effective way.”
  • In a memorandum to the Fed’s Board of Governors, Fed Vice Chairman for Supervision Randall Quarles details the changes in the proposal.
  • U.S. Treasury Secretary Steven Mnuchin on June 5 commended the efforts of the Agencies.  Mnuchin stated, “The Treasury Department strongly supports changes aimed at better tailoring the application of the rule, preserving liquidity during periods of stress, decreasing unintended compliance burdens, and encouraging capital formation.  The five agencies responsible for regulation of the Volcker Rule coming together on this notice is an important first step. These efforts are building on the relief for Main Street borrowers and lenders included in the Economic Growth, Regulatory Relief, and Consumer Protection Act recently signed into law by President Trump.”
  • In a January 2012 comment letter to the Federal Reserve and other financial regulatory agencies, The Roundtable raised concerns about the unintended consequences of the Volcker Rule that could “negatively impact liquidity and capital formation in commercial real estate.”

The Volcker rule reform proposal will be a topic of discussion at next week’s Real Estate Capital Policy Advisory Committee (RECPAC) held in conjunction with The Roundtable’s Annual Meeting in Washington. The Roundtable plans to submit comments to the Agencies before a final rule is expected to be in effect by January 1, 2019.

Trump Administration Imposes Tariffs on Imported Steel and Aluminum from European Union, Canada and Mexico

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The Trump Administration today imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from the European Union, Canada and Mexico, sparking rebukes from congressional Republicans and foreign policymakers, who have threatened retaliatory measures.

The Trump Administration imposed a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from the European Union, Canada and Mexico, sparking rebukes from congressional Republicans and foreign policymakers, who have threatened retaliatory measures.

  • When the steel and aluminum tariffs were initially proposed in March, an exemption was granted until June 1 for certain trade partners, including Canada, Mexico and the EU – yet negotiations about the Administration’s domestic production concerns were not resolved by today’s deadline. 
  • Roundtable President and CEO Jeffrey DeBoer noted the commercial real estate industry’s concerns, stating “For every job in the steel production industry, there are more than 50 jobs in the US construction industry (140,000 vs. 7-10 million). New tariffs on construction materials like steel could have the unfortunate, unintended side effect of raising construction costs and reducing jobs in real estate development.” (Roundtable Weekly, March 9) 
  • According to the U.S. Department of Commerce, the U.S. imported 34.6 million metric tons of steel last year, a 15% increase from 2016.  The International Trade Administration reports the largest supplier of steel to the U.S. is Canada, accounting for 77% – while Mexican steel accounts for about 9% of U.S. imports. USA Today reports that the majority of that metal is used in construction, auto manufacturing and appliances. (USA Today, May 31) 
  • House Ways and Means Chairman Kevin Brady (R-TX) today stated, “These tariffs are hitting the wrong target. When it comes to unfairly traded steel and aluminum, Mexico, Canada, and Europe are not the problem-China is. This action puts American workers and families at risk, whose jobs depend on fairly traded products from these important trading partners,” Brady said. 
  • Sen. Mike Lee (R-UT) said he would introduce legislation next week to curtail the president’s powers to impose tariffs for reasons of national security. (The Hill, June 1) 
  • “You don’t treat allies the same way you treat opponents,” Sen. Ben Sasse (R-NE) stated.  “Blanket protectionism is a big part of why we had a Great Depression. ‘Make America Great Again’ shouldn’t mean ‘Make America 1929 Again.'”  

In the Federal Reserve’s latest “Beige Book” about economic conditions, positive growth is tempered by widespread concerns about trade tariffs. The report summary also notes that steel and aluminum prices rose, “sometimes dramatically” due to recent duties imposed by the Trump Administration. (Roundtable Weekly, March 9)  The Beige Book is one of the first official reports showing the economic impact of the new tariffs on domestic business. (Wall Street Journal, April 18)

The Fed and FCIC Vote to Simplify and Ease Volcker Rule

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A proposal to simplify and ease the Volcker Rule, which restricts proprietary trading practices at banks and is enforced by five separate federal agencies, was unanimously approved this week by both the Federal Reserve and Federal Deposit Insurance Corp. (FDIC). (Roundtable Weekly, May 25)

The Fed’s proposal is part of a broader regulatory rollback.  (“ The Volcker Rule’s Proposed Revision Could Add Liquidity To CMBS ” – GlobeSt, May 31)

  • The nearly 400-page proposal, known as Volcker 2.0, would seek to simplify regulatory requirements by giving banks new quantitative “bright-line rules” to provide more clarity on what activities are prohibited and permitted. The Fed proposal is part of a broader regulatory rollback, which includes the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) that included Roundtable-supported revisions to the Basel III High Volatility Commerical Real Estate (HVCRE) Rule. 
  • For CRE, the Volcker Rule has put a damper on secondary market trading of commercial mortgage backed securities (CMBS) by limiting the ability of banks to hold inventories of secondary market securities, thereby diminishing market liquidity.  In addition to restricting banks from buying certain securities for their own accounts (so-called proprietary trading), it also has prohibited them from investing in hedge or private-equity funds – including real estate.  (“ The Volcker Rule’s Proposed Revision Could Add Liquidity To CMBS ”  – GlobeSt , May 31)
  • Real Estate Roundtable President and CEO Jeffrey DeBoer commented on the Volker Rule proposal. “This positive action will benefit liquidity and the commercial mortgage backed securities market, potentially increasing investment in job-creating construction activities,” DeBoer said.
  • One of the most significant changes in the Volcker 2.0 proposal would give banks more latitude by making it easier for them to show they are trading to help clients — a permitted activity known as market making  — rather than proprietary trading .
  • In a memorandum to the Fed’s Board of Governors, Fed Vice Chairman for Supervision Randall Quarles details the changes in the proposal .
  • In a January 2012 comment letter  to the Federal Reserve and other financial regulatory agencies, the Roundtable raised concerns about the unintended consequences of the Volcker Rule that could “negatively impact liquidity and capital formation in commercial real estate.”

The Fed and its regulatory partners are seeking public comment on its Volcker rule reform proposals. The Roundtable plans to work with its Real Estate Capital Policy Advisory Committee (RECPAC) to submit comments before a final rule is expected to be in effect by January 1, 2019.