News Type: Roundtable Weekly

Fed Reports U.S. Financial Stability Risks Include Inflation, Asset Valuation Pressures, and Cyber Attacks

Posted on by Trey Jackson

The Federal Reserve in Washington, DC

Near-term risks to the U.S. economy and financial system include inflation, asset valuation pressures and cyber attacks, according to the Federal Reserve’s semiannual Financial Stability Report released this month. (Wall Street Journal, Nov. 4)

Stability Threats

Fed Report Risks Nov 2022

  • “Higher-than-expected interest rates could lead to increased volatility in financial markets, stresses to market liquidity, and declines in asset prices, including prices of both commercial and residential real estate properties,” the central bank states in its report.
  • The report warns that such effects could cause losses at a range of financial intermediaries, reducing their access to capital and raising their funding costs—and pose adverse consequences for asset prices, credit availability, and the economy.
  • Federal Reserve Vice Chair Lael Brainard stated the American financial system has held up through the turbulent developments of the past year. She said, “Household and business indebtedness has remained generally stable, and on aggregate households and businesses have maintained the ability to cover debt servicing, despite rising interest rates.”

Cybersecurity Concerns

Financial Risks Chart - Federal Reserve

  • Respondents to the central bank’s survey on stability threats also noted continuing concerns about the Russian invasion of Ukraine, high oil prices and a potential conflict between China and Taiwan. Cyber attacks pose an additional risk that “could come as retaliation for sanctions imposed on Russia,” according to the Fed’s report.
  • The Roundtable’s Homeland Security Task Force will hold a conference call on Monday, November 28 that will focus on a new Cyber Risk Summary briefing on Commercial Facilities—includes Commercial Real Estate—from the Cybersecurity and Infrastructure Security Agency (CISA). [To register, contact Andy Jabbour of the Real Estate Information and Sharing Network (RE-ISAC)]
  • U.S. financial institutions processed approximately $1.2 billion in ransomware-related payments last year, a nearly 200 percent increase compared to 2020, according to the Treasury Department’s Financial Crimes Enforcement Network. (FinCEN report, Nov. 1)

Cybersecurity issues and CRE will be discussed during the next HSTF meeting on Jan. 25, 2023—held in conjunction with The Roundtable’s State of the Industry meeting. (Roundtable Weekly, Oct. 7)

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Roundtable Submits Comments to IRS on New Clean Energy Tax Incentives

Posted on by Trey Jackson

The Real Estate Roundtable submitted extensive comments to Treasury and the Internal Revenue Service (IRS) today that address various clean energy tax incentives in the Inflation Reduction Act (IRA) passed by Congress in August. [Nov. 4 letter and Roundtable Weekly, Aug. 12]

Need for Clarifications

  • The Roundtable’s comments are in response to recent IRS notices on a host of issues affecting CRE. [Roundtable Weekly, Oct. 7 and Roundtable Fact Sheet, Sept. 20]. The letter requests further guidance and clarifications that would:
    • Allow businesses to “layer” multiple credits and deductions on the same buildings;
    • Support building retrofits that contemplate an asset’s “conversion,” such as from multifamily to office, within the revised building efficiency incentive under Section 179D;
    • Maximize installations of solar, wind, and other technologies to feed renewable power to buildings onsite—while also allowing property owners to “sell” excess generation back to the grid;
    • Optimize clean power deployment in low-income housing and economically distressed areas;
    • Offer a “safe harbor” for employers seeking the IRA’s credit boosts when they pay prevailing wages to laborers and mechanics involved in energy project construction and installation; and
    • Capitalize on changes to the tax code that would allow REITs, partnerships, and other businesses to “transfer” certain clean energy credits to third parties.

Roundtable Advocacy

  • Roundtable President and CEO Jeffrey DeBoer stated, “The Roundtable’s comments to policymakers will help ensure that the Inflation Reduction Act spurs new investments in clean energy and climate-saving measures that benefit our industry and our country.”
  • The Roundtable letter was developed with input from its Sustainability and Tax Policy Advisory Committees. Treasury and the IRS are expected to start issuing implementing guidance before the end of the year.
  • Roundtable Board Member and Sustainability Policy Advisory Committee Chair Tony Malkin, center in photo above, (Chairman, President, and CEO, Empire State Realty Trust, Inc.) led a panel discussion in September with Roundtable staff on how the IRA’s “clean energy” tax incentives impact CRE. [Watch the discussion].

IRA incentives were discussed this week during a Blackstone ESG Summit panel featuring former Vice Chair of The Roundtable’s Sustainability Committee, Dan Egan (BX’s Americas Head of Real Estate ESG) and Duane Desiderio, Roundtable Senior Vice President and Counsel.

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“Emerging Trends in Real Estate” Reveals Bifurcated Market as Industry Adapts to Pandemic and Economic Influences

Posted on by Trey Jackson

Emerging Trends in Real Estate 2023 - cover image

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) met this week to discuss the current state of credit and capital markets. The Urban Land Institute (ULI) and PwC US also provided data points about market fundamentals in their recently issued publication, Emerging Trends in Real Estate 2023.

Shift to “New Normal”

  • RECPAC’s meeting in New York City focused on interest rate trends, global capital flows, and the implications for financing and property development. (For more information on RECPAC, contact Roundtable Senior Vice President Chip Rodgers or call 202-639-8400.)

  • ULI-PwC reports that industry participants are cautiously optimistic amid diminishing pandemic tailwinds and the potential for a “short yet shallow” recession. (ULI, Oct. 28 | download 125-page report)
  • The annual report—a compilation of data and insights from 2,000 real estate experts—shows the industry is:
    • Reassessing the use of office space,
    • Addressing climate change impacts and ESG demands,
    • Experiencing a shift in investor sentiment and capital, and
    • Facing new opportunities from government infrastructure spending.

  • The report’s survey revealed bifurcated market trends, with some aspects of the industry reverting to pre-pandemic patterns as others shift to a “new normal” that includes remote work arrangements. (PWC website | download full report)

Asset Classes in Flux

Emerging Trends 2023 CRE Price Index - graphic

  • ULI Senior Vice President Anita Kramer commented that as people continue to adapt to pandemic-influenced changes in their lives, property asset classes are in flux as owners and investors assess how to move forward. (Bisnow, Oct. 27 and  (ULI news release, Oct. 27)
  • Byron Carlock, US real estate leader for PwC and a member of The Real Estate Roundtable, told REjournals this week that challenges facing CRE include rising interest rates, return-to-the-office issues, and the possibility of converting office space to alternative uses. (Interview with Midwest Real Estate News, Nov. 2)
  • Carlock said, “The downtown buildings with large floor plates built from the ‘60s to the ‘80s might need a change. That’s significant because about 80% of our office stock was built in the ‘80s or before. We will see a great change in which office space is relevant and which is not.” (Roundtable Weekly, Oct 12—“Real Estate Industry Urges Lawmakers to Consider Tax Incentive for Property Conversions”)

Roundtable Reports

ARDA panel - group shot

  • Roundtable President and CEO Jeffrey DeBoer this week discussed the industry’s public policy agenda on the verge of the midterm elections during the American and Development Association’s Fall 2022 Conference in Washington. [Photo, left to right: ARDA President and CEO Jason Gamel, Former Congressman (R-PA) and Chair of the House Transportation Committee Bill Shuster, Jeffrey DeBoer, and U.S. Travel Association President and CEO Geoff Freeman.]

The Roundtable plans to release its Q4 Economic Sentiment Index report next week. The quarterly index provides a gauge of CRE leaders’ views about the overall health of property markets, debt and capital availability, pricing, and asset values.

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Ways and Means Chair Supports LIHTC in Year-End Tax Extenders Package

Posted on by Trey Jackson

House Ways and Means Chairman Richard Neal (D-MA)

Ways and Means Chairman Richard Neal (D-MA) this week expressed support for including the low-income housing credit (LIHTC) in a year-end tax extenders legislative package. (Roll Call, Oct. 25). 

Affordable Housing & LIHTC 

  • This week, Neal referred to the LIHTC in an interview with Roll Call, stating, “But for that credit, there’s a lot of housing that doesn’t get built at a time when the housing crunch is substantial across the country. I think it’s a pretty important tax vehicle. It’s demonstrated its value time and again.”
  • A 12.5% temporary increase in the annual LIHTC allocation to states enacted in 2018 expired at the end of 2021. The credit increase may be extended or further expanded when Congress returns from the midterm elections. (GlobeSt, Oct. 25 and Roundtable Weekly, Oct. 21)
  • In 2020, nearly a quarter of American renters spent 50% or more of their income on housing, according to the most recent data available from the U.S. Census Bureau. (Pew Research Center, March 23) 

Congressional Action

Affordable Housing row

  • The Roundtable-supported Affordable Housing Credit Improvement Act (S.1136 and H.R. 2573)—introduced in 2021 by Washington Democrats Sen. Maria Cantwell and Rep. Suzan DelBene—would expand the pool of tax credits, make it easier to combine LIHTC with other sources of capital like private activity bonds, and facilitate LIHTC rehab projects. (Detailed bill summary and (Tax Notes, July 21)

Beyond Legislation

Jeffrey DeBoer, Real Estate Roundtable President and CEO

  • Roundtable President and CEO Jeffrey DeBoer, above, recently stated, “Expanding the supply and availability of affordable housing deserves a coordinated local, state, and national policy action plan. Local zoning restrictions, permitting issues, and the oversized influence of NIMBYs—coupled with high and now significantly rising labor and material costs—are the true factors limiting housing supply, and in turn, increasing housing costs. Government at all levels needs to be part of the solution, not part of the problem.” (Roundtable Weekly, July 1 and July 22) 

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) has formed an Affordable Housing Working Group, which is working with the Research Committee to develop proposals on expanding the nation’s housing infrastructure.  

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Federal Officials, Roundtable Focus on Potential Election-Related Threats

Posted on by Trey Jackson

CISA Presentation to HSTF Oct 2022 start

This week, U.S. security officials released information on their efforts to secure the nation’s election infrastructure and protect American voters from intimidation, discrimination or threats of violence related to the Nov. 8 midterm elections. The potential for political violence, cyberattacks and mitigation strategies were also among the topics of discussion during yesterday’s Real Estate Roundtable Homeland Security Task Force (HSTF) virtual meeting. (Presentation to HSTF | Justice Department bulletin and Politico, Oct. 24)

Election Security

CISA Presentation Slide to HSTF Oct 2022

  • As election sites and offices are hardening formerly soft targets, hiring security guards, and installing bulletproof and bomb-resistant glass, the HSTF meeting featured a discussion with Mohamed Telab—Deputy Regional Director (DRD) for the Cybersecurity and Infrastructure Security Agency’s (CISA) Region II—on federal resources available for securing elections. (Axios, Oct. 9 and CISA website)
  • Earlier this month, CISA Director Jen Easterly said, “At this time, we are not aware of any specific or credible threats to compromise or disrupt election infrastructure” although the current threat environment is “more complex than it has ever been.” (Politico, Oct. 24 and Reuters, Oct. 17)
  • The FBI previously issued a public service announcement on Oct. 12 warning about election crimes and the Department of Homeland Security announced in June that “calls for violence by domestic violent extremists” against election workers, candidates and democratic institutions will likely rise closer to the midterms. (CNBC, Oct. 27)

Local Tactics

Mail Ballot Drop Box

  • Domestic disinformation campaigns and homegrown threats to poll workers are emerging as the more significant concerns ahead of midterm elections than foreign interference. Extremists are reportedly focusing their efforts locally, monitoring neighborhood ballot boxes and signing up as poll workers. (Axios, Oct. 26)

The Roundtable’s HSTF and the Real Estate Information Sharing and Analysis Center (RE-ISAC) work closely with federal officials on potential cyber and physical threats to CRE. Roundtable members interested in participating in the HSTF or RE-ISAC can contact Roundtable Senior Vice President Chip Rodgers or call 202-639-8400.

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White House Seeks to Speed Up Infrastructure Implementation

Posted on by Trey Jackson

Mitch Landrieu -- White House Infrastructure Coordinator

A White House “Accelerating Infrastructure Summit” on Oct. 13 showcased actions by the administration to hasten infrastructure project construction by improving coordination with mayors and governors. (Summit video and White House Action Plan)

Accelerating IIJA Investment

  • Mitch Landrieu, the White House’s infrastructure coordinator (photo above) stated, “With over 90% of Bipartisan Infrastructure Law funding being delivered by non-federal agencies, our state, tribal, regional, territorial, local and industry partners must also find ways to accelerate the delivery of infrastructure.” (ABC News, Oct. 13)
  • The plan—funded under the $1.2 trillion bipartisan Infrastructure Investment and Jobs Act (IIJA) enacted last November and supplemented by the Inflation Reduction Act in August—is the most significant investment in infrastructure since the interstate highway initiative during the Eisenhower administration. The Roundtable strongly backed the IIJA as it moved through the legislative process. (Roundtable Weekly, Nov. 12, 2021)
  • The IIJA broadens access to federal funding programs by targeting resources toward communities. The administration launched a webpage on Grants.gov and a Technical Assistance Guide to help communities with infrastructure project resources, from grant writing to funding eligibility requirements. A web-based interactive map also shows where IIJA funds have been disbursed in communities across the nation.

On Time, On Task, and On Budget

Cover -- Infrastructure Acceleration Report

The Roundtable continues to support federal transportation infrastructure investments to spur economic growth, support local communities, and enhance America’s competitiveness. (Roundtable Weekly, May 20 and Roundtable’s 2022 Policy Agenda)

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White House “Clean Air in Building Challenge” Invites Owner Participation; SEC Delays Climate Rule

Posted on by Trey Jackson

White House Indoor Air Quality Summit

Real estate and other industry leaders recently participated in the first White House Summit on Indoor Air Quality (IAQ) as part of the Biden administration’s continued focus on the benefits of healthy buildings in the pandemic era. (Summit video, Oct. 12 and International WELL Building Institute, Oct. 13) 

Building Owner “Pledge” 

    • Create a clean indoor air “action plan” (e.g., regular HVAC inspections and maintenance)
    • Optimize fresh air ventilation (e.g., use economizers, open operable windows)
    • Enhance air filtration (e.g., install MERV-13 filters)
    • Communicate IAQ practices with building occupants  
  • Speakers at the summit included Silverstein Properties’ Chief Innovation Officer Guy Vardi and Dr. Joseph Allen, Healthy Buildings Program Director at Harvard University. Roundtable President Jeffrey DeBoer interviewed Dr. Allen at the height of the COVID-19 lockdown. (Roundtable Weekly, May 8, 2020 | Watch the video interview) 

Agency Developments 

EPA logo

  • The Environmental Protection Agency (EPA) recently released a Request for Information to solicit feedback from industry, researchers, and the public on key characteristics and measures of improved ventilation, filtration, and air cleaning in buildings. Comments are due by Dec. 5, 2022. 

In other news, the Securities and Exchange Commission will reportedly delay by “months” its release of a long-anticipated final rule on corporate climate disclosures. (Bloomberg Law, Oct. 19) The agency continues to assess the legality of its proposal under recent U.S. Supreme Court case law and sift through more than 14,000 comments received from the public—including input provided by The Roundtable and other CRE groups in June. (Roundtable Weekly, Sept. 16 and June 10) 

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Congressional Lame Duck Session May Include Tax Policies Impacting Real Estate

Posted on by Trey Jackson

Capitol Dome Stormy weather

Lawmakers returning after the midterm elections for a lame duck session will work on a possible FY2023 “omnibus” budget package that may include tax policies of importance to commercial real estate. 

Omni First 

  • The first congressional priority will be a massive “omnibus” budget package that needs to pass by December 16—the deadline set by a Continuing Budget Resolution passed in September—to avoid a partial government shutdown. (Roundtable Weekly, Sept. 30)
  • Whether business tax relief—e.g. a delay in the pending phase-out of 100 percent bonus depreciation, tax extenders, or a fix to the business interest deductibility rules—will be attached to an omni package may depend on whether a bipartisan deal can be struck on child tax credit relief. (Politico, Oct. 6 and Tax Policy Center, Oct. 6)

Tax Extenders

Tax issues grid choice image

  • Certain provisions from the Tax Cuts and Jobs Act of 2017 (TCJA) recently expired, including rules related to business interest deductibility. TCJA’s 100% bonus depreciation benefit starts phasing down at the end of this year. Other expired tax provisions include a temporary increase in allocations of low-income housing tax credits (LIHTCs) to states.   

  • The Real Estate Roundtable has long supported well-designed, targeted tax incentives like the LIHTC that are aimed at boosting the construction and rehabilitation of badly needed affordable and workforce housing. (Roundtable 2022 Policy Agenda Tax Section)
     
  • House Republicans have made the permanent extension of the TCJA tax cuts a key element of their Commitment to America policy agenda. (Bloomberg, Sept. 23 and ABC News, Sept. 22) 

Packed Lame Duck 

Congress in session

  • A cascade of other national policy issues will vie for attention in the tightly packed lame duck agenda, including reauthorization of defense programs, hurricane relief, immigration, election reform, marriage equality and more. (Axios, Sept. 29)
  • House Republican Minority Leader Kevin McCarthy (R-CA) said that if the GOP controls the House in 2023, they will use raising the debt limit as leverage to force spending cuts—which could include cuts to Medicare and Social Security—and possibly limit funding to Ukraine. (PunchBowl, Oct. 18 and Bloomberg Law, Oct. 11) 

The House returns Nov. 9 and the Senate on Nov. 14.

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Biden Administration Expands Low-Income Housing Financing and Provides More Flexibility to Affordable Housing Developers

Posted on by Trey Jackson

Housing construction

The Biden administration on Oct. 7 announced several new federal agency actions aimed at closing the housing supply shortfall as part of its Housing Supply Action Plan, launched in May. (White House statement, Oct. 7 | Multi-Housing News, Oct. 10 | Roundtable Weekly, May 20)

LIHTC Reform

The White House’s announcement focused on efforts to reduce barriers to affordable housing construction and preservation by:

  • Finalizing Treasury rules that reform the Low-Income Housing Tax Credit (LIHTC) income guidelines. The new rules provide greater flexibility to develop mixed-income housing, housing for very low-income tenants, and housing in sparsely populated rural areas. Specifically, the final regulations create an alternative means of complying with the rent restriction requirements of the LIHTC. The new rules allow owners to measure and average their tenants’ income based on a broader range of qualifying incomes (20 to 80 percent of the area median). 
  • Extending LIHTC deadlines to ensure that affordable housing projects delayed by public health, economic, and supply-chain issues can be built as expeditiously as possible and still qualify for the credit. (IRS Notice 2022-52)
  • The Real Estate Roundtable has long supported well-designed, targeted tax incentives like the LIHTC that are aimed at boosting the construction and rehabilitation of badly needed affordable and workforce housing. (Roundtable 2022 Policy Agenda Tax Section)

Other Federal Actions Announced by the White House

Construction of affordable housing

  • Reforming and streamlining Fannie Mae’s and Freddie Mac’s Forward Commitment programs, which allow developers to secure financing to pay off a construction loan when construction has been completed and the housing project has been approved for occupancy. Each GSE will be able to provide $3 billion in Forward Commitments per year—above and beyond the multifamily purchase cap.
  • Enabling more affordable housing development and preservation with State and Local Fiscal Recovery Funds (SLFRF) under the American Rescue Plan. Treasury and the Department of Housing and Urban Development jointly published a “How-To” Guide to further encourage state and local governments to make use of these funds with other sources of federal funding.
  • Promoting more housing options near transit and other modes of transportation, coordination of transportation and housing planning, and rewarding jurisdictions that have removed barriers to housing development.
  • Increasing transportation investments that can connect and expand affordable housing supply. The Department of Transportation (DOT) has begun awarding grants for recipients where local governments are improving their transportation infrastructure and promoting a range of transportation, environmental, urban planning, and housing policy goals.
  • DOT also announced “TIFIA 49,” which authorizes borrowing from the Transportation Infrastructure Finance and Innovation Act (TIFIA) program up to 49 percent of eligible costs for projects that meet eligibility requirements, an increase from 33 percent of eligible project costs.

Real Estate Views

Willy Walker on SquawkBox

  • The National Multifamily Housing Council and National Apartment Association applauded the Biden administration’s plan. Their joint statement noted the U.S. needs to produce 4.3 million more apartments by 2035 to keep up with demand.
  • Roundtable Member Willy Walker, above left, chairman and CEO of Walker and Dunlop, joined CNBC’s Squawk on the Street on Oct. 12 to discuss supply and demand challenges in the housing market, rent increases associated with inflation, and the consequence of banks pulling back loans from commercial real estate. (Watch video) 

The Real Estate Roundtable’s Research Committee and Real Estate Capital Policy Advisory Committee (RECPAC) has formed an Affordable Housing Working Group, which is working on a report to address expansion of the nation’s housing infrastructure.  

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Real Estate Industry Urges Lawmakers to Consider Tax Incentive for Property Conversions

Posted on by Trey Jackson
CRE with green trees

A Roundtable-led coalition of 16 national real estate organizations on Oct. 12 recommended certain enhancements and expansions to the Revitalizing Downtowns Act (S. 2511, H.R. 4759). The bill was introduced by Sen. Debbie Stabenow (D-MI) and Rep. Jimmy Gomez (D-CA) to encourage the conversion of older buildings into new uses. (Coalition letter) 

Qualified Property Conversions Credit 

  • The coalition noted that many buildings are being reimagined and repurposed to address a severe shortage of housing and meet other post-pandemic business needs. Where appropriate, property conversions can be a cost-effective means to develop new housing supply, create jobs, and generate critical sources of local property tax revenue while saving energy and reinvigorating communities.

  • The Revitalizing Downtowns Act would provide a 20 percent tax credit for qualified property conversion expenditures. The credit is modeled on the historic rehabilitation tax credit and could be used for office buildings that are at least 25 years old at the time of the conversion.

  • An office-to-residential conversion project may qualify for the credit if the project provides at least 20 percent affordable housing—or is subject to an alternative affordable housing arrangement under state or local policy, ordinance, or agreement. 

Real Estate Industry Recommendations 

Denver

  • The recommendations include:
    • (a) expanding the category of properties eligible for the credit to include other types of commercial buildings, such as shopping centers and hotels;
    • (b) extending the incentive to real estate investment trusts (REITs); and
    • (c) reducing the conversion expenditure requirement from 100 percent of the building’s basis to 50 percent—along with half-a-dozen other suggestions.

  • The coalition letter is the work product of a property conversions working group created by The Real Estate Roundtable’s Tax Policy Advisory Committee. The working group has reviewed and considered the challenges and impediments confronting potential property conversion activities.  

Recent media articles on property conversions include “Cities push to convert deserted office buildings into housing” (Axios, Sept.  28) and “Multifamily Developers Turn Some Dead Office Space into Apartments” (WealthManagement.com, Oct. 4). 

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