This CEO Explains to Congress How to Help CRE

In congressional testimony this week, Real Estate Roundtable CEO Jeffrey DeBoer addressed issues facing commercial real estate. As part, he offered the organization’s suggestions on “removing regulatory hurdles” to aid the industry.

“Uncertainties surrounding office and other spaces uses following the pandemic, combined with higher operating costs and interest rates induced by inflation, created a perfect storm of significant challenges that linger for the industry,” he said. In some markets, a lack of liquidity is the largest hurdle. In others, demand uncertainty and changing usage patterns are providing the greatest stress.

“The government should continue to take appropriate steps to create incentives to restructure maturing loans and create an environment conducive for businesses and investors to invest and deploy capital. At the same time, it is important that unnecessary barriers to equity investment be lowered and that taxes on risk taking not be increased,” he said.

DeBoer offered four main areas of policy recommendations. The first was to bring federal employees back to the office. Noting that “shutdowns were appropriate at the time,” of the pandemic, he added that “returning to in-person work is critical for the health of our cities, local economies, tax bases, and small businesses.”

The challenges this faces is that government agencies are also trying to trim budgets, with real estate being a potentially large area of savings, and federal employee unions have been reluctant to acquiesce to wholesale returns to the office when remote work is often effective and provides work-life balance benefits.

The second category of recommendation was to encourage banks and loan servicers “to extend maturing loans and restructure maturing loans with new equity.” One suggestion was for regulators to consider guidance that would suggest reclassification of previously criticized loans into new performing loans, “subject to acceptable debt service coverage, loan to value and other established parameters.” Also, to allow maturing loans restructured with new equity to be regarded as new performing loans.

Third, to improve affordable housing, DeBoer said to consider local and state rent control and anti-eviction laws that “limit the income stream for existing multifamily owners to invest back in their assets” and also effectively force acceptance of Section 8 housing. He also mentioned a further “hyper-regulatory environment.” Such measures would seem highly unlikely given political conditions.

And fourth, to encourage “foreign capital investment in U.S. real estate by amending or repealing the outdated Foreign Investment in Real Property Tax Act (FIRPTA).” He said that “FIRPTA imposes a discriminatory capital gains tax on passive foreign investors in U.S. real estate that does not apply to any other investable asset class” and that there should be a repeal of “state-level restrictions on foreign investors in U.S. managed real estate funds, where non-U.S. investors have no control or access to assets in the fund.” Again, politically difficult for the federal government to overrule such state programs.