Author: Trey Jackson

House GOP Leaders Signal Renewed Dodd-Frank Reform Effort; Legislation Includes Roundtable-Supported HVCRE Changes

Posted on by Trey Jackson

House GOP leaders have recently signaled a deal could be reached this month between the House and Senate to pass the first rewrite of the 2010 Dodd-Frank Act (DFA).  A Senate DFA financial reform bill passed in March includes a measure to reform the Basel III High Volatility Commercial Real Estate (HVCRE) Rule – a top Roundtable priority. 

House Financial Services Committee Chairman Jeb Hensarling, (R-TX) said he is open to moving the Senate-passed Dodd-Frank reform bill without changes if there are “other pathways” to advance House financial reform bills not included in the Senate plan. ( Wall Street Journal , April 26)

The bipartisan HVCRE measure originated in the House of Representatives as the Clarifying Commercial Real Estate Loans bill (H.R. 2148), which was introduced by House Financial Services Committee members Representatives Robert Pittenger (R-NC) and David Scott (D-GA).  After being voted out of the committee by a near unanimous vote (59-1), it passed the House by voice vote in November of last year (Roundtable Weekly, Nov. 10).  The Senate Banking Committee took up an identical bill in February (S. 2405), which was co-sponsored by Senators Tom Cotton (R-AR) and Doug Jones (D-AL). 

With the HVCRE measure included in the Senate-passed DFA financial reform bill, the legislation has lingered in the House amid requests from conservatives, led by House Financial Services Committee Chairman Jeb Hensarling, (R-TX), for more extensive changes.  (Roundtable Weekly, March 16 and March 23) 

Substantive changes by the House would likely send an amended bill back to the Senate, which could threaten support by Senate moderates and sink the prospects for passing the legislation.  Hensarling told reporters last week, “I’m not naïve. Ultimately the fate of these House bills rests in approximately eight self-styled moderate Senate Democrats.”  (Reuters, April 26) 

Hensarling added that he is open to moving the Senate bill without changes if there are “other pathways” to advance House financial reform bills not included in the Senate plan.  (Wall Street Journal, April 26) 

Speaker of the House Paul Ryan (R-WI) on Monday said, “… the capstone of our regulatory reform agenda is our replacement of Dodd Frank. We already have a bill out of the House. We have a bill out of the Senate, which is pretty amazing. So, we’re gonna get that done.” He added, “We’re a few weeks away from getting our bill into law that rewrites the Dodd Frank law.”    (The Weekly Standard, April 30) 

House Majority Leader Kevin McCarthy (R-CA) this week reiterated that the effort to pass modest DFA reforms, versus repeal, will come soon.  “I think you are within a month of getting it … done,” McCarthy said Monday during the Milken economic conference.  He pledged that the legislation will be delivered to President Trump before November’s midterm elections, saying, “At the end of the day there will be a bill at the President’s desk.” (Reuters, April 30) 

Changes to HVCRE Rule  

If the Senate bill moves forward in the House, its Roundtable-supported HVCRE language would clarify and reform the Basel III High Volatility Commercial Real Estate (HVCRE) Rule  that has created needless confusion and increased borrowing costs.  

The Roundtable and twelve other real estate organizations on March 2, 2018 sent a  comment letter  urging all members of the Senate Banking Committee to take the necessary steps to enact S. 2405 by including the measure in the broader Dodd-Frank reform package (S. 2155).

The current HVCRE Rule is overly broad and includes many stabilized loans without construction risk in this HVCRE category, unduly burdening those loans with capital charges meant to protect banks from heightened construction risks. As a result, banks, including small community financial institutions, have been deterred from making this type of loan, which can represent up to 50 percent of a small bank loan portfolio.   

The Senate’s HVCRE measure would clarify which types of loans should be classified as HVCRE loans to ensure they do not impede credit capacity or economic activity, while still promoting economically responsible commercial real estate lending.  ( Roundtable Weekly, Jan. 12). 

Importantly for borrowers, the 15% equity requirement would be revised to expressly include contributed land/property at the appreciated land value as determined by a FIRREA appraisal and bank review (versus the cost basis under the current rule). The measure would also clarify that loans made to acquire existing property with rental income and/or do cosmetic upgrades and other improvements don’t trigger the capital penalty. 

HVCRE reform has been a top policy priority of The Real Estate Roundtable and its industry coalition partners, who have submitted numerous policy comment letters to policymakers since 2015. The Roundtable’s HVCRE Working Group has also played a key role in advancing these specific reforms. (Roundtable letter, March 2)

Roundtable Members Engage Key Policymakers on Economic Growth, Homeland Security, Mid-Term Elections Issues

Posted on by Trey Jackson

Real estate industry and trade association leaders gathered this week with key policymakers in Washington, D.C. for The Roundtable’s 2018 Spring Meeting, where major topics of discussion included current market conditions and the economic outlook; the upcoming mid-term elections; infrastructure funding; terrorism risk insurance; immigration reform; and tax reform implementation.

Real estate industry and trade association leaders gathered this week in Washington, D.C. for the Roundtable’s 2018 Spring Meeting.

Roundtable Chair William C. Rudin (CEO & Vice Chairman, Rudin Management Company, Inc.) launched the Spring Roundtable Meeting with a report outlining the Roundtable’s policy priorities, such as working closely with the Treasury Department to ensure proper tax reform implementation; Dodd-Frank reform; a more market-oriented terrorism risk insurance program; attracting overseas tourists through the “Visit U.S.” coalition; reforming the EB-5 immigrant investor program; and regulatory reforms and streamlining processes for infrastructure modernization.

The Roundtable’s business meeting featured the following speakers: 

  • Tom Brokaw, Senior Correspondent, NBC News
  • Sen. Mitch McConnell (R-KY), Senate Majority Leader
  • Sen. Chris Coons (D-DE)
  • Sen. Rob Portman (R-OH)
  • Ray W. Washburne, President & CEO, Overseas Private Investment Corporation
  • Julian Enoizi, Chief Executive, Pool Reinsurance Company Limited

World-renowned journalist and NBC News reporter Tom Brokaw with Roundtable Chair William C. Rudin (CEO & Vice Chairman,  Rudin Management Company, Inc.  )  .

World-renowned journalist and NBC News reporter Tom Brokaw spoke to Roundtable members about his lengthy career in Washington and a variety of current events.  Brokaw said that while the nation faces issues of gun violence; an ever-evolving digital transformation; challenges of statesmanship; and generational differences, he emphasized the “U.S. is a nation built on big ideas” that is open to positive change – and there must be great leaders willing to be involved in their communities and businesses. 

Senate Majority Leader Mitch McConnell‘s dialogue with Roundtable members focused on the positive aspects of the past 15 months in the Senate, specifically the Tax Cuts and Jobs Act of 2017; confirmation of 12 circuit judges (the most since the 1800s); and 15 regulatory repeals made possible by the Congressional Review Act.  Sen McConnell also discussed the electoral landscape for November’s mid-term elections; the challenges of raising capital and financing infrastructure projects without having to solely rely on the federal government; and plans to continue to work with the administration on comprehensive immigration reform. 

Senate Majority Leader Mitch McConnell (R-KY)

A common theme echoed throughout the day was the continued need for bipartisanship in the House and Senate.  Sen. Chris Coons (D-DE) and Sen. Rob Portman (R-OH) both members of the Senate Foreign Relations Committee, and Ray Washborne, CEO and President of Overseas Private Investment Corporation (OPIC), discussed the recent introduction of The Better Utilization of Investments Leading to Development Act of 2018 (the BUILD Act (S.2463). The legislation is intended to promote sustainable growth in developing economies through U.S. business investment and provide more accountability for taxpayers at no expected cost. The development finance corporation will leverage the U.S. private sector’s expertise and investment capital to generate economic growth in the developing world that will support American interests. (Senate Foreign Relations Committee, Feb. 2018)

Julian Enoizi, Chief Executive of Pool Reinsurance Company Limited, who works closely with The Roundtable’s Homeland Security Task Force (HSTF) and Real Estate Information Sharing and Analysis Center (RE-ISAC), engaged Roundtable members in discussions regarding the constantly evolving terrorism threat and provided insight into developing a long-term or permanent U.S. reinsurance pooling mechanism for terrorism risk – similar to programs in the United Kingdom and throughout Europe. 

After the business meeting, approximately 30 additional policymakers attended a reception and dinner that evening at the Newseum, where real estate CEOs and trade association leaders had the opportunity to further discuss policy issues with lawmakers in an informal setting. 

Next on The Roundtable’s calendar is the all-member Annual Meeting on June 14-15 at the InterContinental Hotel-The Wharf in Washington, D.C.

Fed’s Beige Book Reports Widespread Concern About Tariffs Despite Economic Growth; CRE Activity Improves

Posted on by Trey Jackson

Commercial real estate activity in the Fed’s 12 regional districts show mostly positive results, yet concerns about trade tariffs are widespread, according to the Federal Reserve’s latest “Beige Book” report about economic conditions. (The Fed, April 18)

Commercial real estate activity in the Fed’s 12 regional districts show mostly positive results, yet concerns about trade tariffs are widespread, according to the Federal Reserve’s latest  “Beige Book” report  about economic conditions. (The Fed, April 18) 

A new focus on the threat of a trade war appears in the report, with the word “tariff” used 36 times, compared with zero references in the prior survey.  The second line in the report states, “Outlooks remained positive, but contacts in various sectors including manufacturing, agriculture, and transportation expressed concern about the newly imposed and/or proposed tariffs.”  (Reuters, April 18)

The report summary also notes that steel and aluminum prices rose, “sometimes dramatically” due to the new 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)

Contacts in nine of the 12 districts commented directly on the impacts of tariffs, citing concerns related to rising prices, future uncertainty, investment decisions, and how to pass increased costs on to consumers.

A summary of each Fed district is included in the report, which shows economic expansion at a modest to moderate pace throughout March and early April, with the labor market described as “tight.”

Although the Fed reports that commercial real estate activity and construction has improved since March, prices have increased for building materials, especially for lumber, drywall, and concrete.  (GlobeSt, April 19)

The Fed will consider the Beige Book findings during its next meeting on May 1-2.  On Monday, New York Fed President William Dudley said the Fed would likely rise interest rates three or four times in 2018.  (Fed Calendar and CNBC, April 16)

Roundtable President and CEO Jeffrey DeBoer noted the commercial real estate industry’s concerns earlier this month, stating, “Proposed tariffs, coupled with the earlier tariffs on steel and ongoing dispute with China could have unfortunate and unintended effects on the U.S. economy by raising construction costs, and reducing jobs in real estate development.  China has continually taken advantage of trade practice laws, particularly intellectual property-vital for the U.S. to continue developing new technology, whether it be machinery, software, or energy efficient building solutions and should be held accountable but in a measured way.”  (Roundtable Weekly, April 6)

The economy and CRE will be a focus at The Roundtable’s Spring Meeting next week in Washington, which will include Senate Majority Leader Mitch McConnell (R-KY) as a featured guest.

Supreme Court Appears Divided During Oral Arguments on Expanding States’ Authority to Collect Taxes on E-Commerce Purchases; Decision Expected by June

Posted on by Trey Jackson

The U.S. Supreme Court on Tuesday heard oral arguments on a long-awaited case (South Dakota v. Wayfair, Inc., No. 17-494 ) that addresses the constitutionality of 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 U.S. Supreme Court heard  oral arguments  on a long-awaited case (South Dakota v. Wayfair, Inc., No. 17-494  ) that addresses the constitutionality of 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 Wayfair case challenges two pre-Internet Supreme Court decisions from 1991 and 1967 (Quill Corp. v. North Dakota, 504 U.S. 298, and National Bellas Hess, Inc. v. Department of Revenue of Illinois, 386 U.S. 753, respectively).  This pair of decades-old opinions exempts many internet merchants from collecting billions of dollars in sales taxes.  The U.S. Government Accountability Office (GAO) estimates that state and local governments could have collected an estimated 8 to 13 billion dollars in 2017 if states were given authority to require sales tax collection from all remote sellers. (GAO report, Dec. 18, 2017).  

During this week’s oral argument on Wayfair, the nine justices offered divided views.  For example, Justice Elena Kagan commented, “Congress is capable of crafting compromises and trying to figure out how to balance the wide range of interests involved here.”  Justice Sonia Sotomayor added, “Is there anything we can do to give Congress a signal it should act more affirmatively in this area?” (CQ, April 17) 

Three justices – Neil Gorsuch, Clarence Thomas and Anthony Kennedy – have expressed a willingness in past writings to rethink the Court’s case law in this area.  On Tuesday, Justice Ruth Bader Ginsburg suggested now is the time for the Quill ruling to be corrected. Ginsburg asked, “If time and changing conditions have rendered it obsolete, why should the court which created the doctrine say, ‘Well, we’ll let Congress fix up what turns out to be our obsolete precedent?'” (Reuters and Wall Street Journal, April 17 / AP, April 18)

Justice Stephen Breyer also noted, “When I read your briefs, I thought absolutely right. And then I read through the other briefs, and I thought absolutely right. And you cannot both be absolutely right.” (Bloomberg Law, April 17) 

During the Supreme Court’s  oral argument on Wayfair , the nine justices offered divided views. See  transcript .

Throughout decades of congressional efforts, legislation to level the tax playing field between Internet-based retailers and “brick and mortar” stores has never passed both chambers. More recently, President Trump has signaled his support for legislation authorizing states to impose sales tax collection requirements on online purchases. (Roundtable Weekly, Feb. 23) 

The Roundtable 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 on March 5, urging the Justices to overrule the antiquated, pre-internet, “physical presence” test that imposes collection of sales and use taxes on traditional “brick-and-mortar” retailers – while exempting on-line retailers from those same obligations.  The March brief re-iterated many points set forth by a real estate coalition in an initial amicus brief filed last November. (Roundtable Weekly,   March 9, 2018  and Nov. 3. 2017) 

On Wednesday, a USA Today editorial supported the real estate industry’s viewpoint, while also including an opposing view.  (USA Today, Tax Online Shopping Like All Others, April 17) 

The Supreme Court is expected to render a decision in Wayfair by the end of June. (Wall Street Journal, April 17 and Roundtable Weekly, Jan. 12)

Trump Administration Proposes Increased Vetting of Foreign Tourists; Visit U.S. Coalition Encourages International Travel as Key to Domestic Growth

Posted on by Trey Jackson

The State Department recently announced a proposal to require visa applicants to provide further extensive information on their social media presence, email addresses, and work histories when applying to travel to America.  Inbound tourists, business and convention travelers, students, and other non-immigrants would be subject to such “extreme vetting” policies proposed by the Trump Administration, along with immigrants seeking permanent U.S. residency.    

The Visit U.S. Coalition released “ America is Open for Business ,” a video highlighting international travel as a key driver of the health of America’s economy.

This newly proposed screening requirements would have affected nearly 15 million travelers last year alone from key long-haul markets such as China, India, Mexico and other nations that do not participate in the visa waiver program (VWP) with the U.S.  ( Visit U.S. Coalition, April 11.)  The new proposal would not affect travelers from countries granted visa-free travel status to the U.S. including most of Europe, Canada, Australia and Japan.

Under the proposed new requirements, U.S. visa applicants would be required to submit five years’ worth of personal information regarding telephone numbers, email addresses and details about their social media accounts on platforms such as Facebook and Twitter.  Fifteen years’ worth of physical address, employment, and foreign travel history would also be required.  (See State Department Form 5535.)  Currently, such information is only requested on a case-by-case basis when particular visa applications are flagged to warrant additional scrutiny due to terrorism or national security-related concerns.  The new proposal would require the additional information as a matter of course to supplement the already-exhaustive online visa form that tourists and other non-immigrants must currently submit when seeking U.S. entry.

“We should be encouraging international tourism and promoting policies that not only make the visa system more secure and accessible, but also streamline the process,” said Jeffrey D. DeBoer, President and CEO of The Real Estate Roundtable. “Increasing inbound international travel to the U.S. helps power the commercial real estate industry here at home through spending at hospitality, retail, attraction, health, and investment properties – all of which generate revenues to boost overall economic growth and create American jobs.”

Last month, the multi-industry Visit U.S. Coalition (which includes The Roundtable) released its policy agendaaimed at promoting and increasing inbound international travel to the United States. The coalition advocates for policies to regain the nation’s lost share of the global travel market by 2020, which will result in 88 million international visitors who directly support 1.3 million U.S. jobs and spend 294 billion dollars in travel exports – crucial to achieving the Administration’s economic goals. (Roundtable Weekly, March 2)

Following the State Department’s announcement of further intense screening for foreign inbound travelers, on Wednesday the Visit U.S. Coalition released “America is Open for Business,” a video highlighting international travel as a key driver of the health of America’s economy.

The State Department will be accepting public comments on the proposed enhanced vetting requirements until May 29.

New Reports Measure Impact of Tax Reform on Real Estate Investment and CRE’s Impact on National, State Economies

Posted on by Trey Jackson

Tax reform enacted late last year will cause investment in nonresidential structures to increase by an average of more than $23 billion from 2019-2028, and rise nearly $10 billion this year alone, according to new projections released Monday by the Congressional Budget Office (CBO).  (The Budget and Economic Outlook: 2018 to 2028, April 9)

CBO chart: Effects of the 2017 Tax Act on Investment Through Changes in Incentives affecting Nonresidential and Residential Structures. Click to Enlarge— Page 119 of  full CBO Report

The new report isolates and analyzes the impact of recent tax reform legislation on different types of economic activity, including investment in structures. 

Tax reform’s positive impact on nonresidential investment stems from the corporate and individual rate reductions, as well as the new pass-through deduction.  Combined, these changes reduce the user cost of capital.  Cost recovery rules for structures were largely unchanged in the recent tax policy changes.

CBO projects tax reform will have a dampening effect on investment in residential housing: -$9 billion in 2018, and an average of -$13 billion annually from 2019-2028.  These numbers reflect the combined, net effect of a reduction in investment in owner-occupied housing and an increase in investment in rental housing.  Limitations on the deductibility of property taxes and mortgage interest are putting downward pressure on investment in owner-occupied housing.  Rental property investment, in contrast, benefits from the same tax reforms that affect nonresidential investment. 

As a nonpartisan arm of Congress, CBO’s annual economic and budget outlook is widely watched by the private sector for indications of how recent policy changes are affecting the overall economy.

CBO: Trillion Dollar Deficits by 2020

According to the report, borrowing to fund tax cuts and increased spending will also send deficits soaring past $1 trillion in the coming years and increase the overall debt burden to 96 percent of GDP by 2028.  (The Hill, April 9)

Under the  recent $1.3 trillion spending agreement, defense and non-defense spending will increase by nearly $300 billion over the next two years.  (Roundtable Weekly, March 23)

Although economic growth is projected by CBO to rise to 3.3 percent in 2018 – much higher than the 2.6 percent recorded last year – the estimated growth rate will decrease to 2.4 percent in 2019, followed by a drop to an average of just over 1.7 percent for the subsequent eight years of the ten-year budget period.  (The Washington Post, April 10)

Deficits are also forecast to climb dramatically.  CBO anticipates a deficit of $804 billion in 2018 (43 percent higher than it projected just last June, prior to the tax bill and spending agreement).  The amount of debt held by the public will approach 100 percent of GDP over the next ten years, an amount far greater than any period since World War II.  (CNN, April 11)

NAIOP: Building Accounts for 18.0 % of National Economic Activity in 2017

According to the   NAIOP report , combining residential and nonresidential buildings,  as well as infrastructure, the total impact of construction spending (direct, indirect and induced) – accounted for 18.0 percent of all the nation’s economic activity in 2017. 

In related news, a report recently published by the NAIOP Research Foundation shows that commercial real estate in 2017 supported 7.6 million American jobs and contributed $935.1 billion to the nation’s GDP.  (Economic Impacts of Commercial Real Estate, 2018 Edition, NAIOP)

The annual study, authored by economist Stephen S. Fuller, Ph.D, measures the contributions to GDP, salaries and wages generated, and jobs created and supported from the development and operations of commercial real estate – and includes detailed data on commercial real estate development activity in all 50 states. 

According to the study, combining residential and nonresidential buildings (warehouse/industrial, office, retail, health care, entertainment, education, public safety, religious and lodging) – as well as infrastructure for water, sewer, highways and power, the total impact of construction spending (direct, indirect and induced) — accounted for 18.0 percent of all the nation’s economic activity in 2017.

“The importance of commercial development to the U.S. economy is well established, and the industry’s growth is critical to creating new jobs, improving infrastructure, and creating places to work, shop and play,” said Thomas Bisacquino, NAIOP president and CEO.  (NAIOP news release).

CRE as a driving force of national economic growth, as well as tax reform’s impact on the industry, will be a focus of The Roundtable’s April 25, 2018 Spring Meeting, which will feature  Senate Majority Leader Mitch McConnell (R-KY) and other key policymakers.

Treasury Releases Guidance on New Business Interest Deduction Limit, but Questions for Real Estate Investment Remain

Posted on by Trey Jackson

On Monday, the Treasury Department and the Internal Revenue Service (IRS) released Notice 2018-28, which provides guidance on the new limitation on the deductibility of business interest, (Section 163(j)), enacted in the Tax Cuts and Jobs Act.

In the Feb. 21 letter the Roundtable asked Treasury to clarify     that interest on debt incurred by an owner to fund an investment in a partnership or other entity engaged in a real property trade or business, constitutes interest on debt properly allocable to that real estate business  . 

The Notice focuses on interest expense carryforwards from prior years, corporate interest deductions, and consolidated corporate groups, while leaving unresolved certain key questions for real estate investors.  Taxpayers can rely on the guidance at least until proposed regulations are issued.

In general, for taxpayers with revenue over $25 million, the Tax Cuts and Jobs Act capped the amount of business interest that a business can deduct annually to no more than 30 percent of earnings before interest, taxes, depreciation, and amortization.  The provision includes several exceptions, including an exception critical to real estate for an “electing real property trade or business.”  

Notice 2018-28 addresses a concern that partners in partnerships could effectively double-count certain interest income when calculating the limitation on partner-level borrowing.  Other highlights of the Notice include:

  • Carryforward of interest expense.  The Notice states that forthcoming regulations will allow taxpayers with disqualified interest under the old law to carry forward such interest as business interest under the new law.  Such interest could be disallowed under the new limitation in the same manner as any other business interest. 

  • Corporate business interest.  The Notice clarifies that interest paid by a C corporation is business interest for purposes of the interest limit.  Forthcoming regulations will address whether and when interest paid by a partnership, including a partnership with a corporate partner, should be treated as business interest for the corporate partner. 

  • Consolidated groups.  The Notice confirms that the business interest limit properly applies at the level of a consolidated group.  Forthcoming regulations will address how the interest limit applies to a consolidated group when one of the members is an electing real property trade or business, and to a consolidated group in which a member holds an interest in a partnership that is engaged in a real property trade or business.

  • Earnings and profits.  The Notice clarifies that a disallowed business interest deduction will not affect whether or when the interest expense reduces a C corporation’s earnings and profits.

For real estate investors, however, the Notice leaves unanswered some of the key issues related to the financing of real estate.  For example, The Real Estate Roundtable has asked Treasury to clarify that interest on debt incurred by an owner to fund an investment in a partnership or other entity engaged in a real property trade or business, constitutes interest on debt properly allocable to that real estate business (Comment Letter, Feb 23; Roundtable Weekly, Feb. 23).

The Treasury Department and the IRS are expected to issue additional guidance and regulations in the future, and request comments on the rules described in the notice and what additional guidance should be issued to assist in computing the business interest expense limitation under Section 163(j). (IRS, April 2)

Depending on the outcome of the rule-making process, the new limitation on business interest expense (Section 163(j)) could have significant implications for real estate markets and the financing of real estate transactions.  Clarifying the rules for real estate in the context of tiered arrangements will help avoid potential disruptions.

The Roundtable and TPAC will continue to play an active role in seeking appropriate clarifications affecting the most significant changes to the tax code.

Trump Administration Announces Tariffs on China Imports; China Responds Swiftly With Similar Duties Targeting American Imports

Posted on by Trey Jackson

On Thursday, President Trump escalated ongoing trade tensions with China by instructing U.S. trade officials to consider tariffs on an additional 100 billion dollars in imports from China, in addition to the tariffs issued earlier this week— totaling 150 billion dollars in Chinese imports across 1,300 categories of products.  This action prompted a swift response from the Chinese government, with import levies on American soybeans, cars, chemicals and airplanes. (The Washington Post, April 4)

President Trump escalated ongoing trade tensions with China by instructing U.S. trade officials to consider tariffs on an additional 100 billion dollars in imports from China, in addition to the tariffs issued earlier this week— totaling $150 billion in Chinese imports.

This decision by President Trump comes a month after he authorized levies of 25 percent on imported steel and 10 percent on aluminum, while exempting Canada, Mexico and potentially other countries, based on a country-by-country review of bilateral security agreements. President Trump justified the tariffs by citing alleged violations of U.S. intellectual property laws and unbalanced trade practice. (Roundtable Weekly, March 9)

Roundtable President and CEO Jeffrey DeBoer noted the commercial real estate industry’s concerns, stating, “These proposed tariffs, coupled with the earlier tariffs on steel and ongoing dispute with China could have unfortunate and unintended effects on the U.S. economy by raising construction costs, and reducing jobs in real estate development.  China has continually taken advantage of trade practice laws, particularly intellectual property—vital for the U.S. to continue developing new technology, whether it be machinery, software, or energy efficient building solutions and should be held accountable but in a measured way.” (The Washington Post, April 5)

Since the announcement last month, along with the addition of more tariffs this week, U.S. and global market volatility show no signs of letting up, leaving two of the world’s largest economies on the brink of a possible trade war that could negatively impact U.S. agriculture and industry.

Newly appointed National Economic Council  Director and Assistant to the President for Economic Policy, Larry Kudlow, said that he expected the U.S. and China to resolve their issues, noting that the announcements by both countries where just “proposals.” (Financial Times, April 5)

Kudlow, who comes to the Trump administration as a former Wall Street economist, CNBC commentator and advocate of free trade, still believes that the U.S. can strike a deal with China—anticipating continued trade will eventually lead to faster growth and higher wages in the U.S. (Politico, April 4; BNA, April 6)

Commerce Secretary Wilbur Ross echoed Kudlow’s reassurance, noting that the U.S. tariffs won’t take effect before the end of May, after a period for public comment, and that the administration may seek to resolve the trade dispute at the bargaining table. The next opportunity for both parties to discuss the ongoing dispute will be later this month at the meeting of the International Monetary Fund and World Bank and in Washington, D.C. (The Washington Post, April 4; Reuters, April 4)

House Considers Changes to Senate-Passed Dodd-Frank Reform Bill That Includes Roundtable-Backed HVCRE Provision

Posted on by Trey Jackson

The House of Representatives is considering adding changes to bipartisan Dodd-Frank reform legislation (S. 2155) passed last week by the Senate that includes a Roundtable-supported measure to reform the Basel III High Volatility Commercial Real Estate (HVCRE) Rule.  (Roundtable Weekly, March 16)

House Republicans and Financial Services Committee Chairman Jeb Hensarling (R-TX) are motivated to push for more changes to the Senate bill in an effort to rollback more financial industry rules in the Dodd-Frank Act.

House Republicans, led by Financial Services Committee Chairman Jeb Hensarling, (R-TX) are motivated to push for more changes to the Senate bill in an effort to rollback more financial industry rules in the Dodd-Frank Act.

Proposals approved by the committee on Wednesday include a change to the Volcker Rule that would put the Federal Reserve in charge of enforcing the Dodd-Frank Act ban on proprietary trading – instead of the five agencies now assigned to the task.  (BNA, March 21)

Substantive changes to the “Volcker Rule” and other provisions by the House would likely send an amended bill back to the Senate, which could threaten support by Senate moderates and require a legislative conference between the two chambers.  (NREI, March 21)

The HVCRE measure included in the Senate-passed Economic Growth, Regulatory Relief, and Consumer Protection Act originally was introduced in the House as the Clarifying Commercial Real Estate Loans bill (H.R. 2148).  An identical HVCRE measure was then included in the Senate bill (S. 2405) that passed March 14.  

The Roundtable-supported HVCRE text would modify the current, overly broad Rule by providing bank lenders with more specific requirements for acquisition, development, or construction (ADC) loans. These reforms to HVCRE loan definitions would provide greater assurances for performing loan portfolios with low risk, bolster credit capacity and preserve economically responsible commercial real estate lending. (Roundtable Weekly, Jan. 12).

HVCRE reform has been a top policy priority of The Real Estate Roundtable and its industry coalition partners, who have submitted numerous policy comment letters to policymakers since 2015. The Roundtable’s HVCRE Working Group has also played a key role in advancing these specific reforms. (Roundtable letter, March 2)

 

Dodd-Frank Reform Legislation Includes Measure to Modify Banking Rule Affecting Acquisition, Development, or Construction Loans; Congressional Votes Next Week

Posted on by Trey Jackson

The Senate is expected to vote early next week on bipartisan Dodd-Frank reform legislation (S. 2155) that includes a Roundtable-supported  measure to reform the Basel III High Volatility Commercial Real Estate (HVCRE) Rule, which would clarify specific requirements for acquisition, development, or construction (ADC) loans.

The Senate is expected to vote early next week on bipartisan Dodd-Frank reform legislation (  S. 2155  ) that includes a Roundtable-supported  measure to reform the Basel III High Volatility Commercial Real Estate (HVCRE) Rule, which would clarify specific requirements for acquisition, development, or construction (ADC) loans.

The Economic Growth, Regulatory Relief, and Consumer Protection Act(S. 2155) represents the most significant change to financial regulatory law since 2010, when the Dodd-Frank Act was enacted. Among the financial issues it addresses, the Act would raise the amount at which banks are considered “too big to fail” – from the current $50 billion threshold to $250 billion – and provides additional relief for community banks and credit unions.

Amendments added this week to the Manager’s Amendment for S. 2155 include a bipartisan  HVCRE measure that originated in the U.S. House of Representatives as the Clarifying Commercial Real Estate LoansHVCRE bill (H.R. 2148), introduced by House Financial Services Committee members Rep. Robert Pittenger (R-NC) and Rep. David Scott (D-GA). After passing the House by voice vote in November of last year (Roundtable Weekly, Nov. 10), the Senate Banking Committee took up an identical bill in February – S. 2405 – co-sponsored by Senators Tom Cotton (R-AR) and Doug Jones (D-AL). 

Last Friday, the Roundtable and twelve other real estate organizations sent a comment letter urging all members of the Senate Banking Committee to take the necessary steps to enact S. 2405 by including the measure in the broader Dodd-Frank reform package (S. 2155).

The current HVCRE Rule is overly broad and includes many stabilized loans without construction risk in this HVCRE category, unduly burdening those loans with capital charges meant to protect banks from heightened construction risks. As a result, banks, including small community financial institutions, have been deterred from making this type of loan, which can represent up to 50 percent of a small bank loan portfolio.   

The Roundtable and twelve other real estate organizations sent a  comment letter  urging all members of the Senate Banking Committee to take the necessary steps to enact S. 2405 by including the measure in the broader Dodd-Frank reform package (S. 2155).

The Senate’s HVCRE measure would clarify which types of loans should be classified as HVCRE loans to ensure they do not impede credit capacity or economic activity, while still promoting economically responsible commercial real estate lending.  (Roundtable Weekly, Jan. 12).

Senate Banking Committee Chairman Mike Crapo (R-ID) and House Financial Services Committee Chairman Jeb Hensarling (R-TX) continue to work with their colleagues to advance bipartisan reform measure that will muster enough votes for passage in both chambers. 

It remains uncertain whether Crapo’s efforts will attract the support of House Republicans, who must approve the bill before it can be sent to the President for his signature.  Hensarling said yesterday that the updated Senate bill doesn’t go far enough and needs more provisions to reflect “the will of the House.” (BNA, March 9)

HVCRE reform is a is a top policy priority of The Real Estate Roundtable and its industry coalition partners, who have submitted numerous letters to policymakers since the measure was enacted in 2015. The Roundtable’s HVCRE Working Group played a critical role in drafting the measure and aiding efforts to advance legislative reforms. (Roundtable letter, March 2)

Financial regulation and its effect on commercial real estate lending will be a focus of The Roundtable’s April 25 Spring Meeting in Washington, DC.