News Type: Roundtable Weekly

White House Details Initial Implementation of $1.2 Trillion Federal Infrastructure Spending Package

Posted on by Trey Jackson

The disbursement of $1.2 trillion in federal infrastructure investment approved by Washington policymakers two months ago is moving forward – in careful coordination with federal agencies, state and local partners – according to recent announcements by President Biden and White House Infrastructure Implementation Coordinator Mitch Landrieu, above. (News conference transcript and video, Jan. 18) 

Improving Infrastructure Assets 

  • The bipartisan infrastructure law enacted in November includes measures to improve infrastructure assets via public-private partnership efforts, streamline the federal permitting process, and improve key federal energy data that supports Environmental Protection Agency building labels. (Roundtable Weekly, Nov. 12, 2021 and White House Executive Order on Catalyzing Clean Energy Industries and Jobs Through Federal Sustainability, Dec. 8, 2021)
  • Real Estate Roundtable Chair John Fish (Chairman and CEO, Suffolk) commended the bipartisan effort and called the legislative package “an historic opportunity to position our nation for sustainable growth and greater economic prosperity.” (Roundtable Statement, Nov. 8, 2021)
  • Former New Orleans Mayor Mitch Landrieu now leads a task force of federal agency officials charged with implementing the infrastructure law through a combination of direct federal grants and competitive bidding. (White House Infrastructure Implementation Fact Sheet, Jan. 14)
  • Landrieu on Jan. 4 sent a request to all the nation’s governors, urging them to appoint their own infrastructure implementation coordinators to work on the smooth disbursement of funds over the next several years, in coordination with both federal agencies and state and local leaders.
  • Landrieu noted during his Jan. 18 White House news conference that the $1.2 trillion disbursement involves 14 federal agencies. He also said federal talks are also underway with Amtrak and that “the Northeastern Corridor … needs immediate attention.” (News conference transcript and video)

Specific Programs Impacting CRE

airport construction infrastructure terminal in background

President Biden on Jan. 14 discussed a variety of recently announced infrastructure projects and funding commitments with Infrastructure “Czar” Landrieu. (White House Remarks and Infrastructure Implementation Fact Sheet, Jan. 14 and Competitive Infrastructure Funding Opportunities for Local Governments Fact Sheet, Jan. 21).

  1. The U.S. Department of Energy (DOE) launched the “Building a Better Grid” Initiative, which will catalyze the nationwide development of new and upgraded high-capacity electric transmission lines by deploying more than $20 billion in federal financing tools. (DOE news release, Jan. 12)
  2. The U.S. Department of Transportation (DOT) and Federal Highway Administration announced $27 billion in funding to replace, repair, and rehabilitate thousands of bridges across the country. (Wall Street Journal and ABC News, Jan. 14)
  3. DOT Secretary Pete Buttigieg and DOE Secretary Jennifer Granholm formed a Joint Office of Energy & Transportation focused on building a national network of 500,000 electric vehicle chargers. (Department of Energy news release, Dec. 14, 2021 and White House EV Charging Action Plan, Dec. 13, 2021)
  4. The Federal Aviation Administration (FAA) announced $3 billion for 3,075 airports across the country to upgrade critical infrastructure.
  5. The Environmental Protection Agency (EPA) announced a $1 billion investment to initiate cleanup and clear the backlog of 49 previously unfunded Superfund sites and accelerate cleanup at dozens of other sites across the country. (EPA news release, Dec. 20, 2021)
  • Additionally, Labor Secretary Marty Walsh discussed in an interview today with The Hill  how he is focused on implementing the infrastructure law and launching a new program called the Good Jobs Initiative. Walsh emphasized the need for “workers at all different levels of construction” and stated, “I think we’re going to need additional housing in our country in the next five to 10 years, we’re going to have lots more development going on in our country.” (The Hill, Jan. 21)

The various infrastructure improvement programs and their impact on the economy, commercial real estate and local communities will be a focus of discussion during The Roundtable’s Jan. 25-26 Virtual State of the Industry Meeting and its policy advisory committee meetings.

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White House Looks to Reset and Downsize Build Back Better Act; Roundtable Meeting to Address National Issues With Leading Policymakers

Posted on by Trey Jackson

Biden at News Conference podium

President Joe Biden acknowledged in a Jan. 19 news conference that his nearly $2 trillion social and climate package, the Build Back Better (BBB) Act, needs to be pared down in the face of stalled negotiations in the 50-50 Senate. “I think we can break the package up, get as much as we can now, come back and fight for the rest later,” Biden said, noting there are some areas of agreement with key Democratic Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona. (CQ and BGov, Jan. 20) 

Revamping BBB 

  • Biden and congressional Democratic leaders may pursue one revamped legislative package – instead of several separate bills – as the November mid-term elections grow closer. Democrats have pushed the BBB Act under restrictive budget reconciliation rules, which allows consideration of one bill that could pass with a simple majority in the evenly divided Senate. (Wall Street Journal and CNBC, Jan. 19)
  • Climate measures are emerging as a top priority for inclusion in a smaller bill. Manchin, chair of the Senate Energy and Natural Resources Committee, has signaled his support for that aspect of the BBB package. (CNN, Jan. 5 and New York Times, Jan. 20)
  • White House National Economic Council Director Brian Deese yesterday said that certain BBB proposals, including clean energy measures are “doable” and could pass Congress. “The clean energy provisions in this bill will not only make it easier and cheaper to deploy clean energy and address the climate crisis, it will reduce energy costs,” Deese said. (BGov and Bloomberg, Jan. 20)
  • If the Senate ultimately passes some revised version of the BBB Act that changes the House-approved version (H.R. 5376), the bill would need to go back to the House for another vote before it reaches President Biden’s desk. (Roundtable Weekly, Nov. 19, 2021)  

Roundtable Support for Clean Energy Measures 

rooftop solar green

  • The Roundtable has supported the BBB Act’s climate measures, which include a suite of clean energy tax credits and incentives amounting to $300 billion. (Roundtable Weekly, Jan. 7)
  • The Roundtable sent a letter to Congressional tax writers on Nov. 16, 2021 detailing five recommendations aimed at improving the green energy tax provisions affecting real estate. (Roundtable letter, Nov. 16) 

BBB, ESG and More 

  • Next week, key policymakers will discuss what’s next for the BBB plan with Roundtable members during the organization’s Jan. 25-26 Virtual State of the Industry Meeting (SOI). The featured speakers will include:  
    • Sen. John Thune (R-SD), who holds the second highest position in Senate Republican leadership; 
    • Sen. Amy Klobuchar (D-MN), member, Joint Economic Committee and Senate Commerce Committee;
    • Sen. Catherine Cortez Mastro (D-NV), member, Senate committees – Finance, Banking, and Energy;
    • John Kerry, President Biden’s Special Envoy for Climate and former Secretary of State; and
    • Larry Summers, former Secretary of the Treasury and former Director of the White House National Economic Council.
  • Mr. Summers’ discussion will include the growing importance of environmental, social and corporate governance (ESG) issues for private sector businesses.
  • One policy example of the growing influence of ESG factors is a proposed rule expected soon from the Securities and Exchange Commission (SEC) on new reporting disclosures quantifying financial risks related to climate. (Roundtable Weekly, Oct. 1, 2021 and Wall Street Journal, Jan. 19, 2022)

Blackstone Larry Fink Annual Letter

  • BlackRock CEO Larry Fink, above, this week explained the need for businesses to make ESG an essential part of their decision-making process in his annual letter to CEOs. His letter states, “As stewards of our clients’ capital, we ask businesses to demonstrate how they’re going to deliver on their responsibility to shareholders, including through sound environmental, social, and governance practices and policies.” (New York Times and Washington Post, Jan. 18) 

The Roundtable’s SOI Meeting will also address market conditions and feature detailed policy advisory committee presentations in the areas of sustainability, tax, homeland security and capital and credit. 

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Roundtable Offers 2022 Tax Policy Overview in CBRE’s Market Outlook Podcast

Posted on by Trey Jackson

CBRE podcast visual

How national tax policies may affect commercial real estate and the outlook for market sectors were the focus this week of a CBRE podcast, “High Hopes: Why Commercial Real Estate Is Poised for Continued Growth in 2022” that included Roundtable Senior Vice President & Counsel Ryan McCormick. 

Tax Policy Issues  

  • McCormick emphasized that tax increase proposals affecting CRE could receive renewed attention in 2022 if the President, congressional leaders, and key centrist Democrats sit down to renegotiate major elements of the Build Back Better Act. (CBRE Podcast, Jan. 11)
  • “We started last year with a tremendous amount of potential change on the table, potential risks for real estate,” including “changes to the taxation of capital investment, capital formation, capital gains . . . pass-through rates and just rates generally,” McCormick noted.  In his initial budget, the President proposed “limiting like-kind exchanges, eliminating the step-up in basis of assets at death, and other changes,” he added.
  • As the process unfolded, according to McCormick, the real estate industry was able to demonstrate the negative impact these proposals “would have on not just real estate in particular, but local communities, local governments, property tax revenue at the state and local level and the jobs that flow from those industries and those services that are provided.” (CBRE Podcast, Jan. 11)
  • Congressional lawmakers, driven by the need to get the key approval vote of Sen. Joe Manchin (D-WV) in an evenly divided Senate, are likely to pare back the cost of the $1.75 billion BBB bill to restart negotiations.  (Roundtable Weekly, Jan. 7)
  • McCormick added, “The Build Back Better Act is hanging by a thread at this point, and it’s really going back to the drawing board. . . .  There’s a lot of different ways and directions things could take.  They could go small.  They could try to do something on a bipartisan basis.  I think the most likely scenario is they whittle back the Build Back Better Act further from where it is today. . . . [I]n many respects, we’re back where we started in 2021.”  

The SEC, OZs and SALT 

construction crane city background

  • The discussion also touched on the growing influence of ESG factors on the industry, including the expectation that the Securities and Exchange Commission (SEC) may release a proposed rule for reporting financial risks related to climate during the first quarter of this year. (Roundtable Weekly, Oct. 1, 2021)
  • McCormick expressed optimism that political support for Opportunity Zones, which have raised over $75 billion in capital since their enactment in 2017, would grow over time.  The Roundtable and other stakeholders recently urged Congress to extend deadlines for investors to qualify for OZ tax benefits.  On Thursday, Senate Finance Committee Chairman Ron Wyden announced an investigation into the impact of OZs on jobs and investment in low-income communities (Roundtable Weekly, Jan. 7; Wyden press release, Jan. 13)
  • The fate of the deductibility of state and local taxes (SALT) was also a topic in the CBRE podcast.  

Roundtable Speakers: Thune, Kerry and Summers 

Senator John Thune (R-SD) at podium

  • Tax policy in the new year will be a focus of The Roundtable’s Jan. 25 State of the Industry Meeting (remote) and its Tax Policy Advisory Committee (TPAC) meeting on Jan. 26.
  • Featured speakers at The Roundtable’s business meeting will include: Sen. John Thune (R-SD), the number two position in Senate Republican leadership;

    John Kerry, President Biden’s Special Envoy for Climate and former Secretary of State; and 

    Larry Summers, former Secretary of the Treasury and former Director of the White House National Economic Council. 

Looking Ahead 

CBRE-2022-report-cover

  • The Jan. 11 CBRE podcast – moderated by Spencer Levy, CBRE’s Global Chief Client Officer & Senior Economic Advisor and co-chair of The Roundtable’s Research Committee – also featured Richard Barkham, CBRE’s Global Chief Economist, Head of Global Research & Head of Americas Research. Barkham focused on the economic outlook and forecasts for capital markets and individual CRE sectors. (GlobeSt, Jan. 12)
     
  • CBRE’s recently released publication, U.S. Real Estate Market Outlook for 2022, projects a growing U.S. economy will fuel demand for space and increase real estate investment across all property types – despite uncertainty from the omicron variant and other risks. 

The Real Estate Roundtable’s Policy Agenda for 2022, scheduled for release at the end of this month, will address the tax issues above and several more of importance to CRE in the areas of infrastructure, sustainability, capital and credit, and homeland security. 

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Real Estate Preparedness Exercise on January 20 to Address Adverse Weather and Hostile Events

Posted on by Trey Jackson

The Real Estate Roundtable’s Homeland Security Task Force and the Real Estate Information Sharing and Analysis Center (RE-ISAC) invite member organizations to participate in a Virtual Preparedness Exercise on January 20.

  • One exercise will address winter weather preparedness to examine critical dependencies related to water, power and communications/IT. Another exercise will focus on hostile events in local areas that do not directly target a member’s facility.  One recent example of such an event involved an armed suspect incident in Boston that shut down activity in a four-block radius during a seven-hour standoff.
  • Government officials and other industry ISACs will also participate in the Jan. 20 event, scheduled for 2:00-3:30 pm ET.  Please RSVP no later than January 18 to Liz Hoopes and indicate if you prefer to participate in a weather preparedness or hostile events group.
  • Additionally, HSTF has recently worked with government officials to produce a one-page reference on “flash mob” retail theft to assist businesses in recognizing potential preparatory actions for future criminal activity.

For more information, please contact Roundtable Senior Vice President Chip Rodgers.

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Real Estate Roundtable and Other Stakeholders Urge Congress to Extend Expiring Opportunity Zone Tax Incentive Deadlines

Posted on by Trey Jackson

IRS OZ image

Congress should extend expiring tax incentives that promote investment and jobs in Opportunity Zones (OZs) as soon as possible, according to a letter to Congressional leaders from a diverse coalition of 22 organizations that includes The Real Estate Roundtable. (Dec. 21, 2021 coalition letter) 

OZ Tax Incentives Expiration 

  • Established in the Tax Cuts and Jobs Act of 2017, OZs mobilize capital for new businesses and economic activities in targeted, low-income areas. A significant share of OZ investment has gone towards productive real estate projects that create new, sustainable sources of local tax revenue and increase the supply of affordable and senior housing.
  • Taxpayers that invest existing capital gains in a qualified opportunity fund are potentially eligible for tax benefits on both the prior gain and any gains that relate to the opportunity fund’s investments. However, the deadline for OZ investments to qualify for a partial capital gains exclusion with respect to gains that are deferred and rolled into an opportunity fund expired on December 31, 2021. 
  • Specifically, in order for an investor to qualify for a 10 percent step-up in the basis of a prior investment, the gain must be held in an opportunity fund for five years before it is recognized and tax. Under the OZ law, gains rolled into an opportunity fund are recognized at the end of 2026. Therefore, unless the gain was invested in an opportunity fund by then end of 2021, it will be taxed prior to meeting the five-year requirement.
  • The coalition letter urges Congressional leaders to extend the 10 percent step-up deadline through the end of 2023 and the deferred gain recognition date until the end of 2028. 

OZ Impact 

OZ image construction

  • The coalition letter noted that the White House Council of Economic Advisors in 2020 estimated Opportunity Funds had raised $75 billion in private capital in the first two years following the incentives’ enactment. The Council also estimated this capital could lift one million people out of poverty and decrease poverty in OZs by 11 percent.  (The Impact of Opportunity Zones: An Initial Assessment, Aug. 2020)
  • More recently, the U.S. Government Accountability Office estimated that 6,000 opportunity funds with more than 18,000 partners or shareholders invested $29 billion in OZs in 2019. (GAO: Opportunity Zones: Data on Investment Activity) 

OZ Program Improvements 

  • The coalition also supports congressional improvements to OZ tax incentives, such as enhanced information reporting, data collection, transparency, and lowering the substantial improvement threshold to cover a broader range of real estate rehabilitation and redevelopment projects.
  • Congressional tax-writing committees have not taken up bipartisan legislative proposals to improve the OZ program. 

The Roundtable’s Tax Policy Advisory Committee (TPAC) will discuss the OZ tax incentives and other real estate-related tax policies during their next meeting on Jan. 26 in conjunction with The Roundtable’s State of the Industry business meeting.  

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Final IRS Regulations Reduce Tax Risks When Replacing LIBOR With Alternative Benchmarks

Posted on by Trey Jackson

LIBOR graphic

The IRS on Dec. 30 issued final regulations clarifying how parties can replace the London Interbank Offered Rate (LIBOR) as a reference rate in mortgages and other financial contracts without triggering negative tax consequences. The Real Estate Roundtable offered extensive input and comments during the Treasury Department’s LIBOR regulatory review. 

LIBOR Transition, Roundtable Comments & Tax Guidance 

  • LIBOR is currently used in outstanding financial contracts worth an estimated $223 trillion, including commercial real estate debt, mortgages, student loans and derivatives. (Roundtable Weekly, July 30)
  • Financial regulators are phasing out LIBOR in its current form following serious cases of manipulation.
  • The anticipated replacement of LIBOR in existing financial contracts poses a potential tax problem – avoiding a deemed taxable “exchange” of the contract if the replacement index is viewed as “significantly modifying” the interest rate or yield of the existing contract.
  • In June 2019, Roundtable President and CEO Jeffrey DeBoer wrote to Treasury officials and emphasized, “… addressing the tax issues associated with the transition away from LIBOR is critical to the stability of financial markets, the real estate industry, and the overall economy.” (Roundtable LIBOR letter, June 6, 2019)
     
  • The Roundtable letter offered a suggested framework for tax guidance that would clarify when a replacement rate is not considered a significant modification. The IRS issued favorable proposed rules shortly thereafter, in October 2019.
  • The final IRS regulations provide bright-line rules for determining when replacement of LIBOR with an alternative rate in a contract qualifies as a “covered modification,” which is not treated as a taxable exchange of property under the tax code. (Federal Register, Guidance on the Transition From Interbank Offered Rates to Other Reference Rates; ABA Banking Journal, Jan. 3)
  • The final tax rules generally are effective for contract modifications made on or after March 7, 2022.
  • The Roundtable’s initial recommendations were developed with the assistance of an industry task force that included Tax Policy Advisory Committee (TPAC) Chairman Frank Creamer Jr., TPAC member Don Susswein, and chair of the Real Estate Capital Policy Advisory Committee (RECPAC) Working Group on LIBOR, Joseph Philip Forte.  

Tough Legacy Contracts 

Libor transition to SOFR image

  • Another significant LIBOR issue is a safe harbor for market participants seeking to transition to a replacement benchmark for debt instruments, such as the Secured Overnight Financing Rate (SOFR). Some difficult LIBOR-based contracts – referred to as “tough legacy” – have insufficient fallback language or include provisions that cannot be amended. (Roundtable Weekly, Dec. 10, 2021)
  • Legislation passed by the House of Representatives on Dec. 8, 2021 would protect trillions in “tough legacy” contracts that use LIBOR as a reference rate for financial transactions. The bill (H.R. 4616) provides a safe harbor for market participants and includes a federal preemption.
  • The House bill also provides that when LIBOR reaches its final replacement date on June 30, 2023, all contracts with no adequate fallback provisions for an alternative benchmark substitute will be replaced with SOFR.
  • The Roundtable and 17 national trade groups previously submitted letters this year on April 14 and July 27 to House Financial Services Committee policymakers in support of legislation to address “tough legacy” contracts during the transition away from LIBOR.
  • The Roundtable and a broad coalition of industry groups have long-supported measures to ensure that the transition away from the LIBOR reference rate does not cause market disruptions or diminish credit capacity. (Industry Coalition letter, Dec. 7, 2021 and Bloomberg, Dec. 8, 2021) 

LIBOR transition issues will be discussed during The Roundtable’s Jan. 25-26 virtual State of the Industry Business Meeting and at scheduled TPAC and RECPAC meetings. 

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Build Back Better Act Negotiations in “Cooling Off” Period as Congress Prioritizes Pressing Issues

Posted on by Trey Jackson

Build Back Better phone on map

Democrats this week signaled that negotiations over the Build Back Better (BBB) Act are in a “cooling off” period as Congress turns its immediate focus to pressing policy issues such as voting rights legislation and filibuster rules reform. (The Hill, Jan. 5) 

BBB’s Climate Provisions 

  • Congress will face several other deadlines in the New Year, including a possible push later this month by Senate Democrats for a vote on the Build Back Better (BBB) Act, the need to extend funding for federal government operations beyond February 18, and the looming November mid-term elections. (Bloomberg and Roll Call, Jan. 3)
  • Discussion on how to revive the multitrillion BBB Act followed Sen. Joe Manchin’s (D-WV) Dec. 19 statement on Fox News that he opposed the package. Manchin is a key vote in the 50-50 Senate to pass the BBB Act under reconciliation rules, which require a majority vote for passage.
  • Manchin, who chairs the Senate Energy Committee, last month offered the White House a $1.75 trillion proposal that included funding for climate initiatives supported by The Roundtable. (Wall Street Journal, Jan. 4)
  • Sen. Manchin affirmed on Tuesday that he shares the views of the Democratic caucus on the climate portions of the BBB package. “The climate thing is one that we probably could come to an agreement much easier than anything else,” Manchin said. (E&E News, Jan. 4)
  • Sen. Manchin wants to restructure other aspects of the BBB bill, possibly paring down the cost of its healthcare, childcare and housing initiatives. (Wall Street Journal, Jan. 5)
  • If the Senate ultimately passes the BBB Act in a manner that changes the House-approved version (H.R. 5376), the bill would need to go back to the House for another vote before it reaches President Biden’s desk. (Roundtable Weekly, Nov. 19) 

Roundtable Support for Clean Energy Tax Provisions 

Houston at night

  • The BBB Act includes $550 billion for measures to fight climate change, which include a suite of Roundtable-supported clean energy tax credits and incentives amounting to $300 billion.   
  • The Roundtable sent a letter to Congressional tax writers on Nov. 16, 2021 detailing five recommendations that aim to improve green energy tax provisions affecting real estate. The Roundtable letter urged further changes to the BBB Act that would advance objectives aimed at slashing GHG emissions and making rapid progress toward a “net zero” economy by mid-century. (Roundtable letter, Nov. 16)
  • The letter’s recommendations would increase and scale deployment of low- and zero-carbon technology in the nation’s commercial and multifamily building infrastructure.
  • The need to address funding to keep the government is also pressing upon Congress. Current funding is authorized under a “Continuing Resolution” through Feb. 18, 2022. Congress has not yet reached agreement on full-year funding for fiscal 2022, which began Oct. 1, 2021. 

The Roundtable will discuss its policy agenda for the new year during its Jan. 25-26 State of the Industry meeting (virtual), along with potential changes to the BBB Act, and how the mid-term elections in November may impact the congressional agenda. 

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Build Back Better Act Stalls as Congress Raises Debt Ceiling; Fed Signals Interest Rate Hikes Next Year

Posted on by Trey Jackson

US Capitol sunset

Senate action on the House-passed multitrillion dollar Build Back Better (BBB) Act (H.R. 5376) stalled this week as Democrats continued negotiations on the scope and scale of the legislation. (The Guardian, Dec. 16 and BGov, Dec. 15).

BBB Issues

  • A significant hurdle to progress on the BBB bill are ongoing negotiations between President Biden and congressional leadership with Senate Energy Committee Chairman Joe Manchin (D-WV) – one of the key Democratic centrist swing votes needed to pass the bill under budget reconciliation rules. (CNBC, Dec. 15)
  • “The talks between [Biden] and Manchin have been going very poorly. They are far apart,” according to a Dec. 15 Politico report. The article also quotes Sen. Tim Kaine (D-VA), who stated, “[Biden and Manchin] may have very different views about timing. It’s less about whether, than about when and how much.”
  • Democrats also remain split over how BBB legislation would resolve policy issues such immigration and SALT – the limit on the federal deduction for state and local taxes. (Bloomberg, Dec. 13)
  • Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA) predicted this month that Congress would pass the BBB Act before Christmas. (Wall Street Journal, Dec. 15 and AP, Dec. 16)
  • President Biden acknowledged in a statement yesterday that his BBB agenda is unlikely to pass this year and that Democrats will work to finish it “over the days and weeks ahead.” (The White House, Dec. 16)

BBB and CRE

Denver, CO

  • Senate Finance Chairman Ron Wyden (D-OR) on Dec. 11 released statutory language for BBB Act measures that fall under the Finance Committee’s jurisdiction, including tax provisions. 

    • The committee’s language does not include a complex tax proposal that would impose mark-to-market taxation on annual, unrealized gains. Chairman Wyden’s specific legislative proposals to impose an income limit on the sec. 199A pass-through deduction (July 2021), tax carried interest as ordinary income (Aug. 2021) and reform partnership taxation (Sept. 2021) are also excluded. These proposals, as introduced, could have a negative impact on real estate investment, entrepreneurial risk-taking, jobs, and local communities. 
    • Additionally, the current BBB Act would not limit like-kind exchanges, increase the 20% capital gains tax, or repeal the step-up in basis of assets at death. The key tax issues in the bill are addressed in a Roundtable comparison of the tax-related provisions in the BBB package. (Roundtable Weekly, Oct. 29)
    • Clean energy tax credits make up the most significant portion of the BBB Act’s climate policies. The Roundtable supports several improvements to the green tax provisions aimed at extending them to certain technologies (e.g., thermal energy storage), ensuring that EV charging incentives cover stations employed in widely available but non-public locations (e.g., apartment building parking lots), and incentivizing building electrification through the use of heat pumps.
    • The Roundtable on Nov. 16 sent a letter to congressional tax writers detailing five recommendations that would improve green energy tax provisions in the BBB Act affecting real estate. (Roundtable Weekly, Nov. 19)

    Debt Ceiling and Fed Action

    Federal Reserve sunset

    • President Biden yesterday signed legislation to raise the debt ceiling by $2.5 trillion, averting default on the nation’s debt and pushing the issue beyond the November 2022 mid-term elections. (Investopedia, Dec. 16)
    • The debt ceiling bill cleared the Senate Dec. 15 on a party-line vote of 50-49, and the House passed it the following morning on a mostly partisan 221-209 tally. (The Hill and CNBC, Dec. 16)
    • Federal Reserve Chairman Jerome Powell on Wednesday announced the Fed will wind down its bond-buying program by March instead of June – paving the way for potential interest rate hikes starting in the spring. Powell said the Fed could raise interest rates three times next year as it responds to elevated inflation. (Commercial Property Executive, Dec. 17 | GlobeSt, Dec. 16 | Wall Street Journal, Dec. 15)

    Monetary and fiscal policy will be a focus of discussion at The Real Estate Roundtable’s all-member State of the Industry Meeting on Jan. 25-26 in Washington, DC.

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    Senate Raises Debt Ceiling; Democrats Face Tight Deadline to Pass Build Back Better Act by Christmas

    Posted on by Trey Jackson

    DC monuments night

    The Senate approved a procedural bill last night to raise the national debt ceiling without the risk of a Republican filibuster. The House and Senate plan to consider a subsequent bill within days that will increase the debt limit by more than $30 trillion, thereby avoiding a national default and delaying the next fiscal cliff until after the November midterm elections. (Wall Street Journal | Punchbowl News | Reuters, Dec. 9)

    Hurdles Await BBB Act 

    • The expected increase to the debt limit will also allow Senate Democrats to focus on the House-passed $1.7 trillion Build Back Better (BBB) Act.
    • Senate Majority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA) this week predicted that Congress will pass the social and climate package before Christmas. However, numerous hurdles could push congressional action on the BBB Act into 2022. (The Hill, Dec. 8)
    • Today, the Congressional Budget Office reported that the BBB Act would add $3 trillion to the federal deficit over the next 10 years if its major provisions are made permanent.
    • Senate Energy Committee Chairman Joe Manchin (D-WV), below, is one of the key Democratic centrist swing votes needed to pass the BBB Act under budget reconciliation rules, which allow Congress to pass legislation with only 51 votes in the Senate.

      Senator Joe Manchin (D-WV)

    •  Manchin reiterated his reluctance to vote for the package this week, stating “the unknown” of inflation “is much greater than the need” for Democrats to move on their climate and social spending bill now. (Marketwatch, Dec. 8 and Wall Street Journal, Dec. 7)
    • Additionally, the Senate parliamentarian is reviewing the BBB Act to determine if it conforms to reconciliation rules, which require that all the bill’s provisions directly impact the federal budget. (Indivisible, The Senate’s Byrd Rule)
    • Another significant hurdle is whether potential changes to the BBB bill can resolve existing policy differences among Democrats on the state and local tax deduction (SALT), Medicare expansion and immigration. (CQ and BGov, Dec. 9)
    • If the Senate passes a bill with changes, it likely will need to go back to the House for another vote before it reaches President Biden’s desk. (Roundtable Weekly, Nov. 19) 

    BBB and CRE 

    Chicago building glass reflection

    • The current BBB bill – when compared to the President’s budget and the bill passed by the House Ways and Means Committee in September – reflects major progress on a number of tax issues important to real estate and prioritized by The Real Estate Roundtable. (Roundtable Weekly, Oct. 29)
    • The current bill would not limit like-kind exchanges, increase the 20% capital gains tax, or cap eligibility for the 20% pass-through business income deduction. It also does not include changes in the tax treatment of carried interest or repeal the step-up in basis of assets at death. The key tax issues in the bill are addressed in a Roundtable comparison of the tax-related provisions in the BBB package.
    • Clean energy tax credits make up the most significant portion of the BBB Act’s climate policies. The Roundtable on Nov. 16 sent a letter to congressional tax writers detailing five recommendations that would improve green energy tax provisions in the BBB Act affecting real estate. (Roundtable Weekly, Nov. 19) 

    The BBB Act’s potential impacts on tax and climate policy issues of importance to CRE will be topics for discussion at The Roundtable’s Jan. 25-26 State of the Industry Meeting in Washington, DC.  

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    House Passes Legislation to Transition Away From LIBOR With Solution for “Tough Legacy” Contracts

    Posted on by Trey Jackson

    Libor transition to SOFR image

    Legislation passed by the House of Representatives on Dec. 8 would protect trillions in “tough legacy” contracts that use the London Interbank Offered Rate (LIBOR) as a reference rate for financial transactions. The Real Estate Roundtable and a broad coalition of industry groups have long-supported this protective measure. (Industry Coalition letter, Dec. 7 and Bloomberg, Dec. 8)

    LIBOR and CRE 

    • House lawmakers approved the Adjustable Interest Rate (LIBOR) Act (H.R. 4616) by a vote of 415-9, sending the bill to the Senate as the use of LIBOR faces retirement in 2023. Banks will not be able to issue new loans or other financial contracts using LIBOR as of Jan. 1, 2022. (Wall Street Journal, Dec. 3)
    • LIBOR is currently used in outstanding financial contracts – including commercial real estate debt, mortgages, student loans and derivatives – worth an estimated $223 trillion. (Roundtable Weekly, July 30)

     Tough Legacy Issues Addressed

    • The House bill includes provisions that address the transition of the most troublesome LIBOR-based contracts – referred to as “tough legacy” – to a replacement benchmark when LIBOR sunsets. These contracts have insufficient fallback language or include provisions that cannot be amended.
    • The bill also provides a safe harbor for market participants switching existing LIBOR-referencing financial contracts to a replacement benchmark for debt instruments, such as the Secured Overnight Financing Rate (SOFR).  The bill also includes a federal preemption.
    • The Real Estate Roundtable and 17 national trade groups also previously submitted letters April 14 and July 27 to House Financial Services Committee policymakers in support of legislation to address “tough legacy” contracts during the transition away from LIBOR. 

    The House bill provides that when LIBOR reaches its final replacement date (June 30, 2023), all contracts with no adequate fallback provisions for an alternative benchmark substitute will be replaced with SOFR. 

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