Industry leaders and national policymakers met this week for The Roundtable’s fall meeting to discuss the U.S. political and economic environment, including issues such as inflation, housing, labor shortages, climate change, and November’s midterm elections. (Roundtable Executive Policy Summary and Policy Issue Profiles)

National Policy Issues & CRE

Speakers at The Roundtable’s Sept. 20-21 meeting included:

• Roundtable Chair John Fish (Chairman & CEO, SUFFOLK), above, and President and CEO Jeffrey DeBoer opened the meeting with an overview of The Roundtable’s efforts to shape the Inflation Reduction Act (IRA) that passed last month, and how the new law’s tax and sustainability provisions impact CRE. (Watch John Fish’s opening remarks | Roundtable Weekly, Aug. 12)

• Senate Majority Leader Chuck Schumer (D-NY) also discussed the IRA and a string of other recent legislation—including bipartisan success on infrastructure spending, investments in U.S. manufacturing, and overhaul of the EB-5 investment program. He also raised the importance of immigration reform and Congress’s current focus to pass a funding resolution by Sept. 30 to avoid a government shutdown.

• Rep. Patrick McHenry (R-NC), left, Ranking Member of the House Financial Services Committee, and Roundtable Board Member Ross Perot, Jr., right, (Chairman, Hillwood), discussed affordable housing supply problems, steps to counter local NIMBY opposition, and the need to develop a prudent economic policy response to prepare for future pandemic risks.

• Sens. Michael Bennet (D-CO), right, and Mark Warner (D-VA), left, joined Willy Walker, center, (Chairman & CEO, Walker & Dunlop), to discuss supply chain issues, the war in Ukraine, and the importance of GSE reform.

Clean Energy

• Roundtable Board Member and Sustainability Committee Chair Tony Malkin, center, [Chairman, President, and CEO, Empire State Realty Trust, Inc.] led a discussion on how the IRA’s “clean energy” tax incentives impact CRE investments with Roundtable Senior Vice Presidents Duane Desiderio, left, and Ryan McCormick, right. (Watch the discussion)
  
  
• Roundtable fact sheets detail the IRA’s Clean Energy Tax Incentives (Sept. 20) and Revenue Provisions (Aug. 17).

Economic Conditions & Political Landscape

• Dr. Austan Goolsbee, right, (former Chairman, White House Council of Economic Advisors) and The Roundtable’s Immediate Past Chair Debra Cafaro (Chairman & CEO, Ventas, Inc.) focused on inflationary pressures, labor shortages, return-to-office issues, and a new era of deglobalization.

• A “fireside chat” with Jim Messina, right, (former President Obama’s Deputy Chief of Staff) and Barry Jackson, left, (former House Speaker John Boehner’s Chief of Staff) offered an overview of the current state of U.S. politics and a preview of the upcoming midterm elections.

Next on The Roundtable’s meeting calendar is the all-member State of the Industry Meeting on Jan. 24-25, 2023 in Washington, where The Roundtable will unveil its 2023 Policy Agenda.

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• The Investor Advisory Committee’s recommendations are not binding, although the SEC could adopt final rules on corporate climate reporting requirements this fall. (BGov, Sept. 21)
• The Real Estate Roundtable submitted comments on June 10 objecting to the Commission’s Scope 3 approach. The comments noted that real estate companies neither control nor have access to data regarding emissions from third parties in their “value chains.” (Roundtable Weekly, June 10 and June 24)
• A joint industry letter filed on June 13 from 11 national real estate trade groups also opposed the SEC’s proposed approach, emphasizing that corporate disclosures on indirect Scope 3 emissions should be voluntary.

• Litigation is expected to challenge any final Commission regulation—especially in light of a recent Supreme Court decision in West Virginia v. EPA that questioned whether the SEC has “clear” authority from Congress to regulate climate matters.
• House Financial Services Committee Ranking Member Patrick McHenry (R-NC) and other Republican committee members wrote to SEC Chair Gary Gensler this week to request the SEC provide a list of all pending and upcoming rulemakings with the specific Congressional authority supporting each action. (Policymakers’ letter, Sept. 20)
• Apart from the SEC, the Environmental Protection Agency (EPA) received a modest sum from Congress ($5 million) under the recently enacted Inflation Reduction Act (IRA) to help standardize voluntary corporate commitments to reduce greenhouse gas (GHG) emissions.
• The new EPA funds are not “meant to create a parallel program … in case the SEC rule is scrubbed,” but will rather be used for climate models and software to hold companies “accountable” for the climate commitments they are already making. (BGov, Sept 21)
• EPA backed the SEC’s climate disclosure proposal in a recent letter— stating the Commission has “broad authority to promulgate disclosure requirements that are ‘necessary or appropriate … for the protection of investors.’”

In advance of the November midterm elections, House Republican Leader Kevin McCarthy, above, and the House GOP Conference released their Commitment to America today in Pittsburgh. The platform includes forward-looking tax and economic policy proposals that, if enacted, would impact commercial real estate in important ways. (Document and video, Sept. 23)

GOP Tax Proposals

• The Commitment to America is the product of months of work by task forces created by the House Leader to develop a policy agenda to unify House Republicans. The tax proposals are outlined in a document entitled “Growth Through Innovation” developed by Republicans’ Jobs and the Economy Task Force. (Bloomberg Sept. 23; ABC News Sept. 22)
  
  
• The proposals are aimed at providing more tax relief to individuals and small businesses. Proposals affecting real estate include:
  
  
  • Permanently extending 20% deduction for pass-through business income enacted in 2017,
    
    
  • Enacting additional estate tax relief for family-owned businesses, and
    
    
  • Extending rules that facilitate the full deductibility of business interest expense.

• Other areas of focus include middle class tax relief, increasing tax incentives for R&D, bringing jobs back to the United States, and tax simplification.
  

TCJA Tax Cuts

• Senior Ways and Means Republican Rep. Vern Buchanan (R-FL), above, introduced legislation this week to make permanent tax cuts for individuals and small businesses enacted as part of the Tax Cuts and Jobs Act (TCJA) of 2017. The Buchanan legislation was endorsed in House Republicans’ Commitment to America released today. (Buchanan news release, Sept. 21)

• The TCJA Permanency Act (H.R.8913) also includes several technical fixes. Without Congressional action, 23 different provisions of the 2017 Republican tax law are set to expire after 2025.
  
  
• The current deduction for qualified business income (Section 199A) was part of the TCJA. Designed to ensure pass-through businesses received tax relief alongside the large tax cut for public corporations, the provision allows real estate and other pass-through businesses to deduct up to 20% of their net business income.''

• Buchanan, the most senior member on the House Ways and Means Committee, is running to become the next top Republican on the powerful tax policy panel. (The Hill, April 15, 2021)

CRE Policy Webinars

• “Implications of the Inflation Reduction Act for CRE” will be the focus of a CRE Finance Council webinar on Sept. 28 featuring Real Estate Roundtable SVP & Counsel Duane Desiderio. (CREFC registration)

Desiderio will also participate in another Sept. 28 virtual briefing on the Inflation Reduction Act’s clean energy tax incentives, hosted by the Urban Land Institute (ULI registration). The  webinar features members of The Roundtable’s Sustainability Policy Advisory Committee (SPAC)­­—Immediate Past SPAC Vice Chair Dan Egan (Managing Director, Real Estate ESG - Americas, Blackstone), Suzanne Fallender (VP Global ESG, Prologis), and ULI EVP Billy Grayson.

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Federal regulators are inviting comment on an updated policy statement that addresses: (1) short-term commercial real estate loan accommodations; (2) revisions and additions to examples of CRE loan workouts; and (3) accounting developments for estimating loan losses. (Federal Register, Sept. 15 and GlobeSt, Sept. 19)

Why It Matters

• The Fed’s proposal would build on existing guidance around the need for financial institutions to work prudently and constructively with creditworthy borrowers during times of financial stress.
  
  
• The “Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts” was developed jointly by the Federal Reserve’s Board of Governors, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) in consultation with state bank and credit union regulators.
  
  
• The Fed Board aims to update and expand the 2009 federal regulators’ statement on prudent commercial real estate loan workouts for CRE borrowers experiencing diminished operating cash flows, depreciated collateral values, or prolonged delays in selling or renting commercial properties. (FFIEC news release, Oct. 30)

Update & Expand

• This month’s proposed Fed policy reaffirms two key principles from the 2009 statement:
  
  
  • Financial institutions that implement prudent CRE loan accommodation and workout arrangements—after performing a comprehensive review of a borrower's financial condition—will not be subject to criticism for engaging in these efforts, even if these arrangements result in modified loans that have weaknesses that result in adverse credit classification.
    
    
  • Modified loans to borrowers—who have the ability to repay their debts according to reasonable terms—will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance.

• If finalized, the proposed statement would supersede the 2009 statement for all supervised financial institutions. The proposal would also revise language to incorporate current industry terminology and include updated references to other federal supervisory guidance.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) plans to work on comments, which are due by November 14, 2022.

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