Category: News Release

House Tax Bill Proposals Will Boost Economic Demand and Job Growth: Real Estate Roundtable

Posted on by Trey Jackson

 Bill Reduces Barriers to Private Sector Capital Formation and Business Investment

(WASHINGTON, D.C.) — Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer released the following statement on the Tax Cuts and Jobs Act released today by Republican leadership in the U.S. House of Representatives.

“The Real Estate Roundtable commends House Speaker Paul Ryan (R-WI), House Ways and Means Committee Chairman Kevin Brady (R-TX) and their colleagues on the introduction of comprehensive tax reform legislation.  

Today, U.S. commercial real estate is taxed on an economic basis, and commercial real estate markets are generally healthy and strong.  However, outdated and overly complicated tax laws are a drag on the broader economy.  By reducing barriers to private sector capital formation and business investment, tax reforms in the House bill will boost economic demand and job growth.

The bill would reduce the tax burden on all job-creating businesses, not only C corporations.  If the final bill is similar to the one introduced today, our industry will put more people to work modernizing and improving existing properties — office buildings, shopping centers, apartments, industrial properties — to meet the changing and growing needs of American businesses and consumers

As the House bill moves on to mark-up next week in the Ways and Means Committee, and a separate tax reform bill is expected in the Senate this month, we look forward to continuing to work with Congress and the Administration to enact pro-growth tax reform.”

 

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Real Estate Roundtable Testifies Before Senate on Business Tax Reform

Posted on by Trey Jackson

Rational Taxation of Real Estate Urged to Spur Job Creation, Encourage Business Expansion and Contribute to GDP Growth

WASHINGTON, DC — Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer today testified before the U.S. Senate Finance Committee, encouraging modest changes to the current taxation of commercial real estate that would continue to encourage economic growth while cautioning policymakers on specific business tax reform concepts that could cause severe market dislocation.

During today’s Senate hearing on Business Tax Reform, DeBoer testified, “Importantly, commercial real estate markets are largely in balance with supply, only modestly exceeding demand.  Despite our industry’s relative positive health, we know the underlying economy can and should grow more rapidly.”  DeBoer added that The Roundtable is concerned that some concepts under discussion in tax reform are risky, untested and have the potential to cause severe dislocation – not only in real estate markets but in the nations’ capital markets as well.

In his written testimony and his oral statement, The Real Estate Roundtable’s President and CEO addressed specific elements of potential tax reform.  (See Senate Finance Committee webcast and documents at https://www.finance.senate.gov/hearings/business-tax-reform.) Below is a summary of policy issues covered in his testimony:

  • Business interest deduction.  DeBoer noted that interest, the cost of borrowing, is an ordinary and necessary business expense that has always been deductible.  Today, U.S. capital markets are the deepest in the world, but restrictions would deter business formation and expansion.  The impact would fall disproportionately on entrepreneurs and other developers likely to serve small and medium-sized markets.  As interest rates rise, the harm to the economy will grow.
  • Cost recovery / expensing.  Current cost recovery rules need reform, but 100 percent expensing of real estate is a risky and untested proposal.  Accelerated depreciation of real estate in the early 1980s led to tax-driven, uneconomic investment.  Tax rules should reflect the economic life of structures.  Leading research by MIT suggests existing depreciation schedules for real estate are too long.  Shortening depreciation to 20 years would spur sustainable and economically sound investment.   

     

  • Pass-through reform.  U.S. pass-through tax rules create a dynamic, flexible business environment that supports entrepreneurship and productive investment.  Tax reform should provide equitable relief for pass-throughs.  A new, reduced tax rate for pass-through business income should avoid “cliffs”, phase-outs, and carve-outs that discriminate against certain taxpayers and create new economic distortions.    

     

  • Capital gains.  The tax code should encourage entrepreneurial activity and risk-taking through low capital gains rates and continue to recognize that risk can involve more than the contribution of capital.  Reform should also preserve like-kind exchanges, which get properties into the hands of new owners with the time and resources to invest in job-creating property improvements.

     

  • State and local tax deduction.  Tax reform should retain the deductibility of state and local taxes.  Eliminating the state and local tax deduction would undercut the principal source of financing for schools, roads, law enforcement, and other needed infrastructure and public services.

     

  • FIRPTA.  Tax reform should boost job growth and domestic investment by repealing outdated tax barriers to foreign investment in U.S. real estate and infrastructure.

     

  • Infrastructure.  An infrastructure initiative in tax reform is needed to create jobs, reflect the changing transportation needs of Americans and increase productivity, all to benefit the GDP.  

In his testimony, DeBoer said that although tax reform should unleash entrepreneurship, capital formation, and job creation – Congress should also undertake reform with caution, given the potential for economic dislocation and unintended consequences. 

As an example of over-reactive government policies, DeBoer noted past tax reform efforts in 1981 and 1986, which combined, created severe dislocation in real estate markets nationwide; led to job losses and bankruptcies; and contributed to the demise of the savings and loan industry.

The Roundtable’s President and CEO also addressed the federal deduction for state and local property and income taxes. “Ending the federal deduction for state and local property and income taxes could potentially cause significant issues in our nation’s cities, as some businesses relocate for no reason other than taxes. We urge that this idea be rejected,” DeBoer said.

He also testified about the crucial need to preserve interest deductibility.  “Eliminating or limiting the deduction for interest on business debt would cause great dislocation in capital markets, slow economic activity and lessen the unique importance of America’s capital markets,” DeBoer said.

After noting that commercial real estate markets today are estimated to account for nearly 20 percent of America’s GDP and employ millions of Americans, he added that real estate provides local governments with its largest revenue source and plays a key role in the retirement savings and wealth creation of Americans.  “Properly designed tax reform can spur job creation, encourage more robust business expansion and result in a sustainable increase in GDP,” DeBoer testified.  

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Roundtable Welcomes New Study Quantifying Vast Economic Benefits of “Like-Kind” Property Exchanges

Posted on by Trey Jackson

(WASHINGTON) The Real Estate Roundtable welcomes today’s release of an economic study that quantifies the vast economic benefits of “like-kind” property exchanges (authorized under Section 1031 of the U.S. tax code), while illustrating the unintended negative economic impacts of proposals to scale back or repeal this nearly 100-year-old tax provision.

Drs. David Ling (University of Florida) and Milena Petrova (Syracuse University), who co-authored the study —“The Economic Impact of Repealing or Limiting Section 1031 Like-Kind Exchanges in Real Estate” — based their findings on more than 1.6 million real estate transactions spanning 18 years (1997-2014) and totaling $4.8 trillion (unadjusted for inflation).

“The new Ling-Petrova study demonstrates how critical like-kind exchanges are to the health and vibrancy of real estate activity in the United States,” said Roundtable President and CEO Jeffrey DeBoer. As he explained, “Acquiring and improving commercial real estate requires large amounts of capital, and section 1031 helps real estate businesses grow and expand organically — with less debt. In short, like-kind exchanges allow property owners to put more of their earnings back into the private sector — hiring workers, upgrading and improving properties, and generating much-needed economic activity.”

Like-kind exchange rules allow taxpayers to defer tax when they exchange one property held for investment or business use for other property of a “like kind.” They also contribute to a more dynamic real estate sector by eliminating potential “lock-in” effects (particularly in the case of less-productive assets).

Such exchanges, thus, foster increased investment and reinvestment activity; allow real estate owners to better allocate resources; and decrease debt levels in commercial and multifamily real estate transactions. Additionally, “1031 exchanges” help to safeguard property values — which underlie local government budgets across the country — and help to protect tenants by stabilizing rents.

In a letter to congressional tax-writers in March, The Roundtable and coalition partners asserted, “There is strong economic rationale for the like-kind exchange provision’s nearly 100-year existence in the Code. Limitation or repeal of section 1031 would deter and, in many cases, prohibit continued and new real estate and capital investment.”

As the coalition explained, like-kind exchanges:
  • are integral to the efficient operation and ongoing vitality of thousands of American businesses, which in turn strengthen the U.S. economy and create jobs.
  • facilitate taxpayers’ ability to exchange a property for more-productive property; to diversify or consolidate holdings; and to transition to meet changing business needs.
  • are used by companies large and small in a wide range of industries, using different kinds of business structures.

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Rudin Succeeds Taubman as Real Estate Roundtable Chairman

Posted on by Trey Jackson

(WASHINGTON, D.C.) — William C. Rudin (Rudin Management Company, Inc.) has been elected chairman of The Real Estate Roundtable, and is poised to succeed Robert S. Taubman (Taubman Centers, Inc.) in this role as of July 1. At the organization’s annual meeting on June 3, members also approved a new, 22-member board of directors and policy advisory committee chairs for the 2015-16 fiscal year.

“We could not have a better choice to lead our industry than Bill Rudin,” said Taubman, who has served as Roundtable chairman for the past three years. Taubman noted that Rudin “brings a deep understanding of what is needed for real estate markets to thrive — including jobs, economic demand, financing, and infrastructure — and how all of this relates to healthy cities, local government budgets and a healthy U.S. economy. With his broad experience in every facet of the business, and leadership role in various civic organizations, Bill Rudin is well suited to help the nation’s political leaders understand real estate’s views on key policy issues.” 

Roundtable President and CEO Jeffrey D. DeBoer added, “Thanks to his deep engagement over the years, and the respect he enjoys from peers and elected officials at all levels of government, Bill Rudin has contributed immeasurably to The Roundtable’s success in Washington. These contributions range from tax and technology issues, to homeland security policy, and real estate’s positive role in creating jobs and addressing U.S. energy challenges. I’m thrilled to be working with Bill in this new role, and look forward to many policy successes under his leadership.”

Rudin is vice chairman and CEO of Rudin Management Company, Inc., one of the nation’s largest and most well regarded privately-owned real estate companies, with 10.2 million square feet of commercial space and 4.7 million square feet of residential space.

Rudin has served as chairman-elect of The Real Estate Roundtable since last June. He was a founding member of the organization in 1999; joined its board in 2008; and became board secretary in 2012. 

“I am deeply honored to take on the leadership of this highly respected policy advocacy organization,” said Rudin. “For over 15 years, it has been bringing together a diverse cross-section of industry leaders to discuss, shape and articulate a unified real estate industry perspective on key federal policy issues,” he added. As the nation faces an array of consequential policy challenges — such as immigration, infrastructure funding, and the need for sustainable job creation — Rudin called for real estate to maintain a “pro-active” approach in Washington, and for policymakers to consider real estate as “part of the solution.”

Rudin is very active with many civic, policy-oriented and philanthropic organizations. He chairs the Association for a Better New York (ABNY). He is a long-time member of the Real Estate Board of New York (REBNY). He is active with the Citizens Budget Commission, Economic Club of New York, Council on Foreign Relations, and the Partnership for New York City. Additionally, he sits on the boards of institutions such as New York University, the Battery Conservancy, the Metropolitan Museum of Art, and the Mayor’s Fund to Advance New York City.

The Roundtable’s board of directors includes the leaders of public and privately-held national real estate firms involved in real estate ownership, development, lending and management — and representing an array of property types (e.g., office, hospitality, retail, industrial, multi-family and senior living). The board also includes the elected leaders of five major national real estate trade groups — out of 17 that hold permanent membership in The Roundtable.

Joining the board, as of July 1, are: Thomas R. Arnold, Head of Americas–Real Estate, Abu Dhabi Investment Authority, Chairman of the Association of Foreign Investors in Real Estate (AFIRE) and Chairman, Pension Real Estate Association (PREA); Stephen D. Lebovitz, President and CEO of CBL & Associates Properties, Inc., and Chairman, International Council of Shopping Centers (ICSC).

Stepping down from the Roundtable board are: Ronald L. Havner, Jr., Chairman, CEO and President, Public Storage, Inc., and Immediate Past Chairman, National Association of Real Estate Investment Trusts (NAREIT); Steven D. Martin, Managing Principal, SDM Partners, and Chairman, NAIOP – the Commercial Real Estate Development Association; and Daniel M. Neidich, CEO, Dune Real Estate Partners LP, and Immediate Past Chairman, The Real Estate Roundtable.

Roundtable, Coalition Partners Urge FIRPTA Reform as House Tax-Writers Seek Multi-Year Infrastructure Funding Solutions

Posted on by Trey Jackson

(WASHINGTON, D.C.) — In conjunction with a House Ways & Means Committee hearing today exploring long-term funding solutions for the Highway Trust Fund (HTF) — whose latest funding “patch” expires July 31 — The Real Estate Roundtable and a coalition of business and labor organizations urged reform of the Foreign Investment in Real Property Tax Act (FIRPTA) as a “simple, cost-effective” way to “galvanize billions in new private capital for investment in U.S. transportation and infrastructure.”

In a letter submitted for the hearing record, the coalition said the 1980 law “is a major hurdle for the foreign investor seeking to invest in US infrastructure projects.” It also characterized FIRPTA as a “punitive,” “anti-competitive” law that “subjects foreign investment in U.S. real estate or infrastructure to a much higher tax burden than applies to a foreign investor purchasing a U.S. stock or bond, or an investment in any other asset class.”  In some cases, the FIRPTA tax burden is as high as 54.5 percent. [A similar letter is being submitted to Senate tax-writers in conjunction with their scheduled HTF hearing tomorrow.]

In the view of The Roundtable and its coalition partners, any long-term HTF funding bill should include FIRPTA reforms such as those in H.R. 2128 — legislation introduced by Ways and Means Committee members Kevin Brady (R-TX) and Joseph Crowley (D-NY). The “Real Estate Investment and Jobs Act of 2015” would increase (from 5 percent to 10 percent) the ownership stake that a foreign investor can have in a U.S. publicly traded REIT without triggering FIRPTA liability (extending this provision to certain collective investment vehicles); and exempt foreign tax-exempt pension funds from FIRPTA altogether. 

“By providing relief from FIRPTA, the Brady-Crowley bill will spur domestic real estate investment, create jobs and help provide the capital we need to rebuild the nation’s crumbling infrastructure,” said Roundtable President and CEO Jeffrey D. DeBoer. Since the bill’s re-introduction in April, 31 (of 39) Ways & Means Committee members have signed on as co-sponsors.

Earlier this year, the Senate Finance Committee unanimously passed legislation (S. 915) that contains a significant part of what The Roundtable and its coalition partners are seeking, in terms of FIRPTA reform. Also illustrating the strong bipartisan support for FIRPTA reform, the full House cleared similar legislation in 2010 by a vote of 402-11. 

Because of the close connection between FIRPTA and infrastructure investment, the Administration included a FIRPTA reform proposal in its 2013 Rebuild America infrastructure initiative, and in its last three budget submissions to Congress. 

Real Estate Roundtable Applauds House Vote on Bill to Spur Energy Efficiency in Leased Commercial Space

Posted on by Trey Jackson
(WASHINGTON, D.C.) — The Real Estate Roundtable commends today’s House passage of “Tenant Star” legislation that will foster energy efficiency in leased commercial space, thus addressing a critical piece of the energy efficiency equation in commercial buildings, and helping to curb greenhouse gases while boosting innovation and the U.S. economy.

With Tenant Star already cleared by the Senate on March 27, the legislation can now be sent to the White House for President Obama’s anticipated signature.

     The bill authorizes the U.S. Environmental Protection Agency (EPA) and Department of Energy (DOE) to create a voluntary “Tenant Star” program modeled after the highly successful, market-based ENERGY STAR program. Once it is signed into law — and implementing guidelines are written — “Tenant Star” will provide national branding recognition to property owners and tenant teams that design, construct and operate highly energy efficient spaces within commercial buildings.

     The House-passed bill tracks legislation long championed by Senators Rob Portman (R-OH), Jeanne Shaheen (D-NH), Kelly Ayotte (R-NH) and Michael Bennet (D-CO)  in the upper chamber (“Tenant Star” also cleared the Senate as an amendment to Keystone XL pipeline legislation earlier this year).  The key House sponsors, Reps. David McKinley (R-WV) and Peter Welch (D-VT), previously won overwhelming House passage (375-36) in March 2014 and pursued approval again today to ensure that both sides of Capitol Hill passed “Tenant Star” in the same congressional session.

     Empire State Realty Trust (NYSE: ESRT) Chairman, President and CEO Anthony E. Malkin, who chairs The Roundtable’s Sustainability Policy Advisory Committee (SPAC), said, “Tenant Star is a voluntary program — with no federal mandate or cost — that will encourage commercial tenants and landlords to design and construct leased spaces in office buildings to achieve high levels of energy performance.”

     With office tenants often accounting for over 50 percent of the energy consumed in an office building, he explained, “Tenant Star will encourage office tenants to incorporate into the construction of their leased premises common sense, cost-effective measures that yield excellent returns on investment over short pay-back periods.” 

     Added Malkin, “Tenants will favor landlords whose buildings can support such installations. Broad adoption will save businesses billions of dollars on energy costs in the coming years. The reduced consumption will afford savings in future capital outlays for energy generation and related infrastructure.”

     Real Estate Roundtable President and CEO Jeffrey D. DeBoer said, “‘Tenant Star’ is a ‘triple win’ that will spur the economy by creating jobs, enhancing energy security, and preserving our environment by cutting greenhouse gases. It will boost innovation in the real estate sector and go a long way toward ensuring that our country’s commercial and multifamily stock — and the separate spaces leased within them — are at the vanguard of advances in technology and energy conservation. The ‘Tenant Star’ program will allow building owners to attract financiers, investors, and tenants in the increasingly competitive national and global markets for real estate.”

 

     The Real Estate Roundtable supports legislation that encourages energy efficiency and energy production as components of an “all of the above” national energy policy.

“We look forward to our continued work with Congress and the Obama Administration to ultimately sign ‘Tenant Star’ into law,” DeBoer said. “Meanwhile, we continue working to advance broadly supported measures that  strive to balance economic growth with complementary polices to foster environmental stewardship.” 

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About The Real Estate Roundtable: The Real Estate Roundtable brings together leaders of the nation’s publicly-held and privately owned real estate ownership, development, lending and management firms with the leaders of national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy. Collectively, Roundtable members’ portfolios contain over 12 billion square feet of office, retail and industrial properties valued at more than $1 trillion; over 1.5 million apartment units; and in excess of 2.5 million hotel rooms.  Participating trade associations represent more than 1.5 million people involved in virtually every aspect of the real estate business.
 
About Empire State Realty Trust:  Empire State Realty Trust, Inc. (NYSE: ESRT), a leading real estate investment trust (REIT), owns, manages, operates, acquires and repositions office and retail properties in Manhattan and the greater New York metropolitan area, including the Empire State Building, the world’s most famous office building. Headquartered in New York City, the company’s office and retail portfolio covers 10.0 million rentable square feet, as of Dec. 31, 2014, consisting of 9.3 million rentable square feet in 14 office properties, including nine in Manhattan, three in Fairfield County, Conn., and two in Westchester County, N.Y.; and approximately 728,000 rentable square feet in the retail portfolio.