Posted on Friday, February 4, 2011

U.S. Real Estate, Congressional Leaders Gather in Washington to Discuss Key Policy Challenges — and Prospects for Bipartisan Solutions; Accelerated Job Creation, Reduced Regulatory and Accounting Burdens are Key to Broader, Sustained Recovery in Real Estate Markets
Coming on the heels of the President’s State of the Union address, Congressional Budget Office (CBO) projections about the federal budget deficit, the Fed’s first monetary policy meeting of the year, and an encouraging rebound in two key Wall Street barometers, The Real Estate Roundtable held its 2011 State of the Industry Meeting in Washington this week. Here, senior real estate executives from around the country engaged top U.S. political leaders on key policy issues facing the nation, the economy and the broader real estate sector.
Top themes included deficit reduction, tax restructuring, the pace of economic recovery (as well as barriers to job creation), President Obama’s calls for energy and infrastructure investment to “win the future,” and prospects for renewed bipartisan cooperation. Notably, lawmakers from both sides of the political aisle said both parties had some responsibility for the country’s fiscal situation today, i.e. that it was not the fault of any one party. Not surprising was the more upbeat tone of this year’s gathering — a reflection of modest, but palpable, recent improvement in both macroeconomic and commercial real estate market conditions.
Deficit Reduction, Tax Reform, More “Civilized” Tone of SOU Proceedings

Kicking off Wednesday’s program was a special briefing on Capitol Hill that included Senate Republican Leader Mitch McConnell (R-KY); Senate Democratic Policy Committee Chairman Charles Schumer (D-NY) and Senators Bob Corker (R-TN), Bob Casey (D-PA) and Michael Bennet (D-CO). Offering perspectives from the U.S. House were the new House Majority Leader, Eric Cantor (R-VA), and Minority Whip Steny Hoyer (D-MD).

McConnell’s remarks centered on the need for serious spending cuts to rein in soaring budget deficits — projected by CBO this week to reach nearly $1.5 trillion this fiscal year; unfunded mandates facing businesses and states; and the potential for “divided government” to yield significant bipartisan accomplishment on difficult issues. In the context of discussions about overhauling the tax code, he expressed sensitivity to real estate’s concerns about past efforts at tax reform, including the 1986 Tax Act. In The Roundtable’s view, this ill-conceived law had a destabilizing effect on real estate, financial institutions, the federal government and local tax bases.

Several other policymaker guests also commented on elements of the President’s speech as well as hopes that the less partisan, “more civilized” tone of Tuesday night’s SOU proceedings would lead to more bipartisan breakthroughs on difficult national policy challenges (such as the tax compromise enacted at year-end 2010).

Schumer, who is working to formulate Senate Democratic strategy and messaging for the 2012 elections, discussed how a decline in U.S. median income over the past decade has eroded Americans’ belief in the attainability of the “American Dream” — which is why, he said, government must not only strive to create jobs, but help stretch middle-class paychecks.

He also touched on issues of specific importance to commercial real estate, including the need to revisit the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA), and the need for “middle ground” on any upcoming reforms of the government-sponsored entities (GSEs) Fannie Mae and Freddie Mac, given their centrality to multi-family housing finance. On the issue of FIRTPA, The Roundtable believes that increased foreign equity investment in U.S. commercial real estate could begin to compensate for significant erosion of commercial property values and equity during the Great Recession.

Cantor, who is now No. 2 in the House Republican leadership behind Speaker John Boehner (R-OH), highlighted elements from the President’s address on Tuesday evening that offered areas of potential bipartisan cooperation, including Obama’s reference to lowering the corporate tax rate. Notably, Cantor’s description of America as a “place where you can make it,” was echoed later in Hoyer’s remarks about a Democratic agenda to help Americans “make it in America.” Cantor noted positive efforts by The Roundtable and other real estate organizations to craft an agenda focused on putting capital to work and building competitiveness here and abroad.
Panel Discussion: Real Estate No Longer “Next Shoe to Drop” But Risks Remain
Wednesday’s meeting program also included a panel discussion on commercial real estate market conditions, including positive (but uneven) improvements in equity and debt capital availability; their impact on the banking sector, where many institutions are still holding “embedded” commercial real estate losses; and policy issues that could undermine efforts to revitalize commercial mortgage secondary markets — e.g., the interaction of new “skin-in-the-game” securitization requirements under the “Dodd-Frank” financial overhaul law and accounting changes sought by the Financial Accounting Standards Board (FASB).

With Roundtable board member and Citigroup global head of real estate Thomas M. Flexner serving as moderator, the panel featured former Fed Governor Randall Kroszner (now a University of Chicago economics professor); board member Richard Saltzman, president and co-CEO of Colony Capital (and former chairman of The Roundtable’s Capital & Credit Policy Advisory Committee, RECPAC); and Eastdil Secured President D. Michael Van Konynenburg, who is the current vice chairman of RECPAC.

Rounding out the program was U.S. Housing and Urban Development Secretary Shaun Donovan, whose wide-ranging remarks focused on:

• multi-family financing programs offered through the Federal Housing Administration (FHA) — and expected Administration and congressional efforts to overhaul policies in this area, primarily through reform of Fannie Mae and Freddie Mac;
• how the “greening” of hundreds of thousands of multi-family apartments — with energy efficiency investments by the private sector — has the potential to create millions of new jobs;
• Administration efforts to “bring public housing into the 21st century” by leveraging federal dollars with new private capital investment. Along these lines, he invited the commercial real estate industry to consider new ways of partnering with the federal government on public housing, which he called the “last bastion” of completely government-owned and operated real estate and an “anachronism” in great need of private capital.
• The need to modernize the nation’s infrastructure “in smart ways” that reflect the growing mobility of capital in the global economy (which tends to follow neighborhoods that are attractive, livable, etc.)

In conjunction with the larger State of the Industry Meeting, several Roundtable policy advisory committees met Wednesday and Thursday to talk through specific policy issues relating to taxation; energy, land use and sustainability; and the security of real estate assets and building occupants amid rising threats of “homegrown” and internationally-sponsored terrorism.

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