March 30, 2011
REIT CEOs Meet Policymakers on Capitol Hill – 2011 Recap
Proposal to Update REIT Rules Expected to be Introduced Soon
Housing Finance Reform Continues to Receive Attention on Capitol Hill
NAREIT Staff Meets with Treasury to Discuss Obama Administration’s “Better Building Initiative”
U.S. Senate Passes Resolution Commemorating 50th Anniversary of REITs
NAREIT Remains Engaged on Dodd-Frank Rulemakings on Derivatives
NAREIT’s 2011 Washington Leadership Forum (WLF) was held on Mar. 1 and 2 in Washington, D.C., with 34 REIT CEOs in attendance. This year’s activities included conversations with key policymakers in Congress and the Administration. During WLF, NAREIT held a record number of congressional meetings (53), at which REIT CEOs discussed NAREIT’s legislative agenda for the upcoming year.
First, participants asked policymakers to consider cosponsoring the forthcoming "Update and Streamline REIT Act," or US REIT Act, which would modify the REIT rules to provide greater operational flexibility and efficiency. Second, they urged Congress to modify the “Foreign Investment in Real Property Tax Act,” or FIRPTA, to attract greater non-U.S. equity capital investments in U.S. commercial real estate. Third, executives from mortgage and multifamily REITs offered their insights into the challenges facing Congress as it considers reform of Government Sponsored Enterprises. Several meetings also included conversations about the need to include REITs in incentive programs that encourage energy efficiency and the industry’s support for efforts to bring fairness to the collection of sales and use taxes from purchases made online. To view a special WLF edition of Capitol Report that highlights the activities and congressional meetings at the 2011 WLF, CLICK HERE.
NAREIT appreciates the special effort made by participants in this year’s WLF, and encourages all NAREIT members to mark their calendars for the 2012 Washington Leadership Forum, to be held in Washington, D.C., on Feb. 28-29.
NAREIT is pursuing legislation to modernize and improve the REIT rules to help REITs deliver new management and operational efficiencies across a broad range of areas. This proposal, aptly named the “Update and Streamline REIT Act,” or the “US REIT Act,” has been developed over the past two years with significant input and guidance from NAREIT members.
Among other things, the US REIT Act would amend the REIT rules by: 1) modifying the REIT dealer sales "safe harbor" so that a REIT can sell up to 20% of its properties annually (up from the 10% limit today), and utilize a taxable REIT subsidiary to market its property; 2) repealing the current preferential dividend rule for all SEC-registered REITs; and 3) clarifying and modernizing the REIT income and asset tests.
Rep. Pat Tiberi (R-OH) and Rep. Richard Neal (D-MA), two senior members of the House Ways and Means Committee and supporters of the REIT industry, have agreed to introduce the proposal on a bipartisan basis in the House of Representatives. NAREIT continues to meet with additional members of the Ways and Means Committee to secure additional cosponsors. NAREIT expects the proposal to attract similar bipartisan support in the Senate, and has discussed the proposal with several key members of the Finance Committee, including Ranking Republican, Sen. Orrin Hatch (R-UT).
In the meantime, a formal revenue impact request has been submitted to the Joint Committee on Taxation to determine the overall cost of the US REIT Act, information that will be important as Congress considers this proposal.
In mid-February, the Obama Administration released a report to Congress entitled, “Reforming America's Housing Finance Market,” which provided several options for reform that would address the “fundamental flaws in the mortgage market” and “better target the government's support for affordable homeownership and rental housing.” To view NAREIT's FirstBrief on this announcement, CLICK HERE. In the intervening month, both the Senate Banking and the House Financial Services Committees have held hearings on the subject of housing reform.
On Mar. 15, the Senate Banking Committee held a hearing titled, “The Administration’s Report to Congress: Reforming America’s Housing Finance Market,” which included testimony from both Treasury Secretary Geithner and HUD Secretary Donovan. Banking Committee Chairman, Sen. Tim Johnson (D-SD) said housing finance reform remains one of his “top priorities,” however he also indicated that the hearing and the Administration’s report are part of a “long-term discussion.” To view the record of the hearing, CLICK HERE.
More recently, the Senate Banking Committee held a hearing on Mar. 29, entitled “Public Proposals for the Future of the Housing Finance System,” during which they heard from a number of economists, think tanks, and the Mortgage Bankers Association. To view a record of this hearing, CLICK HERE.
Also on Mar. 29, the Republican leadership of the Financial Services Committee announced their plans for GSE Reform. As part of their plan, they introduced eight stand-alone proposals that will receive consideration in the Subcommittee on Capital Markets on Mar. 31. These proposals would, among other things, increase the guarantee fees charged by Fannie and Freddie, and require a more rapid wind-down of their retained portfolios than was called for by the Administration. For more information on these proposals as well as the Mar. 31 hearing, CLICK HERE.
In his formal FY2012 Budget Request, President Obama proposed to "replace the existing deduction for energy efficient commercial building property expenditures with a tax credit and also allow taxpayers to take an alternative credit for placing in service" more energy efficient properties. The Treasury Department's General Explanations of the Administration's FY2012 Revenue Proposals (also known as the "Green Book") further describes the proposal and states that "special rules would be provided that would allow the credit to benefit a REIT or its shareholders."
NAREIT is pleased to be working with the Administration as it continues to develop the Better Building Initiative. On Mar. 14, Tony Edwards, NAREIT’s Executive Vice President and General Counsel, and Dara Bernstein, NAREIT’s Senior Tax Counsel, met with officials at the Treasury Department to discuss possible ways to design the program to allow REITs to benefit. For more information on this effort, CLICK HERE.
On Feb. 24, the United States Senate unanimously adopted a resolution commemorating the fiftieth anniversary of the legislation that enabled the creation of the first REITs, and the positive impact the industry has had on the U.S. economy. The resolution was introduced by Sen. Johnny Isakson (R-GA), and cosponsored by Sens. Barbara Mikulski (D-MD), Roy Blunt (R-MO), Saxby Chambliss (R-GA), Mark Udall (D-CO), Bob Corker (R-TN), Mark Pryor (D-AR), Michael Bennet (D-CO), and Richard Lugar (R-IN). The U.S. House of Representatives adopted a similar resolution last September.
To read the Senate resolution as adopted, CLICK HERE.
NAREIT, under the guidance of its Derivatives Reform Task Force, and in coordination with the Coalition for Derivatives End-Users, continues to support efforts to create transparency in the over-the-counter derivatives market, to reduce the risk posed by major participants in swap markets, and to provide for the continued ability of "end-users" to utilize low-cost bilateral derivatives agreements to manage their business risks.
On Dec. 1, by a vote of 3-2, the CFTC agreed to issue a proposed rule establishing key definitions such as "major swap participant" and "eligible contract participant." On Dec. 3 the SEC voted unanimously to join in the proposal. To read the proposed rule, CLICK HERE. This proposed rule addresses a number of NAREIT's primary concerns with these definitions, including the way it proposes to treat positions taken to manage interest rate risk on debt. However, other issues remain unresolved.
For example, there remains a question as to whether certain smaller special purpose entities will be able to participate in the over-the-counter swaps market as eligible contract participants. To read a letter on this issue spearheaded by NAREIT and supported by a number of other national real estate organizations, CLICK HERE.
There are also questions as to the leverage ratio above which certain financial entities – a category believed to include mortgage REITs – will be held to tighter standards when determining if they are to be subjected to greater regulation as major swap participants. To read a Coalition letter that addresses this question and many other issues, CLICK HERE.
NAREIT will continue to work with its Task Force, the Mortgage REIT Council, the Coalition, and other real estate organizations to provide input to regulators as they craft the new rules for the derivatives market place, and to work with lawmakers as they oversee this process.