News Type: Roundtable Weekly

Biden Administration Announces Support for Financing Commercial to Residential Property Conversions

Posted on by Abigail Grenadier

The Biden administration today revealed a suite of federal resources—including low-interest loans—to assist commercial to residential conversions that increase housing supply, revitalize urban downtowns, and cut climate pollution. (White House fact sheet; Bloomberg, Oct. 27).

Holistic Federal Strategy

  • Roundtable President and CEO, Jeffrey D. DeBoer said, “The pandemic’s indelible impact on where Americans live and work continues to reverberate through the real estate industry, which is at the center of this societal transition. The Roundtable supports innovative policy that reimagines the adaptive reuse of CRE, rejuvenates affordable housing and urban downtowns, and addresses the climate crisis. The guidance released by the White House today checks all these boxes—and bolsters our agenda to improve the health of our cities, local tax bases, and small businesses.”   
  • Among the actions announced today, conversion projects located near mass transit hubs would be eligible for low-interest financing under U.S. Department of Transportation programs. “TIFIA” and “RRIF” loans are pegged to US Treasuries at 5.03 percent interest (today’s rates).
  • Transit-oriented projects supported by TIFIA and RRIF financing do not require affordable housing units—although they can be “stacked” with projects supported by low-income housing tax credits and local laws may have independent inclusionary zoning mandates. (FAQs on project eligibility)
  • The White House announcement also directs the General Services Administration (GSA) to identify “surplus” federal properties that private developers may help to convert to housing.
  • A fact sheet summarizing the administration’s actions indicates that training workshops will be held this fall for real estate owners, developers, and lenders on how to use federal programs included in the White House’s new “Commercial to Residential Conversions” guidebook, which describes how 20 programs across six federal agencies can be used to support adaptive re-use projects.
  • The Administration’s guidebook also explains how mortgage insurance and grants from the Department of Housing and Urban Development (HUD) can leverage state, local, and private sector capital as layers in the capital stack to support adaptive reuse.

Adaptive Reuse a “Win-Win”

  • Real estate market conditions with high office vacancies “present[ ] an area of opportunity to increase housing supply while revitalizing Main Streets,” said National Economic Council Director Lael Brainerd. “It’s a win-win.” (POLITICOPro, Oct. 27) (WH Council of Economic Advisors blog post)
  • White House efforts to assist property conversions lands as national office vacancy stands at nearly 18 percent—with some major metro areas experiencing vacancies higher than one-fifth of their entire inventory—according to a report from  analytics firm Yardi Matrix released on Thursday. (Commercial Observer, Oct. 26)
  • Architectural firm Gensler released a report on Monday that estimates 25% of under-performing U.S. office properties are suitable candidates for conversion projects.

The initiative builds on the Biden Administration’s announcement last July to boost the nation’s housing supply. (Roundtable Weekly, July 28).  The Roundtable will continue to serve as a conduit between our members and the Biden Administration to help design impactful policies that can assist with office to residential conversions.

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US-DOE Lauds CRE’s Efficiency Gains and Carbon Reductions

Posted on by Abigail Grenadier

Roundtable members are among the commercial real estate partners recognized in the U.S. Department of Energy’s (DOE) Better Buildings Initiative 2023 progress report released on Monday. This voluntary public-private partnership with more than 900 participating organizations has collectively saved $18.5 billion through energy efficiency improvements, and cut carbon dioxide emissions by nearly 190 million metric tons, since its launch in 2011. (DOE’s Better Buildings Initiative Report and PoliticoPro, Oct. 23)

DOE’s CRE Partners

  • This week’s Progress Report from DOE shows that more than 165 partners from various industry sectors who participate in its separate Better Climate Challenge have committed to reducing greenhouse gas (GHG) emissions (scope 1 and 2) by at least 50% over 10 years without the use of offsets. The report’s outstanding GHG Emissions Reduction Goal Achievers include companies led by RER members.
  • The Real Estate Roundtable and several of its partner real estate organizations—including the National Multifamily Housing Council (NMHC), American Hotel & Lodging Association (AHLA), Building Owners & Managers Association International (BOMA), Pension Real Estate Association (PREA), and Urban Land Institute (ULI)—are noted in the report as Industry Organization Partners.
  • U.S. Secretary of Energy Jennifer M. Granholm said, “To meet President Biden’s ambitious climate goals, the public and private sector need practical pathways to reduce emissions while cutting costs—and that’s exactly what they get from DOE’s Better Building Initiative.” (DOE news release and the report’s Commercial Real Estate Sector Spotlight)

Tools and Best Practices

  • DOE’s partners represent almost every sector of the American economy: nearly 30 of the country’s Fortune 100 companies, nearly 20 of the top 50 U.S. employers, 14% of the U.S. manufacturing energy footprint, and 13% of total commercial building space, as well as more than 90 state and local governments.
  • The DOE report also provides case studies for collaborations across sectors to access insights, strategies, and through the agency’s “Decarbonization Resource Hub.”

DOE’s Better Buildings Initiative website provides extensive resources on the agency’s wide-ranging effort to partner with leaders in the public and private sectors to make the nation’s commercial buildings, industrial plants, and homes more energy-efficient by accelerating investment and sharing successful best practices.

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Federal Regulators Announce Extension of Comment Period and Quantitative Impact Study on Basel III Proposal

Posted on by Abigail Grenadier

U.S. banking regulators issued two announcements on Oct. 20 related to their sweeping set of proposed rules to increase capital requirements for the nation’s largest banks, which could significantly affect liquidity available for commercial real estate transactions, impact asset values, and influence economic growth. The proposal, known as the “Basel III Endgame,” is the last major regulatory response designed to address failures from the global financial crisis of 2007-2008. (Bloomberg and Reuters, Oct. 20 | Roundtable Weekly, July 28)

Stakeholder Comments

  • The Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) announced an extension of the comment period on the Basel capital proposal from Nov. 30, 2023 to Jan. 16, 2024. Additionally, the agencies announced a quantitative impact study to clarify the estimated effects of the proposal, with data collection due the same date as the comments – Jan. 16. (Fed news releases, Oct 20)
  • While the quantitative impact study is a positive development, the timing of the study fails to provide industry participants with the opportunity to assess its results or comment on the collected data before the Jan. 16 deadline. Regulators often grant the public ample time (120 days) to analyze and comment on such an impact study after it is released.
  • The Basel proposal will be among the topics discussed at The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) Nov. 8 meeting in New York. RECPAC welcomes membership input as it works on a comment letter on the announcements and proposal. (Contact Roundtable Senior Vice President Chip Rodgers)
  • In July, the regulators jointly approved the 1,100-page proposed rulemaking, which would substantially revise the regulatory capital framework for banking organizations with total assets of $100 billion or more
  • Real Estate Roundtable President and CEO Jeffrey DeBoer stated in a March 2023 comment letter to Fed Vice Chair Michael Barr and other key regulators, “At this critical time, it is important that the agencies do not engage in pro-cyclical policies such as requiring financial institutions to increase capital and liquidity levels to reflect current mark to market models. These policies would have the unintended consequence of further diminishing liquidity and creating additional downward pressure on asset values.

Congressional Opposition

  • Last week, House Financial Services Committee Chairman Patrick McHenry (R-NC), above, and Financial Institutions and Monetary Policy Subcommittee Chairman Andy Barr (R-KY) requested the Government Accountability Office (GAO) to examine the role U.S. federal banking agencies played in developing the recent Basel proposal.  (McHenry-Barr Letter, Oct 20)
  • The House Republicans’ letter claimed the scope and process of the banking regulators’ plan is flawed, and noted how the proposal was opposed by some members on the Federal Reserve and FDIC Boards. Their letter concluded, “Given those fatal problems with your Basel III Endgame proposal, we urge that it be withdrawn.”

Goldman Sachs’ 10,000 Small Businesses Voices recently announced the launch of a multifaceted national media campaign that will urge the Federal Reserve to abandon the proposed Basel III Endgame regulation. The campaign will feature new survey data showing 87% of small business owners say it is important for their elected officials to weigh in with The Fed about the impact of new bank capital requirements.

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Potential CRE Losses Cited as Major Economic Concern in Fed’s Financial Stability Report

Posted on by Abigail Grenadier

Elevated commercial real estate valuations are increasingly viewed as a near-term risk that could stress the U.S. financial system, according to the Federal Reserve’s October 2023 Financial Stability Report. The central bank’s semiannual report also cited inflationary pressures, interest rate increases, and global economic volatility as vulnerabilities—even though survey data was collected before the recent escalation of geopolitical tensions in the Middle East. (Fed’s Financial Stability Report, Oct. 2023)

CRE Risk Emphasized

  • Seventy-two percent of all participants in the Fed’s survey cited the potential for large losses on commercial real estate and residential real estate—along with persistent inflation and monetary tightening­—as major risks.
  • The CRE asset valuation problem noted in the Fed Report is influenced by an ongoing lack of price discovery, which creates significant refinancing challenges. GlobeSt reported Oct 24 on the report, noting that “With transactions down and many sellers holding off, waiting for improved pricing while a lot of buyers look for bargains in distress, it’s hard to tell how much properties should be worth.”

WorkPlace Return Pressure

  • The Fed report warns, “If the economy were to slow unexpectedly … investor risk appetite and asset prices might decline, and valuations in the office building sector appear particularly vulnerable given the ongoing uncertainty surrounding post-pandemic norms regarding return to work. A correction in office property valuations accompanied by even a mild recession could result in significant losses for a range of financial institutions with sizable exposures, including some regional and community banks and insurance companies.”

Additional risks that continued to feature prominently in the Fed survey were associated with the reemergence of banking-sector stress, market liquidity strains, and volatility.

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The Roundtable’s Board of Directors Announces Blackstone’s Kathleen McCarthy as Chair-Elect

Posted on by Abigail Grenadier

The Real Estate Roundtable’s Board of Directors has elected Kathleen McCarthy (Global Co-Head of Blackstone Real Estate) as Chair-Elect to begin her three-year term as Roundtable Chair on July 1, 2024.

Roundtable Chair-Elect

  • Chair-Elect McCarthy will succeed Roundtable Chair John Fish (Chairman & Chief Executive Officer, Suffolk) on July 1.

  • “The Real Estate Roundtable and its Board of Directors are thrilled to announce Kathleen McCarthy as our Chair-Elect,” said Mr. Fish. “Kathleen is an extraordinary leader in the real estate industry and has been a key contributor to The Roundtable’s mission as a member of our Board. Her extensive experience and expertise as co-head of the world’s largest real estate platform brings a unique and invaluable perspective to our policy discussions.”

  • Mr. Fish added, “Kathleen’s fact-based approach and understanding of policies impacting commercial real estate will help advance policies that benefit communities, create jobs and accelerate economic growth. I am delighted that Kathleen will be the next Chair of The Real Estate Roundtable.”

  • Ms. McCarthy stated, “I am deeply honored to have the opportunity to serve as Chair of the Real Estate Roundtable and build upon the important work being done by John, Jeff and the entire Roundtable team. The opportunities and challenges facing our industry require innovative approaches and strong engagement between the public and private sectors. Advocacy for policies in an industry that touches so many aspects of everyday life is crucial and I’m committed to advancing our sector for the benefit of communities across the nation.”

  • Blackstone Real Estate is the largest owner of commercial real estate globally with a $585 billion real estate portfolio and $333 billion in investor capital under management (as of June 30, 2023).

Roundtable President and CEO Jeffrey D. DeBoer commented, “I am excited about our Board’s decision to select Kathleen McCarthy as our Chair-Elect, and look forward to working more extensively with her as we continue The Real Estate Roundtable’s solid track record of driving change in our industry for the benefit of all stakeholders.”

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Senate Bill Introduced to Define Federal Remote Work Roles; GSA Inspector General to Investigate Agency Telework Policies

Posted on by Abigail Grenadier

Sens. James Lankford (R-OK) and Kyrsten Sinema (I-AZ) recently introduced the Telework Reform Act to codify government definitions of remote work and improve the accountability and transparency of federal telework programs. Meanwhile, the Inspector General of the General Services Administration (GSA) confirmed an audit is underway that is focused on how the agency manages telework and remote positions for over one million federal workers. (Lankford news release, Oct. 12 | Senate bill S. 3015) | Washington Times, Oct. 18)

Congressional Efforts

  • The Senate legislation would require teleworking federal employees to return to their offices at least twice per two-week pay period. The bill also includes measures that would enforce annual reviews of telework agreements, mandate training for managers, and improve performance management, data accuracy, and cyber-security. (Government Executive, Oct. 13 and Federal News Network, Oct. 17)
  • Separately, Sen. Joni Ernst (R-IA) is seeking to add an amendment to federal spending bills that would force agencies to provide details on the cost of telework. “There’s no better way to start paying off our nation’s over $33 trillion debt than a clearance sale on unused office space.” (Washington Times, Oct. 18 | BGov, Sept. 14)

  • A recent letter from the GSA’s Inspector General to Sen. Ernst confirmed the IG’s oversight investigation into the agency’s telework policies. (Washington Times, Oct. 18)
  • As the largest landlord in the United States, GSA’s Public Buildings Service (PBS) owns and leases more than 8,800 assets and maintains an inventory of more than 370 million square feet of rentable workspace. (GSA Strategic Plan Fiscal Years 2022-2026)
  • The Senate actions come as a House subcommittee announced it will hold a second hearing on federal agencies’ post-pandemic telework policies. (See Roundtable Weekly, Sept. 15 for coverage of the first hearing).
  • Language similar to the SHOW UP Act is included in House-passed appropriations legislation. (Roundtable Weekly, Sept. 15)

Roundtable Advocacy

  • The Real Estate Roundtable has urged President Biden and national policymakers for months to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 2022; RER letter to Senate, April 2023)
  • In April, the White House Office of Personnel Management announced it was ending its “maximum telework” directive to federal agencies (Roundtable Weekly, April 21)
  • In August, the White House ordered Cabinet officials to increase the return of federal employees to their offices. (Roundtable Weekly, Aug. 11)

Real Estate Roundtable President and CEO Jeffrey DeBoer, repeatedly has emphasized that remote working by federal employees is undermining the health of cities, local tax bases, and small businesses. (Commercial Observer and The Hill, April 14) 

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Roundtable and Industry Coalition Urge Treasury to Delay January Implementation of Beneficial Ownership Rules

Posted on by Abigail Grenadier

The Real Estate Roundtable and a coalition of eight other national real estate groups on Oct. 13 urged Treasury Secretary Janet Yellen to delay implementation of new “beneficial ownership” rules, which will significantly impact real estate. The new regulations—scheduled to take effect on Jan. 1, 2024 under the Corporate Transparency Act (CTA)—would be implemented by Treasury’s Financial Crimes Enforcement Network (FinCEN). (Coalition letter, Oct. 13)

BOIR Proposal

  • Many real estate businesses will face a heavier compliance burden at a time when the industry faces economic challenges from decreasing office usage, and diminishing credit capacity. The businesses impacted could include numerous legal entities that own and operate real property across all asset classes as domestic corporations, LLCs and similar entities, along with foreign entities registered to do business in the United States.
  • FinCEN will be tasked with collecting and housing a centralized federal government database containing extensive, sensitive personal identifiers of the owners, senior employees, and/or advisors of certain businesses. Those entities will be required to report information about their “beneficial owners” who own at least 25% of the business or indirectly exercise “substantial control” over it. (Roundtable Weekly, Sept. 15)
  • On Sept. 27, FinCEN proposed a minor change to the current 30-day deadline for filing an initial Beneficial Ownership Information Return (BOIR). The proposal would extend the deadline to 90 days for reporting companies that were created or registered on or after Jan. 1, 2024 and before Jan. 1, 2025. No other changes were made to the final beneficial ownership reporting rule (Holland & Knight Alert, Sept. 28)

Opposition to CTA

  • House Financial Services Committee Chairman Patrick McHenry (R-NC), above, has introduced legislation—the Protecting Small Business Information Act of 2023 (H.R. 4035)—that would delay when the CTA’s beneficial ownership reporting requirements would go into effect. (McHenry news release, June 12)
  • The Roundtable and a broad coalition representing millions of businesses throughout the country wrote to Chairman McHenry last month in strong support of his legislation. (Coalition letter, Sept 12)

The Roundtable is part of a broad coalition of business trade groups that supports a National Small Business Association legal challenge (NSBA v. Janet Yellen) on the constitutionality of the Corporate Transparency Act (CTA), which became law in Jan. 2021. (Coalition statement of support, Dec. 7, 2022 and NSBA’s website on the CTA)

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Policymakers and Roundtable Members Discuss Domestic and Global Issues Impacting CRE

Posted on by Abigail Grenadier

This week’s Real Estate Roundtable Fall Meeting focused on financing and liquidity issues; housing shortages and the damaging impact that widespread remote work has on cities, small businesses and real estate markets. Additionally, mitigating policy initiatives were discussed, including: additional regulatory action on maturing loans; legislation to facilitate greater building conversions to housing; and technical tax proposal to address cancelled debt, extend opportunity zones and other matters. Regulations implementing last year’s “climate” related laws were also a topic. Photo: Roundtable Chair John Fish (Chairman & CEO, Suffolk)

Overcoming the ongoing impasse regarding the election of a new Speaker of the House of Representatives was frequently cited as crucial to advancing any legislation, including funding the government and providing assistance to Israel and Ukraine. (The Roundtable’s Oct. 13 Statement on the recent violence in Israel and its Fall 2023 Policy Priorities and Executive Summary, Oct. 16)

Speakers & Policy Issues

  • Roundtable members engaged in policy issue discussions with the following guests:
  • Tom Barkin, President and CEO, Federal Reserve Bank of Richmond
    Richmond Fed President Barkin (above, with Roundtable Board Secretary Jodi McLean, Chief Executive Officer, EDENS) acknowledged how rising interest rates have hit CRE hard as the Fed aggressively moves to fight inflation. He also suggested recent data shows consumer demand is weakening, which may help to fight inflation. (Reuters | MarketWatch | Wall Street Journal, Oct. 17)
  • Sen. Mike Rounds (R-SD)

As a member of the Senate Banking, Housing, and Urban Affairs Committee, Sen. Rounds (right, with Roundtable Board Member Ross Perot, Jr., Chairman, The Perot Companies and Hillwood) offered his insights into how capital and credit market volatility affects housing policy. He also discussed property insurance costs, supply side issues, and the rising national debt.

  • Sen. Kevin Cramer (ND)

Sen. Kramer also discussed capital liquidity issues and his serious concerns about foreign aid for Ukraine, Israel, and Taiwan amid turmoil in House leadership.

  • Rep. Ritchie Torres (D-NY)

Rep. Torres (D-NY), gesturing above, discussed the violent, murderous attack on Israel and its citizens. He also engaged in a panel discussion on affordable housing, transit-oriented development, and real estate markets with Roundtable Board Members Owen Thomas, left, (Chairman and CEO, BXP); Mark Parrell, 2nd from left, (President and Chief Executive Officer, Equity Residential); and Roundtable President and CEO Jeffrey DeBoer, right. (See The Roundtable’s Oct. 13 Statement on the recent attack)

  • John Podesta, White House Senior Advisor for Clean Energy Innovation and Implementation

[Photo: John Podesta, left, with Roundtable Board Member Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust and Chair of The Roundtable’s Sustainability Advisory Committee)]. Mr. Podesta spoke with Roundtable members about the implementation of the Inflation Reduction Act’s expansive clean energy and climate provisions.

  • Gov. Kathy Hochul (D-NY)

Gov. Hochul addressed real estate as a crucial economic force in New York State, noting the negative impact of remote work in New York City. She also discussed efforts to combat NIMBYism and the role of tax incentives and office conversions to jump-start affordable housing development.

Next on The Roundtable’s meeting calendar is the all-member Annual Meeting, whick will include policy advisory committee meetings, on January 23-24, 2024 in Washington, DC. 

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Supreme Court Case Challenges Federal Taxation of Unrealized Income

Posted on by Abigail Grenadier
The Supreme Court

This week, the Supreme Court announced it will hear oral arguments on Dec. 5 in a case—Moore v. United States—challenging the federal government’s right to tax unrealized gains. (PoliticoPro, Oct. 12)

Moore Consequences

  • The question raised by the petitioners in Moore, and granted certiorari by the Supreme Court in June, is whether the 16th Amendment authorizes Congress to tax unrealized sums without apportionment among the states.

  • Specifically, the case involves a Washington state couple with an interest in an India-based corporation who are challenging a 2017 mandatory repatriation tax on foreign earnings as an unconstitutional levy on unrealized gains.

  • Outside legal and tax commentary and analysis have suggested the case could have far-reaching consequences for both the existing tax code and pending legislative proposals, depending on how the decision is drafted. 

  • A recent report from the Urban-Brookings Tax Policy Center report estimates that a ruling in favor of the petitioners could result in tax revenue losses exceeding $100 billion annually. Estimates of revenue losses from the Tax Foundation range as low as $3.5 billion and as high as $5.7 trillion in the unlikely event the Supreme Court were to strike down taxes on all undistributed business earnings, whether earned domestically or from foreign sources.

Policy Ramifications

  • A Supreme Court decision in favor of the petitioners could also undercut President Biden’s proposal to tax the unrealized real estate and other gains of wealthy taxpayers. The President and influential lawmakers such as Senate Finance Chairman Ron Wyden (D-OR) have proposed new mark-to-market taxes on assets based on annual changes in asset values rather than specific realization events. (Roundtable Weekly, Sept. 19, 2019)

  • The Real Estate Roundtable has consistently opposed the proposals to tax unrealized gains since they first emerged in 2019 (Sen. Wyden, Treat Wealth Like Wages, 2019).

JCT Memo

Joint Committee on Taxation logo
  • On Oct. 3, in a letter to House Ways and Means Ranking Democrat Richie Neal (D-MA), the Joint Committee on Taxation (JCT) provided an analysis of how a ruling for the petitioners in Moore could impact the tax code.

  • JCT informed Rep. Neal that partnership taxes, taxation of shareholders of S corporations, and taxes on mark-to-market valuations also could be implicated in the outcome. The income of real estate mortgage investment conduits, or REMICs, also may be affected, according to JCT’s memo.

Alternatively, notes JCT, the Court could rule that the mandatory repatriation tax is a tax on realized income, in which case it could “leave unanswered the question of whether the Constitution imposes a realization requirement.” (JCT memo, p. 2)

Roundtable Condemns Violence; Urges Humanitarian Aid

Posted on by Abigail Grenadier

The Real Estate Roundtable today issued the following statement:

“The Real Estate Roundtable strongly condemns last weekend’s violent, murderous attack on Israel and its citizens. Long standing regional conflicts cannot justify this abhorrent behavior. We urge all civilized people and organizations to stand in opposition to it, and to provide assistance to mitigate the rapidly growing humanitarian crisis.“