News Type: Roundtable Weekly

House Republicans Advance Tax Package, Biden Administration Proposes Rules for Energy Tax Credits

Posted on by Trey Jackson

Republican members of the House Ways and Means Committee approved their proposed tax legislative package along party lines this week, including measures on business interest deductibility, bonus depreciation, and opportunity zones. (Tax Notes, June 14 | Ways and Means Committee, June 13 and Roundtable Weekly, June 9)

Tax Measures and CRE

Roundtable Chair John Fish with Jeffrey DeBoer and House Ways and Means Committee Chairman Jason Smith (R-MO)

  • On Wednesday, Ways and Means Committee Chairman Jason Smith (R-MO), Committee Member Brad Schneider (D-IL), and Ways and Means staff spoke with Roundtable Members about the tax measures and other issues at The Roundtable’s all-member Annual Meeting in Washington, DC during the Tax Policy Advisory Committee (TPAC) session. [Photo left to right: Roundtable Chair John Fish (Chairman and CEO, SUFFOLK), Roundtable President and CEO Jeffrey DeBoer, and Committee Chairman Jason Smith]
  • The three tax bills sent to the House floor for a potential vote next week contain $237 billion in business and individual tax cuts, financed by the repeal or modification of several energy tax incentives enacted in last year’s Inflation Reduction Act (IRA). However, differences in the GOP caucus and requests from some Republicans to include a boost in the $10,000 deduction cap on state and local taxes (SALT) could push a vote until after the congressional July 4 recess. Any Republican tax package passing the House would face significant opposition in the Democrat-controlled Senate and the White House. (Tax Notes, June 16)
  • The committee’s proposals relevant to real estate include:

House Ways and Means Committee

    • Business interest deduction. The Build It in America Act would provide a 4-year extension (through 2025) of certain, taxpayer-favorable business interest deductibility rules that applied from 2018-2021. The proposal would allow more real estate businesses to operate under the general rules of section 163(j) and its preferable cost recovery schedules. (H.R. 3938 and summary)
    • Bonus depreciation.  H.R. 3938 also includes a 3-year extension (through 2025) of 100% bonus depreciation for qualifying capital investments, including equipment, machinery, and interior improvements to nonresidential property (“qualified improvement property”).  Bonus depreciation is 80% in 2023 and gradually phasing down. 
    • Opportunity Zones. The Small Business Jobs Act would establish special, favorable rules for investments in rural opportunity zones. It would also create a new and detailed information-reporting regime for all opportunity funds. (H.R. 3937 and summary)

Energy Tax Credits Transferability

Chicago evening

  • The Biden administration this week proposed rules on transferring clean-energy tax credits under the IRA. Treasury’s proposed guidance released on June 14 seeks to clarify numerous issues, including which entities would be eligible for each credit monetization mechanism, laying out the process and timeline to claim and receive an elective payment, and transferring a credit. (Tax Notes, June 15 |The Wall Street Journal, June 14 | IRS news release)
  • Secretary of the Treasury Janet Yellen stated, “The Inflation Reduction Act’s new tools to access clean energy tax credits are a catalyst for meeting President Biden’s historic economic and climate goals. They will act as a force multiplier, bringing governments and nonprofits to the table.” (CNBC and Treasury news release, June 14)
  • The Roundtable’s Tax Policy Advisory Committee (TPAC) and Sustainability Tax Policy Committee (SPAC) will analyze the impact of the transferability rules on commercial real estate for potential comments on the proposed rulemaking. SPAC’s meeting on Wednesday during The Roundtable’s Annual Meeting included a presentation about an online marketplace for exchanging such tax credits.

Climate Disclosure RegsSEC logo - image

  • Separately, the Securities and Exchange Commission (SEC) expects to issue new climate disclosure rules by October, a year later than the original target date. The new date was included in a SEC rule-making agenda and schedule released on Tuesday.
  • Legislation to constrain future SEC disclosure requirements was reintroduced this week by Sen. Mike Rounds (R-SD) and nine of his Senate colleagues. The bill includes language stating that an “issuer is only required to disclose information in response to disclosure obligation adopted by the Commission to the extent the issuer has determined that such information is important with respect to a voting or investment decision regarding such issuer.” Rep. Bill Huizenga (R-MI) is sponsoring a version of the bill in the House. (Sen. Rounds news release and Politico Pro, June 15)

The Roundtable’s SPAC will continue to track any developments related to the SEC’s forthcoming rule on climate reporting, including its proposal for sweeping disclosures on Scope 3 GHG emissions affecting CRE. (Roundtable Weekly, March 10) 

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CRE Market Conditions, Tax Proposals, and Energy Policy Focus of Roundtable Annual Meeting

Posted on by Trey Jackson

The Real Estate Roundtable’s 2023 Annual Meeting this week included policy discussions with national lawmakers on issues affecting commercial real estate, including market conditions and pressures on the office sector, tax policy, sustainability issues, and evolving security threats. Additionally, a special industry tax panel focused on incentives for property repurposing, community revitalization, and housing.

Speakers & Policy Issues 

Roundtable Chairman John Fish, left, with Roundtable President and CEO Jeffrey DeBoer

Roundtable Chair John Fish (Chairman and CEO, SUFFOLK), left, and Roundtable President and CEO Jeffrey DeBoer, right, launched the meeting, which included the following speakers:

Sen. Kyrsten Sinema (I-AZ)

Sen. Kyrsten Sinema (I-AZ)
Member, Senate Committee on Banking, Housing and Urban Affairs

Sen. Bill Hagerty (R-TN) and Geordy Johnson, CEO, The Johnson Group

Sen. Bill Hagerty (R-TN), left 
Member, Senate Committee on Banking, Housing and Urban Affairs
and Roundtable Board Member Geordy Johnson (CEO, The Johnson Group)

House Ways and Means Committee Chairman Jason Smith (R-MO)

Jason Smith (R-MO), Chairman
House Ways and Means Committee

House Ways and Means Committee Member Brad Schneider (D-IL)

 Brad Schneider (D-IL), Member
House Ways and Means Committee

Rep. Andrew Gabarino (R-NY)

Rep. Andrew Garbarino (R-NY), Chairman
House Homeland Security Subcommittee on Cybersecurity and Infrastructure Protection
 

David Crane and Tony Malkin

David Crane, left, Department of Energy Under Secretary for Infrastructure, and 
Roundtable Board Member Tony Malkin (Chairman, President and Chief Executive Officer, Empire State Realty Trust, Inc.)

Alejandra Nunez

Alejandra Nunez
Environmental Protection Agency (EPA)
Deputy Assistant Administrator, Office of Air and Radiation

Thomas Barthold

Thomas Barthold
 Chief of Staff, Joint Committee on Tax

Moody's Analytics Chief Economist Mark Zandi

Mark Zandi, Chief Economist, Moody’s Analytics  

Roundtable Policy Advisory Committees 

Real Estate Roundtable 2023 Annual Meeting wide shot

The Roundtable’s policy advisory committees also met on June 13-14 to analyze policy issues
with industry experts, policymakers, and their staff, including:

  • Joint RECPAC-Research Committee Meeting 

RECPAC Research panel Annual 2023

The Roundtable’s joint RECPAC and Research Committee meeting included a real estate capital market panel with CRE leaders. [Left to right in photo: panel moderator Mike Lowe (Co-CEO, Lowe); Sarah Hawkins (CEO, East Region, Hines); Christoph Donner (Chief Executive Officer, America, PIMCO Prime Real Estate LLC); David Mei (Vice President, InterContinental Hotels & Resorts); Gregg Gerken (Head of Commercial Real Estate, TD Bank); and Kathy Farrell (Head of Commercial Real Estate, Truist).

A separate presentation on the economy and CRE conditions was given by CBRE’s Christopher R. Ludeman, Global President, Capital Markets and Spencer Levy, Global Client Strategist & Senior Economic Advisor.

  • Tax Policy Advisory Committee (TPAC) 

TPAC panel with Downey speaking

Speakers at the TPAC meeting included key House tax policy leaders (see photos in previous story section) and a panel on “Debt Workouts / Tax Incentives for Property Repurposing, Community Revitalization, and Housing.” [Left to right in photo above: Adam Feuerstein (Real Estate Tax Technical Leader, PwC); David Downey (President & CEO, International Downtown Association); Victoria Honard (Legislative Director, Rep. Suzan DelBene (D-WA); and Phuc Tran (Vice President, Asset Management, Jair Lynch Real Estate Partners)]

An additional panel on the “Tax Legislative Outlook and Agenda with Senior Republican Tax Staff” featured a discussion with Payson Peabody (Tax Counsel, House Ways and Means Committee Majority Staff) and Michael Gould (IRS Detailee, Senate Finance Committee) that was moderated by Russ Sullivan (Brownstein Hyatt Farber Schreck).

  • Sustainability Policy Advisory Committee (SPAC) 

SPAC meeting at 2023 Annual

SPAC members heard from featured speakers David Crane and Alejandra Nunez (see photos in previous section above), along with updates from EPA senior staff on agency projects affecting CRE assets, and a presentation of an online marketplace for Inflation Reduction Act energy tax credits. (SPAC meeting agenda)

  • Homeland Security Task Force (HSTF) 

Roundtable's Homeland Security Task Force

A joint session of The Roundtable’s HSTF and Risk Management Working Group met with Rep. Andrew Garbarino (R-NY) and were briefed by officials from the Department of Homeland Security on efforts to enhance information sharing with the CRE industry. 

Next on The Roundtable’s FY2023 meeting calendar is the Fall Meeting on October 16-17 in Washington, DC. This meeting is restricted to Roundtable-level members only. 

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Policymakers and Industry Leaders to Discuss Economic Pressures on CRE

Posted on by Trey Jackson

All-member Roundtable Meeting wide shot

Real Estate Roundtable members will meet next week to discuss policy issues, market conditions, and the significant economic pressures facing the office sector. In an interview with CNBC’s Squawk Box, Treasury Secretary Janet Yellen acknowledged the increasing stress on the office market this week, including the potential for further problems with banks with exposure to weakening CRE valuations.

Stress on Office Sector

  • On June 7, Treasury Secretary Yellen said, “Well, I do think that there will be issues with respect to commercial real estate. Certainly, the demand for office space since we’ve seen such a big change in attitudes and behavior toward remote work has changed and especially in an environment of higher interest rates.” She added that banking supervisors continue to closely monitor “a range of banks to make sure that they are adequately prepared to deal with it.” (CNBC’s Squawk Box and MarketWatch, June 7)
  • Roundtable Member David O’Reilly (CEO, Howard Hughes Corporation) was interviewed by CNBC’s Power Lunch on June 7 about the distress facing sectors of CRE, noting how capital markets are constraining borrowers from financing real estate projects.
  • The Roundtable continues to emphasize the need for federal regulators to allow more flexibility for lenders and borrowers to restructure a wave of $1.5 trillion in CRE loans maturing in the next three years. Real Estate Roundtable Chair John Fish (Chairman and CEO, SUFFOLK) summarized the industry’s views in a May 9 MarketWatch article.

Policymakers at Next Week’s Roundtable Meeting

TPAC at SOI

  • These compelling industry issues, among others, will be the focus of The Roundtable’s Annual Meeting on June 13-14 in Washington, DC.

The Roundtable will conclude its 2023 fiscal year this month and will release its annual report to the membership in early July.

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House Republicans Unveil Tax Package; Ways and Means Chairman to Address Real Estate Roundtable Next Week

Posted on by Trey Jackson

House Ways and Means Committee Chairman Jason Smith

The House Ways and Means Committee unveiled a tax package today that includes measures impacting commercial real estate, and announced a legislative mark-up on June 13. (Politico and Tax Notes, June 9)

Committee Chairman Jason Smith (R-MO), above, Ways and Means Member Brad Schneider (D-IL), and committee staff will speak on June 14 during The Roundtable’s all-member Annual Meeting in Washington, DC at the Tax Policy Advisory Committee (TPAC) meeting.

GOP Proposal & CRE

  • Chairman Smith released a statement today about the package, which includes the following bills scheduled for markup next week:
  • The proposals relevant to real estate include:
    • Business interest deduction. The Build It in America Act (H.R. 3938) would provide a 4-year extension (through 2025) of certain, taxpayer-favorable business interest deductibility rules that applied from 2018-2021. The proposal would allow more real estate businesses to operate under the general rules of section 163(j) and its preferable cost recovery schedules.
    • Bonus depreciation.  H.R. 3938 also includes a 3-year extension (through 2025) of 100% bonus depreciation for qualifying capital investments, including equipment, machinery, and interior improvements to nonresidential property (“qualified improvement property”).  Bonus depreciation is 80% in 2023 and gradually phasing down. 
    • Opportunity Zones. The Small Business Jobs Act (H.R. 3937) would establish special, favorable rules for investments in rural opportunity zones. It would also create a new and detailed information-reporting regime for all opportunity funds.
  • The GOP package (H.R. 3938) also contains proposals that would repeal some clean energy provisions from the Inflation Reduction Act (H.R. 5376), including electric vehicle tax credits, clean energy production, and investment tax credits.

Prospects for Passage

House Ways and Means Committee hearing

  • The Ways and Means proposal may pass through committee—and possibly pass the Republican-majority House—but such a package faces steep obstacles in the Democrat-controlled Senate and with the White House.   

The proposals are a good indication of the priorities that House Republicans will bring to any bipartisan economic policy negotiations as the year unfolds. 

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Real Estate Leaders Report Tighter Liquidity and Difficult Price Discovery

Posted on by Trey Jackson

Q2 2023 Sentiment Index graphic

The Real Estate Roundtable’s Q2 2023 Sentiment Index dropped to an overall score of 41, three points lower than the previous quarter. Commercial real estate executives noted how remote work, high interest rates, operating cost escalations, and difficult price discovery has led to significant uncertainty in the post-pandemic office sector and reduced liquidity for nearly all commercial real estate asset classes. 

Stress in Office Sector Threatens Cities, Jobs

  • Industry leaders also reported relatively healthy Q2 demand for industrial, multifamily, and strip center retail assets. Solid rental growth in multifamily, senior, student, and assisted living sectors was another positive trend reported by sentiment survey participants. (See entire Q2 report.)
  • Roundtable President and CEO Jeffrey DeBoer, below, said, “The commercial real estate market is at the center of a major transition. Maturing office loans in particular face a new environment of higher operating and financing costs, much tighter bank lending requirements, and uncertainty in business space needs.”

Jeffrey DeBoer, Real Estate Roundtable President and CEO

  • “However, while there is relatively good current news from non-office CRE sectors, the combination of reduced liquidity, increased costs, and post-pandemic business uncertainty threatens to spread to these other sectors as well—and potentially cause great damage to communities, jobs, and the economy. Federal financial institution regulators must act quickly to provide greater supervisory flexibility—as they did in 2009, 2020, and 2022—to allow lenders and borrowers to responsibly restructure the large amount of maturing commercial real estate loans.”
  • “Businesses and individuals need more time to transition their space needs to the post-pandemic economy. Greater certainty in demand will allow commercial real estate markets, particularly the office sector, to stabilize and revert to its dominant position as the source for local budget revenue. In addition to regulatory flexibility, positive public and private action to encourage in-person, return-to-work policies is needed, where appropriate. As some buildings will need to be reimagined entirely, policy reforms are needed to encourage those buildings to convert to other uses such as housing,” DeBoer added.
  • The Roundtable’s Sentiment 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 Sentiment Indices.­­­­ Any score over 50 is viewed as positive. ­­­­

Topline Findings

Q2 2023 General Conditions

  • The Q2 Sentiment Index topline findings include:
    • The Q2 2023 Real Estate Roundtable Sentiment Index registered an overall score of 41, a decrease of three points from the previous quarter. The Current Index registered 27, a four-point decrease from Q1 2023, and the Future Index posted a score of 55 points, a decrease of three points from the previous quarter.
    • Participants noted the continued disparity between asset classes as well as within them. On one hand, rental demand continues to hold up in the multifamily and industrial sectors. Hotel and retail markets are also largely performing well and niche asset classes continue to generate interest and attract capital. On the other hand, while Class A offices remain desirable, the rest of the office industry is struggling to reposition itself.
    • Similar to last quarter, 93% of survey participants believe that asset values have repriced to the downside vs. last year. However, limited trades in 2023 are making it difficult to gauge the market. Survey respondents continue to observe wide disparities in bid-ask spreads.
    • The availability of capital, both debt and equity, continues to be a pressing topic. Regarding the availability of debt and equity, 93% and 75% of survey participants, respectively, believe that today’s conditions are more difficult than a year ago. While the cost of capital has universally increased, platform scale and relationships largely determine access and ability to secure debt financing.
  • Looking to the future, 48% of survey participants stated general market conditions will be more favorable a year from now—although only 20 percent of respondents believe asset values will be more favorable in one year.
  • Data for the Q2 survey was gathered in April by Chicago-based Ferguson Partners on The Roundtable’s behalf. See the full Q2 report.

The Real Estate Roundtable brings together leaders of the nation’s top publicly-held and privately-owned real estate ownership, development, lending and management firms with the leaders of major national real estate trade associations to jointly address key national policy issues relating to real estate and the overall economy.

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Debt Ceiling Compromise Passed Days Before National Default Deadline

Posted on by Trey Jackson

Capitol side view

Congress passed compromise legislation this week to suspend the debt ceiling for two years and restrain government spending, sending it to President Biden for his signature and calming world financial markets days before a US government default. (CQ and Wall Street Journal, June 2)

After the Debt Ceiling

  • The House on Wednesday night passed the Fiscal Responsibility Act (H.R. 3746)—forged by President Joe Biden, House Speaker Kevin McCarthy (R-CA), and their negotiation teams—to suspend the nation’s $31.4 trillion debt limit until Jan. 1, 2025 and cut spending by at least $1.5 trillion. The Senate approved the bill last night by a bipartisan vote of 63-36. (Congressional Budget Office, May 30 and Associated Press, May 26)
  • “No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people,” President Biden stated last night. “I look forward to signing this bill into law as soon as possible…” (White House statement, June 1)
  • House policymakers have signaled they may follow the debt ceiling crisis with a legislative tax proposal that could include significant measures affecting commercial real estate. (Roundtable Weekly, May 26)
  • Congressional action on such measures would come at a time when the office sector faces difficult conditions, including asset price discovery and tighter liquidity. (Wall Street Journal, May 30 Financial Times, May 29 | GlobeSt, May 26) 

Economic Conditions & CRE

Ross Perot, Jr. on Bloomberg TV

  • Real Estate Roundtable Chair John Fish (Chairman and CEO, SUFFOLK) explained the economic conditions facing CRE and the office market, along with other pressures such as remote work and a shortage of labor, in a May 26 Boston Globe interview. “We’re in a very precarious situation,” Fish said.
  • Roundtable Board Member Ross Perot, Jr., above, (Chairman, The Perot Companies and Hillwood) discussed the financing challenges faced by some CRE sectors in an interview with Bloomberg TV on Wednesday. “If the industry can’t get a construction loan, real estate will have a recession,” Perot said. “The key to commercial real estate today will be banking.”
  • The Federal Reserve’s “Beige Book” issued this week also reported on the nation’s current overall economic activity, noting, “Commercial construction and real estate activity decreased overall, with the office segment continuing to be a weak spot.” (GlobeSt, May 31)
  • Additionally, Trepp’s CMBS Delinquency Report issued this week showed the nation’s overall CMBS delinquency rate hit a 14-month high, topping 4% for the first time since 2018. Although May’s delinquency rate jumped to 3.62%, up 53 basis points for the month, the all-time high registered 10.34% in July 2012 and the COVID-19 high reached 10.32% in June 2020.
  • Federal Reserve monetary policies, congressional fiscal policy, potential tax measures, and other issues impacting CRE will be discussed during The Real Estate Roundtable’s Annual Meeting on June 13-14 in Washington, DC.

The Roundtable meeting includes policy advisory committee meetings—open to all members—that will feature prominent policymakers, including Senate Banking Committee Member Bill Hagerty (R-TN); House Ways and Means Committee Chairman Jason Smith (R-MO); David Crane, the US-DOE’s Director of the Office of Clean Energy Demonstrations; and Alejandra Nunez, US-EPA Assistant Administrator overseeing climate policy.

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Bipartisan Legislation Reintroduced to Allow Greater REIT Equity Investments in Distressed Retail Tenants

Posted on by Trey Jackson

Retail tenant distress

Bipartisan legislation reintroduced this week by House Ways and Means Committee Members Darin LaHood (R- IL) and Brad Schneider (D-IL) would allow real estate investment trusts (REITs) to make greater equity investments in retail tenants that have yet to recover from the pandemic’s economic impact. 

Support for Retail Tenant Assistance

  • The Retail Revitalization Act (H.R. 3749) is aimed at unlocking capital for productive investment and helping prevent further large-scale job losses and bankruptcies in the retail sector and its supply chain. (Congressional Record, May 30)
  • As of May 5, ten major retailers had filed for bankruptcy protection in 2023. The number of retail failures, which includes Bed Bath & Beyond, David’s Bridal, and Party City, is already twice the level of 2022. More bankruptcies are anticipated. (Forbes, May 5 and Forbes, May 15)
  • Real Estate Roundtable President Jeffrey DeBoer stated, “The Retail Revitalization Act would reform an outdated section of our tax code that currently prevents the commercial real estate industry from stepping forward and deploying its own capital to solve significant economic challenges. Retail bankruptcies have negative consequences for employees, surrounding businesses, and local communities. This bipartisan legislation to allow REITs to invest more heavily in their tenants is exactly the type of cost-effective, commonsense measure that everyone can and should support. The bill will save jobs, increase local tax revenue, and create a stronger foundation for future economic growth.”

Amending REIT Rules

REITs - graphic

  • The LaHood-Schneider legislation—strongly supported by The Real Estate Roundtable—would modify tax provisions limiting REITs’ ability to invest equity capital in their retail tenants. The bill would amend existing “related-party rent” rules by:
    • increasing the capacity of a REIT to own the equity of a distressed tenant from 10% to 50% and from 10% to 30% for all other tenants;

    • changing the ownership attribution rules used to determine what is considered related party rent under current REIT rules to the general ownership attribution rules used elsewhere in the tax code, and;

    • changing the limitation on space that a REIT can lease to its taxable REIT subsidiary.

Tax Policymakers

  • House Ways and Means Committee Chairman Jason Smith (R-MO)Tax proposals such as H.R. 3749 and others will be discussed during TPAC, held in conjunction with The Roundtable’s all-member Annual Meeting on June 13-14 in Washington, DC. TPAC speakers will include:

    • House Ways and Means Committee Chairman Jason Smith (R-MO), above

    • House Ways and Means Committee Member Brad Schneider (D-IL)
    • Joint Committee on Taxation Chief of Staff Thomas Barthold
    • Senior staff from Senate Finance Committee and House Ways and Means Committee

TPAC will also feature a panel session on “Post-Pandemic Real Estate Challenges and Tax Policy: Debt Workouts / Tax Incentives for Property Repurposing, Community Revitalization, and Housing.” All Roundtable members are encouraged to attend.

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Roundtable and Industry Coalitions Urge Congress to Act on Affordable Housing Measures

Posted on by Trey Jackson
Affordable Housing Industry Coalition May 2023

The Real Estate Roundtable and 18 other real estate organizations urged Congress on May 23 to work with the Biden administration, housing providers, lenders, and other stakeholders to pursue bipartisan solutions to increase the nation’s supply of housing. (Coalition letter, May 23)

“Yes in My Backyard”

  • This week’s joint letter from the Housing Affordability Coalition detailed a wide range of legislative proposals and policy measures that lawmakers should immediately enact to address the nation’s housing affordability crisis.

  • The industry coalition supports legislation that would eliminate harmful land use policies, promote affordable housing near public transit, and support local government efforts to expand housing supply.

  • Separately, The Roundtable joined another coalition of 285 housing, business, and municipal organizations with a show of focused support for the bipartisan, bicameral Yes In My Back Yard (YIMBY) Act, reintroduced on May 18. (YIMBY Coalition letter)

  • The bill requires localities that receive certain federal HUD grants to submit a public report on whether they have local policies in place that remove exclusionary zoning tactics. Encouraging high-density development is “an essential first step in decreasing barriers to new housing of all price levels,” the YIMBY Act coalition letter states.

  • The YIMBY Act passed the House without opposition in 2020. It is championed in the Senate (S. 1688) by Todd Young (R-IN) and Brian Schatz (D-HI), and in the House (H.R. 3507) by Reps. Derek Kilmer (D-WA) and Mike Flood (R-NE). (YIMBY Act summary by Up for Growth)

Tax Measures

  • This week’s Housing Affordability Coalition letter encourages Congress to expand the low-income housing tax credit, create a new middle-income housing tax credit, and establish a dedicated tax incentive to promote the conversion of underutilized office and commercial buildings to rental housing.

  • The letter also supports tax measures that have not been reintroduced yet in the 118th Congress, including incentives to encourage neighborhood revitalization, accelerated depreciation of high-performance building equipment, and reduction of the basis increase necessary to qualify a multifamily rehabilitation project for Opportunity Zone purposes.

  • The industry coalition expressed support for the Biden administration’s proposed solutions such as its Housing Supply Action Plan and investments that are part of its FY2024 federal budget proposal. (Roundtable Weekly, May 22, 2022 and White House fact sheet, March 9, 2023)

On March 7, the National Multifamily Housing Council (NMHC) and National Apartment Association (NAA) offered joint testimony before a Senate Finance Committee hearing on “Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families.” (Roundtable Weekly, March 10)

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New Research Shows Severe Impact of Remote Work on Office Sector

Posted on by Trey Jackson

empty office remote work

An updated study released this month by New York University and Columbia University researchers concludes “remote work is shaping up to massively disrupt the value of commercial office real estate in the short and medium term.” (Work From Home and the Office Real Estate Apocalypse, May 15) 

Municipal Finances and Financial Stability 

  • The researchers—Arpit Gupta, Vrinda Mittal, and Stijn Van Nieuwerburgh—find a $506.3 billion value destruction for the U.S. office market between 2019 and 2022. Post-pandemic hybrid work arrangements have led to large drops in lease revenue, occupancy, lease renewal rates, and market rents in the commercial office sector, according to the updated research, affecting CRE cash flow at a time when the Federal Reserve has aggressively raised interest rates. (Fortune, May 25)
  • The report notes, “Higher quality buildings were buffered against these trends due to a flight to quality, while lower quality office is at risk of becoming a stranded asset. These valuation changes have repercussions for local public finances and financial stability.”
  • The report also concludes that the fiscal hole left by declining office and retail property tax revenues may lead municipalities to increase taxes or cuts in spending—negatively affecting the attractiveness of cities as places to live and work, which may risk the activation of an “urban doom loop.” The authors note, “Future research should explore these implications and study the role for local and federal policy.” 

Moody’s Outlook 

Moody's Chief Economist Mark Zandi

  • Moody’s Analytics Chief Economist Mark Zandi, above, noted in a series of tweets this week that CRE prices fell in the first quarter of 2023 for the first time in more than a decade, led by drops in multifamily residences and office buildings, according to Moody’s Repeat Sales Index. (Zandi will be a guest speaker at The Roundtable’s all-member Annual Meeting on June 13 in Washington, DC.)
  • “Lots more price declines are coming with prices expected to be off 10% peak-to-trough by mid-decade. Demand for space is weak due to remote work and online retailing. Lots of multifamily units are being built. And credit to refinance and purchase properties is tough to get,” Zandi tweeted.
  • Bloomberg reported on May 17 that Zandi noted if the US economy slips into a recession, the price declines could get worse. “We’re on a razor’s edge here,” Zandi said. 

Roundtable Request for Flexibility 

Roundtable Chair John Fish

  • The Real Estate Roundtable continues to emphasize the need for federal regulators to allow more flexibility for lenders and borrowers to restructure commercial real estate loans facing potential default—as the Federal Reserve reported recently that CRE poses a potential risk to financial stability. (Fed’s Financial Stability Report, May 2023)
  • Real Estate Roundtable Chair John Fish, above, (Chairman and CEO, SUFFOLK) summarized the industry’s views in a May 9 MarketWatch article, noting that the Fed and regulatory agencies should grant more flexibility for borrowers, including corporate real estate developers, to restructure CRE loans. 

In addition to Mark Zandi and House Ways and Means Committee Chairman Jason Smith (R-MO), The Roundtable’s Annual Meeting next month will also include Sen. Kyrsten Sinema (I-AZ), Sen. Bill Hagerty (R-TN), and other policymakers. 

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House Tax Package Expected to Follow Debt Ceiling Resolution

Posted on by Trey Jackson

US Capitol sunsetThe House Ways and Means Committee may release a tax-focused economic growth package in June after a final resolution is reached between President Joe Biden, House Speaker Kevin McCarthy (R-CA), and their negotiation teams on the debt ceiling. The intense talks on federal spending limits have less than a week before the Treasury Department estimates the nation may default on its debt obligations. (Wall Street Journal, May 25 | PoliticoPro, May 23 | Roundtable Weekly, May 19) 

Tax Measures & CRE 

  • The House Republican tax package is about 90% complete and “buttoned up pretty tight,” according to Ways and Means Member Kevin Hern (R-OK). “We’re making sure that we don’t disrupt any of the debt limit conversations and distract from that, but it would be ready to go very quickly,” Hern said. (Tax Notes, May 24)
     
  • Ways and Means Committee Member Randy Feenstra (R-IA) commented that the package will likely include measures that expired last year, including full bonus depreciation and certain taxpayer-favorable rules related to the deductibility of business interest under Section 163(j)—both supported by The Real Estate Roundtable. (PoliticoPro, May 23 and BGov, May 25)
     
  • Under the Tax Cuts and Jobs Act (TCJA) of 2017, 100% bonus depreciation applies to capital investments made between 2018 and 2022 (as well as capital improvements made to the interior of nonresidential buildings). However, the bonus depreciation benefit began phasing down this year. In addition, real estate businesses that elect out of TCJA’s limits on business interest deductibility do not qualify for the bonus depreciation benefit.
     
  • The House tax package is expected to extend 100% bonus depreciation through at least 2025, allowing many taxpayers to continue immediately expensing qualified interior improvements. Moreover, by reinstating certain expired provisions from section 163(j), the tax bill would allow more real estate businesses to avail themselves of the bonus depreciation benefit without inhibiting their ability to deduct their business interest expense. 

Additional Provisions and TCJA Permanency 

House Ways and Means Committee doorway

  • The economic growth package could also include provisions extending the enhanced child tax credit and the deductibility of R&D expenditures.  Housing-related measures, such as an expansion of the low-income housing tax credit, are also under consideration. 
  • Separately, the Ways and Means Committee may also consider the TCJA Permanency Act (H.R. 976), reintroduced by Committee Vice Chairman Vern Buchanan (R-FL) in February. The bill would permanently extend TCJA provisions scheduled to sunset at the end of 2025, including the 20 percent deduction for qualified pass-through business income (Section 199A). (Tax Notes and Roundtable Weekly, Feb. 24)
  • While a TCJA permanency bill is likely dead on arrival in the current Senate, the House economic growth tax package could be the starting point for bipartisan negotiations with congressional Democrats on a limited number of tax and economic priorities as the year further unfolds. 

House Ways and Means Committee Chairman Jason Smith (R-MO) will be a guest at The Roundtable’s June 13-14 all-member Annual Meeting and policy adivisory committee meetings will include discussions on a debt ceiling agreement and potential tax legislation. 

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