Category: News

Roundtable Weekly Will Resume Publication on January 10, 2025

Posted on by Abigail Grenadier

The Roundtable’s policy news digest will resume publication on Friday, January 10, 2025

Recent issues of Roundtable Weekly can be searched by keyword here.

Sentiment Index Reaches Three Year High, Signaling Industry Optimism for Gradual Recovery

Posted on by Abigail Grenadier

The Real Estate Roundtable’s Q4 2024 Sentiment Index reached an overall score of 73, up 9 points from the previous quarter and marking its highest score since Q4 2021. The three year high reflects industry leaders’ cautious optimism that commercial real estate markets are stabilizing, showing signs of recovery and becoming well positioned for activity in 2025.

The Index, which measures commercial real estate executives’ confidence and expectations about the industry environment, is scored on a scale of 1 to 100 by averaging the scores of Current and Future Economic Sentiment Indices. Any score over 50 is viewed as positive.

Roundtable Perspective

  • Roundtable President and CEO Jeffrey DeBoer said, “The notable increase in sentiment this quarter reflects a combination of factors, primarily the Federal Reserve’s rate cuts and expected future monetary easing. This action coupled with positive shifts in office leasing demand and a broader return-to-office trend are leading to greater price discovery and transaction volume. Housing supply constraints, access to energy sources, high operating expenses continue to present major challenges.”
  • Compared to one year ago, sentiment on current conditions is up by 37 points, perception of future conditions is up by 20 points, and overall conditions are up by 29 points.
  • In comparison to last quarter, sentiment on current conditions is up by 10 points, perception of future conditions is up by 7 points, and overall conditions are up by 9 points.
  • Roundtable Chair Kathleen McCarthy (Global Co-Head of Blackstone Real Estate, Blackstone) commented on the Q4 Sentiment Index results: “The improved sentiment reflects the continuing recovery in commercial real estate, which is supported by improving liquidity in the market. This recovery will play out over time, and it is critical that we continue to support policies that help drive economic growth in communities throughout the U.S.”

Topline Findings

  • All indices of The Roundtable’s Q4 Index are up, compared to the previous quarter and one year ago.
  • The Q4 2024 Real Estate Roundtable Sentiment Index reached an overall score of 73, up 9 points from the previous quarter and marking the highest score since Q4 2021. The Current Index registered 69, rising 10 points from Q3 2024. Meanwhile, the Future Index hit 77, an increase of 7 points from the previous quarter and the highest level seen since 2011.
  • Leaders in the industry are cautiously optimistic that the commercial real estate industry is showing signs of recovery and is well positioned for activity in 2025. Over three-quarters (77%) of Q4 survey participants said conditions are better now compared to this time last year, and 88% of respondents expect general market conditions to improve one year from now.
  • Although there is some concern that multifamily assets will plateau in certain geographic areas, the market is optimistic about industrial development, Class A offices, shopping centers, and data centers. A significant 98% of Q4 survey participants expressed optimism that asset values will be higher (79%) or the same (19%) one year from now, indicating some semblance of expected stability. 71% of Q4 survey participants believe asset values are higher (38%) or about the same (33%) today compared to a year ago.
  • 61% and 66% of respondents believe the availability of equity and debt capital, respectively, has improved compared to one year ago. There is even more optimism for the future, with 80% and 79% of participants believing the availability of equity and debt capital, respectively, will be better one year from now. While commentary indicates that the capital markets are starting to open, the cost of capital remains elevated from previous levels.

Data for the Q4 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in October. See the full Q4 report.

Hurricanes Helene and Milton: The Case for NFIP Reform

Posted on by Abigail Grenadier

Commercial real estate owners face soaring insurance costs as back-to-back hurricanes place financial strain on insurers and the National Flood Insurance Program (NFIP). The implications for property owners, especially in coastal areas, are severe, with insurance premiums skyrocketing and coverage harder to secure.

Storm Impact and Market Challenges

  • Milton is the second major storm to strike Florida in less than two weeks. The hurricane could cause over $50 billion in damages, with worst-case losses approaching $175 billion, according to Wall Street analysts. (CNBC, Oct. 8)
  • Potential insured losses from Milton are expected to be substantial and could amount to $60 billion, according to an S&P Global Inc. report. (Bloomberg, Oct. 9)
  • Without a robust, long-term NFIP, property owners face escalating risks from future storms, leaving both homeowners and commercial real estate properties vulnerable. (Roundtable Weekly, Oct. 4)
  • With more severe storms expected, CRE property owners are struggling to cover rising costs—sometimes opting to forego upgrades or sell assets to manage financial pressures. (NYT, Oct. 8)
  • According to Marsh McLennan, premiums on commercial properties have increased by an average of 11% nationwide, and even more in storm-prone areas. The report also states that owners with “significant exposures and sustained losses” can expect rates to climb by 50% to 100%.
  • “High-magnitude catastrophe losses, the enduring challenges of the pandemic on the supply chain, fluctuations in the employment market, and rising inflation have banded together to create a perfect storm that threatens the sustainability of every property portfolio.” (Marsh McLennan report)

Federal Challenges and Response

  • Lawmakers remain divided on addressing FEMA’s potential disaster fund shortfall, which could jeopardize rebuilding infrastructure like roads and water facilities. Speaker Mike Johnson has indicated no plans for Congress to reconvene and approve more disaster funding. (PoliticoPro, Oct. 9)
  • The Biden administration is confident that FEMA’s disaster relief fund has sufficient resources to support recovery efforts for both Helene and Milton. However, they have raised concerns about the fund’s solvency through the remainder of the hurricane season ending in November. (PoliticoPro, Oct. 10)
  • Milton could also spark debate again in Washington, D.C., about the need for a national catastrophe insurance program. (PoliticoPro, Oct. 9)

NFIP Under Pressure

  • With nearly two million NFIP policies in areas hit by Helene and Milton, the program’s $15 billion in coverage may fall short, prompting debates over whether to raise the NFIP’s borrowing authority, forgive debt, or appropriate funds to cover policyholders’ claims. (Politico, Oct. 9)
  • House Financial Services Chair Patrick McHenry (R-NC) and the committee’s lead Democrat, Rep. Maxine Waters (D-CA), have previously collaborated on long-term NFIP reform. However, they now hold differing opinions on how to free up funds for claims if needed.
  • Rep. McHenry leans toward raising the NFIP’s borrowing cap or appropriating additional funds, while Rep. Waters has consistently supported debt forgiveness. Currently, Congress has set a $30.4 billion limit on the NFIP’s borrowing capacity from the Treasury.
  • The Roundtable has been a long-standing supporter of a long-term reauthorization of the NFIP with appropriate reforms. These measures are essential for residential markets, overall natural catastrophe insurance market capacity, and the broader economy.

The Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to address commercial insurance gaps and rising costs. RER will continue advocating for targeted policy solutions that can help alleviate increased insurance costs for housing providers nationwide.

Roundtable Offers Policy Guide to US-DOE to Shape Effective Building Performance Standards

Posted on by Abigail Grenadier

The Real Estate Roundtable urged the U.S. Department of Energy (DOE) on Wednesday to follow a newly released policy guide as the agency awards grants for states and localities to develop Building Performance Standards (BPS). The guidebook developed by the Roundtable’s Sustainability Policy Advisory Committee (SPAC) reflects RER’s ongoing commitment to addressing climate change while ensuring the economic sustainability of real estate investments and the communities they support. (Letter, Oct. 8)

Building Performance Standards (BPS)

  • State and local governments are increasingly adopting BPS laws that impose energy and climate performance mandates on real estate.
  • These laws typically set annual limits on how much energy buildings can use and how much greenhouse gases (GHGs) they can emit, with an ultimate goal of reaching net zero emissions around 2050.
  • International groups also apply pressure for energy and emissions performance limits on buildings to drive global investments in real estate. (Roundtable Weekly, July 19)

  • The Department of Energy (DOE) in August announced $240 million in federal grants to help states and localities implement BPS laws. (Roundtable Weekly, Sept 6).

  • The inconsistent nationwide BPS “patchwork” poses significant challenges for property owners and policymakers alike. These laws must be backed by studies and adequate resources to ensure they achieve significant emission reductions—while continuing to further parallel efforts to support the recovery of business districts and increase the supply of affordable housing.
  • “Our members face a variety of local and state legislative initiatives around building performance standards which lack consistent, implementable, fact-based frameworks. The federal government has the research and analysis heft to create and maintain a voluntary system of fair, reasonable, and effective BPS guidelines to help inform these efforts ” said Anthony E. Malkin, Chair of the Roundtable’s SPAC (Chairman and CEO, Empire State Realty Trust).
  • “Our peer-reviewed, 20-point policy guide intends to help start and guide a discussion of the subject,” he continued. 
Source: US-DOE, IMT (map as of August 2024)

BPS Policy Guide: 20 Key Points

  • RER’s policy guide should shape how DOE disburses tens of millions of taxpayer-funded federal grants to states and cities across the country. It outlines 20 key points that should be prioritized when developing and implementing BPS laws. These include:
  • Develop science-based and data-driven standards. Policymakers should base building performance targets on robust cost-benefit analyses, housing affordability studies, grid resilience assessments, and actual data on energy usage.

  • Align standards across jurisdictions. Property owners face confusing and inconsistent mandates. Policymakers should harmonize rules to ease multi-jurisdictional compliance and use landmark federal programs as a uniform means for compliance.

  • Provide clear compliance resources and fair remedies. Policymakers should ensure that BPS laws come with transparent, accessible compliance pathways that building owners can follow. This includes offering practical resources, technical assistance, and incentive programs to help owners plan for “life-cycle” capital investments and retrofits. Enforcement mechanisms should offer building owners reasonable opportunities to correct non-compliance before imposing fines.

RER welcomes engagement on the 20-point policy guide to help craft BPS laws that are fair and effective.

NEWS: Sentiment Index Reflects Growing Optimism Amid Persistent Market Challenges

Posted on by Abigail Grenadier

(WASHINGTON, D.C.) — The Real Estate Roundtable’s Q3 2024 Sentiment Index, which measures commercial real estate executives’ confidence and expectations about the industry environment, suggests a growing confidence in the future of the commercial real estate market despite ongoing challenges. The Q3 Sentiment Index reported an overall score of 64, reflecting an increase of three points from the previous quarter, and the Future Index at 70, up four points from the previous quarter. This rise in sentiment marks an 18-point increase in the overall score since last year.

Roundtable President and CEO Jeffrey DeBoer said, “The increase in our Q3 Sentiment Index indicates that while uncertainty remains, the industry is gradually regaining confidence. Leaders are seeing signs of stabilization in asset values and a potential improvement in the availability of capital, which are encouraging signals as we navigate this complex environment.”

He added, “The results of the report reflect the resilience of the commercial real estate industry. The fact that a majority of executives expect better conditions in the coming year is a strong signal that although serious challenges remain, the worst may be behind us.”

The Q3 Sentiment Index topline findings include:

  • All indices of The Roundtable’s Q3 Index are up, compared to the previous quarter and one year ago. The Q3 2024 Real Estate Roundtable Sentiment Index registered an overall score of 64, an increase of three points over the previous quarter. The Current Index registered 59, a four-point increase over Q2 2024. The Future Index posted a score of 70 points, an increase of four points from the previous quarter, indicating that uncertainty surrounding the future of asset values and availability of capital persists, but has lessened.
  • In Q3 2023, the Overall Index registered at 46, while the Current Index registered at 33, reflecting a notable 26-point gain in the Q3 2024 Current Index compared to the previous year. The Index is scored on a scale of 1 to 100 by averaging the scores of Current and Future Economic Sentiment Indices. Any score over 50 is viewed as positive.
  • Evolving market trends continue to shape the real estate landscape. A majority (70%) of Q3 survey participants expect general market conditions to show improvement one year from now. Additionally, 48% of respondents said conditions are better now compared to this time last year. Only 6% of Q3 participants expect general market conditions to be somewhat worse in a year, a decrease from 11% in Q2. Some subsector asset classes, such as data centers and student housing, are well-positioned from both a fundamentals and capital availability perspective. However, Class B office properties continue to face ongoing challenges, and the fast pace of multifamily and industrial rent growth has subsided.
  • A significant 88% of Q3 survey participants expressed optimism that asset values will be higher (57%) or the same (31%) one year from now, indicating some semblance of expected stability. 76% of Q3 survey participants believe asset values are slightly lower (50%) or about the same (26%) today compared to a year ago.
  • The real estate capital markets landscape remains challenging. However, 71% of respondents believe the availability of equity capital will improve in one year, while 60% said the availability of debt capital will improve in one year. 40% of participants said the availability of debt capital would be the same or worse in one year, an increase from 36% who voiced the same expectation in Q2 of this year.

Some sample responses from participants in the Sentiment Index’s Q3 survey include:

“Investors still want to allocate dollars to real estate, but there is still sentiment for defensive positioning and risk mitigation.”

“Pricing is all over the board and has reset since the post-Covid boom. The magnitude of the reset depends on where the asset is in its life cycle and its financing structure.”

“Banks have pulled back, but insurance companies have a reasonable level of capital and pricing has been stable. For higher quality assets, there’s demand.”

“Spreads are tightening on construction loans, but acquisition financing is more available. There is a lot of debt capital on the sidelines for high quality asset acquisitions.”

Data for the Q3 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf in July. See the full Q3 report.

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

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Biden Administration Announces $240 Million of IRA Grants for Building Efficiency Upgrades

Posted on by Abigail Grenadier
Department of Energy building in Washington, DC

On August 27, the U.S. Department of Energy announced plans to allocate $240 million from the Inflation Reduction Act (IRA) to 19 state and local governments to help communities adopt energy-efficient building codes and retrofit structures to meet updated standards. (Politico, Aug. 27)

Key Details

  • The initiative is expected to reduce utility costs for multifamily residents and commercial building operators, enhance grid resilience, and lower emissions.
  • “DOE is helping jurisdictions move further and faster in implementing stronger codes that will provide Americans safer, healthier, and more comfortable places to live, work, and play,” said U.S. Secretary of Energy Jennifer Granholm. (US-DOE Press Release, Aug. 27)
  • The 19 selected projects will receive direct technical assistance to support the adoption and implementation of traditional energy codes, zero energy codes, and building performance standards.
  • The grants also align with the Justice40 Initiative, designed to direct 40% of federal investments to disadvantaged communities overburdened by pollution.
  • This latest announcement follows an initial $90 million awarded to 27 projects last year from the 2021 Infrastructure Investment and Jobs Act, commonly known as the bipartisan infrastructure law, to implement updated building codes. (Politico, Aug. 27)
  • Chosen jurisdictions must go through a “negotiation process” with US-DOE before the agency ultimately awards Round 1 grants. Applications for the second round of IRA funding will close on Sept. 13. (US-DOE Press Release, Aug. 27)

What’s Next

The Roundtable is developing a “primer” for real estate stakeholders, highlighting key issues in the state and local BPS trend, with a release planned for this fall.

New Study on Rent Control Shows Proposals Impede Housing Production

Posted on by Abigail Grenadier

In July, the White House announced a nationwide rent control plan that aims to cap rent increases at 5%. Owners of rental housing would only be able to take advantage of depreciation write-offs if they limit annual rent increases to no more than 5%, effectively trading depreciation deductions for price controls.

Economists on Rent Control Proposals

  • The White House’s recent rent control plan, while intended to make renting more affordable, would impede the production of much-needed housing, particularly for affordable units. (RW, July 19)
  • Last week, The Roundtable and a coalition of national real estate associations, wrote to President Biden expressing strong opposition to the proposed rent control measures. (RW, July 26)
  • Economists across the political spectrum widely agree that rent control is a discredited policy. Jason Furman, the former Obama administration’s top White House economist, asserts that rent control would worsen housing supply issues instead of solving them.
  • A recent study by the University of Chicago surveyed 45 economists from elite institutions, revealing near-universal agreement that national rent control measures would do little to aid Americans and would ultimately worsen the housing shortage. (NMHC, July 30)

Survey Findings:

  • No economist agreed rent control would substantially reduce income inequality.
  • 2% of economists surveyed agreed that a national rent cap would substantially improve the lives of middle-income Americans over the next 10 years.
  • 62% of the economists agreed or strongly agreed that the Administration’s rent cap proposal would substantially reduce the amount of available apartments over the next 10 years, compared to 7% who disagreed.

The Roundtable will continue to encourage policymakers to enact measures that will expand the nation’s housing infrastructure, develop more affordable units and reduce the costs of housing. 

Roundtable Requests Additional Guidance for FIRPTA REIT Regulations

Posted on by Abigail Grenadier

Today, The Roundtable wrote to U.S. Treasury Secretary Janet Yellen requesting that the Treasury Department provide additional clarifying guidance regarding transition relief in the Foreign Investment in Real Property Tax Act’s (FIRPTA) regulations for domestically controlled REITs.  (Letter)

Key Concerns

  • In April, Treasury issued final regulations that redefined what constitutes a domestically controlled REIT exempt from tax under FIRPTA. The regulations created a new look-through rule that extended the reach of the discriminatory FIRPTA regime to common investment structures. (Roundtable Weekly, April 26)
  • Clarifying guidance is necessary and urgent to enable a qualified investment entity (QIE) to make a timely determination concerning its direct or indirect ownership of “U.S. real property interests” (“USRPI(s)”) under the conditions of the Transition Rule.
  • Impact on foreign investment: Foreign investment can attract significant capital, helping to support market stability and create jobs. The final regulations, designed to define a domestically controlled QIE, are feared to be deterring foreign investment in U.S. real estate.
  • Outstanding questions: Specifically, the letter seeks additional guidance on: what constitutes “direct or indirect” ownership of real estate when it is held by a REIT through multiple subsidiaries, how to treat acquisition costs and capitalization expenditures, and situations where ongoing construction or substantial renovations are occurring. 

Roundtable Advocacy

FIRPTA
  • The Roundtable has consistently advocated for the withdrawal of regulations and policies that hinder foreign investment in U.S. real estate. (Roundtable Weekly, April 26)
  • David Friedline, a tax partner at Deloitte and Vice Chair of RER’s Tax Policy Advisory Committee (TPAC) said, “The official guidance would provide needed clarification for our members, who have been adversely affected by the final regulations’ new look-through rule, on how to comply with the conditions of the transition relief.”  Friedline was a principal drafter of the Roundtable letter. 
  • Building new affordable housing and office-to-residential conversion projects requires encouraging more investment, not less. Erecting new barriers to passive foreign investment in U.S. real estate runs counter to important bipartisan policy priorities.

The Roundtable remains committed to collaborating with the Treasury to ensure that the final regulations can provide much-needed clarity and stability, supporting the industry’s efforts to attract foreign capital and drive economic growth.

White House Calls on Congress to Enact Federal Rent Price Control Measure, Eliminate Depreciation Write-Offs to Help Reduce Housing Costs

Posted on by Abigail Grenadier

This week, the White House unveiled a nationwide rent price control plan that calls on Congress to “pass legislation giving . . . landlords a choice to either cap rent increases on existing units at 5% or risk losing current valuable federal tax breaks.” (White House Fact Sheet)

While the package is focused on imposing flawed rent price control policies and eliminating long-standing depreciation write-offs, it also includes policies to help build more housing. (WSJ, July 16)

Housing Proposals

  • Under President Biden’s plan, beginning this year and for the next two years, owners of rental housing would only be able to take advantage of faster depreciation write-offs if they limit annual rent increases to no more than 5%, effectively trading depreciation deductions for rent price controls.
  • This would apply to landlords with over 50 units in their portfolio, covering more than 20 million units nationwide—nearly half the U.S. rental market. It would include an exception for new construction and substantial renovation or rehabilitation. (White House Fact Sheet)
  • While intended to make renting more affordable, these proposals would impede the production of much-needed housing, particularly for affordable units. (Bloomberg, July 17)
  • The Biden-Harris Housing Plan also includes initiatives to:
    • Call on all federal agencies to assess surplus federal land that can be repurposed to build more affordable housing;
    • Rehabilitate distressed housing, build more affordable housing, and revitalize neighborhoods; and
    • Authorize $325 million in Choice Neighborhoods grants under the U.S. Department of Housing and Urban Development (HUD) to build new deeply-affordable homes and spur economic development in communities across the country.
  • The proposal would require congressional action to become law.

FHFA Proposed Tenant Protections

  • This is the first time tenant protections will be a standard component of Enterprise multifamily financing.   
  • These protections apply to future loans acquired by the Enterprises and would include:
    • Requiring 30-day notice before rent increases;
    • Requiring 30-day notice on lease expiration; and
    • Providing a 5-day grace period before imposing late fees on rental payments.

Industry & Roundtable Response

(L-R): Heidi Sommer (POLITICO), Jeffrey DeBoer (The Real Estate Roundtable), and Shannon McGahn (National Association of Realtors)
  • This week at the Republican National Convention, our National Real Estate Organizations (NREO) partnered with POLITICO to host a series of discussions on the elections, affordable housing, revitalizing cities, the commercial real estate industry, and proactive policy solutions. (Watch here)
  • The Roundtable’s President & CEO Jeffrey DeBoer was a featured speaker alongside Shannon McGahn (National Association of Realtors), joining Heidi Sommer (POLITICO) for a discussion on affordable housing, upcoming tax priorities, interest rates, and the economy.
  • DeBoer stated in response to the administration’s recent rent cap proposal, “Rent control is fundamentally flawed and historically ineffective. Wage and price controls, even during wartime, have consistently failed to deliver the intended results. Implementing such measures now will only exacerbate the root cause of America’s housing problem by discouraging new housing development and reducing investment in existing housing.”

The Roundtable is developing comments on the proposed plans and will continue work to enact measures that will help spur the expansion of America’s affordable housing infrastructure.

Roundtable Requests Voluntary U.S. Guidelines for Climate-Resilient Buildings to Fend Off EU-Based Rules

Posted on by Abigail Grenadier

This week, The Roundtable urged the Departments of Treasury, Energy, and the Environmental Protection Agency to develop voluntary, science-based guidelines to help U.S. real estate companies align their climate-related programs with global targets. (July 16 letter)

U.S.-Specific Climate Investment Principles

  • Treasury’s principles can guide net-zero corporate commitments in the United States.
  • However, foreign organizations aim to exert significant influence over capital decisions in America’s real estate – which can leave buildings “stranded” in the eyes of some overseas investors because they do not meet “energy requirements being rolled out in Europe.” Bloomberg (June 18)
  • These market risks prompted the Roundtable’s letter requesting voluntary building “decarbonization curves” designed by the U.S. government reflecting climatic, market, and data conditions in our country.
  • Investment principles for America’s real estate “should not be the creation of the European Union,” The Roundtable states.
  • “This is a matter of global economic competitiveness for capital access,” said the Chair of The Roundtable’s Sustainability Policy Advisory Committee, Anthony Malkin (Chairman and CEO, Empire State Realty Trust, Inc.). “America’s buildings should not be expected to meet standards that speak to assets, laws, power grids, and regulatory environments in Europe or elsewhere.”

U.S. Energy Programs and Recommendations

Tony Malkin (Chairman and CEO, Empire State Realty Trust, Inc.), chair of The Roundtable’s Sustainability Policy Advisory (SPAC) Committee.
Anthony Malkin (Chairman and CEO, Empire State Realty Trust, Inc.)
  • Malkin continued, “The United States leads the world in government developed, voluntary guidelines for all types of buildings’ energy use and emissions. Agencies like US-EPA and US-DOE know the conditions of our markets, climate zones, and power grids and can help make it easier for capital to come into real estate and grow jobs and tax revenue in the United States.”
  • The Roundtable urged the U.S. government to develop building “pathways” through a robust public input process that considers the experiences of companies that own, develop, manage and finance America’s real estate.

The Sustainability Policy Advisory Committee (SPAC) will continue to work with the agencies and Congress to shape policies that promote cost-effective investments to optimize building energy efficiency and help the real estate sector mitigate the effects of climate change.