Last week, the White House hosted a virtual briefing for Roundtable members to discuss federal loan and guarantee programs at the federal departments of Energy, Housing, Transportation and the General Services Administration that may assist with financing commercial-to-residential conversion projects.

Property Conversions Briefing

• In October, the administration announced a suite of federal resources—including low-interest loans—across various agencies to assist conversion projects aimed at increasing the housing supply, revitalizing urban downtowns, and cutting climate pollution. (Roundtable Weekly, Oct. 27; White House Commercial to Residential Conversions Guidebook)

• The briefing last week provided members with a high-level overview of the administration’s conversion work and focused on the Transportation Department’s Transportation Infrastructure Finance and Innovation (TIFIA) and Railroad Rehabilitation and Improvement (RRIF) financing programs. (See FAQs)

• White House staff also announced upcoming workshops with the Department of Transportation’s Build America Bureau to learn more about how TIFIA and RRIF financing can be used for transit-oriented development (“TOD”) that takes the form of adaptive reuse.

Upcoming Workshops - Federal Resources to Support Commercial-to-Residential Conversions

• General Services Administration
  • Dec 5, 2023 02:00 PM
  • Register: https://pitc.zoomgov.com/meeting/register/vJIsfuGhrDMoEtl2b6hWEl0SV4B4K1g3xXo
• Department of Transportation
  • Dec 6, 2023 12:30 PM
  • Register: https://pitc.zoomgov.com/meeting/register/vJIsdOmprDwtGEouaConZYQHY_1sOdNkRjQ
• Department of Energy
  • Dec 14, 2023 02:00 PM
  • Register: https://pitc.zoomgov.com/meeting/register/vJIsduGhqjkpH-F53_dFQvvXcu6On0_rzC4

IRA Tax Incentives – 179D

• White House staff on the property conversions briefing mentioned that green tax incentives enacted by the Inflation Reduction Act (IRA) may be layered with other federal loan, guarantee, and grant programs to support a project.  (See RER fact sheet, “Clean Energy Tax Incentives Relevant to U.S Real Estate)

• Roundtable Senior Vice President & Counsel Duane Desiderio was quoted this week in Tax Notes on the deduction in section 179D for energy-efficient commercial buildings.

• “The IRA’s changes to section 179D are good policy, but more changes need to be made for the deduction to reach its full potential,” said Desiderio.” (Tax Notes, Nov. 28). He explained that Congress should make 179D “transferable” by REITs and other private sector owners.

The Roundtable’s Property Conversions Working Group will continue to serve as a conduit between our members and the administration to help design impactful policies that can assist with office-to-residential conversions. Please contact Roundtable SVPs Duane Desiderio (ddesiderio@rer.org) or Ryan McCormick (rmccormick@rer.org) for more information.

#  #  #

Although the Biden administration and Congress continue to urge federal agencies to end pandemic-era telework policies, officials acknowledge they have yet to reach their return-to-office objectives, with only about half of cabinet agencies having achieved the goal of workplace return by January. (Axios, Nov. 30)

Congressional and Administration Efforts

• On Wednesday, a subcommittee of the House Committee on Oversight and Accountability held a hearing titled, “Oversight of Federal Agencies’ Post-Pandemic Telework Policies,” to discuss the current status of telework policies within various federal agencies.

• Subcommittee Chairman Pete Sessions (R-TX) reiterated the goal to ensure federal agencies are measuring the impact of telework, as it remains at elevated levels even with President Biden’s call for federal employees to return to the office. (Government Operations and the Federal Workforce Subcommittee Chairman Sessions’ Remarks, Nov. 29)

• White House Chief of Staff Jeff Zients has been privately urging cabinet secretaries to address the significant number of federal workers who continue to work remotely, encouraging a shift away from persistent work-from-home practices. (Axios, Nov. 30)

• RER Chair John Fish (SUFFOLK) (above) was quoted in the Wall Street Journal, voicing the industry’s concern for stalled return to the workplace. “Other parts of the country with large federal workforces are also struggling to bring back workers. “Whether you’re talking about downtown Boston, or Denver or Northern Virginia, occupancy is down substantially,” said Fish. (WSJ, Nov. 28)

• Unions representing federal workers strongly support work from home and have pushed back against the Biden administration’s workplace return goals. (BGov, Sept. 14; Federal Times, Aug. 7)

• Since the pandemic, Congress has held multiple hearings and introduced legislation in both the House and Senate aimed at solidifying official government definitions of remote work and enhancing the accountability and transparency of federal telework policies. (Roundtable Weekly, Oct. 20)

Roundtable Advocacy

• The Real Estate Roundtable has urged President Biden and national policymakers for months to end government policies that encourage remote working arrangements for federal employees. (RER letter to President Biden, Dec. 2022; RER letter to Senate, April 2023)

• In August, the White House ordered cabinet officials to increase the return of federal employees to their offices. (Roundtable Weekly,Aug. 11)

Roundtable President and CEO Jeffrey DeBoer has repeatedly emphasized that remote working by federal employees is undermining the health of cities, local tax bases, and small businesses.

#  #  #

A new analysis by Marcus & Millichap demonstrates how like-kind exchanges are fundamental to the health and financing of the commercial real estate industry, particularly during market corrections and liquidity shortages. (Marcus & Millichap - The Importance of Like-Kind Exchanges During Periods of Reduced Commercial Real Estate Market Liquidity, 2023).

Key Findings

• Commercial real estate transaction volume is down, but like-kind exchanges are up.  Despite a general decline in commercial real estate transactions, the number of 1031 exchanges initiated has increased nearly 15% from 17,467 in the first half of 2019 to 20,070 in the first half of 2023.

• The analysis attributes the general decline in commercial real estate transactions in the first half of 2023 to the rise in interest rates, stricter lender underwriting, a diminished economic outlook, and a broad spectrum of geopolitical challenges.

• “The 15% rise in the number of exchanges initiated, when commercial real estate transaction count fell by 22.1%, underscores the importance of like-kind exchanges in periods of reduced commercial real estate market activity.” (Marcus & Millichap)

• The liquidity generated through LKEs serves as a deterrent against commercial property defaults, consequently reducing risks in the banking and financial systems that could otherwise pose a threat to the broader economy.

• While the Biden administration has proposed limiting like-kind exchanges in its last two budget submissions, academic and other economic research has repeatedly demonstrated the positive economic contribution of LKEs and their importance to the economy. (EY report—“Economic Contribution of the Like-Kind Exchange Rules to the US Economy in 2021: An Update”)

• The Marcus & Millichap analysis draws on data collected by the largest like-kind exchange qualified intermediaries in the country and aggregated by the Federation of Exchange Accommodators, a member of The Real Estate Roundtable’s President’s Council.

The Roundtable’s Tax Policy Advisory Committee (TPAC) will continue working to raise awareness of the role that like-kind exchanges play in supporting the health of the US economy and the stability of real estate markets.

#  #  #