The Real Estate Roundtable, along with 16 other national real estate trade organizations, submitted detailed comments to the Senate Finance Committee and House Ways and Means Committee, which held hearings this week on how to fund recent Biden Administration  infrastructure investment proposals.

Congressional Consideration

• The coalition letter states, “As Congress considers options to pay for these investments, we urge policymakers not to erode longstanding tax rules that support job creation, capital formation and productive risk taking. Several of the tax proposals in the Administration’s infrastructure and human capital initiatives, unfortunately, would reduce real estate investment and diminish opportunities for startup businesses and those less advantaged.”
• The comments focus on recent Biden Administration tax proposals, including:
  • Limiting taxpayers’ ability to defer gain that is reinvested in property of a like-kind;
  • Nearly doubling the tax rate on long-term capital gains;
  • Limiting capital gains treatment to invested cash and disregarding other forms of risk taken by partners; and
  • Making death a taxable event at far lower levels of income and potentially taxing the unrealized gain on appreciated assets not once but twice when an individual dies. 

Economic Impact 

• The letter states, “(President Biden’s) American Jobs Plan and American Families Plan offer credible initiatives to address many of our Nation’s most pressing needs, such as a modernized infrastructure, a more comprehensive approach to climate-related matters, and increased investments in housing, education, and childcare. We support aggressive steps to finance infrastructure needs, increase the supply of affordable housing, expand the economy, and promote job growth. Regrettably, some of the tax proposals accompanying the plans would reduce economic activity and opportunities and be completely counterproductive to the goals of the President’s initiatives.”
• The coalition comments detail how the Biden tax proposals would undercut the tax base in localities throughout the country that rely on real estate taxes to finance schools, police, and other first responders. It also notes how the proposed taxes would diminish the incentive for private investment of capital in riskier real estate projects, such as affordable housing and redevelopment in struggling communities.
• The letter also cites an April 2021 EY study commissioned by the Family Business Estate Tax Coalition, which includes The Real Estate Roundtable, that shows the impact of a specific proposal that would impose tax on transferred assets at death. The study found that repealing stepped-up basis and taxing unrealized gains at death would result in reduced job growth, lower wages, and a reduction in GDP of roughly $10 billion per-year. 

Tax Issues & LKEs 

• A May 18 webcast moderated by Marcus & Millichap President and CEO Hassam Nadji entitled “Tax Reform: A CRE Game Changer?” featured Roundtable President and CEO Jeffrey DeBoer and EisnerAmper Tax Partner Lisa Knee.
• DeBoer and Knee discussed many of the tax issues put forward by President Biden. (Access the Marcus & Millichap webcast by completing a registration form)
• DeBoer will also participate in Commercial Observer’s May 25 “Stand With Cities” webcast, which will focus on how civic, city, state, and business leaders are joining forces to strengthen the economies of U.S. urban centers. (Registration for webcast)

• Among the other industry leaders scheduled to participate in the May 25 event are the following Real Estate Roundtable Members:
  • Kathleen McCarthy (Global Co-head of Blackstone Real Estate)
  • Owen Thomas (CEO, Boston Properties)  
  • Matthew Kelly (CEO, JBG Smith) 
  • Marty Burger (CEO, Silverstein Properties)  
  • Tony Malkin (Chairman & CEO Empire Realty Trust) 
  • Scott Rechler (Chairman and CEO, RXR Realty)  
• A list of all participants is on the event website.
• DeBoer was also quoted in Commercial Observer on May 18 on President Biden’s proposal to limit the use of Section 1031 like-kind exchanges. “Exchanges reduce the need for outside financing, leading to less leverage and debt on U.S. real estate. As a result, exchanges allow cash-strapped minority-, women- and veteran-owned businesses to grow their business by temporarily deferring tax on the reinvested proceeds,” DeBoer stated. 

• Like-kind exchanges were the focus of a May 19 webcast that featured Roundtable Senior Vice President and Counsel Ryan McCormick. The webcast – “Powerful Economic Activity Supported by 1031 LKEs: A Dive into the EY Economic Impact Study” – was sponsored by the Institute for Portfolio Alternatives.
   
• The Roundtable will also host a virtual congressional staff briefing next week on real estate like-kind exchanges and the Administration’s proposed changes to Section 1031 of the tax code. 

President Biden’s proposals, congressional action and the industry response will be a focus of discussion at The Roundtable’s June 15 Annual Meeting and its Tax Policy Advisory Committee (TPAC) Meeting on June 16.

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The White House convened a roundtable discussion on Monday with CRE industry leaders and other stakeholders to discuss opportunities and obstacles to “decarbonize” U.S. buildings and create jobs on energy efficient construction and retrofit projects. (“Accelerating Building Decarbonization,” Department of Energy / YouTube video) 

Government and Industry Dialogue 

• The event aimed to catalyze cooperation across government, real estate, manufacturing, and union participants as part of President Biden’s American Jobs Plan, which has a goal to build and retrofit two million homes and commercial buildings.
  
  
• According to a White House Fact Sheet, its recommended federal investments in building energy efficiency and electrification “will create new domestic manufacturing opportunities for electric heating and cooling technology, invest in research and development to spur smart building advances, and forge collaborations that will enable buildings to be powered by clean electricity.”
   
• White House National Climate Policy Advisor Gina McCarthy led the “Better Buildings Summit,” which also included Department of Energy (DOE) Secretary Jennifer Granholm; Environmental Protection Agency (EPA) Administrator Michael Regan; General Services Administration (GSA) Acting Administrator Katy Kale; and White House Council on Environmental Quality Chair Brenda Mallory. (YouTube video) 
  
  
• Henry Chamberlain, president and COO of the Building Owners and Managers Association (BOMA) International, participated in the event. The White House also invited five members of The Roundtable’s Sustainability Policy Advisory Committee (SPAC) to participate:   
  
  
  • Darien Crimmin, WinnDevelopment
    
    
  • Dan Egan, Vornado Realty Trust (SPAC vice-chair)
    
    
  • Ben Myers, Boston Properties, Inc.
    
    
  • Sara Neff, Kilroy Realty Corp.
    
    
  • Dana Schneider, Empire State Realty Trust, Inc.

New Programs 

• The webinar revealed that GSA will act as a proving ground to adopt carbon neutral strategies in the federal building stock – and develop “performance standards” for federal buildings with metrics and targets to reach their goals for reducing emissions.
  
  
• The White House’s Brenda Mallory announced during the event that a series of "stakeholder roundtables” will be held by the Administration to gain perspectives from industry experts on how to modernize buildings.
  
  
• EPA Administrator Regan also announced new programs affecting CRE, along with several other initiatives impacting the residential sector, including:

Zero-Carbon Building Recognition

EPA is developing criteria for a new zero-carbon commercial building recognition award. This new program aims to encourage early adoption of efficiency, electrification, green power and renewable thermal certificates in buildings, and to complement building performance standards and ENERGY STAR certification for top performing energy efficient buildings. 

Greenhouse Gas Emissions Calculator Tool for Commercial Buildings

EPA will launch a new tool linked to the ENERGY STAR Portfolio Manager benchmarking tool used by over 25% of the commercial building space in the country. The new calculator will support scenario-building and estimating the impacts of electrification and renewable energy at the building and portfolio level by enabling the use of customized emissions factors to estimate future emissions associated with building energy use. 

• Separately, DOE Secretary Granholm testified yesterday before the House Energy and Commerce Subcommittee on Energy on her department’s $46.2 billion 2022 FY budget request. Granholm addressed the Administration’s infrastructure plan and urged Congress to advance clean energy technologies. (Granholm testimony, May 19)
  
  
• President Biden yesterday issued an Executive Order directing his Administration to create a strategy on quantifying climate change risks for both public and private financial assets. Treasury Secretary Janet Yellen, who leads the multi-agency Financial Stability Oversight Council, will oversee development of the federal report on information sharing requirements of the climate-related financial risk data. (White House Fact Sheet, May 20) 

The Roundtable’s SPAC will focus on the impact of the Biden Administration’s and congressional efforts to reduce carbon emissions in buildings during its June 16 meeting, held in conjunction with the organization’s Annual Meeting (remote).

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