January 12, 2010
Washington Leadership Forum 2010 – REIT CEOs Head to Capitol Hill
The 2010 Washington Leadership Forum (WLF) is scheduled for February 23 and 24 in Washington, D.C., and all NAREIT member CEOs are invited to participate.
WLF provides an annual forum for REIT executives to meet with key lawmakers and Administration officials to discuss the latest developments in our industry and NAREIT’s legislative agenda for 2010. This year, the agenda will be focused on measures that encourage and enhance the REIT approach to real estate investment at a time of lingering economic weakness.
For example, NAREIT will continue to seek modification of the Foreign Investment in Real Property Tax Act (FIRPTA) to facilitate greater non-U.S. equity investment in U.S. real estate, and will advocate for continued efforts, such as the Federal Reserve’s temporary Term Asset-Backed Securities Lending Facility (TALF), to restore commercial real estate lending and shore up the securitization market. In addition, NAREIT will seek to limit unnecessary margin requirements on end-users of derivatives and will pursue modifications to allow REITs to access energy tax incentives.
This year’s WLF will be a tremendous opportunity for REIT executives to reach out to policymakers and discuss the critical issues impacting the industry. We ask you to encourage your CEO to attend this year’s WLF to help promote your company and the industry within the halls of Congress. To review the proceedings of last year’s WLF, click here.
In Congress and on the Campaign Trail, 2010 Promises to be a Busy Year
Congress returns to Washington, D.C., in January poised to continue work on health care reform, financial regulatory reform, and economic recovery proposals. It is anticipated that Congress will take steps to address the estate tax and other tax cuts that were enacted under President Bush, but which are scheduled to expire at the end of 2010. In the wake of recent events, it is also likely that the Congress will turn renewed attention to homeland security and national defense policy.
Even with a full agenda in D.C., attention is increasingly shifting toward the 2010 Congressional elections. Conventional wisdom holds that the President’s party typically loses seats in mid-term Congressional elections. A remarkable and recent example was the 1994 mid-term election, which gave Republicans the majority in both the House and the Senate. With growing concerns among the electorate and increased tension within and between the major parties, the 2010 election season is expected to be a dramatic one.
NAREIT will continue to pursue its legislative agenda on Capitol Hill, and will closely monitor developments in the 2010 election that may impact supporters of the REIT approach to real estate investment.
Bill to Allow REITs to Benefit from Recovery Act Energy Grants Introduced, Gains Support
NAREIT continues to seek a legislative fix that would enable REITs to benefit from energy grants enacted last February as part of the “American Recovery and Reinvestment Act” (Pub. L. No. 111-5). These grants, which are made in lieu of tax credits for investments in qualifying renewable energy projects, were specifically designed to benefit taxpayers with insufficient tax liabilities to benefit from existing energy tax credits. However, this provision has been interpreted to benefit a REIT only to the extent that it retains taxable income.
In December, Rep. Linda Sanchez (D-CA), a member of the tax writing Ways and Means Committee, introduced H.R. 4256, the “Sustainable Property Grants Act of 2009,” to allow REITs to fully participate in this grants program. This bipartisan measure is also cosponsored by the following Ways and Means Committee members: Reps. Shelley Berkley (D-NV), Dean Heller (R-NV), Rep. John Larson (D-CT) and Devin Nunes (R-CA). To view the legislative language, Rep. Sanchez’ introductory statement and other materials, click here.
Rep. Sanchez will pursue the inclusion of her bill in legislation that Congress will be considering in the coming week to spur job growth or other domestic investments. NAREIT is working with her to generate additional Congressional support for H.R. 4256, especially with other members of the Ways and Means Committee.
Financial Regulatory Reform – including Derivatives Reform – Passes House
On December 11, 2009, the House of Representatives passed a comprehensive financial regulatory reform proposal that would create a Consumer Financial Protection Agency, impose new regulations on the over-the-counter (OTC) derivatives market, and provide new oversight over the credit rating agencies, investment advisers and private pools of capital.
NAREIT staff, with guidance from the members of the NAREIT Derivatives Reform Task Force and in conjunction with the Coalition for Derivatives End-Users, have been educating policymakers about the ways in which corporate end-users utilize derivatives products to manage their exposure to variable interest rates, foreign currency, fluctuating commodity prices or other risks. While end-users generally support additional transparency in the derivatives market, they have significant concerns about proposals that would require them to tie up working capital to satisfy mark-to-market margin calls. For more information on this issue and NAREIT’s efforts, click here.
During House consideration of amendments to the wider reform proposal, it became clear that lawmakers had heard many of the concerns of derivatives end-users. First, by a vote of 304-124, the House accepted an amendment offered by Reps. Scott Murphy (D-NY), Mike McMahon (D-NY) and Frank Kratovil (D-MD) that would protect most business end-users from the bill’s most onerous provisions. Second, the House rejected, by a vote of 150-280, an amendment offered by House Financial Services Committee Chairman Barney Frank (D-MA) that would give regulators to require end-users to cash collateralize their bilateral transactions. The House also rejected two amendments, offered by Representative Bart Stupak (D-MI), that would have imposed significant restrictions on end-users.
The focus of this debate now turns to the Senate, where the Banking Committee is expected to begin consideration of a comprehensive financial regulatory reform proposal as soon as the end of January. The Senate Agriculture Committee will also play a significant role in the drafting of the derivatives provisions in this bill. While it is certain that the debate will be impacted by the recent announcement by Senate Banking Committee Chairman Chris Dodd (D-CT) that he not seek reelection in November, the exact nature of this impact remains to be seen.
NAREIT will continue to engage with policymakers on financial regulatory reform issues important to REITs and publicly traded real estate companies. If you or your company would like to participate in this effort, please contact Kirk Freeman at email@example.com or 202-739-9415.
NAREIT Submits Comments to Treasury about the Obama Administration’s Entity Classification Legislative Proposals
Many REITs that invest in non-U.S. real estate do so through wholly-owned foreign limited liability entities that are permitted under current rules to “check the box” (CTB) to be disregarded entities for tax purposes. This structure allows the REIT to achieve immediate flow-through of the foreign income to its shareholders and to comply with the REIT income and asset tests.
President Obama’s Fiscal Year 2010 budget included a proposal that would enact a fundamental shift in U.S. tax policy by repealing the current CTB rules for non-U.S. entities. As a result, most wholly-owned non-U.S. limited liability entities would be treated as corporations. If enacted, this proposal would raise many questions about the classification of rental income generated by a REIT's international subsidiaries and, in the worst cases, could lead to a loss of REIT status. For more information, click here.
NAREIT has joined a coalition of business entities in support of the current tax rules. The coalition has undertaken an advocacy effort to educate policymakers about how U.S. companies utilize these rules in the foreign context and to oppose any changes to the current rules outside of a broader international tax reform effort. Last fall, coalition members met with officials from the Treasury Department, Joint Tax Committee, and a number of staff members from offices of key members of Congress.
Although no legislative action was taken on this proposal in 2009, it is expected that the Obama Administration will again include this proposal in its Fiscal Year 2011 budget. To demonstrate the particular concerns REITs may face by this proposal, NAREIT submitted a letter to the Treasury Department in December 2009, and met with Joint Committee on Taxation officials on January 11. To read the letter to Treasury, click here.
While comprehensive international tax reform is unlikely in 2010, this proposal may be considered as a revenue offset for other tax legislation. NAREIT will work with its coalition partners to oppose this proposal while continuing to educate policymakers about the specific concerns it creates for REITs.