News Type: Roundtable Weekly

Senators Challenge SEC Chair on Proposed Climate Rule

Posted on by Trey Jackson

SEC Chair Gary Gensler

Senate Banking Committee members challenged Securities and Exchange Commission (SEC) Chair Gary Gensler, above, during an oversight hearing yesterday about the agency’s proposed climate disclosure rule. (CQ, Sept. 15 and Yahoo Finance, Sept. 16)

SEC Authority Questioned

  • Committee Ranking Member Pat Toomey (R-PA) opened the hearing by stating, “The SEC is wading into controversial public policy debates that are far outside its mission and its expertise.”
  • Toomey pressed Gensler about a June Supreme Court ruling that executive branch agencies “cannot use novel interpretations of existing law to pretend they have legal authority to support sweeping policy changes, including on climate change, that Congress never intended.” (Toomey Opening Statement)
  • Toomey asked, “In light of the EPA v. West Virginia case, have you given any consideration to rescinding that rulemaking?” Gensler replied that the Commission is “seriously” considering the high Court ruling and 14,000-plus public comments to assess its legal authorities to ensure that registered companies provide material, decision-useful information about climate risks to investors. (SEC docket with list of organizations and individual comments)
  • Senator Jon Tester (D-MT) explained that the SEC’s proposal would require farms and other small businesses to estimate and disclose carbon emissions because they sell products and services to public companies. Senators Mike Rounds (R-SD) and Steve Daines (R-MT) shared Tester’s concerns (CQ, Sept. 15)

A CRE Priority

SEC logo - image

  • The SEC’s climate proposal, if finalized, would require all SEC registrants to quantify direct GHG emissions (“Scope 1”) and emissions attributable to electricity purchases (“Scope 2”) through annual 10-Ks and additional filings. (SEC News Release | Proposed Rule | Fact Sheet, March 22)
  • The SEC also proposed that a company would need to report on “Scope 3” indirect emissions if they are “material” to investors. In June 10 comments, The Roundtable objected to the Commission’s proposed Scope 3 approach because real estate companies neither control nor have access to data regarding emissions from third parties in their “value chains.” (Roundtable Weekly, June 10 and June 24)
  • A joint letter filed on June 13 from 11 national real estate industry trade groups echoed the issues raised by The Roundtable in its earlier comments.

The SEC is expected to issue a final climate reporting disclosure rule sometime this fall. If the Commission votes to regulate Scope 3 emissions, the recent SCOTUS decision in West Virginia v. EPA is likely to spark litigation, raising questions as to whether the SEC has authority from Congress to regulate climate disclosures and emissions.

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Increased Pace of Fed’s Quantitative Tightening Raises Concerns About Liquidity Stress in Banking System

Posted on by Trey Jackson

The Federal Reserve

As the Federal Reserve accelerates the unwinding of its nearly $9 trillion balance sheet this month, there is growing concern about the impact that quantitative tightening (QT) may have on credit market liquidity and the overall economy. (Financial Times, Sept 14 and Reuters, Sept. 15)

QT & Liquidity

  • The Fed launched its QT initiative on June 1 with initial caps set for $30 billion in U.S. Treasuries and $17.5 billion in agency mortgage-backed securities—but scheduled the caps to increase this week to $60 billion and $35 billion, respectively. (Federal Reserve, Plans for Reducing the Size of the Federal Reserve’s Balance Sheet, May 4)
  • The increased QT pace of up to $95 billion per month has sparked concerns about how contracting liquidity conditions could impact the overall economy and whether the Fed may seek an early exit from QT. (Financial Review, Sept. 14 and BGov, Sept. 12)
  • The QT increase prompted a Bank of America warning to clients this month that strain on bond market liquidity is “one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007.” (MarketWatch, Sept 15 and New York Times, Sept. 11)
  • The Fed’s expected policy interest rate increase by 75 to 100 basis points next week would keep borrowing costs elevated as the central bank’s scheduled QT effort increases.

Soft Landing Challenge

Roundtable Board Member Barry Sternlicht

  • The challenge for the Fed is whether it can achieve a “soft landing”—reducing the inflation rate while avoiding a recession—while the U.S. economy faces volatile inflationary factors from the war in Ukraine, high energy costs, and supply chain disruptions.
  • Rising interest rates and various market conditions around the world could lead to a global recession next year, resulting in “lasting harm” to emerging and developing economies, according to an analysis released today by the World Bank. (Financial Times and UPI, Sept. 16)
  • “Recent tightening of monetary and fiscal policies will likely prove helpful in reducing inflation,” said Ayhan Kose, the World Bank’s Acting Vice President for Equitable Growth, Finance, and Institutions. “But because they are highly synchronous across countries, they could be mutually compounding in tightening financial conditions and steepening the global growth slowdown.” (World Bank news release and analysis, Sept. 16)
  • Roundtable Board Member Barry Sternlicht (Chairman and CEO, Starwood Capital Group), above, appeared on CNBC’s Squawk Box yesterday to discuss the Fed, inflation, and the U.S. economy. Sternlicht stated the economy is “braking hard” and that prices will begin to decrease after recent Fed measures.

The Roundtable’s Fall Meeting next week in Washington will include a discussion on the Fed’s actions and economic conditions with Dr. Austan Goolsbee, former White House Chairman of the Council of Economic Advisers from 2010-2011 and a member of President Barack Obama’s cabinet.

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Senate to Consider Stopgap Funding Bill as Parties Signal Contrasting Tax Agendas After Mid-Term Elections

Posted on by Trey Jackson

US Capitol

The end of the government’s fiscal year is only two weeks away as congressional leaders continue to work on the scope of a Continuing Resolution (CR) that would extend federal funding into mid-December. 

CR Scope 

  • The Senate will move first to determine if other bills will be attached to the stopgap—the final legislative package before November’s mid-term elections. (House Majority Leader Steny Hoyer (D-MD) website, Sept. 12)
  • The process of moving the funding package has been complicated by a deal reached last month between Senate Majority Leader Charles Schumer (D-NY) and Sen. Joe Manchin (D-WV) to consider permitting rules for energy pipelines and exports. The agreement was reached to secure Manchin’s support for the Inflation Reduction Act. (Roundtable Weekly, Aug. 12 and Manchin’s Outline of Energy Permitting Provisions)
  • Sens. Schumer and Manchin are working to gather support for permitting legislation, which would require 60 votes to pass the Senate. In the House, a coalition of 77 Democrats recently expressed their disapproval of linking a permitting reform bill to the “must-pass” CR. (Reuters and The Hill, Sept. 13)
  • House Speaker Nancy Pelosi (D-CA) addressed the possibility of a permit bill yesterday. “We have agreed to bring up a vote, yes. We never agreed on how it would be brought up, whether it be on the CR, or independently or part of something else. We’ll just wait & see what the Senate does,” Pelosi said. (E&E News, Sept. 15)
  • A CR that expires in December could be followed by consideration of a FY2023 “omni” spending package —with possible extensions of certain tax provisions—during a lame-duck session. 

Post-Election Tax Agendas 

Biden-Harris Economic Blueprint cover

  • House Republicans plan to unveil an outline of their “Commitment to America” platform on September 23 in anticipation of the November 8 midterm elections. (Tax Notes, Sept. 15)
  • Rep. French Hill (R-AR), a member of the GOP Jobs and the Economy task force, told Tax Notes there will be a “skinny version” of the House GOP Platform and a less widely circulated “deep blueprint for legislative work to lay out that first year of Congress.”
  • Extending portions of the Tax Cuts and Jobs Act past their December 31, 2025 expiration will be at the core of the the House Republican tax plan— including 2017’s tax reductions for individuals, the 20 percent rate cut on pass-through income, and bonus depreciation. (Tax Notes, Sept. 15)
  • The White House released its own economic blueprint last week, reciting recent accomplishments and signaling tax measures it plans to pursue, including tax increases on capital gains, carried interest, and the step-up in basis of assets at death, as well as a new minimum tax on billionaires’ wealth. (White House news release and blueprint, Sept. 9)
  • Meanwhile, the Biden administration announced plans on Wednesday to distribute $900 million throughout the country to build electric vehicle infrastructure across 53,000 miles of the national highway system—funding that is part of last year’s bipartisan infrastructure law. (PoliticoPro, Sept. 14)
  • Transportation Secretary Pete Buttigieg said, “With the first set of approvals we are announcing today, 35 states across the country—with Democratic and Republican governors—will be moving forward to use these funds to install EV chargers at regular, reliable intervals along their highways.” (Approvals and each state’s deployment plan for 2022) 

The CR, midterm elections, and the legislative outlook for the lame-duck session will be among the topics of discussion during The Roundtable’s Fall Meeting on Sept. 20-21 in Washington. 

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National Counterterrorism Center Offers Private Sector a Preview of New Platform to Protect Against Threats

Posted on by Trey Jackson

ActKnowledge logo

The National Counterterrorism Center (NCTC) on Sept 28 will preview its new aCTknowledge platform, designed to deliver timely situational awareness notifications covering terrorist events that may impact local communities.

How to Participate

  • CRE participants can join the preview here:
  • Wednesday, September 28 from 1:00–2:00 pm (ET)
  • Zoom link
    • Meeting ID: 833 6363 8044 
    • Passcode: 591990
  • The aCTknowledge platform will provide significant tactics, techniques, and procedures to support homeland security, law enforcement, and community first responder efforts aimed at protecting against terrorist threats. Additionally, NCTC’s aCTknowledge will offer reference guides to aid in rapid response and deployment, helping with private sector efforts. (See fact sheet about the new platform)

Roundtable Efforts

REISAC logo

  • The Roundtable—through our Homeland Security Task Force (HSTF) and partnership with the Real Estate Information Sharing and Analysis Center (RE-ISAC)—remains focused on increased cross-agency information sharing and cooperation with key law enforcement and intelligence agencies that benefit the industry.
  • The RE-ISAC sends a daily report to members to share actionable information on a variety of potential cyber and physical threats. Additionally, The Roundtable’s HSTF works closely with federal, state, and local law enforcement, intelligence agency partners, and the RE-ISAC on risk mitigation measures that CRE businesses may consider to help protect critical infrastructure.

See The Roundtable’s 2022 Annual Report’s Homeland Security section.

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Senators Propose New Restrictions on Conservation Easement Donations

Posted on by Trey Jackson

Conservation easement - Ducks Unlimited

Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Mike Crapo (R-ID) released legislative text yesterday with new restrictions on conservation easements as a revenue offset for their new retirement savings bill.

Easement Restrictions

  • Section 1104 of the Senate Finance committee’s summary of the Enhancing American Retirement Now (EARN) Act states that since 2016, the IRS “has identified certain syndicated conservation easement transactions involving pass-through entities as ‘listed transactions’ carrying a high potential for abusive tax avoidance.” (Legislative text)
  • The EARN provision would disallow a charitable deduction for a qualified conservation contribution if the charitable deduction claimed exceeds two and one half times the sum of each partner’s relevant basis in such partnership— unless the contribution meets a three-year holding period test. (Section-by-section summary of the EARN Act)

What’s Next

Conservation easement -- Capital Region

  • The Senate Finance Committee adopted the conservation easement proposal in June during consideration of the EARN Act, which passed on a 28-0 vote. The House passed its retirement legislation by a wide margin in March. The two packages will have to be reconciled. (PoliticoPro and TaxNotes, Sept. 9)

Conservation easement changes, retirement-related legislation, expiring tax provisions, and potentially other tax proposals could gain momentum during the “lame duck” legislative session  following the November mid-term elections.

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The Roundtable Opposes NASAA Proposal Affecting REITS, Multifamily Industry, Capital Formation

Posted on by Trey Jackson

NASAA logo border

The Real Estate Roundtable submitted comments today to the North American Securities Administrators Association (NASAA) in opposition to proposed rules that would place new restrictions on the market for public non-listed REITs. (Roundtable comment letter and Roundtable Weekly, July 29)

CRE Impact Concerns

  • NASAA’s proposal could have a profound impact on the $20.7 trillion U.S. commercial and multifamily real estate market.
  • These proposed revisions to the NASAA Statement of Policy Regarding Real Estate Investment Trusts could have the unintended and unnecessary consequence of impeding real estate capital formation, undercutting economic growth, and weakening the strength and stability of U.S. real estate capital markets. (NASAA Request for Public Comment, July 12)
  • The proposed revisions also have the potential to influence other sets of NASAA Guidelines under development, including those for Asset-Backed Securities, Commodity Pools, Equipment Leasing, Mortgage Programs, and Real Estate Programs other than REITs. (NASAA Request for Public Comment, July 12)

NASAA’s Proposed Changes

Modern buildings and American flag

  • Since nontraded real-estate investment trusts are not listed on stock exchanges, investors purchase shares through financial brokers. Federally regulated, public non-listed REITs (PNLRs) raised a record $35.4 billion last year. (Wall Street Journal, Aug. 30)
  • The NASAA proposal would negatively affect publicly registered, non-traded REITs by linking conduct standards for brokers selling non-traded REITs to the SEC’s Best Interest conduct standard.
  • The proposal has four revisions that would affect individual net income and net worth requirements; add a uniform concentration limitation; and include a new prohibition against using gross offering proceeds to fund distributions. (Roundtable Weekly, July 29 and the Institute for Portfolio Alternatives)

Roundtable Response

Jeffrey DeBoer, Real Estate Roundtable President and CEO

  • Roundtable President and CEO Jeffrey DeBoer, above, emphasized in his letter to NASAA that PNLRs are a growing source of capital for the acquisition and development of affordable housing, commercial properties for small businesses, and other types of real estate that supports economic growth and employment.
  • “The Roundtable encourages NASAA to conduct or at a minimum to address the economic impact of the proposal in its justification before considering adoption,” DeBoer stated. (Roundtable comment letter, Sept. 9)
  • The Roundtable’s letter also notes the proposal would impose arbitrary restrictions that would limit investor choice during a time of stock market volatility and high inflation.
  • The NASAA rules would also negatively impact highly regulated investment vehicles—including mutual funds, exchange-traded funds, interval funds, tender offer funds and business development companies.

The Roundtable’s letter concludes by urging NASAA to withdraw their proposal and engage industry participants to craft regulations that will help ensure NASAA’s goals without stifling investment in commercial real estate—nor limit investors’ ability to diversify their portfolios.

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Congress Focuses on Stopgap Federal Funding to Avoid Government Shutdown

Posted on by Trey Jackson

U.S. Capitol

Congress this month will consider a $47 billion emergency funding request from the White House as part of a “continuing resolution” (CR) spending bill that would avoid a partial government shutdown starting Oct. 1. (Roll Call, Sept. 6, White House request, Sept. 2) 

Legislative Timing 

  • Senate Majority Leader Chuck Schumer (D-NY) said this week, “We’re hoping the CR would go to about mid-December and then we might do an omnibus”—a bill that would fund the government through the remainder of the federal fiscal year (Sept. 30, 2023). However, the November mid-term elections could push consideration of an omnibus budget to the congressional lame-duck session. (Reuters, Sept. 7)
  • The CR may also include legislation to fast-track federal permits for energy projects, which Schumer and Sen. Joe Manchin (D-WV) agreed to last month in principle as part of the Democrats’ effort to pass the Inflation Reduction Act of 2022 (IRA).
  • Schumer said on Wednesday, “Permitting reform is part of the IRA, and we will get it done.” (PoliticoPro, Sept. 7 and E&E Daily, Sept. 8) 

The IRA & CRE 

IRA and Clean Energy Tax Incentives - Sept9-2022 Fact Sheet -- image

  • The IRA, passed on strict party-line votes in both chambers last month, is a $790 billion tax-and-spending package that includes the largest federal clean energy investment in U.S. history. (Roundtable Weekly, Aug. 12)
  • Roundtable fact sheets detail the IRA’s impact on Clean Energy Tax Incentives and Revenue Provisions affecting commercial real estate.
  • The Real Estate Roundtable has encouraged Congress for several years to develop clean energy tax incentives that are more usable for building owners, managers, and financiers—and more impactful to help meet national carbon reduction goals.
  • The Roundtable will stay engaged with lawmakers as the Treasury Department proposes rules and guidance on a range of issues to implement the IRA’s provisions. 

Clean Energy Spending 

John Podesta

  • The Biden administration confirmed last week that its top climate advisor Gina McCarthy is leaving her post. The White House also announced that John Podesta, above, will become a senior advisor for clean energy innovation, oversee the implementation of the IRA’s climate and energy spending, and serve as chair of President Biden’s National Climate Task Force. Podesta led former President Barack Obama’s climate strategy. (Wall Street Journal and CNBC, Sept. 2)
  • Private sector investments in battery factories, solar panel manufacturing and other projects in the weeks since President Biden signed the IRA are part of the New York Time’s Sept. 7 article, “Clean Energy Projects Surge After Climate Bill Passage.” 

Roundtable members will meet in Washington, DC on Sept. 20-21 to discuss the IRA’s impact on CRE, the outlook for the midterm elections, and other topics, such as the Federal Reserve’s concurrent meeting on monetary policy. 

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Senate and House Pass The Inflation Reduction Act of 2022

Posted on by Trey Jackson

The Inflation Reduction Act of 2022 (IRA) heads to President Joe Biden’s desk for his signature, following passage by the House today and the Senate on Sunday. After weeks of negotiations, the comprehensive economic package primarily brokered by Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) reflects Democratic priorities to combat climate change, reduce prescription drug costs, and lower the deficit by roughly $300 billion over the next decade. (Washington Post, Aug. 7; Roundtable Weekly, July 29)

Why It Matters

  • After Congress passed the IRA today, President Biden stated, “With the passage of the Inflation Reduction Act in the House, families will see lower prescription drug prices, lower health care costs, and lower energy costs. I look forward to signing it into law next week” (Twitter, Aug. 12 | Wall Street Journal, Aug. 12)
  • The $790 billion reconciliation proposal includes nearly $370 billion in climate spending that affects “clean energy” measures important to commercial real estate, the largest federal clean energy investment in U.S. history. (NPR, Aug. 7) (see story below)

CRE Impact

Jeffrey DeBoer, Real Estate Roundtable President and CEO

Real Estate Roundtable President and CEO Jeffrey DeBoer commented today, “The revised Inflation Reduction Act is a welcome step toward boosting economic growth by spurring extensive investments in clean energy and climate measures that benefit both our industry and our country. We applaud Congress for recognizing and protecting the critical role of carried interest provisions in incentivizing the risk-taking necessary for robust economic development. We look forward to working with our partners in industry and government to implement this legislation.”

  • Proposed changes to the taxation of carried interest were cut from the IRA last week at the request of Sen. Kyrsten Sinema (D-AZ). The Roundtable and 14 other national real estate organizations wrote to all members of Congress on Aug. 3 in strong opposition to the measure. (Coalition letter, Aug. 3 | Roundtable Weekly, Aug. 5 )
  • The IRA’s largest tax increase is a 15% corporate minimum tax on businesses with profits over $1 billion whose reported book income exceeds reported taxable income. The measure is estimated to raise $313 billion.
  • The final bill includes a 1 percent tax on what public companies spend on stock buybacks. However, it did not include any changes to the state and local tax (SALT) deduction.  (CQ, Aug. 7)
  • The package also includes protections that would preserve the value of the low-income housing tax credit for investors (typically large banks) that use the credit to reduce their effective tax rate.

In the coming weeks, The Roundtable will continue updating summaries of the tax and energy provisions in the IRA while also analyzing the direct and indirect impact on commercial real estate. (See below for Clean Energy Tax Incentives Fact Sheet)

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Roundtable “Fact Sheet” Summarizes Inflation Reduction Act’s “Clean Energy” Tax Incentives Important to Real Estate

Posted on by Trey Jackson

The Inflation Reduction Act (IRA) that passed Congress today (see story above) – “includes the largest expenditures ever made by the federal government to slow global warming.” (New York Times, Aug. 7) The bill “would spend nearly $370 billion on a raft of tax credits to help stimulate adoption of clean energy technologies.” (POLITICO, July 28)

Key CRE Credits and Deductions (RER Fact Sheet) 

A number of the IRA’s revisions to the federal tax code can help the U.S. real estate sector reduce GHG emissions. The Real Estate Roundtable has prepared a fact sheet summarizing key IRA incentives, including:

  • A revised tax deduction at Section 179D, to encourage existing commercial building “retrofit” projects that cut energy consumption by at least 25%;
  • A revised tax credit at Section 45L, to encourage new energy efficient multifamily construction;
  • An expanded tax credit at Section 48,  to support investments in solar, combined heat and power, microturbines, energy storage, dynamic glass, grid interconnection, fuel cells, geothermal heat pumps, and other clean energy technologies;
  • A new code section to allow businesses that cannot typically benefit from tax incentives because of income limitations (such as REITs) to transfer certain credits to unrelated third parties.

The Senate Finance Committee has provided a summary of all incentives in the IRA’s “Energy Security” Subtitle D. 

Roundtable Advocacy

Capitol building sun and green

  • The Roundtable has long advocated for code changes that can make clean energy incentives more usable for building owners, managers, designers, and financiers. (See Roundtable Weekly, Nov. 19 and May 28, 2021).
  • The IRA includes a number of The Roundtable’s recommended changes. As our analysis of Subtitle D continues, RER’s fact sheet will be updated and revised.

The Internal Revenue Service (IRS) is expected to issue multiple regulations and guidance documents in the coming months that implement the new law. The Roundtable will provide comments as new rules are proposed to help accelerate the CRE industry’s investments in tackling the climate crisis.

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Commercial Real Estate Executives’ Perceptions Of Industry Fundamentals Hold Steady Despite Current Market Conditions

Posted on by Trey Jackson

Commercial real estate executives continue to view current conditions as significantly less favorable than previous quarters due to rising interest rates, increased inflation, supply chain disruptions, and labor shortages. However, leaders’ views of where the markets will be one year from today have improved, indicating a cautiously optimistic outlook for the future, according to The Real Estate Roundtable’s Q3 2022 Economic Sentiment Index. 

Roundtable President and CEO Jeffrey DeBoer said, “Our Q3 Sentiment Index reflects many of the challenges our economy and industry have faced since early 2022. While these challenges will continue to be bottlenecks in the near term, CRE leaders are optimistic about the future, as underlying real estate fundamentals, such as housing, remain in high demand.

DeBoer added, “Industrial and multifamily continue to be a source of strength, but office and retail still struggle to regain momentum following the pandemic. These are uncertain times, but quality assets and owners will persevere as they continue to meet fundamental demand.”

The Roundtable’s Overall Q3 2022 Sentiment Index—a reflection of the views of real estate industry leaders—registered an overall score of 44. The Economic Sentiment Overall Index is scored on a scale of 1 to 100 by averaging the scores of Current and Future Indices. Any score over 50 is viewed as positive. The Current Index registered at 38, a 19-point decrease compared to Q2 2022; however, the Future Index registered a score of 51, a 5-point increase from the previous quarter, reflecting leaders’ optimism in future conditions. ­­­­

Topline findings:

  • The Q3 2022 Real Estate Roundtable Sentiment Index registered an overall score of 44, a decrease of 7 points from the previous quarter’s overall score and 34 points lower than a year earlier.
  • Survey respondents are cautious of rising interest rates, increased inflation, supply chain disruptions, and other issues but remain optimistic regarding the underlying fundamentals for real estate.
  • While fundamentals, such as industrial and multifamily, remain strong in terms of supply and demand, there is concern over current market conditions for other asset classes, particularly office and retail.
  • Although in the short-term the pandemic has led to a lack of enthusiasm for office and retail assets, industry leaders expect strong, long-term demand for assets that allow increased flexibility by providing tenants with more amenities and higher quality accommodations.
  • Rising interest rates and general market uncertainty represent clear challenges facing asset pricing; where trades are taking place, they have been occurring at a discount relative to recent high-water marks.
  • In terms of capital markets, participants noted that capital is available, though market uncertainty has induced hesitancy for risk-taking and tightening across both debt and equity.

Data for the Q3 survey was gathered in July 2022 by Chicago-based Ferguson Partners on The Roundtable’s behalf. Read the full Q3 report.

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