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Volume XII, Number 4 - February 2008
Are You Ready To Head To The Hill? CCIM Institute Capitol Hill Visit Day, April 16, 2008Mark your calendar! On April 16, 2008, CCIMs will unite with IREM to bring the issues that affect commercial real estate to Capitol Hill. At the last CCIM-IREM joint Hill Visit venture, over 275 CCIM Institute and IREM members participated in over 225 meetings with their legislators, educating them on commercial real estate management and investment issues. If you are active in legislative issues, or if you just want the opportunity to make your voice heard on Capitol Hill, you will not want to miss this exciting opportunity! An Orientation will be held at the JW Marriott Hotel in Washington D.C. on Tuesday, April 15. At the Orientation, legislative staff will explain the issues affecting the industry and what to expect when meeting with members of Congress. Participants will receive essential materials to take with them to the Hill. Time is also provided for members to meet with their delegation and role play. Members will head to Capitol Hill on Wednesday, April 16. Like Kind Exchanges – TIC Securities And Farm BillOn December 17, 2007, CCIM Institute submitted comments to the Securities and Exchange Commission (SEC) seeking to permit a licensed real estate agent or broker who is predominantly engaged in and has substantial experience in commercial real estate market, such as CCIMs, to receive compensation for a Tenant-In-Common Security transaction. Although the SEC has not decided on a final rule regarding this issue, CCIM Institute is cautiously optimistic that the SEC will implement a final rule favorable to the commercial real estate industry in the near future. Changing gears, a significant piece of legislation currently in the Senate, the Farm Bill (H.R. 2419), includes a provision which places limitations on certain like-kind exchanges. This bill would prohibit exchanges of “improved real property” with “unimproved agriculture real property.” In other words, the owner of a building can not use the 1031 exchange procedure to attain “unimproved agriculture real property.” Additionally, this bill imposes a “toll charge” or tax on any person selling the affected property. After strong opposition from NAR, this provision will likely not be included in the final version of this bill. The 1031 Like-kind Exchange is an integral part of a CCIM’s transaction portfolio. Therefore, the CCIM Institute opposes any federal regulatory of legislative action that jeopardizes the ability of investors to partake in this tax-deferred real property transaction. The CCIM Institute opposes any regulation or legislation that would render the transaction more difficult and/or less appealing to investors. Economic Stimulus Package Includes Leasehold Improvements ProvisionThe Economic Stimulus bill, signed by the President on February 13, 2008 included two tax provisions that will provide benefits to small business. The first would permit a business to deduct as much as $250,000 of the cost of otherwise depreciable property. This expensing provision applies to property acquired and placed in service during 2008. A second provision would provide a "bonus" depreciation deduction for the cost of leasehold improvements and certain other equipment. The bonus will be 50% of the cost of the improvement. The provision is effective for improvements placed in service during 2008. Improvements placed in service during 2009 will be eligible for the bonus deduction, but only if they are made pursuant to a contract entered into during 2008. Alternative Minimum Tax Relief Signed Into Law By PresidentOn December 26, 2007, President Bush signed into law H.R. 3996, the Tax Increase Prevention Act of 2007. This legislation extends alternative minimum tax (AMT) relief for one year for nonrefundable personal credits and increases the AMT exemption amount to $66,250 for joint filers and $44,350 for single filers to ensure that no additional taxpayers are liable for the AMT this year. Additionally, tax increases on capital gains and carried interests were not included in this piece of legislation. If Congress and the President did not act on this issue by the end of 2007, more than 23 million Americans would have been paying the AMT this year. While the AMT was established in 1969 to ensure that the wealthiest families did not game the tax code to avoid paying taxes altogether, it has grown virtually out of control. What lawmakers defined as uber-rich in 1969 has never been adjusted for inflation. This means what made a person affluent back then doesn’t now – but this person is still taxed like it does. This was never the intent of the original AMT authors and is why Congress has passed short-term relief in recent years. Despite these short-term patches over the years, Congress has been unable to permanently repeal or significantly reform the AMT. CCIM Institute Analysis On Energy Bill Now Available OnlineThe Energy Independence and Security Act of 2007 (H.R. 6) was signed into law by the President on December 19, 2007. The “High Performance Commercial Buildings” provision is of the most interest to commercial real estate professionals. A Director of Commercial High-Performance Green Buildings is to be appointed who will report to the Assistant Secretary for Energy Efficiency and Renewable Energy. By March 19, 2008, the new Director must formally recognize groups that qualify as a high-performance green building partnership consortium. The Director must establish the “Zero-Net-Energy Commercial Building Initiative” to reduce the quantity of energy consumed by commercial building located in the U.S. and to achieve the development of zero net energy commercial buildings in the U.S. The goal of the initiative is to develop and disseminate technologies, practices, and policies for the development and establishment of zero net energy commercial buildings for:
It is important to note that the goal of having all commercial building achieve zero net energy by 2050 is a goal, not a mandate. Additionally, the law does not contain any tax incentives for commercial building owners and managers. CCIM Institute will be closely monitoring the proposed rules of relevant agencies that will implement the law. A detailed analysis on the Energy Independence and Security Act of 2007 by CCIM Institute legislative staff is now available on our website. Read the Energy and Security Act paper (pdf) to find how the new law will affect your business. President Bush Signs Into Law A Two-Year Ban On Banks In Real EstateOn December 26, 2007, President Bush signed into law the FY2008 appropriations bill which prohibits national bank conglomerates from entering the real estate brokerage, property leasing, and management business for two years. This legislation originally called for a permanent ban of banks from entering the real estate industry; however, due to a last minute objection by Senator Byrd (D-WV), Chairman of the Senate Appropriations Committee, the permanent language was changed to a two-year ban. Authorizing banks to engage in real estate activities such as brokerage and management would compromise bank lending decisions and create conflicts of interest as well as restrict consumer choice and competition among mortgage lenders. CCIM Institute and NAR continue to be in favor of legislation calling for a permanent ban of banks in real estate. CCIM Institute supports the enactment of “The Community Choice in Real Estate Act” (H.R. 111/S.413), which specifies that real estate brokerage and management are not banking activities. Small Business Health Plans Not On The Congressional Agenda For 2008With health care reform being a major issue the 2008 Presidential campaign, it is unlikely that small business health care legislation will advance in the 110th Congress. However, NAR continues to participate in Congressional hearings focused on health insurance issues. These include participation in a Senate Health Committee roundtable discussion on health care issues and testimony before the Senate Finance Committee and the House Small Business Committee on the health insurance challenges facing the self-employed and small businesses. There are three areas where the Republicans and Democrats agree. First, leaders of both parties are in agreement that the self-employed and small business community face the toughest health insurance challenges today. Second, market based, small business pooling arrangements can help reduce costs and expand access to health insurance coverage. Third, a willingness to work towards finding such a market-based small business solution would be a good first step this year in what will be an ongoing debate over health care reform. According to a recent study, small employers have seen their health premiums increase an average of more than 8 percent a year since 2001 and firms with less than 24 workers have experienced even more severe increases. Witnesses-some of whom had been forced to change health plans three times in less than 48 months-said cost was a major concern, but not the only challenge. These firms must also regularly handle massive amounts of paperwork for medical claims, and devote much of their valuable time to working with insurance vendors and brokers. This issue will likely be high on the legislative agenda in 2009. Terrorism Insurance Extension Signed By The PresidentOn December 26, 2007, the President Signed the “Terrorism Risk Insurance Revision and Extension Act of 2007”. This bill extends the terrorism risk insurance program for seven years, and expands coverage to include domestic acts of terrorism as well as foreign acts of terrorism. It also includes several important provisions. 1) Directs the Government Accountability Office (GAO) to report to Congress on the unique terrorism coverage capacity constraints in specific markets that have suffered a terrorist attack. This relates to a provision that CCIM Institute supported, which would decrease deductibles for terrorist attacks over $1 billion and decrease the trigger after such events; 2) Directs GAO to study expanding the availability of nuclear, biological, chemical and radiological (NBCR) coverage in direct insurance markets (another provision supported by CCIM Institute); and 3) Requires the President's Working Group on Financial Markets to report to Congress on the long term availability and affordability of terrorism insurance. Federal Banking Agencies Publish Final Rule On Basel IIOn March 26, 2007, NAR submitted comments to the federal banking regulators (Federal Reserve, FDIC, Comptroller of the Currency, and Office of Thrift Supervision) on their proposed rules to change the capital rules for only the very largest banks and thrifts in the U.S. These proposed rules were an attempt to align bank capital to risk through the application of complex formulas and each bank’s own historical data on loan performance and losses. Specifically, one variable of this formula, the asset correlation, would have been developed by the Federal Reserve. The Fed envisioned raising the asset correlation for High Volatility Commercial Real Estate (HVCRE) and lowering it for Income Producing Real Estate (IPRE), which would force banks to reallocate capital to areas where the flow of credit is lower, undermining the flow of credit to the commercial real estate industry and thereby affecting its overall liquidity and valuation. NAR raised several concerns regarding the potential effect Basel II would have on the commercial real estate lending industry. Specifically, NAR argued that the HVCRE category should be modified to take into account equity raised through presales or put up by the developer for acquisition development and construction loans. In December 2007, the federal banking agencies published a joint final rule implementing the Basel II Accord capital framework. The regulation will be effective on April 1, 2008, but the mandatory or large banking organizations will have up to 3 years after that date to begin using it to compute regulatory capital. Also, the final rule provides that a proposal to implement a similar framework for smaller financial institutions in the U.S., called the” Standardized Approach” option, would be issued in 2008. Furthermore, the final rule recognizes that certain income-producing commercial real estate should be treated differently, particularly where the repayment obligation will be solely from the real estate without recourse to the borrower personally. However, the U.S. agencies declined to provide additional methods for determining the probability of default for such credits. The CCIM Institute will continue to monitor developments in the implementation of the Accord, and encourages the federal banking agencies not to adopt disproportionately stringent or burdensome policies regarding commercial real estate lending. Methamphetamine Cleanup Bill Becomes LawPresident Bush on Friday, December 21 signed H.R. 365, the Methamphetamine Remediation and Research Act of 2007 (Pub. Law 110-143), a bill that was supported by CCIM Institute and NAR. This law directs the Environmental Protection Agency (EPA) and the National Institute of Standards and Technology (NIST) to develop standards for remediation of meth-contaminated properties, set guidelines, and conduct research. The House and Senate Committee reports filed on the legislation direct the DEA to develop standards for listing and de-listing properties on the DEA National Clandestine Laboratory Register. Currently the register lists properties, but also disclaims the accuracy of the data presented. We brought this problem to the attention of the House Science Committee and the two Senate sponsors, Max Baucus and Gordon Smith. The House Committee on Science and Technology noted in its legislative report (H. Rpt. 110-8): "[t]he Committee is concerned that the DEA does not have procedures in place to update its website once a residence has been cleaned in accordance with local regulations. The Committee urges the DEA to develop a set of transparent procedures for both listing and de-listing a residence on the ‘National Clandestine Laboratory Register.'" The report of the Senate Committee on Environment and Public Works included similar language. CCIM Institute and NAR will continue to work with Congress and all appropriate agencies and officials to ensure that the intent of Congress is carried out. Do-Not-Call Registry On The Minds Of The FCC And CongressOn January 14, 2008, NAR submitted comments to the Federal Communications Commission (FCC) on a proposed rule to modify the Telephone Consumer Protection Act (TCPA). The proposal mandates telemarketers to honor registrants on the National Do-Not-Call Registry for an “indefinite” period. Thus, registrants will not automatically drop off the registry after the initial five year registration period elapses under present law. NAR raised several concerns in its letter to the FCC about this possible rule. First, because many real estate professionals are subject to Do-Not-Call law as telemarketers, NAR expressed that non-valid numbers on the government-maintained registry should be efficiently dropped off. Also, NAR encouraged the FCC to use effective technologies to remove all numbers that should no longer be on the registry. Additionally, NAR requested the FCC to work to make certain that any amendments to the TCPA will not amplify existing regulatory burdens to small business. Finally, NAR asked the FCC to research and analyze the merits of appropriate modifications and exemptions to TCPA in the future for small businesses. On a similar note, in 2007, Congress introduced two pieces of legislation that may affect commercial real estate practitioners. On December 11, 2007, H.R. 354, a bill to allow individuals to permanently register their numbers on the Do-Not-Call Registry, was passed by the House. The House passed another bill, H.R. 2601, which creates a permanent funding system for the Federal Trade Commission (FTC) to collect fees from telemarketers. All future fee increases would be tied to a public index to account for inflation. For FY2009, fees per area code were dropped to $54 for anyone using more than five area codes from the previous $67 per area code. Additionally, this legislation requires the FTC to submit a biennial report to Congress on the impact of the exceptions to the Do-Not-Call Registry on businesses and consumers, including the effectiveness of the registry. FTC Unveils Online Tutorial On Identity TheftAs technology has evolved and become vital for businesses to thrive, a growing number of public and private entities that keep and maintain personal information, such as financial account information, have become victims of security breaches. Due to these breaches, each year millions of Americans fall prey to identity theft, costing billions of dollars. In December 2007, the Federal Trade Commission (FTC) launched an interactive online tutorial to educate the public and private sectors on data security. Many commercial real estate professionals keep sensitive personal information such as Social Security numbers and other account data in their files. This information is often used to help execute vital business functions and transactions. The CCIM Institute strongly encourages its members to protect the personal information of their clients. The FTC tutorial is an excellent tool for commercial real estate professionals to help prevent identity theft. More information regarding the FTC tutorial may be found at www.ftc.gov/infosecurity. Seven Year Extension Of Internet Tax Moratorium Signed Into LawAs the Internet was gaining popularity in the late 1990s, telecommunications taxes on Internet dial-up services were mandated by some state governments. However, Congress felt this would hurt the industry and banned state and local governments from levying taxes on Internet access. This law was set to expire on November 1, 2007, yet Congress managed to pass an extension to the moratorium in order to accelerate broadband deployment and provide greater entrepreneurial opportunities. On October 31, 2007, President Bush signed into law the Internet Tax Freedom Act Amendments Act of 2007, which extends the moratorium on state and local governments imposing taxes on Internet access as well as clarifies and enhances existing law. This legislation extends the internet tax moratorium for seven years – until November 1, 2014. As commercial real estate practitioners continue to make extensive use of internet technologies, preventing burdensome taxes on internet access will allow these professionals to keep their business costs down. Final Rule Published Regarding How To Identify Address Discrepancy Red Flags On Credit Reports
The Fair and Accurate Credit Transactions Act of 2003 (FACT Act) amended the Fair Credit Reporting Act of 1970 (FCRA), to require six federal agencies to issue joint regulations that provide guidance regarding reasonable policies and procedures that a user of a consumer report should employ when the user receives a notice of address discrepancy. FCC Bans Exclusive ContractsThe Federal Communications Commission (FCC) voted in favor of an order on October 31, 2007 banning exclusive access contracts between apartment and condominium properties and cable providers. CCIM Institute is a member (through NAR) of the Real Access Alliance, a coalition of eleven trade associations, which lobbied against the order. The order has not yet been made available by the FCC. For up-to-date information, visit the Government Affairs section of the CCIM Institute web site. Energy Conservation Standards For Construction Of Federal BuildingsThe Department of Energy (DOE) released a final rule regarding energy conservation standards on December 21, 2007, two days after The Energy Independence and Security Act of 2007 was signed into law. The final rule, effective January 22, 2008, requires all new federal buildings to achieve a level of energy efficiency 30% greater than that of the ANSI/ASHRAE or the 2004 International Energy Conservation Code (IECC), as appropriate, when life-cycle cost-effective. The rule applies only to new construction of federal buildings. Voluntary Emergency Preparedness Certification Of BuildingsA recently enacted law titled “Improving America’s Security Act” requires the Department of Homeland Security (DHS) to set up a program for certifying private sector entities as meeting a “voluntary” national standard for emergency preparedness. The law mandates DHS adopt a voluntary private sector accreditation and certification standard that promotes emergency preparedness. DHS is expected to adopt the National Fire Protection Association (NFPA) 1600 Standard on Disaster/Emergency Management and Business Continuity Programs or a similar standard. CCIM Institute is concerned that during the rule-making process third-parties will be influential in writing regulations that expand the NFPA 1600. Additionally, CCIM Institute is concerned that the third-party or parties selected to certify real estate will charge real estate owners and managers a fee to be certified. Although the new law is voluntary, the law could lead to several end results. It may become the market and legal standard of care in the real estate industry. Most importantly for real estate practitioners, the standard may allow for the insurance and credit-rating industries to look closely at a company’s compliance with the NFPA 1600 standard or any other DHS selected standard in evaluating its insurability and creditworthiness. When DHS proposes its regulations to implement H.R. 1, CCIM Institute legislative staff will ask CCIM Institute membership to review the regulations. In regards to the voluntary certification standard that DHS is to adopt, CCIM Institute opposes mandatory certification for real estate owners and managers for a fee. 2008 State Legislative Issues ForecastThe following issues affecting commercial real estate practitioners are expected to be priorities this year:
Scrap Metal Dealer Ordinance PassedThe Memphis City Council passed the scrap metal dealer ordinance in early December. City action is necessary to combat metal theft—particularly copper—that rose sharply in the last two years. For instance, air conditioning units are being stolen from homes and buildings for the copper coils. The ordinance, as passed, includes the following provisions:
The Tennessee State Legislature is considering legislation that would regulate scrap metal dealers and purchasers state-wide. |