Author: Trey Jackson

Central Banks Around the World Move to Combat Economic Fallout of Coronavirus

Posted on by Trey Jackson

WHO world map coronavirus

Central banks around the world took dramatic action this week to mitigate the economic fallout of the coronavirus pandemic. 

  • The Federal Reserve Bank of New York announced a bold move yesterday to pump a series of cash injections totaling more than $1.5 trillion of temporary market liquidity into markets and begin buying longer-term bonds.  
  • This week’s actions are designed to mitigate investor fears as the Dow Jones industrial average plummeted more than 2,300 points yesterday – a 10 percent drop that is the worst one-day decline since the 1987 crash.  (Wall Street Journal and Federal Reserve Bank of New York, March 12)
  • “These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the New York Fed said in its March 12 announcement.  The short-term funding move was directed by Fed Chairman Jerome Powell, in consultation with the rate-setting Federal Open Market Committee. (Los Angeles Times, March 12)
  • The Fed’s substantial intervention opens the door to a resumption of bond-buying stimulus known as quantitative easing used during the financial crisis of 2008.
  • U.S. central bankers meet are scheduled to meet next week in Washington, when they could move to slash rates again after implementing an emergency half-percentage-point cut last week.
  • Economists widely expect another quarter-point rate cut at the Fed’s March 18 meeting, if not more, from the current range of 1% to 1.25% (Roundtable Weekly, March 6 and BGov, March 12)

European Central Bank and Individual Nations Respond

After the US Federal Reserve and Bank of England announced aggressive rate cuts in recent days to stimulate their respective economies, the European Central Bank (ECB) left its key interest rate unchanged at minus 0.5%. 

  • Instead, ECB President Christine Lagarde said the central bank would move forward with its $2.9 trillion (2.6 trillion euro) bond purchase program, while making bank loans available at rates as low as minus 0.75%.  (ECB press release, March 12)
  • In her March 12 statement, Lagarde noted the ECU will “add a temporary envelope of additional net asset purchases of 120 billion euros ($135.28 billion) until the end of the year, ensuring a strong contribution from the private sector purchase programmes.”  She also stated, “We welcome the commitment of the euro area governments and the European Institutions to act now, strongly, and together in response to the repercussions of the further spread of the coronavirus.” (Video of ECU press conference, March 12)
  • After Lagarde’s announcement, the spread between German and Italian government bonds increased to more than 2.5 percent as Italy battles a widespread outbreak.
  • Today, the ECB’s chief economist Phillip Lane sought to further reassure European markets.  In a blog post, Lane wrote, “We clearly stand ready to do more and adjust all of our instruments, if needed to ensure that the elevated spreads that we see in response to the acceleration of the spreading of the coronavirus do not undermine transmission [of monetary policy].”
  • British regulators temporarily banned short selling on Italian and Spanish after regulators in Italy and Spain did the same to stem the market slide.  (Financial Conduct Authority  and Reuters, March 13)
  • Germany’s state development bank KfW announced today it will provide a massive expansion of loans to companies in need and defer billions of euros in tax payments.  Olaf Scholz, the German finance minister, told reporters in Berlin, “This is the bazooka, and we will use it to do whatever it takes.”  He added there was “no upper limit on the amount of loans KfW can issue.” (rfi and Financial Times, March 13)
  • German Chancellor Angela Merkel stated yesterday, “We are in a situation that is unusual in every respect and I would say more unusual than at the time of the banking crisis because we are dealing with a health problem, a health challenge for which scientists and medicine does not yet have an answer,” Merkel said. (Reuters, March 12)
  • Central banks in Australia, Japan, South Korea, Indonesia, Norway and Sweden also announced stimulus measures today to relieve the strain on their banking systems. 
  • In China, The People’s Bank on Friday said it will release nearly $80 billion in liquidity into its financial system to assist loans to small businesses and low-wage individuals as the country continues to contend with the coronavirus.  (Wall Street Journal, March 13)
  • The US Federal Reserve’s first emergency move on March 3 to contain the coronavirus economic fallout was to cut interest rates half a point. The move came shortly finance ministers and central bankers from the Group of 7, which includes Britain, Canada, France, Germany, Italy and Japan, held a conference call.

On March 5, Federal Reserve Bank of New York President John C. Williams confirmed that the international community of central bankers are working together to stem the economic shock of the coronavirus. “… policy actions by central banks are clear indications of the close alignment at the international level,” Mr. Williams said.  (NYTimes, March 5)

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Senate Committee Considering Comprehensive Energy Bill that Includes Roundtable-Supported Measures

Posted on by Trey Jackson

Murkowski Manchin x475 edit

A bipartisan, omnibus energy bill with provisions supported by The Real Estate Roundtable was prepared for debate in the Senate this week, as Republicans and Democrats negotiate a package of amendments that may be added to the base bill.  

  • The American Energy Innovation Act (S. 2657) – introduced on Feb. 27 by Senate Energy and Natural Resources Committee Chairman Lisa Murkowski (R-AK) and Ranking Member Joe Manchin (D-WV) [ above ] – is a compilation of more than 50 energy-related measures considered and individually reported last year.  (Bill Summary and text)
     
  • The AEIA focuses on energy efficiency, renewable energy, energy storage, carbon capture, grid modernization, and workforce development to build energy-related infrastructure.
     
  • The bill includes language supported by The Roundtable to improve the Commercial Building Energy Consumption Survey (CBECS) process. 
    • AEIA Section 1001 would require Congress to oversee coordination by federal agencies to gather and report higher quality CBECS data – the only nationwide government survey that estimates the number, location, age, energy consumption and other characteristics of the U.S. commercial real estate stock.
    • Significantly, CBECS data provides the underpinning for EPA’s ENERGY STAR scores – a key real estate performance “label” relied upon by building owners, investors, and tenants.
  • The Senate’s AEIA bill includes other sections of interest to real estate, including authorizations for:  
    • a “Federal Smart Building Program” to implement and demonstrate smart building technologies across the federal real estate stock; 
    • a nationwide survey of “Private Sector Smart Buildings” for study and evaluation by the U. S. Energy Secretary; 
    • codification of the U.S. Energy Department’s “Better Buildings Challenge” – a program that has attracted Roundtable members’ participation; and
    • a “CHP Technical Assistance Partnership” to provide project-specific engineering and economic assessments for combined heat and power systems.

     

  • Thus far, Senators have filed over 185 amendments for consideration as additions to the underlying bill.  Among them is one offered by Senators Rob Portman (R-OH) and Jeanne Shaheen (D-NH) to drive greater transparency and consideration of building owner costs in the process to develop model building energy codes.  (Roundtable Weekly, July 19, 2019).   The Roundtable has long-supported the Portman-Shaheen energy codes provisions, which Portman addressed this week on the Senate floor. 
  • ENR Chairman Murkowski said this week she was working on a “managers’ package” of certain, less controversial measures to be voted on in a block.  “I want to have a managers’ package, but it is entirely possible — we’ve seen it before — that that opportunity is spoiled,” she said.  (CQ, March 4) 

If Republicans and Democrats can agree upon the AEIA amendments eligible for a vote, the Senate will be poised to pass its first major piece of energy legislation in over 12 years, according to Murkowski’s press release.  The measure would then move to the House of Representatives, where the Democratic majority might append provisions that more aggressively address climate change.  (Roundtable Weekly, Feb. 7, 2020) 

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House of Representatives Passes Affordable Housing Bill to Reduce Zoning Barriers with No Opposition

Posted on by Trey Jackson

The United States House of Representatives on Monday passed the bipartisan Yes in My Backyard (YIMBY) Act (H.R. 4351) on a voice vote, following last week’s unanimous approval by the House Financial Services Committee.  (Roundtable Weekly, Feb. 28, 2020)

  • Sponsored by Reps. Denny Heck (D-WA) and Trey Hollingsworth (R-IN), the YIMBY Act avoids a mandate from Congress to compel cities and towns to enact certain land use laws.  Municipalities that receive HUD’s Community Development Block Grants (CDBG) would be discouraged from limiting housing supplies through reporting on and disclosing their land use and zoning policies that inhibit high density land uses. 
  • The YIMBY Act would direct a community receiving federal CDBG money to consider, track, and report on implementation of over 20 pro-housing strategies, such as:
    • Enacting high-density zoning, and expanding by-right multifamily zoned areas;
    • Allowing manufactured homes and accessory dwelling units on single-family lots;
    • Reducing minimum lot sizes;
    • Increasing allowable floor area ratios for multifamily projects;
    • Providing property tax abatements to existing home owners to garner support for high development densities in their communities; and
    • Ensuring that impact fees paid by developers accurately reflect infrastructure needs generated by new units.
  • “Sunlight is the best disinfectant and we need to identify and reduce barriers to housing construction at the local level,” Heck said following the House vote. “I am proud that Congress is taking a critical first step towards bringing relief to cost-burdened renters and homeowners across America.”  (Heck press release, March 2.)
  • “We want more affordable homes for American families,” Hollinsgworth said on Monday.  The YIMBY Act’s unanimous approval “signals strong support across the aisle to reform our nation’s housing regulations at all levels of government.” (Hollingsworth Press Release, March 2)
  • The Roundtable joined Feb. 24 and March 2 coalition letters signed by real estate, “smart growth” and subsidized housing advocates, in a show of wide stakeholder support for the YIMBY Act.
  • The Roundtable also urged support for the YIMBY Act in comments filed with HUD in January.  (Roundtable Weekly, Jan. 17, 2020). Companion legislation is pending in the Senate (S. 1919), sponsored by Todd Young (R-IN) and Brian Schatz (D-HI).  The bill also reflects the goals of President Trump’s Executive Order for “Eliminating Regulatory Barriers to Affordable Housing.” (Roundtable Weekly, June 28, 2019)
  • Speaking at the 2020 Pension Real Estate Association Spring Conference this week Roundtable President and CEO Jeffrey D. DeBoer, said: “The Roundtable has long recognized that safe, decent, and affordable housing is essential to the well-being of America’s families, communities and businesses. The YIMBY Act is a positive first step in eliminating discriminatory land use polices and removing barriers that prevent much needed affordable housing from being built throughout the country.”

The Roundtable and coalition partners will continue to urge lawmakers to make progress on the YIMBY Act in the Senate and similar legislation that eases burdensome rules that inhibit affordable housing development.

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Treasury Secretary Mnuchin Addresses FIRPTA Reform at House Ways and Means Hearing

Posted on by Trey Jackson

 

Testifying before the House Ways and Means Committee on the President’s FY 2021 budget, Treasury Secretary Steven Mnuchin was questioned this week on the Foreign Investment in Real Property Tax Act (FIRPTA) and addressed potential steps he could take to encourage greater real estate investment from abroad.  (Watch 2:35 video of March 3 exchange with Mnuchin)

  • During the hearing’s Q&A with Secretary Mnuchin, committee member Kenny Marchant (R-TX) noted a recent letter that he and other GOP taxwriters sent to the Treasury Department urging a reevaluation of FIRPTA and related IRS guidance (Notice 2007-55).  
  • The congressional letter, led by Ways and Means Republican Devin Nunes (R-CA), encourages Treasury to withdraw section two of the IRS Notice, which effectively imposes U.S. capital gains tax on the liquidating distributions of domestically controlled real estate investment trusts (REITs).   Often, when a foreign investor is a minority partner in a U.S. real estate or infrastructure investment, the joint venture employs a domestically controlled REIT structure.
  • The 16 signatories of the February 20 letter wrote, “repealing the IRS Notice will restore the intent of Congress with respect to the tax law governing liquidations, provide parity to investors, and increase direct foreign investment in U.S. commercial real estate and infrastructure in every corner of the nation.”
  • During the hearing, Rep. Marchant called attention to the letter – and noted the IRS guidance applies FIRPTA to previously untaxed transactions involving domestically controlled REITs.  
  • Mnuchin responded that the Feb. 20 letter prompted a briefing at Treasury this week – and that he shares the concerns the letter  raises about FIRPTA.  “[I]t makes no sense that we discriminate against foreign investors,” Mnuchin said.  “But in my mind, anything we can do legally to encourage those investments we will do.  So thank you for the letter.  We are reviewing it.  It is at the top of my list,” he added. (Watch 2:35 video of Marchant and Mnuchin)
  • During another Ways and Means tax hearing last month, Rep. Marchant said, “FIRPTA is an outdated, discriminatory law.  It applies to no asset class other than real estate and infrastructure … Economic studies indicate repealing FIRPTA could drive $65 to $125 billion in new investment.”  (Watch video of Feb. 11 FIRPTA exchange).  Rep. Marchant is lead sponsor of the bipartisan Invest in America Act (H.R. 2210), a bill that would repeal the entire FIRPTA law. 
  • A similar letter was sent on December 18, 2019 to Secretary Mnuchin by a bipartisan group of 11 Senate Finance Committee Members led by Sen. Robert Menendez (D-NJ) – a longtime lead sponsor of FIRPTA repeal bills.  Another bipartisan letter to Secretary Mnuchin urging repeal of the IRS Notice was signed by 32 Representatives of the House Ways and Means shortly before introduction of the Tax Cuts and Jobs Act of 2017 (TCJA). (Roundtable Weekly, Dec. 20, 2019)

Members of the Roundtable’s Tax Policy Advisory Committee (TPAC) have met with Treasury officials on multiple occasions to discuss the harm caused by IRS Notice 2007-55.  Leading industry experts also convened on Oct. 30 at the National Press Club in Washington for an in-depth discussion the economic damage incurred by the IRS Notice.  An industry coalition is scheduled to meet with officials in Treasury’s Office of Tax Policy next week to discuss the issue.

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Emergency Coronavirus Response Package Enacted, Fed Attempts to Blunt Economic Impact with Interest Rate Cut

Posted on by Trey Jackson

Trump signs Coronavirus bill x475

This week congressional policymakers overwhelmingly passed, and President Trump signed, an $8.3 billion emergency spending package to combat the coronavirus outbreak in the U.S. – after the Fed reduced interest rates by a half-point amid early signs of economic disruption.

  • The president signed the emergency funding bill Friday morning. “We’ve signed the 8.3 billion,” Trump said. “I asked for two and a half and I got 8.3 and I’ll take it.”   (The Hill, March 6)  Photo above:  President Trump, with Secretary of Health and Human Services Alex Azar, signs the coronavirus bill into law.
  • The package – H.R. 6074 (116) – will bolster vaccine development and research, increase equipment stockpiles, and support state and local health responses to a virus that has sickened more than 160 people in more than a dozen states.  (NY Times U.S. coronavirus map and Center for Disease Control and Prevention updates)
  • As questions remain about the severity and spread of the illness, the stock market continued to experience historic gyrations this week, with falling yields exerting wide-ranging effects on borrowing costs and bank profitability. (Wall Street Journal, March 5)
  • In an effort to contain the coronavirus’s economic fallout, Fed Chairman Jay Powell announced on March 3 a cut in the federal funds rate cut to a range of 1 to 1 ¼ percent – the largest emergency cut to interest rates since the 2008 financial crisis.  The Fed’s Open Market Committee is scheduled to meet again on March 17-18 to issue updated economic forecasts and any further change to the current federal funds rate.
  • Powell said, “The virus and the measures that are being taken to contain it will surely weigh on economic activity both here and abroad for some time.”  He added, “We are beginning to see the effects on the tourism and travel industries, and we are hearing concerns from industries that rely on global supply chains.”  He added, “We don’t think we have all the answers, but we do believe that our action will provide a meaningful boost to the economy.”  (Powell’s press conference transcript). 
  • The Federal Reserve’s latest nationwide survey of business conditions shows that that half of the central bank’s districts — Philadelphia, Cleveland, Richmond, Chicago, Dallas and San Francisco — were reporting impacts from the coronavirus in tourism and manufacturing chains.  (The Fed’s Beige Book, March 4)
  • The U.S. Travel Association (USTA) on Tuesday issued a report that supports the Fed’s findings.  USTA predicts a 6 percent plunge over the next three months in international inbound travel to the United States, which could result in a loss of two to three billion dollars – the largest dip in global visitation since the financial crisis. About 79.3 million international visitors came to the U.S. last year.  (USTA Travel Trends Index, March 3)
  • [The Real Estate Roundtable is part of the Visit U.S. Coalition, led by the U.S. Travel Association (USTA) and the American Hotel and Lodging Association.]
  • The potential impact of coronavirus on the economy and commercial real estate was part of a recent discussion between Real Estate Roundtable President and CEO Jeffrey DeBoer and Brookfield Property Partners Chairman Ric Clarke at Colorado University’s Annual Real Estate Forum (see photos here). DeBoer was also interviewed partly about the coronavirus outlook by Rosen Consulting Group’s Chairman Ken Rosen during the Pension Real Estate Association’s Spring conference this week.
  • Coronavirus-related updates and resources are available to the commercial real estate industry through the RE-ISAC’s #COVID Section, which includes:
  • Coronavirus Disease 2019 (COVID-19) Situation Summary, last update March 3.
  • Novel Coronavirus (2019-nCoV) in the U.S., March 5 update.

The potential impact of coronavirus on the health of global markets and the U.S. economy; commercial real estate sectors and the industry’s response; and how it may affect the routines of millions in American society, will be a focus during The Roundtable’s March 31 Spring Meeting in Washington, DC.

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Global Stock Markets Plunge Over Coronavirus Threat; U.S. Policymakers and CRE Industry Prepare for Potential Disruption

Posted on by Trey Jackson

Deepening concerns over the international spread of the coronavirus (COVID-19) have prompted U.S. policymakers to consider measures for combating the potential public health and economic repercussions of the global disease, as the commercial real estate industry braces for potential disruption.

Dramatic drops in international stock markets this week reflected investor anxiety over the potential global economic impact of a virus that has, so far, infected more than 83,000 people in at least 56 countries and killed more than 2,800 – with no vaccine yet in sight.  (New York Times and Axios for coronavirus daily updates)

Today, the World Health Organization raised its risk level of the global coronavirus to “very high” – the most serious assessment in its four-stage alert system. “This is a reality check for every government on the planet. Wake up. Get ready. This virus may be on its way,” said Dr. Michael J. Ryan, deputy director of W.H.O.’s health emergency program.  (The Hill, Feb. 28)

Dr. Nancy Messonnier – director of the National Center for Immunization and Respiratory Diseases of the Centers for Disease Control and Prevention (CDC) – on Feb. 25 told reporters, “We really want to prepare the American public for the possibility that their lives will be disrupted.”  She added, “Ultimately we expect we will see community spread in the United States. It’s not a question of if this will happen, but when this will happen, and how many people in this country will have severe illnesses.”   (CDC Coronavirus Resources)

There are now 62 confirmed cases of novel coronavirus in the United States, Messonnier stated during a press briefing today.   The limited guidance that has been distributed to date has primarily been directed at health care professionals, not specific industries.

Trump administration health officials on Tuesday told Senators during a closed-door briefing that a vaccine, although being rushed into clinical trials, could take more than a year before one would be widely available to the public.  (Washington Post, Feb. 25)

The Trump Administration initially requested $2.5 billion to combat the spread of the virus.  Congressional appropriators are working this weekend on an emergency coronavirus spending package of $6 billion to $8 billion and intend to take action on the House floor next week. House Speaker Nancy Pelosi said bipartisan discussions on a final figure are getting “close.”  (PolticoPro, Feb. 28)

Federal Reserve Board Chairman Jay Powell issued a statement today to ease investor concerns.  “The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy,” Powell stated.  (The Fed, Feb. 28)

Just earlier in the week, Fed officials said it was too soon to ascertain the potential adverse effect of the coronavirus on the U.S. economy.  Fed regional presidents said they are carefully monitoring the progression of the virus and how disruptions in global supply chains may affect the U.S. before considering a decrease in interest-rates.  (Wall Street Journal, Feb. 25)

As stocks are on track for the biggest weekly losses since the 2008 financial crisis, investors have reassessed the chances that the Federal Reserve will lower interest rates to as soon as March  (Wall Street Journal, Feb. 27)

CRE Industry Concerns

Roundtable President and CEO Jeffrey DeBoer said, “Owners and managers of all types of buildings are taking actions to better understand the potential contagion and how to best help building occupants, visitors and employees prevent further spread of the coronavirus. This viral threat to lives, businesses and economies is a top concern for our industry and we stand ready to assist public health officials as they recommend.”

The Roundtable’s Homeland Security Task Force (HSTF) and the Real Estate Information Sharing and Analysis Center (RE-ISAC) are in close contact with the Department of Health and Human Services (HHS) and the Centers for Disease Control and Prevention (CDC) to provide useful information to the real estate industry on the coronavirus threat as it continues to evolve. 

The Roundtable’s HSTF & the RE-ISAC will also host a conference call on Monday, March 2 with CDC’s Deputy Director for Infectious Diseases, Dr. Jay Butler.  

Coronavirus-related updates and resources are available to the commercial real estate industry through the RE-ISAC’s #COVID Section, which includes these recent reports:

  • Coronavirus Disease 2019 (COVID-19) Situation Summary, last update 25 Feb.
  • 2019 Novel Coronavirus (2019-nCoV) in the U.S., 26 Feb update (update will be provided later today and in tomorrow’s Daily Report).

Other resources include:

  • The Centers for Disease Control and Prevention (CDC) web page includes an interim guidance based on what is currently known about the Coronavirus Disease 2019 (COVID-19). The interim guidance may help prevent workplace exposures to acute respiratory illnesses, including nCoV, in non-healthcare settings. The guidance also provides planning considerations if there are more widespread, community outbreaks of COVID-19.

The Roundtable’s next membership meeting is currently scheduled for March 31 in Washington, DC (Roundtable-level members only).

 

House Committee Unanimously Advances Bill to Reduce Zoning Barriers to Affordable Housing

Posted on by Trey Jackson
  • The Real Estate Roundtable joined a Feb. 24 coalition letter to support H.R. 4531, the Yes in My Backyard (“YIMBY”) Act. The bipartisan bill – sponsored by Reps. Denny Heck (D-WA) and Trey Hollingsworth (R-IN) – would direct local governments that receive HUD Community Development Block Grants (“CDBGs”) to develop favorable planning and zoning strategies that enable affordable housing development.
  • “We have a national housing crisis, one that is brought on in part by zoning and land use policies,” Rep. Heck said upon the Committee’s approval of the bill today with no opposition.  “The YIMBY Act is a crucial first step to addressing these policies in order to increase affordability and construction.”  (Heck-Hollingsworth joint press release)
  • The YIMBY Act respects federalism principles and avoids a mandate from Congress to compel cities and towns to enact certain land-use laws.  Rather, the bill aims to discourage localities from limiting housing supplies through reporting and disclosure rules attendant to HUD’s grant process.
  • Specifically, the YIMBY Act directs that a community receiving CDBG money must consider and track implementation of over 20 pro-housing strategies, such as:
  • Enacting high-density zoning, and expanding by-right multifamily zoned areas;
  • Allowing manufactured homes and accessory dwelling units on single-family lots;
  • Reducing minimum lot sizes;
  • Increasing allowable floor area ratios for multifamily projects;
  • Providing property tax abatements to existing home owners to garner support for high development densities in their communities; and
  • Ensuring that impact fees paid by developers accurately reflect infrastructure needs generated by new units.
  • Speaking at the Annual Real Estate Forum held at the University of Colorado (Boulder) this week, Roundtable President and CEO, Jeffrey D. DeBoer, said:  “The YIMBY Act recognizes that local zoning ordinances coupled with lengthy duplicative permitting hurdles frequently result in decreased housing availability and increased housing costs.  Asking local authorities to report on their efforts to ease these regulatory hurdles makes a lot of sense.”  DeBoer and Roundtable board member Ric Clark (Senior Managing Partner and Chairman, Brookfield Property Group) focused their keynote presentation at the event on national policy issues, including housing affordability, as well as current and expected trends in national real estate markets.
  • The Roundtable urged support for the YIMBY Act in comments filed with HUD in January.  (Roundtable Weekly, Jan. 17, 2020). Companion legislation is pending in the Senate (S. 1919), sponsored by Todd Young (R-IN) and Brian Schatz (D-HI).  The bill also reflects the goals of President Trump’s Executive Order for “ Eliminating Regulatory Barriers to Affordable Housing.” (Roundtable Weekly, June 28, 2019)
  • The National Multifamily Housing Council (NMHC) and National Apartment Association (NAA) issued a statement praising the Committee’s action on the YIMBY Act – and also noted the successful markup of the Housing is Infrastructure Act (H.R. 5187), sponsored by Chairwoman Maxine Waters (D-CA).  H.R. 5187 would direct greater investments to construct new affordable housing units for low-income households, persons with disabilities, and the elderly.  It would also provide more federal funding to build, repair and modernize public housing.
  • A bill similar to the YIMBY Act — that uses the “carrot” of federal grants to incentivize high density land uses – is the Build More Housing Near Transit Act (H.R. 4307).  While the YIMBY Act leverages HUD CDBG dollars, H.R. 4307 leverages Federal Transit Administration grants to require local authorities to evaluate housing development along proposed rail, bus, and other mass transit routes.  H.R. 4307 is under consideration as part of “must pass” infrastructure legislation to reauthorize the Highway Trust Fund, which is scheduled to expire on Sept 30. (Roundtable Weekly, Oct. 4, 2019)

The strong bipartisan showing for the YIMBY Act at the Committee level bodes well for full House consideration in the coming weeks.  While the path forward in the Senate is presently unclear, The Roundtable and coalition partners will continue to press lawmakers to make progress on the YIMBY Act and similar legislation.

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House Ways & Means Republicans Ask Treasury Secretary Mnuchin to Boost Investment, Create Jobs by Easing FIRPTA Tax Burden

Posted on by Trey Jackson

Treasury Department

Over three-quarters of the Republican Members of the House Ways and Means Committee on Feb. 20 urged Treasury Secretary Steven Mnuchin to remove tax barriers to foreign investment in U.S. real estate and infrastructure.  

  • The congressional letter, led by Representative Devin Nunes (R-CA), encourages Treasury to withdraw section two of IRS Notice 2007-55.  The Notice, which relates to the Foreign Investment in Real Property Tax Act (FIRPTA), effectively imposes U.S. capital gains tax on the liquidating distributions of a domestically controlled REIT. 
  • Domestically controlled REITs commonly are employed in joint ventures where a foreign investor is a minority partner in a U.S. real estate or infrastructure investment.  Prior to the Notice, a liquidating distribution from a domestically controlled REIT was treated as nontaxable sale of stock for tax purposes. 
  • The 16 signatories of the February 20 letter wrote that “repealing the IRS Notice will restore the intent of Congress with respect to the tax law governing liquidations, provide parity to investors, and increase direct foreign investment in U.S. commercial real estate and infrastructure in every corner of the nation.”
  • The Ways and Means Republican letter comes on the heels of a high-profile exchange on the broader economic harm caused by FIRPTA at a recent Ways and Means tax hearing.  At the hearing, Rep. Kenny Marchant (R-TX), said that “FIRPTA is an outdated, discriminatory law.  It applies to no asset class other than real estate and infrastructure . . . Economic studies indicate repealing FIRPTA could drive $65 to $125 billion in new investment.” Rep. Marchant is lead sponsor of the bipartisan Invest in America Act (H.R. 2210), a bill to repeal FIRPTA altogether.  (Watch video of Feb. 11 FIRPTA exchange)
  • In conjunction with The Roundtable’s Tax Policy Advisory Committee (TPAC) meeting on January 29, Darin Mellott, Director of Americas Research at CBRE shared updated data indicating that foreign capital represented only 10 percent of total transaction volume between 2007 and 2019 – further evidence that FIRPTA weighs heavily on potential inbound investment.  In other asset classes, such as manufacturing, foreign capital represents a much larger share of overall investment. 
  • A letter similar to the House Republican letter was sent by a bipartisan group of 11 Senate Finance Committee Members to Secretary Mnuchin on December 18, 2019.  The December letter was led by Sen. Robert Menendez (D-NJ), a longtime lead sponsor of bills to roll back FIRPTA, and Sen. Johnny Isakson (R-GA).  A bipartisan House Ways and Means Committee letter urging repeal of the Notice and signed by 32 Representatives was sent to Secretary Mnuchin shortly before introduction of the Tax Cuts and Jobs Act of 2017 (TCJA). ( Roundtable Weekly , Dec. 20, 2019)

Members of the Roundtable’s Tax Policy Advisory Committee have met with Treasury officials on multiple occasions to discuss the harm caused by IRS Notice 2007-55.  Since 2017, Treasury’s regulatory agenda has focused on implementing the TCJA.  With TCJA implementation nearly complete, The Roundtable is now urging Treasury officials to give the Notice the attention it merits.

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Commercial Real Estate Executives Report Balanced Real Estate Market Conditions Supported by Stable Economy

Posted on by Trey Jackson

 

The Real Estate Roundtable’s 2020 Q1 Economic Sentiment Index released this week registered a three point increase over the 2019 fourth quarter index. Commercial real estate (CRE) industry executives continue to experience generally balanced market fundamentals across nearly all product types, with limited overbuilding and conservative overall industry debt. CRE executives also positively noted the continued macro-economic job growth and low interest rates. Election year politics and international tensions somewhat temper the overall optimistic sentiment causing some CRE executives to prepare for potential market disruptions later in 2020.    

“As our Q1 index shows, we are beginning a new decade optimistic about continued overall economic growth,” said Roundtable President and CEO, Jeffrey D. DeBoer. “Commercial real estate markets remain fundamentally sound; supply and demand are in relative balance; debt and equity capital markets are functioning and disciplined; wages are rising; and, unemployment is low,” DeBoer added.   

The Roundtable’s Q1 2020 Sentiment Index registered at 52 – a three point increase from the previous quarter.  [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.]  This quarter’s Current-Conditions Index of 55 increased two points from the previous quarter, while this quarter’s Future-Conditions Index of 50 came in at five points higher compared to Q4 2019.

The report’s Topline Findings include:

  • The Real Estate Roundtable Q1 2020 Sentiment Index registered a score of 52, a three point increase over the last quarter of 2019. Respondents feel the overall economy is stable and the commercial real estate market continues to be supported by strong market fundamentals. Many respondents have stopped attempting to predict an end to this cycle as they see no apparent economic hurdles to current market stability.

  • Despite respondents finding comfort with the current market climate, many are anticipating two phases of the 2020 calendar year: pre-election and post-election. Many noted that election years are notoriously unpredictable and point to a large volume of transactions already underway as platforms attempt to execute before the summer.

  • Asset values remain elevated across most property types and geographies. While certain respondents suggest that asset values have room to grow, others view current pricing as being at peak levels.

  • Debt and equity capital are perceived as widely available in most markets. Many respondents noted the high level of discipline they are witnessing in the debt markets on behalf of lenders. This level of discipline suggests a healthy state in the capital markets, and is a contributing factor to the continuation of the current cycle.

DeBoer noted, “There is natural concern regarding the uncertainty of the coming presidential election.  However, the commercial real estate industry’s leading executives are positive about today’s economy and optimistic about future market conditions.  As the year progresses, The Roundtable will continue working with national policymakers to maintain and strengthen pro-growth policies to create jobs, expand housing opportunities, and benefit the overall economy.”

Data for the Q1 survey was gathered in January by Chicago-based FPL Associates on The Roundtable’s behalf.  For the full survey report, visit http://www.rer.org/Q1-2020-Sentiment-Index/

 

White House Report: Over-Regulation Constrains Housing Supplies; Walker & Dunlop Report Considers Barriers, Solutions to Improve Housing Affordability

Posted on by Trey Jackson

2020 CEA Annual Report

The Trump Administration yesterday issued its Council of Economic Advisers’ 2020 Annual Report, which warns that regulatory constraints on affordable housing development in key markets drive up costs, increase homelessness and pose a potential threat to U.S. economic growth.  (White House, Feb. 20)

  • The White House report also lists issues such as the opioid crisis as a drag on the historic economic expansion, while focusing on affordable housing constraints as a major impediment.  (PoliticoPro, Feb.20)
  • “We find that a key driver of the housing unaffordability problem is the overregulation of housing markets by State and local governments, which limits supply,” the report states. “By driving up home prices, overregulation adversely affects low-income Americans in particular, who spend the largest share of their income on housing.”
  •  To illustrate how rising housing unaffordability in U.S. real estate markets adversely affects economic growth, the report profiles 11 supply-constrained geographic areas.  The report finds that deregulation in these areas would increase affordability enough to reduce homelessness by an estimated 31 percent on average. 
  • The report explains, “Such overly restrictive regulations include zoning and growth management controls, rent controls, building and rehabilitation codes, energy and water efficiency mandates, maximum-density allowances, historic preservation requirements, wetland or environmental regulations, manufactured-housing regulations and restrictions, parking requirements, permitting and review procedures, investment or reinvestment tax policies, labor requirements, and impact or developer fees.”
  • The Trump Administration has focused on deregulation by establishing the White House Council on Eliminating Regulatory Barriers to Affordable Housing, while the Department of Housing and Urban Development (HUD) is encouraging State and local governments to focus on increasing housing supply in areas where supply is constrained. (Roundtable Weekly, June 28, 2019)
The Roundtable on Jan. 21 submitted a suite of policy suggestions to HUD aimed at improving access to affordable housing.  The Roundtable’s comments offer specific policies intended to bring safe, decent, and affordable housing within reach of indigent and low-income households.  The comments also urge 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. (Roundtable Weekly, Jan. 17) 
 
Industry Focus
 
Walker & Dunlop’s this week published its Winter Multifamily Outlook – Focus on Affordable Housing that focuses on the economics driving the affordable housing crisis, a Q&A with Fannie-Freddie’s lead regulator Dr.  Mark Calabria; and a report on how Opportunity Zones can be paired with HUD programs to provide new affordable housing.
 
  • Affordable housing policy was also the topic of a panel discussion moderated by Walker & Dunlop Chairman & CEO Willy Walker during The Roundtable’s Jan. 28 State of the Industry Meeting in Washington.  Participants included House Financial Services Committee Ranking Member Patrick McHenry (R-NC) and Federal Housing Finance Agency Director Mark Calabria – whose agency oversees the Government Sponsored Enterprises that own or guarantee $5.6 trillion in single and multifamily mortgages.  (Roundtable Weekly, Jan. 31) 
  • In Walker and Dunlop’s previous Outlook Quarterly Report (Fall 2019) a policy Q&A with Roundtable President and CEO Jeffrey DeBoer addressed housing affordability and rent control.   DeBoer states in the interview, “Although we focus on national issues, we do have concerns about the more local trend to enact rent control. These laws are destructive. They may help those people in the short term but those same people are hurt in the long run by giving them lower and lower quality housing. It ends up being very inequitable over time and hopefully the trend will not gain additional traction.”

  • Bibby states, “A full 32.1% of multifamily development costs are driven by government regulations—fees, standards, approval requirements, impact studies. … Places with the heaviest hand of government are hurting hardworking families trying to make ends meet the most. We should streamline regulations, give people more housing options and bring costs down.” 

The national dialogue about affordable housing policy challenges and solutions, along with the evolving dynamics of the upcoming elections, will be discussed during The Roundtable’s Spring Meeting on March 31 in Washington.