Category: Roundtable Weekly

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

Posted on by Trey Jackson

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

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

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

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

Five Regulatory Agencies Clear Path for Volcker Rule Changes

Posted on by Trey Jackson

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

SEC Chairman Jay Clayton

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

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

The Fed and FCIC Vote to Simplify and Ease Volcker Rule

Posted on by Trey Jackson

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

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

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

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

Senate and House Committees Approve Bills Addressing Foreign Investment Risk; Includes Language Affecting Real Estate

Posted on by Trey Jackson

Separate bills that would overhaul the process for reviewing foreign investment risk – including a purchase or lease by a foreign party of domestic properties located close to sensitive U.S. facilities – received unanimous approval Wednesday by the Senate Banking and House Financial Services Committees.  (Lexology, May 23)

Real estate provisions in  S. 2098  appear on pages 7 through 9.

  • The committees’ revised versions of the Foreign Investment Risk Review Modernization Act (FIRRMA) – S. 2098 and HR 5841 – seek to modernize and strengthen how the Committee on Foreign Investment in the United States (CFIUS) reviews acquisitions, mergers, and other foreign investments in the United States for national security risks.  Both bills would expand the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities. (Real estate provisions in S. 2098 appear on pages 7 through 9.)
  • As a result of industry discussions with Senate and Treasury staff, the new legislative drafts include the addition of language designed to exempt real estate in ‘urbanized areas’ from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people. 

FIRRMA may be ready for floor consideration in the House and Senate before the August congressional recess. The Trump Administration has shown support for reforming FIRRMA to strengthen CFIUS’ oversight. 

President Trump Signs Dodd-Frank Reform Bill With HVCRE Revisions

Posted on by Trey Jackson

Revisions to the 2010 Dodd-Frank Act – including significant Roundtable-supported reforms to the Basel III High Volatility Commercial Real Estate (HVCRE) Rule – were signed into law by President Trump yesterday, two days after the House passed The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155). 

Revisions to the 2010 Dodd-Frank Act – including significant Roundtable-supported reforms to the Basel III High Volatility Commercial Real Estate (HVCRE) Rule – were signed into law by President Trump yesterday, two days after the House passed The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155).

  • S. 2155 previously passed the Senate in March with the same clarifications and reforms as the House bill.  The HVCRE Rule created needless confusion and increased borrowing costs in the industry for CRE Acquisition, Development and Construction (ADC) lending.
  • Senate Banking Committee Chairman Mike Crapo (R-ID) commented, “This step toward right-sizing regulation will allow local banks and credit unions to focus more on lending, in turn propelling economic growth and creating jobs on Main Street and in our communities.” (Sen. Mike Crapo News Release, May 22)
  • Details of the new measure addresses key deficiencies in current and proposed regulations.  Real Estate Roundtable HVCRE Working Group Co-Chair Joseph Forte (Sullivan and Worcester) noted, “This legislative action is a welcome solution to a poorly designed regulatory capital scheme that has not matched with risk. This caused an unnecessary cost burden to all commercial banks and their real estate development customers.  In addition, it restores to borrowers the ability to offer appreciated land value as equity to banks, when validated through appraisal practices established in earlier statutes.”  (Passage of Dodd-Frank Reform Encourages Investment, Economic Growth in Local Communities –Roundtable News Release, May 22) 
  • The Roundtable and twelve other real estate organizations detailed the industry’s HVCRE policy positions and urged inclusion of the language in broader Dodd-Frank reform legislation (S. 2155). (Roundtable HVCRE Comment Letter, March 2)
  • “The Reform Bill, in provisions that are now effective, overrides certain highly conservative provisions in both the federal banking agencies’ (Banking Agencies) Basel III capital rule and their interpretations of it.” ( Dodd Frank 2.0: Reforming U.S. HVCRE Capital Treatment, Gibson Dunn, May 24)

Since 2015, The Roundtable’s HVCRE Working Group and industry coalition partners have played a key role in advancing specific reforms to the HVCRE Rule.  During next month’s Real Estate Roundtable Annual Meeting, HVCRE will be a focus of discussion, with more specific details offered during the Real Estate Capital Policy Advisory Committee (RECPAC) meeting on June 14.

Fed to Consider Changes to Volcker Rule

Posted on by Trey Jackson

The Federal Reserve announced this week that it will consider a proposal to modify the “Volcker Rule” at a May 30 meeting of its board.  As a provision of the 2010 Dodd-Frank Act that puts restrictions on proprietary trading practices at banks, enforcement of the Volcker Rule is currently shared by five separate federal agencies – The Fed, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).  (Fed Statement, May 23)

The Federal Reserve announced this week that it will consider a proposal to modify the “Volcker Rule” at a May 30 meeting of its board.

  • “The Fed is the first regulator to set a date for discussing the proposal known as ‘Volcker 2.0.’ Four other agencies are also expected to adopt modifications to the rule. The changes will give large Wall Street banks more trading freedom, as regulators tweak restrictions on market making, hedging and other activities..” (The Wall Street Journal, May 25)
  • Fed Vice Chairman for Supervision Randal Quarles in a March speech said, “It should be clearer and more transparent what is subject to the Volcker Rule’s implementing regulation and what is not. The definition of key terms like ‘proprietary trading’ and ‘covered fund’ should be as simple and clear as possible.”  (American Banker, May 23)
  • House policymakers are considering adding to  must-pass budget legislation a measure that would put the Fed in charge of regulating the Volcker Rule.  The measure, sponsored by Rep. French Hill (R-AR), passed the House in April but has faces an uncertain fate in the Senate.  (U.S. House Considers Adding Volcker Rule Shift to Budget Bill, Bloomberg, May 21)

The Dodd-Frank reform bill signed into law yesterday by President Trump exempts banks with less than $10 billion in assets from the Volcker Rule (named for former Fed Chairman Paul Volcker).

Ways & Means Launches Hearings on Impact of Tax Reforms; Top Treasury Official Outlines Timeline for Implementation Guidance

Posted on by Trey Jackson

The House Ways and Means Committee this week held the first in a series of hearings on how the Tax Cuts and Jobs Act (TCJA) is affecting job creation and the economy five months after its enactment.

House Ways and Means Chairman Kevin Brady (R-TX) in his  opening statement offered a list of favorable economic statistics and projections that he said are attributable to the new law

Treasury Assistant Secretary Sketches Timetable for Regulations Implementing Tax Reform 
Certain provisions of the TCJA of interest to commercial real estate could be addressed in upcoming IRS guidance or in a congressional technical corrections bill.

  • Acting IRS Commissioner David Kautter on May 12 said that Treasury and the IRS hope to complete proposed regulations on section 199A passthrough deduction by mid- to late-July. (Tax Notes, May 15, “Kautter Talks Timelines for TCJA Guidance Projects” and Roundtable Weekly, May 4).
  • Kautter added that the target date for a notice of proposed rulemaking on section 163(j) business interest deduction limitation is late summer or early fall. (Roundtable Weekly, April 6).)
  • Natalie Tucker, legislation tax accountant at the Joint Committee on Taxation, recently  said that the cost-recovery period for qualified improvement property rises to the level of consideration for a “technical correction.”  While Congress was formulating the TCJA, a new category—qualified improvement property—wasn’t assigned a cost-recovery period, and fell to the 39-year period by default, rather than the intended 15-year period.  That was not the intent of Congress and therefore qualifies for inclusion in a technical corrections bill, according to Tucker.  (Bloomberg Law, May 11, “Agreement Reached on Three ‘True’ Technical Corrections”)

Along with TCJA rulemaking and implementation, the legislation’s impact on CRE will be a focus of discussion at The Roundtable’s Annual Business Meeting and Policy Advisory Committee Meetings on June 14-15 in Washington, DC.

Senate and House Committees to Mark Up Bills Addressing Foreign Investment Risk Review on May 22; Includes Language Affecting Urban Real Estate

Posted on by Trey Jackson

Legislation that would reform the process for reviewing foreign investment risk introduced by Senator John Cornyn (R-TX) in the Senate and Congressman Robert Pittenger (R-NC) in the House – including a purchase or lease of domestic properties in close proximity to sensitive U.S. facilities by a foreign party – will be marked up May 22 by both the Senate Banking Committee and the House Financial Services Committee.

The Senate Banking Committee will mark up S. 2098 – the  Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA)  – on Tuesday, May 22.  The revised real estate provision appears on page nine of the committee’s amended  legislative discussion draft .   

  • The legislation (S. 2098) is intended to modernize and strengthen the process by which the Committee on Foreign Investment in the United States (CFIUS) reviews acquisitions, mergers, and other foreign investments in the United States for national security risks.
  • The Senate Banking Committee will mark up S. 2098 – the Foreign Investment Risk Review Modernization Act of 2017 (FIRRMA) – on Tuesday, May 22.  The revised real estate provision appears on page nine of the committee’s amended legislative discussion draft.  
  • The original Senate legislative draft raised concerns about the implications for real estate investment in urban areas that may be in close proximity to “sensitive U.S. military installations or other U.S. government facilities”.  As a result of industry discussions with Senate and Treasury staff, the new draft Manager’s Amendment includes the addition of a definition that would exempt real estate in ‘urbanized areas’ – as defined by the U.S. Census Bureau – from the criteria of a “covered” transaction.  The Census Bureau identifies two types of urban areas: (1) Urbanized Areas (UAs) of 50,000 or more people; and (2) Urban Clusters (UCs) of at least 2,500 and less than 50,000 people).
  • The Hill reports that the House Financial Services Committee will also mark up a CFIUS bill next week.  (The Hill, May 16, House Panel Will Consider Bill to Boost Foreign Investment Review Powers Next Week)
  • According to Bloomberg Law, The House committee will take up a modified bill from the original (H.R. 4311) on May 22. “I think that we’ll hopefully have a bill that’s broadly supported on both sides of the aisle,” Hensarling said. “We’ll see what happens on Tuesday.” (Bloomberg Law, May 17, Foreign Investment Bill to Get Votes in House, Senate Panels, subscription only)

“The revised bill, according to drafts reviewed by The Wall Street Journal, would have the government vet domestic and overseas transactions through separate processes. The proposed legislation spells out CFIUS’s authority to vet the purchase or lease of real estate near sensitive U.S. facilities, and its right to review any deal structured to evade its jurisdiction such as transactions that use shell companies to obfuscate the would-be buyer’s ownership.  Both the Senate Banking Committee and the House Financial Services Committee … now plan to mark up the bill’s text as soon as next week after reaching the compromise.”  (The Wall Street Journal, May 17, Legislation to Curb Chinese Deals Moves Through Congress)

House Expected to Vote May 22 on Dodd-Frank Reform Bill That Include HVCRE Revisions

Posted on by Trey Jackson

The House of Representatives is expected next week to pass a bipartisan package of revisions to the Dodd-Frank Act of 2010 and send it to President Trump for his signature. The House bill (S. 2155), which passed the Senate (67-31) in March, includes significant Roundtable-supported clarifications to the Basel III High Volatility Commercial Real Estate (HVCRE) Rule – a top industry priority that will benefit CRE acquisition, development and construction (ADC) lending and promote economic growth.

The House is expected to vote on S. 2155 – the Economic Growth, Regulatory Relief, and Consumer Protection Act – as early as Tuesday, May 22 – separate financial deregulation legislation championed by House Financial Services Chairman Jeb Hensarling (R-TX) is expected to soon follow.

What it Means for CRE 
 
The HVCRE measure contains important clarifications and reforms to the Basel III High Volatility Commercial Real Estate (HVCRE) Rule, which has created needless confusion and increased borrowing costs in the industry. 

  • Under the new measure, commercial borrowers will be able to satisfy the 15% equity requirement through the appreciated value of contributed land/property – versus the cost basis under the current rule. The measure also clarifies that loans made to acquire existing property with rental income and/or do cosmetic upgrades and other improvements don’t trigger the HVCRE capital penalty. (Roundtable Weekly, May 4 and May 11)
  • The Roundtable and twelve other real estate organizations on March 2, 2018 sent a comment letter detailing the industry’s policy positions and urging inclusion of the HVCRE measure within the broader Dodd-Frank reform package (S. 2155).

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 welcome reforms.

House Will Vote on Dodd-Frank Reform and HVCRE Before Memorial Day

Posted on by Trey Jackson

House Majority Leader Kevin McCarthy (R-CA) yesterday said the House will vote on the Senate’s Dodd-Frank reform bill (S. 2155),  before Memorial Day.  S. 2155 includes a measure to reform the Basel III High Volatility Commercial Real Estate (HVCRE) Rule – a top Roundtable priority.  (Roundtable Weekly, May 4)

House Majority Leader Kevin McCarthy (R-CA) said the House will vote on the Senate’s Dodd-Frank reform bill (  S. 2155  ),  before Memorial Day.

  • Ryan: GOP has deal on bill easing Dodd-Frank, The Hill (May 8) – House Speaker Paul Ryan (Wisconsin) on Tuesday said the House will hold a vote on the Senate Dodd-Frank reform bill in exchange for the Senate taking up a separate set of financial reform bills  supported by House Financial Services Committee Chairman Jeb Hensarling (R-TX) Texas).
  • House Speaker Ryan, American Banker (May 8) – “I had a good meeting with [Senate Majority Mitch McConnell] over the break on this and so we’ve got an agreement to be moving different pieces of legislation.” 
  • Bill to Roll Back Post-Financial-Crisis Banking Rules Gets Clear Path to Passage, Washington Post, May 8 –- As the sponsor of more ambitious Dodd-Frank reforms approved by the House last year, Hensarling said he was confident that the new approach to separate the legislative effort into two bills would “create regulatory policy that will help us achieve sustained 3% economic growth.”

    The Roundtable and 12 other real estate organizations on March 2, 2018 sent a  comment letter  urging all members of the Senate Banking Committee to enact the HVCRE measure by including the measure in the broader Dodd-Frank reform package (S. 2155).

HVCRE Reform Measure Included  

  • (Roundtable Weekly, Jan. 12) – The Senate bill would clarify which types of loans should be classified as High Volatility Commercial Real Estate Loans (HVCRE) to ensure they do not impede credit capacity or economic activity, while still promoting economically responsible commercial real estate lending.  
  • GlobeSt.com, (March 19) – “The HVCRE rule, promulgated by Basel III, went into effect in 2016. It established a new risk-weight category requiring banks to hold more capital – 150% or one and half times as much – for such loans. The result has been a pull back on construction lending among other types of bank finance.” 
  • Real Estate Industry Comment Letter, (March 2) – 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 enact the HVCRE measure by including it in the broader Dodd-Frank reform package (S. 2155).

Since 2015, The Roundtable’s HVCRE Working Group and industry coalition partners have played a key role in advancing specific reforms to the HVCRE Rule.  During next month’s Real Estate Roundtable Annual Meeting, HVCRE will be a focus of discussion, with more specific details offered during the Real Estate Capital Policy Advisory Committee (RECPAC) meeting on June 14.