News Type: Roundtable Weekly

Commercial Real Estate Executives Report Steady Q4 Market Fundamentals

Posted on by Trey Jackson

Commercial real estate leaders report positive market fundamentals across asset classes, according to The Real Estate Roundtable’s Q4 2021 Economic Sentiment Index. Industry leaders describe steady supply, demand and financial conditions for multifamily, industrial, life science and other assets while expressing some caution about the strength of office and hotel assets. Leaders also noted conditions vary by geography and local governmental policies.

Topline Findings

Jeffrey DeBoer, Real Estate Roundtable President and CEO

  • The Roundtable’s Overall Q4 2021 Sentiment Index registered a score of 73, which reflects continued optimism about general market conditions despite a slight dip of five points from the previous quarter. 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. 

  • Roundtable President and CEO Jeffrey DeBoer (above) said, “Our Q4 Sentiment Index score is a 29-point increase over the same time period last year. This is a solid indication of significant progress in the overall economy as more businesses continue to reopen under cautious, local COVID-19 protocols.” 
  • He added, “CRE leaders are encouraged by the safe (albeit slow) return of employees to their work places, robust retail consumer appetites, and the gradual return of domestic and international travelers to hotels, resorts and other hospitality assets. The commercial real estate industry continues to play an active role in accommodating new business and individual preferences that will help the economy adjust post-COVID.” 
  • “Industry leaders are concerned with accelerating inflation, supply chain obstacles and still unclear questions regarding future office space desires,” DeBoer noted. 
  • The Roundtable’s quarterly economic survey also shows that 85 percent of respondents believe that general market conditions today are “much better or somewhat better” versus one year ago – and that 61 percent anticipate conditions will continue to improve one year from now. 
  • The report’s Topline Findings include:
     
    • The Q4 2021 Real Estate Roundtable Sentiment Index registered a score of 73, a decrease of five points from the third quarter of 2021 and a 29-point increase over Q4 2020. Despite the slight downtick from Q3, participants largely expressed optimism regarding the current fundamentals of the commercial real estate market.
    • That said, perceptions vary by property type and geography, with industrial, multifamily, life sciences and data centers most in favor. Delayed return-to-office policies and questions about office space demands have resulted in a degree of uncertainty. 
    • Asset values have trended upward across asset classes compared to the previous quarter.
    • Participants cited a continued availability of debt and equity capital. International investors remain highly interested in opportunities within the United States.

Infrastructure & CRE

Chicago skyline upward

  • DeBoer also noted, “The recent passage of the $1.2 trillion bipartisan infrastructure bill by Congress will help the commercial real estate industry to ramp up its existing suite of climate-friendly practices by reimagining, building and retrofitting America’s built environment.” 
  • He added, “The Roundtable is also encouraged that the bill emphasized the expanded use of public-private partnerships to reach infrastructure goals – as well as measures that will streamline the federal permitting process and improve key federal energy data that support EPA building labels.” 

Data for the Q4 survey was gathered in October by Chicago-based Ferguson Partners on The Roundtable’s behalf.  See the full Q4 report. 

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Roundtable Weekly Will Resume Publication on December 3, 2021

Posted on by Trey Jackson

Roundtable Weekly will resume publication on December 3, after Congress returns from the Thanksgiving break. Recent issues of RW can be searched by keyword here.

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Roundtable Applauds Passage of Bipartisan Infrastructure Bill; House Democrats Aim to Vote on Social and Climate Package Next Week

Posted on by Trey Jackson

The Real Estate Roundtable on Nov. 8 congratulated congressional policymakers and the Biden administration for their bipartisan efforts in passing the trillion-dollar infrastructure bill late last week. President Joe Biden plans to sign the legislation on Monday, Nov. 15 as Congress returns from recess to consider a separate $1.85 trillion social and climate package. (JD Supra and White House Statement, Nov. 10) 

Roundtable Reaction 

Cleveland Cityscape and Infrastructure visual

  • Real Estate Roundtable Chair John Fish (Chairman and CEO, Suffolk) said, “The real estate industry has long been committed to an ambitious vision for infrastructure. The passage of the bipartisan infrastructure bill by Congress is an historic opportunity to position our nation for sustainable growth and greater economic prosperity. Thank you to Members of Congress for coming together and supporting this critical legislation. I urge President Biden to sign the legislation as soon as possible so we can get shovels in the ground and start building a brighter future.” (Roundtable Statement, Nov. 8)
  • The infrastructure legislation is a positive catalyst that should dramatically improve the nation’s infrastructure, spur economic growth and advance national efforts to combat the climate crisis. The bill includes measures to expand the use of public-private partnerships to reach infrastructure goals, streamline the federal permitting process and improve key federal energy data that support EPA building labels.
  • The bipartisan bill also includes $30 billion for improvements along Amtrak’s Northeast Corridor, including the long-delayed “Gateway” tunnel project between New York and New Jersey, according to a Nov. 10 Bloomberg interview with Amtrak CEO Bill Flynn. (Bloomberg article)
  • Roundtable President and CEO Jeffrey DeBoer said, “This infrastructure bill will repair and upgrade the nation’s roads, bridges, mass transit, high-speed rail, broadband, power grid, water pipes, electric vehicle charging stations, and other critical infrastructure. We applaud this investment in our nation’s future and look forward to the jobs, communities and progress it will support.” (MultiHousing News, Nov. 10) 

Build Back Better Act & CRE 

Roundtable Tax Priorities Nov-12-2021 image

  • House Speaker Nancy Pelosi (D-CA) this week said during the U.N. climate change conference that next on her agenda is passage of the Build Back Better Act (H.R. 5376). “That is our plan, to pass the [Build Back Better] bill the week of Nov. 15, as is indicated in our statements that were made at the time of passing the infrastructure bill.” (Pelosi Remarks)
  • President Biden in late Oct. scaled back his sprawling social and climate package from $3.5 trillion to $1.85 trillion to resolve intraparty differences in the Democratic congressional caucus. Further changes made last week to the tax and spending measure would increase the cap on the deductibility of state and local taxes (SALT) from $10,000 to $80,000.  Another set of changes would expand and modify the low income housing tax credit (LIHTC) to promote greater construction and rehabilitation of affordable housing.  (Roundtable Weekly, Nov. 5 and House Rules Committee section-by-section summary of the bill.)
  • The revised legislation reflects continued progress on a number of tax and climate issues of importance to The Real Estate Roundtable. (Summaries in Roundtable Weekly, Oct. 29)
  • The Roundtable has produced a comparison of the real estate-related tax provisions (image above) in the most recent version of the legislation – compared to the bill passed by the House Ways and Means Committee in September, and the Biden Budget .
  • Additionally, an Oct. 21 Marcus & Millichap webcast on tax policy featured The Roundtable’s Jeffrey DeBoer. (Registration required before streaming the webcast)
  • The revised bill will be considered under budget reconciliation rules, which require a majority vote for approval in the narrowly divided House and the 50-50 Senate. 

Challenges Ahead 

House Passes Infra Dems Applaud

  • Five moderate House Democrats have raised concerns regarding the deficit impact of the Build Back Better Act (BBB), threatening its passage even before it goes to the Senate.  They have also urged that the bill be “pre-conferenced” with the Senate. (Letter to Speaker Pelosi Nov. 2; Politico, Nov. 8) 
  • The House moderates committed to vote for the BBB no later than the week of Nov. 15 –  if Congressional Budget Office (CBO) cost estimates are in line with the Administration’s estimates (CNBC, Nov. 5)
  • CBO stated on Nov. 9 that it plans to unveil estimates for parts of the BBB as the agency completes its reviews. A CBO score is not a technical requirement for a House vote – but Senate rules do require the agency’s cost estimate. (CBO statement and Politico, Nov. 11)
  • If the BBB package passes the House, substantive changes are possible in the Senate. (Wall Street Journal, Nov. 9)
  • Axios reported on Nov. 10 that Sen. Joe Manchin (D-WV) may withhold his support of the costly BBB legislation until next year due to worries about rising inflation rates.

  • Roundtable President and CEO Jeffrey DeBoer commented on the evolving infrastructure legislative developments in an interview with American City Business Journals. “We’re continuing to monitor developments and ensure that nothing comes up without proper vetting or full understanding of how it would impact CRE,” DeBoer said. 

Policymakers return to Washington on Monday for one week before the Thanksgiving break. On Dec. 3, funding for the government will run out unless an appropriations bill or “Continuing Resolution” is passed to avoid a partial shutdown. Additionally, the Bipartisan Policy Center estimates the current debt ceiling will be breached sometime between mid-December and mid-February. 

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House Democrats Stall Efforts to Pass “Physical” and “Human” Infrastructure Bills

Posted on by Trey Jackson

Capitol evening blue

An intense push by Democratic leaders this week to approve a $1 trillion “physical” infrastructure bill and a $1.85 trillion “human” infrastructure plan (H.R. 5376) met resistance today from House progressives and moderates, who rejected ongoing efforts to vote on the bills until their concerns are addressed. 

Intraparty Disagreement 

  • The bipartisan physical infrastructure bill passed the Senate in August. House progressives have tied consideration of that bill to a separate social infrastructure package – which has been mired in weeks of ongoing negotiations and revisions over its scope and cost. Additionally, House moderates insist on a full cost estimate from the Congressional Budget Office before a final vote on the larger package. (BGov and CQ, Nov. 5)
  • President Biden announced a scaled-down version for the larger bill on Oct. 28, reducing its total outlay to $1.85 trillion versus the earlier estimated cost of $3.5 trillion. (Roundtable Weekly, Aug. 13 and Oct. 29)
  • The new Build Back Better plan framework includes $1.75 trillion of social and climate provisions, along with $100 billion targeting immigration needs contingent on approval by the Senate parliamentarian. (Investopedia, Nov. 5)
  • President Biden today said, “I’m asking every House member … to vote ‘yes’ on both these bills right now. Send the [physical] infrastructure bill to my desk, send the Build Back Better bill to the Senate.” (Bloomberg, Nov. 5)
  • House Speaker Nancy Pelosi worked to bridge the divides in her caucus, considering a possible vote on the physical infrastructure bill alone, while postponing a vote on the social spending package. (The Hill, Nov. 5)
  • Rep. Pramila Jayapal (D-WA), leader of the Congressional Progressive Caucus, responded, “As we’ve consistently said, there are dozens of our members who want to vote both bills — the Build Back Better Act and the Infrastructure Investment and Jobs Act — out of the House together.” (The Hill, Nov. 5) 

SALT and LIHTC 

DC monuments dawn

  • Changes were made this week to the sweeping tax and spending measure, including a new provision affecting the deductibility of state and local taxes (SALT) and an expansion of the low income housing tax credit (LIHTC).
  • The new SALT provision would raise the deduction cap from $10,000 to $80,000 through 2030, then return to the $10,000 cap in 2031. A previous version of the bill would have set the cap at $72,500 through 2031.
  • The revised LIHTC measure would increase state allocations, temporarily allowing the credit to cover a project without affecting state caps if at least 25% of the building and land are financed by tax-exempt bonds – instead of 50%.  Additionally, projects intended to serve extremely low-income communities could receive a 50% increase in the applicable credit amount. (BGov, Nov. 5)
  • The new reconciliation bill reflects continued progress on a number of tax and climate issues of importance to real estate and prioritized by The Real Estate Roundtable. Summaries of the revised bill are in the Oct. 29 edition of Roundtable Weekly. 

Congress faces a crucial agenda and a tight timeframe. Policymakers return from recess Nov. 15 for one week before the Thanksgiving break. On Dec. 3, funding for the government will expire – within the same time frame when the current debt ceiling must also be addressed. Lawmakers may pass either an appropriations bill covering FY23, or opt for another “continuing resolution” to fund the government at existing levels for a specified period of time. 

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CRE Industry Encouraged to Participate in Energy Department’s “Better Climate Challenge” to Reduce GHG Emissions

Posted on by Trey Jackson

U.S. Energy Secretary Jennifer Granholm

U.S. Energy Secretary Jennifer Granholm, above, announced on Nov. 3  a “soft launch” of the multi-sector Better Climate Challenge at the COP26 international conference in Glasgow. This new Department of Energy (DOE) effort aims to recognize U.S. real estate, industrial, and other companies that voluntarily agree to slash their GHG emissions – and share their “best practices” toward achieving emissions reduction goals. (Climate Challenge Factsheet | FAQs | Informational webinar) 

Program Requirements 

  • The key element of DOE’s voluntary challenge is for companies to commit to reduce  direct emissions (“scope 1”), and emissions from electricity purchases (“scope 2”), by 50% over 10 years. There is no requirement to quantify or reduce indirect “scope 3” emissions.
  • The 10-year window is measured from a baseline of up to five years before a company joins the program.
  • Commitments to reduce emissions must be across a building portfolio.
  • Participating companies must also pursue an efficiency target, to prioritize energy savings that will contribute toward the 50% reduction in portfolio-wide emissions over a decade.
  • Companies joining the program must pledge to share energy and emissions data for 10 years through  EPA’s Portfolio Manager, publicly report on progress, participate in peer-to-peer exchanges, and help develop industry best practices.

Corporate Purchases of Clean Power

Better Climate Challenge logo

  • DOE staff discussed the new program yesterday with The Roundtable’s Sustainability Policy Advisory Committee (SPAC).
  • DOE explained that to reach the 50% emissions reduction target, companies can tally their long-term clean power purchase agreements (PPA) and associated renewable energy certificates (RECs). PPAs and RECs are increasingly common strategies used by CRE and other sectors to help deliver more renewable energy to the electricity grid.
  • Staff further explained that it does not intend for certain carbon “offsets” (such as planting trees offsite) to count towards meeting the 50% emissions reduction target.

Partnership Agreements and Public Recognition

  • Companies that pledge to participate in the Better Climate Challenge must sign a partnership agreement with DOE.
  • DOE will work with organizations as they develop organization-wide GHG emissions reduction plans and provide technical assistance with meeting corporate goals.
  • DOE aims for the Challenge to develop and provide “alternative pathways” that present options for companies to set and achieve climate targets.

  • Organizations that have already made similar commitments are encouraged to reach out to DOE to discuss how they can participate. For example, DOE will accept pre-established corporate goals with an approved 1.5° Celsius aligned science-based target, on a case-by-case basis.
  • Aside from Wednesday’s “soft launch,” DOE plans further public recognition for participating companies during a formal launch slated for early 2022. DOE also intends to feature companies that participate in the Challenge at its next annual Better Buildings Summit in Washington, D.C. on May 17-19, 2022.
  • So far, 32 organizations have publicly pledged their commitment to the Better Climate Challenge as DOE elevates outreach out to private sector companies, states, municipalities and other organizations.

Contact the Department of Energy to Participate 

Modern buildings and American flag

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Roundtable and Business Coalition Strongly Support House Reintroduction of Pandemic Risk Insurance Act

Posted on by Trey Jackson

Rep. Carolyn Maloney

Legislation introduced this week in the House by Rep. Carolyn Maloney (D-NY), above, would create a federal backstop to ensure coverage in all critical commercial lines of insurance for business interruption losses, whether from future pandemics or other public health emergencies. The Real Estate Roundtable and the Business Continuity Coalition strongly support the bill. (ConnectCRE, Nov. 2)

PRIA & Risk Exposure

Jeffrey DeBoer Real Estate Roundtable

  • The Pandemic Risk Insurance Act (PRIA) of 2021 (H.R. 5823) is modeled after the Terrorism Risk Insurance Act (TRIA) – the enduring, successful public-private backstop adopted following the 9/11 terrorist attacks. (Maloney | Roundtable | Coalition news releases, Nov. 2)
  • Real Estate Roundtable President and CEO Jeffrey D. DeBoer, above, said, “PRIA is an important step forward that helps to address possibly the largest unhedged risk exposure in the U.S. economy today. It is important for business policyholders to be able to secure the pandemic risk coverage necessary to maintain jobs and grow the economy. The Real Estate Roundtable and its 19 national real estate trade association partners have seen firsthand how a broad range of economic risks, including terrorism (TRIA) and floods (NFIP), underscore the need for public support when private markets fail. In those circumstances, a public-private partnership is essential to support the economy. PRIA is positive, forward-thinking legislation that Congress needs to pass.”
  • A RIMS survey recently found that pandemic risk is excluded or restricted on most lines of commercial property-casualty insurance, and where coverage is available, it is often cost-prohibitive without government support.

PRIA Specifics

Downtown Atlanta skyline

  • PRIA would require insurers to offer coverage in return for a government indemnification of 95% of insured losses arising from any future pandemic that results in a public health emergency. Unlike TRIA, there is no “insurer deductible” nor would there be any post-event recoupment, although the program would begin to pay for itself after an initial “economic recovery period.”
  • The bill would ensure availability of pandemic coverage while fostering the development of private reinsurance and capital market alternatives to reduce taxpayer exposure going forward.
  • The Maloney bill also addresses the unavailability of coverage in other crucial lines of insurance such as event cancellation, TV and film production insurance and liability coverage for essential services.
  • The bill is similar to current proposals advanced by the insurance industry that would establish a parametric program for non-damage business interruption (NDBI) losses, which recognize rapid claims payment and minimal transaction costs are critical when the aggregation of losses are so high as in a pandemic. The bill also would provide a pooling alternative for insurers that do not wish to underwrite primary NDBI coverage.

Industry Views

Business-Continuity-Coalition-logo

  • The Roundtable’s DeBoer noted, “When private insurance markets cannot provide the coverage needed to protect jobs and help businesses meet their obligations in the event of a government mandated shutdown, those exposed gaps in business continuity insurance coverage can only be filled by a federally-backstopped mechanism. A TRIA-style program for pandemic risk can protect the American economy with the coverage it needs to minimize the economic impact of pandemic-related shutdowns and aid economic recovery.”
  • Closures and shutdowns caused by COVID-19 have significantly impacted the employees and operations of businesses across the country. The  Business Continuity Coalition – representing the restaurant, entertainment, professional sports, hospitality, gaming, retail, communications, broadcasting and real estate industries, employing millions of people – encourages policymakers to develop a public-private partnership that will protect American jobs and limit future economic damage from pandemics and other national emergencies that cause business interruptions.
  • The Business Continuity Coalition has also posted a collection of statements of support for the PRIA legislation.
  • “The Roundtable stands with its partners in the BCC in support of PRIA’s eventual enactment. We commend the efforts of Rep. Maloney and look forward to working with policymakers as the legislation moves forward,” DeBoer added. 

The legislative outlook for PRIA will be among the many issues discussed at the next meeting of The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) on Nov. 9 in New York City.

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Biden Administration Proposal Includes $555 Billion Mix of Senate and House Clean Energy Proposals

Posted on by Trey Jackson

Capitol-Dome-night-flag

The White House’s scaled back $1.75 trillion “framework” infrastructure reconciliation bill includes a $555 billion mix of Senate and House clean energy provisions. (Axios, Oct. 29) 

Why It Matters 

  • Revamped clean energy tax incentives “form the biggest measures to fight climate change in the budget reconciliation bill.” (PoliticoPro and B-Gov, Oct. 28)
  • House Ways and Means Chair Richard Neal (D-MA) and Senate Finance Chairman Ron Wyden (R-OR) said yesterday they had reached agreement on the climate provisions. (PoliticoPro, Oct. 28)
  • The incentives largely reflect the suite of credits and deductions passed Ways and Means last month with Democratic-only support (Roundtable Weekly, Sept. 17). Senate Finance provisions favorable to CRE advanced in May (Roundtable Weekly, May 28) have also been included in the latest House package. 

Clean Energy Tax Provisions 

Solar-panel-installation-3-men

  • Based on the text and a section-by-section summary of the Build Back Better reconciliation bill, clean energy tax provisions of interest to the U.S. real estate sector include:
    • Extension of the Section 48 Investment Tax Credit to offset some of the expenses of solar properties, combined heat and power systems, and fuel cells – with expansions to cover energy storage, dynamic glass, and “linear” generators;   
    • A revised tax credit for installations of EV charging stations;

    • An elective “direct pay” option allowing entities with little or no tax liability to obtain a payment equal to the value of the credits they would have received if they paid taxes; and

    • Reform of the 179D tax deduction geared toward incentivizing energy efficiency “retrofits” of existing commercial and multifamily buildings.
  • The green energy incentives, however, are subject to new labor rules that will affect taxpayers’ decisions to utilize the benefits. The Build Back Better Act does not require businesses seeking these credits or deductions to pay Davis-Bacon wages or hire registered apprentices on clean energy projects. However, the amount of the incentives can be five times greater for qualifying projects meeting these labor costs compared to those that do not.
  • The Roundtable’s latest Policy Issues Toolkit (“Clean Energy Tax Incentives” fact sheet, p. 25) provides more details on particular incentives and the wage/apprenticeship issues at play in reconciliation talks.
  • A separate climate priority of Progressive Democrats known as the Clean Electricity Performance Program (CEPP) – that would have offered incentives to power companies switching to renewable energy and fining those that “moved slowly from fossil fuels” – was dropped from the reconciliation bill at the urging of Senator Joe Manchin (D-WV). (Roll Call, Oct. 28.) 

CRE’s Role 

John Fish 2021 Suffolk

  • Roundtable Chair John Fish (Chairman and CEO, Suffolk), above, commented on the importance of clean energy measures affecting commercial real estate in an interview published this week with American City Business Journals.
  • Fish emphasized the impact that the built environment has on clean energy. He noted buildings produce 40 percent of all carbon emissions and 36 percent of all energy use. He also commented on the role of older building stock, since 75 percent of all buildings in America average 35 years old or older.

“The building world – the asset class of the buildings themselves – contributes a great deal of influence to the health of our environment. We all support energy efficiency, we all support lowering the carbon footprint. We really feel that the real estate industry, of all industries, has probably one of the biggest impacts on that conversation than anybody else. We welcome the opportunity to be at the table and to have those constructive dialogues,” Fish said. (Business Journals, Oct. 27)

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Democrats’ Revised Tax Plan Includes Changes and Improvements Important to Real Estate and Other Pass-through Businesses

Posted on by Trey Jackson

DC landscape

This week’s frenzy of infrastructure negotiations in Washington was capped off by the White House’s release yesterday of a pared down, $1.75 trillion framework agreement on “human” infrastructure legislation, which trimmed back potential tax increases on commercial real estate and other pass-through businesses. (CQ, Oct. 30 and Tax Notes, Oct. 29) 

Dynamic Negotiations 

  • By introducing revised legislation – the Build Back Better Act (H.R. 5376) – Democratic leaders hoped to create momentum for a vote on the separate, bipartisan “physical” infrastructure bill. Their effort was unable to secure the necessary support for an immediate vote from House progressives. (Section-by-section bill summary and Washington Post, Oct. 29)
  • Policymakers did pass a short-term extension of surface transportation programs until Dec. 3 – the same day that funding for the government will run out and within the time frame for addressing the current debt ceiling. (Punchbowl News, and BGov, Oct. 30)
  • Roundtable President and CEO Jeffrey DeBoer commented on the evolving infrastructure legislative developments in an interview this week with American City Business Journals. DeBoer noted that as the bill’s cost has come down, policymakers have eliminated many proposed tax increases.
  • “We very much want to see the physical bipartisan infrastructure bill pass. It has been tied in the House to the larger human infrastructure bill, and that legislation is slowly winding its way to the finish line. As the larger bill was put forward, we were concerned about some provisions that we felt might target real estate activities and real estate investment. We tracked all of these various proposals such as mark-to-market and wealth taxes. We’re continuing to monitor developments and ensure that nothing comes up without proper vetting or full understanding of how it would impact CRE,” DeBoer said. 

What It Means for CRE 

Marcus and Millichap Oct 21 2021 tax webinar

  • The revised reconciliation bill reflects continued progress on a number of tax issues important to real estate and prioritized by The Real Estate Roundtable. Critically, the current bill includes:     
     
    • No limitations on like-kind exchanges (sec. 1031),
    • No increase in the capital gains tax rate,
    • No restrictions on the 20% pass-through business income deduction (sec. 199A),
    • No taxation of unrealized gains at death or repeal of the step-up in basis of assets,
    • No changes in the tax treatment of carried interest, and
    • No restrictions on estate tax valuation discounts. 
  • Additionally, the revised legislation excludes a complex mark-to-market regime to tax the unrealized gains of billionaires, new tax burdens on grantor trusts, and a provision that would have prohibited IRA investment in many non-listed REITS. 

Key Tax Revenue Provisions 

Tax issues grid choice image

  • In addition to provisions aimed at corporate and international business activities, tax provisions in the framework agreement include:
     
    • Expansion of the 3.8% net investment income tax to cover a much broader range of income – such as capital gains and rents – earned by both active business owners (such as real estate professionals), S corp. shareholders, and limited partners.

    • A new proposal to impose a 5% surtax on a taxpayer’s modified adjusted gross income (AGI) over $10M and an additional 3% surtax tax on modified AGI over $25 million.

    • Restrictions on taxpayers’ ability to deduct more than $250K (individual) or $500K (married couple) of losses incurred in an active trade or business from their portfolio income or wages.

    • Modifications to the portfolio interest exception that exempts interest earned on certain U.S. debt obligations from a withholding tax on outbound interest payments. The exception is sometimes used by foreign institutions when investing in US real estate.

    • Clarification that limitation on interest deductibility (sec. 163(j)) applies at the partner or shareholder level, not the entity level.

    • Clean Energy tax provisions affecting real estate are covered in the Roundtable Weekly story below. 

Dropped Tax Incentives 

  • As the cost of the bill came down, certain tax incentives were eliminated from the package: expansion of the low-income housing tax credit and the credit for rehabilitating historic structures, creation of a new tax credit for home construction in low-income communities for low-income buyers, and new infrastructure tax credit bonds and related infrastructure financing provisions. 

Legislative changes to the bill could occur next week on crucial issues such as the SALT deduction, but the timing of action on a final agreement remains uncertain. (Bloomberg, Oct. 29) 

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Policymakers Exploring Alternative Climate Policies for Reconciliation Package

Posted on by Trey Jackson

Capitol at night reflective

The White House and congressional Democrats scrambled this week to find alternatives to address climate change within the multitrillion reconciliation framework after Sen. Joe Manchin (D-WV) rejected the proposed Clean Electricity Performance Program (CEPP). The CEPP has been a centerpiece proposal pushed by the Biden Administration to increase U.S. renewable power supplies by de-carbonizing the electricity grid. (Politico and E&E News, Oct. 20)

Clean Energy and CEPP

Sen. Joe Manchin (D-WV)

  • The CEPP would offer federal Energy Department incentive payments to utilities that meet an annual target of increasing “clean electricity” by four percent per year through 2030. It is intended to reach the Biden Administration’s goal of powering 80% of the electric grid from renewable sources by 2030. (The Hill, Oct. 18)
  • Sen. Manchin (above), chair of the Senate Energy and Natural Resources Committee, stated he opposes the CEPP because the electricity sectors’ transition to clean power sources is already underway. Manchin’s opposition has prompted some Democrats to consider a last-ditch effort to expand the program to include coal and gas power plants that capture carbon emissions, in an effort to attract the key West Virginia Senator’s support. (E&E News, Oct .19 and Politico, Oct. 14)
  • Policymakers are also exploring whether the CEPP could be restructured as a grant program to reward states that increase clean energy output. (Bloomberg, Oct. 20)
  • U.S. Department of Energy Deputy Secretary David Turk addressed alternative approaches to the CEPP during an Oct. 19 Bloomberg Live event.  He said, “There are a variety of discussions right now about how to have different authorities, different funding streams” that support partnerships among states, localities, utilities and the private sector toward the goal of grid de-carbonization. (BGov, Oct 20)

Climate Provisions and CRE

Solar Panels on building

  • Proposals like the CEPP – which aim to boost electricity from solar, wind, and other non-carbon sources – have become a key energy policy priority for CRE. This is particularly the case in local jurisdictions considering “performance standards” that set regulatory limits on “direct” and “indirect” GHG emissions from buildings. (Roundtable Weekly, April 9)
  • An evolving, cleaner grid can also help enable real estate assets to reduce and disclose their so-called “Scope 2” emissions that derive from purchased electricity. The Securities and Exchange Commission (SEC) has indicated it will propose regulations that require public companies (and other entities in its jurisdiction) to report on “material” information regarding GHG emissions to the investor community.  (Roundtable Weekly, Oct. 1 and June 11)
  • If a CEPP-type policy is included in a final reconciliation package, it will be critical for federal data to stay up-to-date and forecast how such a program is driving the grid to become cleaner and less reliant on fossil fuels.
  • The Roundtable’s Sustainability Policy Advisory Committee (SPAC) has thus convened a task force to examine the primary federal data set – known as the Emissions Generation Resource Integrated Database (eGRID) – that reports on the carbon impact of virtually all electric power generated in the U.S.
  • Roundtable members rely on eGRID to inventory their portfolio-wide carbon emissions. eGRID also provides the data that EPA’s Portfolio Manager benchmarking tool uses to determine a specific building’s indirect Scope 2 emissions that derive from electricity consumption.

While the fate of climate policies – and indeed, the entire reconciliation framework – remains unclear, re-vamped provisions of the federal tax code to incentivize clean energy projects appear to have garnered uniform Democratic support. Particulars vary in Senate and House tax proposals, but credits and deductions to incentivize solar installations, energy storage, EV charging stations, and building retrofit projects are on the table in reconciliation discussions. (See The Roundtable’s latest Policy Issues Toolkit, “Clean Energy Tax Incentives,” p. 25)

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Democrats Struggle to Reach Agreement on “Social Infrastructure” Package as Roundtable’s DeBoer Addresses Real Estate Tax Issues in Play

Posted on by Trey Jackson

image - U.S. Capitol blue sky

Democrats this week struggled to reach agreement on cutting the cost of President Biden’s multitrillion “social infrastructure” proposal as Senator Kyrsten Sinema (D-AZ) opposed any increase in marginal rates for businesses, high-income individuals or capital gains to pay for the package. Democrats aim to pass both the “human” and “physical’ infrastructure packages under a budget reconciliation process that requires approval of all 50 Democrats in the evenly divided Senate. (Wall Street Journal, Oct. 20) 

CRE Impact 

Jeffrey DeBoer, Real Estate Roundtable President and CEP

  • Real Estate Roundtable President and CEO Jeffrey DeBoer (above) yesterday addressed the fluid nature of the reconciliation bill negotiations during a Marcus and Millichap tax policy webinar. The webcast is available here, but you must be registered to access the discussion.
  • DeBoer noted that the narrow voting margins in both the Senate and House have created an environment where it is difficult for various factions in Congress to reach consensus. “What we have here is a clash between expectations and reality,” DeBoer said.
  • He added that the current policy disputes among lawmakers adds uncertainty to the potential outcome. “Could negative tax provisions affecting real estate be put back on the table? Absolutely. What also worries me is that other proposals that we don’t know about yet may suddenly be considered.” (Registration required to view the Marcus & Millichap webcast)
  • The House Ways and Means Committee voted in September to advance legislation that would finance Biden’s social infrastructure initiatives with a $2.1 trillion tax increase focused on high-income individuals and corporations. The House legislation excluded several tax proposals put forward by the Biden administration and Senate lawmakers that would increase the tax burden on real estate. (Roundtable Weekly, Sept. 17)
  • The Washington Post today reported that a new “Billionaire Income Tax” proposal from Senate Finance Chair Ron Wyden (D-OR) would “aim to raise hundreds of billions of dollars from the fortunes of America’s roughly 700 billionaires” by applying a tax to those individuals earning over $100 million in income three years in a row. Taxes would be imposed on the increased value of assets such as stocks on an annual basis, regardless of whether those assets are sold. Billionaires would also be able to take deductions for the annual loss in value of those assets. (Washington Post, Oct 22)
  • Additional tax issues affecting CRE are profiled in The Roundtable’s summary on Real Estate Tax Issues and Budget Reconciliation Legislation.   

Tax Uncertainty 

Kyrsten Sinema

  • The Senate has not acted on any revenue-raising proposals to support President Biden’s original $3.5 trillion infrastructure package. Policymakers are now aiming to pare down the overall reconciliation bill cost to approximately $2 trillion before finalizing measures to pay for the package.
  • Sen. Sinema (above) yesterday spoke with House Ways and Means Committee Chairman Richard Neal (D-MA) in an effort to break the impasse on how to fund certain infrastructure spending priorities in a scaled-down package. Neal said he is optimistic a deal will be reached. “I did point out that it’s the ninth inning. I mean, when are you going to vet these issues?” Neal said. (The Hill, Oct. 21)
  • The current reconciliation bill in the House would raise the top marginal income tax rate on many pass-through business owners from 29.6% today to 46.4% (a 57% increase). The Roundtable believes this level of increase on pass-through businesses was unintended by Members of Congress and could undercut the bill’s own objectives. 

As negotiations continue among policymakers on a reduced topline number for the social infrastructure package – and the specific programs it would support within a multi-trillion reconciliation bill – The Roundtable continues to urge lawmakers to ensure that any tax changes within a final agreement treats pass-through businesses fairly and equitably. (Roundtable Weekly, Oct. 1 and Oct. 15) 

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