News Type: Roundtable Weekly

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.“

House GOP Turmoil Continues; Roundtable Leaders Address Issues Facing CRE

Posted on by Abigail Grenadier

House Republicans continued their divided struggle this week to identify a new Speaker after removing Kevin McCarthy (R-CA) last week. Meanwhile, Congress faces increasing pressure to pass foreign aid for Israel and Ukraine, followed by a spending bill to avoid a partial government shutdown on Nov. 17. When House GOP leadership is eventually elected, pending real estate-related tax proposals in the lower chamber may depend on whether policymakers are able and willing to expand the scope of negotiations over a bill to fund the government. (Roundtable Weekly, Oct. 5)

Speaker Search

  • The House has been unable to pass legislation without a Speaker since Oct. 5. Today, House Republicans nominated Rep. Jim Jordan (R-Ohio) for Speaker, although he will need to be elected with 217 votes from all Representatives, included the divided GOP caucus. (The Hill, Oct. 13)

  • Also today, four centrist Democrats offered to give Acting Speaker Patrick McHenry (R-NC) “temporary, expanded authorities” to bring urgent funding bills to the House floor for votes. The letter, led by Rep. Josh Gottheimer (D-N.J.), is an offer to Republicans who may also support empowering McHenry to act on spending bills. (Politico and Democrats’ letter to McHenry, Oct. 13)

  • The letter proposes authorities for the Speaker Pro Tempore to introduce legislation on the following:
    • Foreign aid emergency supplemental funding for Ukraine and Israel;
    • Extending current continuing resolution through January 11, 2024, to prevent a
    • looming government shutdown; and,
    • Committee and floor consideration of remaining FY24 appropriations bills.

CRE Issues

Aerial View Of Industrial Commerce Office Buildings.
  • Recent media interviews featured Roundtable leadership discussing industry challenges that will also be addressed by RER members, lawmakers and regulators during The Roundtable Fall Meeting in Washington next week.

  • On Oct. 6, Roundtable Chair John Fish (Chairman & CEO, SUFFOLK) talked about developments in remote work, housing costs, interest rates, and construction supply on Bloomberg’s The Tape podcast. (Scroll to 30:00 to begin Fish interview)

  • Roundtable Board Member Kathleen McCarthy (Blackstone Global Co-Head of Real Estate) appeared on CNBC’s Halftime Report 28 to discuss sector variation in commercial real estate, creating value in a dislocated environment, and more. “Different sectors are traveling at different speeds,” said McCarthy, who addressed activity in data centers, logistics, and student housing.

Roundtable President and CEO Jeffrey DeBoer discussed a range of policy issues facing the industry on Sept. 26 as part of a Marcus & Millichap webcast, “A Conversation with Lloyd Blankfein, Former Chairman and CEO of Goldman Sachs, on the Economy and Commercial Real Estate with Insights from Industry Leaders.” Marcus & Millichap President and CEO Hessam Nadji and former Chairman and CEO of Goldman Sachs Lloyd Blankfein led the webcast discussion on economic issues, including Federal Reserve policy impacting the commercial real estate market. CRE industry leaders Tom McGee, President and CEO of ICSC and Sharon Wilson Géno, President of NMHC also joined the conversation.

Educational Institutions Increase Office Acquisitions; CRE Adaptive Reuse Rises

Posted on by Abigail Grenadier
CBRE chart on CRE conversions

Recent CRE research shows an increasing number of colleges and universities are acquiring office buildings for adaptive reuse. Meanwhile, an overall surge in U.S. office-conversion projects scheduled for completion this year represents more than double the average annual pace. Federal, state and local conversion-incentive programs could play an important role going forward. (New York Times, Oct. 3 and CBRE, Rise in Office Conversions May Help to Reinvigorate Cities, Sept. 27)

Conversion Trends

  • Data from JLL cited in this week’s New York Times article shows dozens of U.S. institutions of higher education have bought office buildings since 2018—including 49 four-year private schools and 16 four-year public institutions—often for conversion to academic use.
  • Separately, CBRE research published Sept. 27 shows that a surge in office-conversion projects in major U.S. cities this year (nearly half of them in the multifamily sector) may help urban economies recover after the pandemic-induced shift to hybrid working. (Commercial Property Executive, Oct. 2 and GlobeSt, Sept. 29)
  • The CBRE report shows that 60 million square feet of office conversions are planned or in progress in 40 U.S. markets, which represents 1.4 percent of the nation’s office inventory. The report also notes that, despite a variety of government incentive programs, adaptive reuse is not a panacea for problems facing the U.S. office market, especially in a high interest rate environment.

Role of Policy

  • An Oct. 16 discussion during The Roundtable’s Fall Meeting in Washington, DC will address policy initiatives impacting building conversions, and other challenges facing CRE, during The Roundtable’s Fall Meeting in Washington, DC.
  • The Roundtable strongly supports policies that provide incentives for office-to-residential conversions. Last Dec, The Roundtable urged the Biden administration to support “legislation to facilitate the increased conversion of underutilized office and other commercial real estate to much-needed housing.” (RER letter to President Biden, Dec. 12, 2022 and Roundtable Weekly, Aug. 11, 2023)
  • This week, Roundtable Senior Vice President Chip Rodgers joined a group of business groups’ representatives to brief the staff of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy, and the Subcommittee on Capital Markets.
  • The Oct. 2 briefing emphasized the need for policymakers to address dislocations in the office market by 1) incentivizing the conversion of outmoded office properties to residential use to help meet the nation’s housing needs; and 2) requiring federal government workers return to their offices.
  • Federal government programs will incentivize local jurisdictions to pursue office-to-residential conversions, according to CBRE. Federal incentives also aim to encourage financing mechanisms to build and preserve more housing, while reducing land-use and zoning restrictions for affordable and zero-emissions housing. (CBRE, Sept. 27)

A Real Estate Roundtable property conversions working group has worked with lawmakers for several months on draft legislation to create a tax credit for converting older commercial buildings to housing.

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Path Uncertain for Pending Tax Legislation as Implementation of Energy Tax Incentives Continues

Posted on by Abigail Grenadier
U.S. Capitol at sunset

The possibility of an end-of-year tax package faces an uncertain path and timeline as House GOP policymakers consider new leadership in the wake of this week’s historic vote to remove Kevin McCarthy (R-CA) as Speaker. Another layer of unpredictability is government funding, which is scheduled to expire Nov. 17 following last week’s passage of a continuing resolution to avert a partial government shutdown.

House Measures

  • In June, the House Ways and Means Committee approved a proposed tax legislative package along party lines that includes measures on business interest deductibility and bonus depreciation. The bill stalled due to differences in the GOP caucus over a boost in the $10,000 deduction cap on state and local taxes (SALT). (Roundtable Weekly, June 16)
  • Prospects for the Ways and Means tax package, other expired provisions such as the expanded child tax credit, and pending real estate-related tax proposals may depend on whether Congressional leaders are able and willing to expand the scope of negotiations over a bill to fund the government. (Roundtable Weekly, Sept. 29)

Regulatory Implementation

Exterior of U.S. Treasury Department
  • On Oct. 17, The Roundtable’s Fall Roundtable Meeting will feature a discussion on Inflation Reduction Act (IRA) incentives impacting CRE. (See Roundtable Clean Energy Tax Incentives Fact Sheet, July 31)
  • Also last week, Treasury provided new information on the process for taxpayers to apply for bonus tax credits for solar and other renewable investments made in low-income communities or in low-income housing developments. (See The Roundtable’s chart, “Base” and “Bonus Rate” Amounts Relevant to Commercial and Multifamily Buildings, May 25).

For more information on energy tax incentives available to real estate under the Inflation Reduction Act, see The Roundtable’s Clean Energy Tax Incentives Fact Sheet, July 31)

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Biden Administration to Prepare Unifying, Voluntary Definition for “Zero Emissions Buildings”

Posted on by Abigail Grenadier
Green foreground with buildings in background

This week, the White House’s climate policy chief announced the imminent release of voluntary, uniform federal-level criteria for “Zero Emissions Buildings.” The “ZEB” definition could bring much-needed consistency to help CRE owners and investors establish long-term goals for buildings that align with varying climate programs adopted across numerous jurisdictions and international frameworks. (Washington Post, Sept. 28)

Proposed ZEB Definition in October

  • A CRE coalition of real estate organizations including The Roundtable sent a Sept. 14 letter to US-EPA supporting development of standard methods and metrics for buildings and tenants to quantify their emissions.
  • Federal standards, definitions, and tools “are the North Star though which local governments can inform their law-making, and this helps bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs,” said Roundtable Sustainability Policy Advisory Committee (SPAC) Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust). (Roundtable Weekly, Sept. 15)   

A Climate Priority for CRE

White House -- National Climate Resilience Framework publication
  • Roundtable Senior VP and Counsel Duane Desiderio was quoted yesterday in the Washington Post and Popular Science about how CRE executives welcome the idea of a single federal standard. “A workable, usable federal definition of zero-emission buildings can bring some desperately needed uniformity and consistency to a chaotic regulatory landscape,” Desiderio said. (Roundtable Weekly, Sept. 15)
  • Yesterday, The White House also released a National Climate Resilience Framework in anticipation of an eventual White House Climate Resilience Summit. The Framework identifies climate resilience principles and specific actions to expand and accelerate progress towards six objectives that includes, “Expand adoption of the latest consensus-based building and energy codes and high-performance standards.” (White House Fact Sheet, Sept. 28)

The Roundtable will continue to work with our partner organizations and develop comments on the ZEB definition upon its anticipated release next month.

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  • A CRE coalition of real estate organizations including The Roundtable sent a Sept. 14 letter to US-EPA supporting development of standard methods and metrics for buildings and tenants to quantify their emissions.
  • Federal standards, definitions, and tools “are the North Star though which local governments can inform their law-making, and this helps bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs,” said Roundtable Sustainability Policy Advisory Committee (SPAC) Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust). (Roundtable Weekly, Sept. 15)   

A Climate Priority for CRE

White House -- National Climate Resilience Framework publication
  • Roundtable Senior VP and Counsel Duane Desiderio was quoted yesterday in the Washington Post and Popular Science about how CRE executives welcome the idea of a single federal standard. “A workable, usable federal definition of zero-emission buildings can bring some desperately needed uniformity and consistency to a chaotic regulatory landscape,” Desiderio said. (Roundtable Weekly, Sept. 15)
  • Yesterday, The White House also released a National Climate Resilience Framework in anticipation of an eventual White House Climate Resilience Summit. The Framework identifies climate resilience principles and specific actions to expand and accelerate progress towards six objectives that includes, “Expand adoption of the latest consensus-based building and energy codes and high-performance standards.” (White House Fact Sheet, Sept. 28)

The Roundtable will continue to work with our partner organizations and develop comments on the ZEB definition upon its anticipated release next month.

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  • A CRE coalition of real estate organizations including The Roundtable sent a Sept. 14 letter to US-EPA supporting development of standard methods and metrics for buildings and tenants to quantify their emissions.
  • Federal standards, definitions, and tools “are the North Star though which local governments can inform their law-making, and this helps bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs,” said Roundtable Sustainability Policy Advisory Committee (SPAC) Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust). (Roundtable Weekly, Sept. 15)   

A Climate Priority for CRE

White House -- National Climate Resilience Framework publication
  • Roundtable Senior VP and Counsel Duane Desiderio was quoted yesterday in the Washington Post and Popular Science about how CRE executives welcome the idea of a single federal standard. “A workable, usable federal definition of zero-emission buildings can bring some desperately needed uniformity and consistency to a chaotic regulatory landscape,” Desiderio said. (Roundtable Weekly, Sept. 15)
  • Yesterday, The White House also released a National Climate Resilience Framework in anticipation of an eventual White House Climate Resilience Summit. The Framework identifies climate resilience principles and specific actions to expand and accelerate progress towards six objectives that includes, “Expand adoption of the latest consensus-based building and energy codes and high-performance standards.” (White House Fact Sheet, Sept. 28)

The Roundtable will continue to work with our partner organizations and develop comments on the ZEB definition upon its anticipated release next month.

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  • National Climate Advisor, Ali Zaidi, stated in yesterday’s keynote address at the Greenbuild 2023 conference in Washington, D.C. that the proposed federal ZEB definition will be released next month. 
  • Zaidi noted The Real Estate Roundtable in his comments as an important group for addressing the need to transform buildings at scale.
  • When the U.S. Department of Energy (DOE) announces the proposed ZEB definition it will kick-off an anticipated 30-day public comment period. The Environmental Protection Agency (EPA) ENERGY STAR program is coordinating closely with DOE. A final ZEB definition could be published by the end of this year.

Federal Consistency is Essential

White House with roses in foreground
  • DOE’s ZEB definition would not be mandatory on the private sector. It will be a voluntary, aspirational guideline at the federal level.
  • However, a definition from the U.S. government can finally build a uniform understanding of what it takes for a building to achieve “zero emissions” over time, along a realistic and achievable pathway. 
  • A CRE coalition of real estate organizations including The Roundtable sent a Sept. 14 letter to US-EPA supporting development of standard methods and metrics for buildings and tenants to quantify their emissions.
  • Federal standards, definitions, and tools “are the North Star though which local governments can inform their law-making, and this helps bring some sense and order to the otherwise conflicting patchwork of climate laws and frameworks developed by states, cities, and NGOs,” said Roundtable Sustainability Policy Advisory Committee (SPAC) Chair Tony Malkin (Chairman, President, and CEO, Empire State Realty Trust). (Roundtable Weekly, Sept. 15)   

A Climate Priority for CRE

White House -- National Climate Resilience Framework publication
  • Roundtable Senior VP and Counsel Duane Desiderio was quoted yesterday in the Washington Post and Popular Science about how CRE executives welcome the idea of a single federal standard. “A workable, usable federal definition of zero-emission buildings can bring some desperately needed uniformity and consistency to a chaotic regulatory landscape,” Desiderio said. (Roundtable Weekly, Sept. 15)
  • Yesterday, The White House also released a National Climate Resilience Framework in anticipation of an eventual White House Climate Resilience Summit. The Framework identifies climate resilience principles and specific actions to expand and accelerate progress towards six objectives that includes, “Expand adoption of the latest consensus-based building and energy codes and high-performance standards.” (White House Fact Sheet, Sept. 28)

The Roundtable will continue to work with our partner organizations and develop comments on the ZEB definition upon its anticipated release next month.

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Partial Government Shutdown Would Impact Policies Important to CRE

Posted on by Abigail Grenadier

Capitol side with sun and clouds

A partial government shutdown looks likely to begin after midnight on Sept. 30 as House and Senate policymakers pursue different short-term funding bills amid hardened resistance from conservative Representatives to pass any continuing resolution (CR) without certain concessions. (The Hill’s live updates and ABC News Sept. 29)

Lapse in Program Funding

  • A lapse in funding could impact the industry by suspending the National Flood Insurance Program (NFIP), the Securities and Exchange Commission’s (SEC) rulemaking on climate disclosure, and the Treasury Department’s expected guidance on the energy efficient commercial buildings deduction under section 179D. (New York Times, Sept. 28 – “Government Shutdown May Hurt Home Sales in Flood-Prone Areas”)
  • Additionally, Senior White House Adviser John Podesta on Sept. 26 said a shutdown would delay billions to implement the Inflation Reduction Act, including Treasury guidance on how to distribute the measure’s tax credits. (Bloomberg, Sept. 26 | Roundtable Clean Energy Tax Incentives Fact Sheet, July 31 | Roundtable Weekly, July 28)

Shutdown Uncertainty

SEC Chairman Gary Gensler
  • Government agencies are preparing to furlough employees for an uncertain amount of time. The most recent shutdown lasted 34 days from December 2018 to January 2019, and cost the economy approximately $3 billion (equal to 0.02% of GDP) according to the Congressional Budget Office. (Government Executive, Sept. 29 and Reuters, Sept. 25)
  • The shutdown would also come amidst a flurry of regulatory rulemakings impacting commercial real estate capital markets. During a House Financial Services Committee hearing on Sept. 27, Rep. Andy Barr (R-KT) questioned SEC Chairman Gary Gensler (above) on the “perfect storm of regulations” that could further impair liquidity for commercial real estate capital markets. (Watch 1:27 video clip of the exchange | Committee Hearing Memorandum, Sept. 22)

The Roundtable’s Fall Meeting on Oct. 16-17 (Roundtable-level members only) will address numerous regulatory proposals impacting CRE, and assess the state of the economy and capital markets in the wake of a potential shutdown.

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2023 Loan Extensions Increase as Lenders and Borrowers Seek Workouts

Posted on by Abigail Grenadier

Trepp

Approximately $5.65 billion in commercial real estate loans have been modified with extensions in 2023, with nearly 73% of the total from the office sector, according to a recent Trepp report. The rise in loan extensions—sparked by higher interest rates, lower valuations, and remote work—also come at a time when commercial mortgage-backed securities (CMBS) have been subdued. (Trepp CRE Research Report)

Modification Trend

  • Trepp reported that term increases of 1-12 months comprised the largest share (37%) of extensions. The largest quarter upon maturity came in Q2 2023, when $957 million in loans were extended.
  • Office properties comprised 72.9% of the total $3.2 billion in loan extensions, or roughly $2.4 billion. Trepp stated, “Of all property types, the office sector faces the steepest refinancing challenges as office properties are struggling with occupancy and financial performance in the post-pandemic era.” (Trepp CRE Research Report)
  • The increase in modifications follows a joint policy statement from federal regulators in June that encouraged financial institutions to work with borrowers on pending loan maturities. (Agencies’ joint statement, June 29 and National Law Review, July 9)

Roundtable Advocacy

Jeffrey DeBoer during Marcus and Millichap webinar

  • In March, The Roundtable had originally requested that federal regulators accommodate commercial real estate borrowers and lenders as the industry continued to endure a difficult time of historic, post-pandemic transition—and enthusiastically welcomed the Agencies’ subsequent, joint action. (Roundtable Weekly, June 30 and Roundtable letter to regulators, March 17)
  • During a Sept. 26 Marcus & Millichap webcast, Roundtable President and CEO Jeffrey (above) said, “We’re seeing some impact. Trepp put out a report about loan modifications and extensions. Time is the most important aspect for the most challenged part of our industry, office. We have to let time settle in and let businesses and employers determine how they want to use office space going forward.”
  • Additionally, bipartisan legislation (H.R. 5580) introduced in the House last week would reduce the tax burden on a borrower that can arise when a troubled commercial real estate loan is modified as part of a debt workout. The Tenney-Higgins bill would build on existing tax provisions by effectively deferring cancellation of debt (COD) income. (Roundtable Weekly, Sept. 22)
  • The legislation, introduced by Reps Claudia Tenney (R-NY) and Brian Higgins (D-NY), could help smooth the transition to a healthy and stable post-pandemic real estate market. The Roundtable’s DeBoer was quoted in support of the House legislation by GlobeSt, Connect CRE, and Commercial Observer.

Capital and credit policy issues facing CRE, especially office assets, will be among the topics discussed during The Roundtable’s Oct. 16-17 Fall Meeting (Roundtable-level members only) in Washington.

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