News Type: Roundtable Weekly

President Biden Proposes New Housing Incentives, Increased Taxes on Wealthy Individuals and Public Corporations

Posted on by Abigail Grenadier

President Joe Biden’s State of the Union address last night included proposals to levy a 25 percent minimum tax on wealthy individuals, increase the corporate tax rate from 21 to 28 percent, and raise the alternative minimum tax on large corporations from 15 to 21 percent. He also called on Congress to pass legislation to support the construction or rehabilitation of more than 2 million homes and rolled out new tax incentives for homebuyers. (Biden’s Remarks | White House Fact Sheets on Taxes and Housing, March 7)

Proposed Tax Increases

  • Biden proposed to levy a 25 percent minimum tax on those with wealth of more than $100 million. He committed to not raising taxes on those making $400,000 or less while heavily criticizing the 2017 Tax Cuts and Jobs Act (TCJA) as a $2 trillion giveaway to high-income households and corporations. (Tax Policy Center | Forbes, March 8)
  • Most of the Biden tax agenda is carried over from his prior budgets and includes provisions that he was unable to pass when Democrats controlled both chambers of Congress. While not detailed in his speech, the White House’s upcoming 2025 budget could include past proposals to raise taxes on real estate like-kind exchanges and carried interest income. (Roundtable Weekly, March 10, 2023)
  • Many provisions from the 2017 tax bill will expire at the end of 2025, including the 20 percent deduction for pass-through business income, the cap on the deductibility of state and local taxes, and the reduction in the top individual tax rate from 39.6 to 37 percent. The approaching expiration of the individual provisions creates a tax “cliff” that is likely to drive tax negotiations next year.

Housing Plan

Real Estate coalition response to President Biden's SOTU housing proposals.
Real estate coalition response to President Biden’s SOTU housing proposals.
  • The White House’s Fact Sheet on housing describes the administration’s plans to establish new tax credits for first-time homebuyers and individuals who sell their starter homes. The tax credit for home sellers seeks to address the “lock-in” effect associated with current high interest rates.The president would also increase spending on affordable housing by Federal Home Loan Banks. (PoliticoPro and White House Fact Sheet on Housing, March 7)
  • The White House Fact Sheet also includes an expansion of the low-income housing tax credit (LIHTC) to support an additional 1.2 million affordable rental units and a new Neighborhood Homes Tax Credit to encourage the construction or preservation of over 400,000 affordable, owner-occupied homes. Bipartisan legislation to expand LIHTC passed the House in January and is pending in the Senate.
  • The National Multifamily Housing Council (NMHC) and nine industry groups responded to the negative aspects of Biden’s housing plan. A coalition letter explained how proposals to limit fee for service arrangements would hurt renters by undermining the administration’s objectives of lowering housing costs, driving new housing development, and creating more affordable rental housing. President Biden has also supported Department of Justice and Federal Trade Commission investigations into rental rate fixing—investigations that many in the industry believe are highly questionable. (NMHC statement and real estate coalition letter, March 7)

Funding Watch

  • After the House passed a spending package this week to fund several federal agencies through September, the Senate has until midnight tonight to pass the bill and avoid a partial government shutdown.
  • Approval from all 100 senators is necessary to fast track the process. The consideration of multiple amendments could delay a final vote until Saturday, necessitating a temporary funding extension to avoid disruption and get the final bill to President Biden for his signature. (The Hill, March 8)

The next government funding deadline is March 22, which requires a new spending package to fund the Pentagon, Health and Human Services, Labor, and other agencies. Policymakers agreed on this two-tiered stopgap funding plan (March 8 and 22) to buy time to negotiate a full-year appropriations bill. (Roundtable Weekly, March 1)

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Senate Republicans Seek Changes to House-Passed Tax Package

Posted on by Abigail Grenadier
Senate Finance Committee Chairman Ron Wyden (D-OR), left, and Ranking Member Mike Crapo (R-ID), right.

The Senate Finance Committee’s top Republican made it clear this week that he wants changes to a House-passed $78 billion tax package, which includes Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC). [Roundtable Weekly, Feb. 2 | PoliticoPro and Tax Notes, Feb. 29]

Senate Republicans Concerns

  • The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) passed the House on Jan. 31 by an overwhelming 357-70 vote. House Ways and Means Chairman Jason Smith (R-MO) and Senate Finance Committee Chairman Ron Wyden (D-OR) are pressing Senators to support its passage. (Axios, Feb. 16)
  • Senate Republicans considering the House tax package have called for an amendment process that could be time consuming. (The Hill, Feb. 2)
  • Finance Committee Ranking Member Mike Crapo (R-ID) laid out the changes he would like to see in the bill in a Feb. 28 news release. A major issue for Sen. Crapo is a reform to the Child Tax Credit (CTC) that allows taxpayers to rely on income from prior years when determining their eligibility for the refundable credit. (Fiscal Times, Feb. 29)
  • Sen. Crapo added in comments to Tax Notes this week that “There’s just a lot of separate issues that need to get sorted out. Everything from traditional extenders to LIHTC to SECURE 2.0.”

Congressional Timing

  • Sen. Crapo also stated in his news release that “… with each week that has passed, (Republican) members have strongly voiced additional calls for numerous modifications, and there are also increasing concerns about making 2023 changes this far into the IRS tax filing season.” The Senator said he is “committed to seeking a bipartisan resolution that a majority of Senate Republicans can support.” (Tax Notes, Feb. 29)
  • Sen. Wyden and senior congressional staff discussed the tax package with Roundtable members during The Roundtable’s all-member 2024 State of the Industry Meeting in Washington. (Roundtable Weekly, Jan. 26)
  • Additionally, The Roundtable and 21 other industry organizations that comprise the Housing Affordability Coalition urged the Senate on Feb. 15 to pass the tax package. The coalition’s letter emphasized the importance of advancing provisions in (H.R. 7024) that strengthen the low-income housing tax credit (LIHTC)—along with various real estate investment measures that would benefit communities and the broader economy. (Coalition letter, Feb. 15)

The best chances for enacting the tax package may be in combination with a government funding bill later in March. (See story above).

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Congress Punts Funding Deadlines … SEC to Vote March 6 on Climate Disclosures … Roundtable Urges EB-5 Guidance Correction

Posted on by Abigail Grenadier

A bill passed by both chambers of Congress yesterday and signed by President Biden today punts a set of government funding deadlines to March 8 and 22, thereby preventing a partial government shutdown that was scheduled to start at midnight. (ABC News, March 1 | House bill text)

New Stopgap Goals

  • The new two-tiered stopgap bill gives policymakers some time to negotiate a full-year appropriations bill as a House-passed tax package is under consideration in the Senate. (See tax story below).
  • On Wednesday, congressional leaders announced the deal, which extends funding for the departments of Housing and Urban Development, Commerce, Energy, Transportation, and others from March 1 through March 8. The bill also extends funding for the Pentagon, Health and Human Services, Labor, and other agencies from March 8 through March 22.

SEC to Vote March 6 on Climate Rule

  • The U.S. Securities and Exchange Commission (SEC) announced a vote next week on whether it will adopt final rules requiring companies to provide certain climate-related information in their registration statements and annual reports.
  • The SEC’s “open meeting” to consider the climate rule will take place on Wednesday, March 6 at 9:45 am and will be webcast at www.sec.gov.

Roundtable Urges Congress to Correct EB-5 Guidance

  • The Real Estate Roundtable urged the leaders of the Senate and House Judiciary Committees this week to correct defective “guidance” enacted by the U.S. Citizenship and Immigration Services (USCIS) that is undermining the EB-5 Reform and Integrity Act of 2022 (RIA). [Roundtable EB-5 letter, Feb. 28, 2024]
  • The USCIS’s arbitrary guidance states that EB-5 investments made after RIA’s enactment must “remain invested for at least two years.” This position contradicts regulations kept by USCIS on its rulebooks for decades.
  • RER’s letter also explains that USCIS’s defective guidance exacerbates CRE’s current liquidity issues. For example, the agency’s position effectively eliminates the availability of EB-5 investment capital to help finance projects to convert underutilized commercial buildings to multifamily housing.  

The Roundtable is calling on Congress to correct the error with a short statutory change that codifies the long-standing regulatory approach, which couples the periods for EB-5 capital sustainment and conditional residency.

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Real Estate Roundtable Leaders Discuss Market Conditions, Policy Issues Facing CRE

Posted on by Abigail Grenadier
Real Estate Roundtable Chair John Fish (Chairman & CEO, Suffolk)
Real Estate Roundtable Chair John Fish (Chairman & CEO, Suffolk) on Bloomberg’s Wall Street Week.

This week, Real Estate Roundtable Chair John Fish (Chairman & CEO, Suffolk) and Roundtable President and CEO Jeffrey DeBoer discussed market conditions and policy issues impacting commercial real estate with Bloomberg’s Wall Street Week and the American College of Real Estate Lawyers (ACREL).

Markets and Federal Actions

  • Roundtable Chair John Fish addressed how current economic challenges facing commercial real estate, cities, communities, businesses and individuals have led to a somewhat “somber” mood in his Feb. 26 Wall Street Week interview.
  • Fish emphasized the importance of CRE to the overall economy and the need for policymakers to work with the industry to ensure a soft landing. He also discussed the wave of maturing CRE debt coming due at higher interest rates as remote-work continues to press the industry—and the ramifications of a large number of environmental regulations moving forward in a compressed time period.
  • The Roundtable’s chair noted, “Back in June of 2023, the Federal Reserve, the FDIC in the OCC issued forward guidance on working with borrowers, and that was credit worthy borrowers. I would encourage them to continue with their policy and reinforce that policy. It’s extremely important to the industry as a whole because creditworthy borrowers should not get hurt through this process.” (Roundtable Weekly, June 30, 2023)
  • He added, “We need the Federal government to work with us on interest rates. We also need the federal government to ask workers to come back to work. That’s one of the reasons why some of our buildings in downtown urban areas are 25, 30 percent vacant today. As an industry, we need to work together, collaborating with the government to try to solve these problems.” (Bloomberg’s Wall Street Week)

The Roundtable’s Policy Role

Roundtable President and CEO Jeffrey DeBoer, right, with Jay Epstein, former president of the American College of Real Estate Lawyers, left.
  • Roundtable President and CEO Jeffrey DeBoer spoke with Jay Epstein, former president of the American College of Real Estate Lawyers on the Feb. 26 edition of the ACREL Files podcast about The Roundtable’s policy advocacy role in Washington and compelling issues now facing the industry. 
  • DeBoer explained that The Roundtable is a unifier between industry and lawmakers on policies that benefit the economy and communities by using a non-partisan, data-centric, asset-based approach.
  • DeBoer also said the industry is at an inflection point as issues—including post-pandemic remote work and CRE needs, office-to-residential property conversions, affordable housing, building energy usage, insurance costs, and xenophobic attitudes to foreign real estate ownership—are “all rushing forward on top of the market challenges.” (ACREL Files podcast)

“By and large, the industry has stepped up to challenges, met them, and helped the economy and the country move forward.” He added, “Today there are other problems with financing and remote work, but I have no doubt the industry will overcome those challenges and emerge stronger.”

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Despite Ongoing Market Challenges, Industry Leaders Expect Improvements in 2024

Posted on by Abigail Grenadier
Real Estate Roundtable President and CEO Jeffrey DeBoer
Real Estate Roundtable President and CEO Jeffrey DeBoer

The Real Estate Roundtable’s Q1 2024 Sentiment Index confirms that commercial real estate property markets continue to experience significant challenges. At the same time, in the coming year industry executives expect monetary policy action reflecting lower inflation to bring greater stability in asset pricing and expanded availability of debt and equity capital. 

Cautious Optimism

  • Roundtable President and CEO Jeffrey DeBoer said, “Our current Sentiment Index shows improved optimism by industry leaders, compared with previous surveys that highlighted significant market concerns. The Q1 sentiment continues to note challenges presented by ongoing tight capital markets, increased operating expenses, and the continuing uncertainty of post-pandemic, in-office work. However, as the interest rate environment appears to have settled somewhat, executives are now expressing increased optimism that values and capital availability will improve in 2024.”

  • He added, “As we look at the current and future landscape of commercial real estate, it’s clear that we are at a pivotal moment. With nearly $3 trillion of commercial real estate loans maturing in the next four years, it remains very crucial that lenders continue to work constructively with borrowers to reflect both current and expected economic growth. Markets and asset values continue to adjust and stabilize as office use, interest rates, and inflation begin to normalize.”

  • All indices of The Roundtable’s Q1 Index are up, compared to the previous quarter and one year ago. The Index—a measure of senior executives’ confidence and expectations about the commercial real estate market 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. ­­­­

Topline Findings

The Real Estate Roundtable's Q1 2024 Sentiment Index
  • The Q1 2024 Real Estate Roundtable Sentiment Index registered an overall score of 61, an increase of 17 points from the previous quarter. The Current Index registered 53, a 21-point increase over Q4 2023, and the Future Index posted a score of 70 points, an increase of 13 points from the previous quarter. These increases point to cautious optimism in the real estate market.
  • There continue to be variations among asset classes and within specific property types as the real estate market rapidly changes. Industrial and multifamily are starting to soften, but retail and hospitality asset classes were identified as being surprisingly resilient. While many office properties have experienced a significant erosion in value, Class A offices continue to outperform.
  • An overwhelming 79% of survey participants indicate that asset values have decreased compared to the previous year. However, the potential end to interest rate hikes has instilled some industry optimism, with nearly 80% of survey participants expecting asset values to be the same or higher a year from now.
  • Survey participants continue to emphasize the challenging capital markets landscape, with 86% and 85% of survey participants suggesting that the availability of equity and debt capital, respectively, is the same or worse than a year ago. That said, 67% and 76% believe the availability of equity and debt capital, respectively, will improve a year from now. 

Data for the Q1 survey was gathered in January. See the full Q1 report.

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Government Shutdown Looms … Coalition Supports YIMBY Bill … SEC Scope 3 Emissions Rule

Posted on by Abigail Grenadier

Congress returns next week to address an imminent government shutdown. Unless the House and Senate pass a long-term budget or short-term stopgap by March 1, 20 percent of funding for the current fiscal year will expire – with remaining federal operations potentially ceasing on March 8.  (Forbes | (Politico, Feb. 21)

Funding Negotiations

  • Policy riders on issues such as abortion, gender-affirming care, and medical research remain contentious issues.
  • Axios reported this week that House Republicans expect some version of a shutdown before passing a new funding bill. Congress has approved three continuing resolutions since Sept. 30 to keep the government open with current funding in place, as a full budget for the fiscal year ending Sept. 30 remains elusive. (Committee for a Responsible Budget, Feb. 13)
  • Congress must also take into account a key date of April 30, when a 1 percent cut in all federal funding (including Pentagon programs) will take effect without passage of fiscal legislation. (Federal News Network, Dec. 26, 2023)

Pending Tax Package

House Ways and Means Committee Chair Jason Smith [R-MO]
  • A bipartisan $79 billion tax package that was overwhelmingly approved by the House on Jan. 31faces potential hurdles in the Senate. The bill contains Roundtable-supported measures on business interest deductibility, bonus depreciation, and the low-income housing tax credit (LIHTC). (Roundtable Weekly, Feb. 2 and Jan. 19)
  • Leading congressional tax writers are considering adding the House-passed tax package to a potential spending bill. House Ways and Means Committee Chair Jason Smith [R-MO] recently told Axios that he is meeting with Republican senators to pass the limited tax extenders package as a prelude to next year’s effort on whether to extend tax cuts passed in 2017 as part of the Tax Cuts and Jobs Act. (TaxNotes Talk podcast, Feb. 21)
  • Smith commented, “For one it breaks the dam. There has not been any kind of even a small extenders package passed in three years and let alone in divided government. And so 2025 is the Super Bowl of tax.” (Axios, Feb. 16)

“Yes in My Backyard” Coalition

The Yes In My Backyard (YIMBY) Act -- H.R. 3507
  • This week, The Real Estate Roundtable and 21 other national organizations expressed their strong support for the bipartisan Yes in My Backyard Act (YIMBY) in their latest letter to the House Financial Services Committee (Coalition letter, Feb. 20)
  • H.R. 3057, introduced by Congressmen Mike Flood (R-NE) and Derek Kilmer (D-WA), would help promote development of affordable housing by requiring local governments that receive certain federal grants to report on their practices to support high-density development.
  • Separately, the Wall Street Journal (Feb. 20) highlighted that community opposition to new projects is not just restricted to housing developments. E-Commerce hubs are also “increasingly contending with a headache” of NIMBY sentiments, as developers of warehouse and logistics properties face the conundrum of siting projects that are necessary to deliver goods to residents and consumers.     

SEC & Scope 3 Disclosure

The SEC must still vote on the final regulation before its release. Progressive Democrats in Congress will likely object to any rule that relieves registered companies from Scope 3 reporting.

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Treasury Testifies on New Rules for Investment Advisors to Combat Illicit Finance

Posted on by Abigail Grenadier
Treasury Department's FinCEN logo

The director of the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) appeared before the House Financial Services Committee this week to address recent regulatory proposals for investment advisors to combat illicit finance activity and money laundering in U.S. residential real estate. Director Andrea Gacki testified, “We are also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector.” (Committee hearing and Gacki’s statement, Feb. 14)

FinCEN’s Business Regulatory Proposals

  • The hearing on Wednesday followed a new FinCEN proposal that would require investment advisors to report suspected money laundering to the U.S. government. (Wall Street Journal, Feb. 13)
  • A fact sheet on the proposal explains that although FinCEN is not proposing an obligation for investment advisers to collect beneficial ownership information at this time, it anticipates it will do so in the future. (FinCEN Proposal and Fact Sheet, Feb. 13 | Treasury’s 2024 Investment Adviser Risk Assessment)
  • Last week, FinCEN proposed a rule that would require certain real estate professionals involved in the closing or settlement of residential transfers to report information to FinCEN about the beneficial owners of legal entities and trusts involving all-cash transactions. The rule would not require the reporting of sales to individuals.  (Roundtable Weekly, Feb. 9 | Reuters and AP, Feb. 7)
  • Another set of regulations that took effect on Jan. 1, 2024 is expected to collect personal information from owners of at least 32 million U.S. businesses into a beneficial ownership registry managed by the government.  A beneficial owner is described as individual who owns at least 25 percent of a company or enough to exert significant control over it. (Final Rule | Fact Sheet | RER background on beneficial ownership)
  • FinCEN Director Gacki told the House Committee that more than 430,000 businesses have submitted reports to the registry so far. (PoliticoPro, Feb. 14)

Concerns About Beneficial Ownership Registry

  • In his opening statement, Committee Chairman Patrick McHenry (R-NC), above, was critical of Treasury’s ongoing proposals and its beneficial ownership regulations affecting small businesses. McHenry added, “Until FinCEN can show Congress it can do its current job and appropriately use its existing authorities, I’m skeptical of providing greater authorities and resources.” (FinCEN’s background information and FAQs on beneficial ownership reporting)
  • McHenry added, “The administration has transformed what was a simple and direct program into Frankenstein’s monster of complexity. We now have a new, overly complex and less secure access regime.”

On Oct. 13, 2023, The Roundtable and a coalition of eight national real estate groups urged Treasury Secretary Yellen to delay the implementation of the burdensome reporting requirements. (Coalition letter | Roundtable Weekly, Oct. 20 and Sept. 30)

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Federal Initiatives on Buildings, Climate Gaining Momentum Ahead of 2024 Elections

Posted on by Abigail Grenadier
The White House

The Biden-Harris administration is accelerating actions at the intersection of climate and real estate policy in the lead-up to November’s elections to implement its signature clean energy legislation passed during its first years in office. RER’s Sustainability Policy Advisory Committee (SPAC) remains engaged with policymakers on a variety of initiatives coalescing in 2024 that include the following:

Climate-Related Financial Risk

  • The U.S. Securities and Exchange Commission (SEC) is expected to issue a final rule this spring for registered companies to disclose financial risks from climate change.(RER fact sheet and Roundtable Weekly, March 10, 2023).
  • Scope 3 “indirect” emissions from sources in a company’s supply chain are controversial elements of the anticipated SEC rule. RER’s 2022 comments urged the Commission to drop its “back door mandate” for Scope 3 disclosures. (Roundtable Weekly, June 10, 2022)
  • Litigation against the SEC’s imminent rule is widely expected. A recent lawsuit filed by industry groups against a California disclosure package passed last summer (modeled after the SEC’s proposal) signals similar claims that the federal government might face in court. (Wall Street Journal, Jan. 30 and RER fact sheet)

Voluntary Frameworks

EPA's NextGen Building Label
  • NextGen certification may serve as an “intermediate step” for buildings that strive for a voluntary Zero Emissions Building (“ZEB”) definition coming from the U.S. Energy Department. Recent comments from RER and Nareit maintain that the federal ZEB definition can lend consistency to the confusing state-local regulatory patchwork of building performance standards. (Roundtable Weekly, Feb 2.)
  • EPA is acting on requests to update Portfolio Manager, CRE’s standard tool to measure metrics for building efficiency and emissions. Portfolio Manager upgrades announced at last month’s SPAC meeting will help real estate companies strive for NextGen or ZEB status. (Coalition letter, Sept. 14, 2023)
  • This spring, the influential GHG Protocol—an international framework heavily relied upon by the SEC, EPA, DOE, and institutional investors—will undertake its first revisions since 2015 to its guidance for companies to account for emissions from electricity use. RER will participate in the upcoming Scope 2 guidance public comment process.

Tax Incentives

Ben Myers, left, and Tony Malkin, right -- SPAC leadership
Roundtable Sustainability Policy Advisory Committee Chair Tony Malkin, right, and
Vice Chair Ben Myers
  • The Internal Revenue Service (IRS) has issued dozens of proposed rules and notices to implement clean energy tax incentives available to real estate and other sectors since Congress passed the Inflation Reduction Act (IRA) in 2022. (RER fact sheet)
  • The IRS is expected to release final rules before November on topics such as the ability of REITs to transfer certain tax credits, proposed rules on non-urban census tracts eligible for EV charging station credits, and the 179D deduction for building retrofits.
  • RER has submitted comments on these and other topics in response to initial IRS notices and will continue to provide feedback as opportunities arise. (RER letters Oct. 30 and July 28, 2023;  Nov. 4 and Dec. 2, 2022)

The Roundtable’s SPAC—led by Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust) and Vice Chair Ben Myers (Senior Vice President of Sustainability, BXP)—will press forward with RER’s climate and energy priorities for the remainder of the current administration and into the next.

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Roundtable and Housing Affordability Coalition Urge Senate to Pass Tax Package

Posted on by Abigail Grenadier
Housing Affordability Coalition logos

This week, The Real Estate Roundtable and 21 other industry organizations urged the Senate to pass a tax package that was approved by the House in an overwhelming bipartisan vote (357-70) on Jan. 31. (Coalition letter, Feb. 15)

Tax Provisions in the Senate

  • The Housing Affordability Coalition’s letter to all Senators emphasized the importance of advancing provisions in The Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) that strengthen the low-income housing tax credit (LIHTC)—along with various real estate investment measures that would benefit families, workers, and the national economy.
  • The coalition noted how the bill would increase the supply of housing as a positive response to the nation’s housing affordability crisis. It would also suspend certain tax increases on business investment that took effect in 2022 and 2023. 
  • The Feb. 15 letter focused on details of the bill’s provisions that positively impact the LIHTC, deductibility of business interest, bonus depreciation, and small business expensing.
  • The Roundtable also joined the National Multifamily Housing Council (NMHC) and a large coalition of housing and other real estate groups in a Jan. 26 letter to Congress in support of the tax package. That letter also focused on the bill’s important improvements to the LIHTC, which will significantly increase the construction and rehabilitation of affordable housing over the next three years.

Congressional Timing

U.S. Capitol building
  • Senate Republicans considering the House tax package have called for an amendment process that would be time consuming. (The Hill, Feb. 2)
  • With Congress in recess until the last week of February, there will be limited legislative vehicles available the bill could ride on, just days before a set of government funding deadlines hit on March 1 and 8. The best chances the package could have for inclusion in other legislation include a potential funding bill to prevent an early March government shutdown or a bill to reauthorize the Federal Aviation Administration on March 8.
  • If the tax package is pushed beyond March, it may not be considered until a lame duck session after what is expected to be a contentious election season.

SALT Reform Pinched

  • On Feb. 14, a procedural rule to advance the SALT Marriage Penalty Elimination Act (H.R. 7160) to a floor vote in the House fell short of a majority vote needed to pass.
  • The effort by House lawmakers to double the $10,000 cap on state-and-local tax deductions (SALT) for married couples earning up to $500,000 failed by a vote of 195-225. (RollCall and CQ, Feb. 14)

The tax package (H.R. 7024) passed by the House last month did not address the SALT cap, which led to this week’s consideration of a separate reform measure. The current SALT cap is scheduled to expire at the end of 2025, along with many other measures passed as part of the Tax Cuts and Jobs Act (TCJA) of 2017.

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Federal Reserve Supervisors Focused on Banks’ CRE Lending Risk

Posted on by Abigail Grenadier
Michael Barr

Federal banking regulators are closely monitoring risk factors in commercial real estate bank lending throughout the United States, according to comments today from Federal Reserve Board Vice Chair for Supervision Michael Barr. This week, the Fed also released scenarios for its annual stress test for large banks that includes a 40 percent decline in commercial real estate prices—one of several hypothetical risks designed to assess the resilience of the banking system in the event of a severe recession. (Barr speech, Feb. 16 and Fed stress test, Feb. 15)

Managing CRE Risks

  • Barr stated today, “Let me turn to supervision of a specific risk: commercial real estate. The reduced demand for office space and higher interest rates have put pressure on some CRE valuations, particularly in the office sector.”
  • Barr noted that Fed supervisors are “closely focused on banks’ CRE lending in several ways.” He explained that regulators analyze how banks measure and report their risk, what steps they have taken to mitigate the risk of losses on CRE loans, and whether they have sufficient capital to buffer against potential CRE loan losses. (Barr speech, Feb. 16)
  • He also stated that today’s heightened financial risk environment has led the Fed to downgrade firms’ supervisory ratings at a higher rate in the past year and increase its issuance of enforcement actions. Barr said, “We continue to evaluate whether we should temporarily require additional capital or liquidity beyond regulatory requirements where the firm has trouble in managing its risks.” (PoliticoPro, Feb. 16)
  • Bloomberg reported that regulators determined that 22 regional banks late last year had CRE loan portfolios that merit greater scrutiny. (Connect CRE, Feb. 15)

Wave of CRE Refinance Meets Price Discovery

Roundtable Board Member Scott Rechler (Chair and CEO, RXR)
  • Bloomberg also reported this week that commercial property deals in the U.S. are starting to pick up at deep discounts, forcing lenders to brace for increased pressure on maturing loans. (Bloomberg, Feb. 14)
  • Roundtable Board Member Scott Rechler (Chairman and Chief Executive Officer, RXR) told Bloomberg that as more transactions add price discovery to the market, investors will have to recapitalize loans to reflect lower values.
  • Rechler said, “In 2024, we’re at that fifth stage of grief. People are now in acceptance.” He also commented on falling property values: “You can’t ignore that anymore. Depending on the severity of it, we’ll see who has actually marked appropriately and who hasn’t.”
  • RXR’s CEO told CNBC last week that “if you’re a borrower who’s willing to invest money, banks are willing to reduce their loan balances to reflect the current environment.” (CNBC, Feb. 6 and Roundtable Weekly, Feb. 9)
  • The Wall Street Journal reported this week that investors are starting to show interest in properties where building owners are unable to extend their loans. The article cites Trepp data that shows more than $2.2 trillion in commercial mortgages are scheduled to mature between now and the end of 2027. (WSJ, Feb. 12)

The Mortgage Bankers Association (MBA) reported this week that 20 percent ($929 billion) of the $4.7 trillion of outstanding commercial mortgages held by lenders and investors will mature in 2024. That represents a 28 percent increase from the $729 billion that matured in 2023, according to MBA’s Commercial Real Estate Survey of Loan Maturity Volumes.

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