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Volume X, Number 4 - November 2005In this bulletin: 2005 CCIM Institute Legislative VictoriesThanks to the hard work and dedication of .CCIM Institute, IREM and REALTORS® Commercial Alliance members lobbying over the years on behalf of their industry, Congress passed legislation in their favor reforming bankruptcy and class action suits last spring. Members thanked legislators during the 2005 Hill Visit for their support and key votes in making these victories a reality. It was a busy year full of legislative successes for the commercial real estate industry, but there are issues members must continue to press for now and in 2006, such as the renewal of TRIA and the creation of small business health plans.The Class Action Fairness Act establishes a uniform set of criteria for determining when a multi-state class-action lawsuit can be moved from state court to federal court. The new law authorizes federal courts to hear class-action suits involving over $5 million where the case is outside the home state of the defendants or less than one-third of the class is located in the home state of the defendants. The objective in moving suits to federal courts is to make it significantly more difficult for the lawsuits to be approved. The new guidelines are also intended to limit the ability of plaintiff attorneys to "venue-shop" when filing class action suits. The day of the 2005 Capitol Hill Visit, President Bush signed a bankruptcy reform bill into law. There are four main issues of bankruptcy reform that impact commercial brokers and REALTORS; these provisions better position real estate assets when tenants or owners file for bankruptcy. The law positively impacts many kinds of real estate including condos, rental properties, retail centers, and single assets such as multifamily buildings. The law lifts the automatic stay for rental housing when the bankruptcy petition was filed after the judgment of possession. Further, the law increases the initial time for a shopping center tenant to make a decision whether to assume or reject their lease to 120 days, with one allowable extension of 90 days for cause. In regards to single asset bankruptcy, the law provides a 90 day automatic stay to all single asset properties, with no cap on the value of the asset. The Junk Fax Prevention Act was signed into law on July 9th, and became effective immediately. The new law does not legalize unsolicited fax advertisements, but does allow for an established business relationship exception. Commercial real estate professionals may send unsolicited faxes without prior permission provided that: the established business relationship predates the enactment of new law or the fax number was provided voluntarily by a new client. In addition, senders must now include opt-out instructions on the first page of any commercial fax sent. The Energy Policy Act of 2005, signed into law on August 8, includes new energy programs and tax incentives for energy efficiency enhancements. Although the bill largely benefits energy companies, it does contain provisions benefiting real estate professionals and consumers. Commercial real estate professionals will benefit from incentives such as the Energy Efficient Commercial Buildings Deduction. Tax Reform Proposal FinalizedThe President’s Tax Reform Advisory Panel laid out a final report on changes to the tax code in November; in particular, these modifications raise concern by the real estate industry as they affect commercial property ownership and housing by depreciating real estate values significantly. The report has now been sent to the Treasury department for further consideration. Recommendations to the President are expected to come out by early next year either at the State of the Union address or the budget submission for FY 2007.Several specific recommendations in the tax reform proposal have been flagged as having potentially devastating affects on investment/commercial real estate and housing properties while some may be an advantage. These changes include:
The Tax Reform Act of 1986 proved that when real estate ownership tax benefits are reduced or in some cases eliminated, real estate values go down, which negatively impacts not only the real estate industry but the nation’s economy as a whole. The CCIM Institute will provide more information on any tax changes affecting the real estate industry as it becomes available. To read the final report, you may visit http://www.taxreformpanel.gov/final-report/. Terrorism Insurance Revisits CongressThe Senate passed S.467, the Terrorism Risk Insurance Extension Act by voice vote on the evening of November 17, 2005. The House companion bill, H.R. 4313 is expected to reach the House Floor before Congress takes recess in December. Language for the extension bill remains under consideration in committee and is projected to address issues of concern by the commercial real estate industry.If TRIA expires it will likely result in the following: increase in premiums, a decrease in the number of businesses obtaining terrorism insurance, and in some markets, the complete unavailability of coverage. This scenario will complicate the financing of numerous commercial real estate properties, impede the development of large scale commercial and residential development, leave large sectors of the economy un-insured in the event of a terror attack, and compel property owners to pass on the increased costs of terrorism coverage. Legislative Affairs Subcommittee Meeting in FallDuring the CCIM Institute business meetings in Scottsdale, Arizona, the Legislative Affairs Subcommittee had their first meeting under Chair Lou Nimkoff, CCIM on October 16, 2005. The Subcommittee discussed a range of legislative issues and agreed upon new legislative statements of policy for the Institute.Currently, the Institute has 59 policy statements based on legislative issues that affect the commercial real estate industry. Twenty of those statements were updated and unanimously agreed upon by Subcommittee members. View current the public policy statements. In addition, the Subcommittee passed new language on Eminent Domain and Self Storage on Military Bases. The National Association of REALTORS® (NAR) recently completed a memorandum on guidelines for all members who deal with Tenant-in-Common (TIC) transactions. To view this document, view Tenant in Common – NAR Premiere Issue Hot Topics. Finally, as a result of a timing conflict with the CCIM Institute business meetings in Vancouver, BC and IREM’s scheduled Hill Visit Day, the two associations will not be able to combine forces to meet on Capitol Hill, April 2006. Cynthia Shelton, CCIM spearheaded an effort to make sure commercial real estate issues are represented at the same time NAR meets with Congressional members during the NAR Midyear Legislative Meetings in the spring. The CCIM Institute will send updates to members as more information becomes available. Tenant-in-Common GuidelinesTenant-in-Common (TIC) transactions remain an issue with complex and unclear regulations because TICs can either be structured as securities or real estate. The SEC has jurisdiction to set the rules by which real estate professionals may handle securitized TIC dealings. Currently, SEC regulations and NASD rules prohibit broker dealers from extending compensation to real estate professionals when the TIC is considered a security.In an effort to help real estate professionals who take part in the TIC marketplace avoid legal challenges and non-compensation on deals, NAR developed specific guidelines for all members. To read the publication on TICs, click under Tenant in Common – NAR Premiere Issue Hot Topics. Banks Out of Our Real Estate for at Least One YearOnce again legislation has passed the House and Senate preventing banks from entering real estate brokerage and property management. The House bill included a one-year moratorium, and the Senate bill was a permanent ban. The two sides are now conferencing, and the CCIM Institute is working with NAR to try and obtain the permanent ban. A final bill is expected soon.Senate Compromise Small Business Health Plan Bill IntroducedThe Senate Health, Education, Labor and Pension (HELP) Chair Mike Enzi (R-WY) introduced an alternative Small Business Health Plan (SBHP) bill on November 2nd. Senator Enzi introduced the alternative proposal after finding opposition to S. 406, the Small Business Health Fairness Act, on both sides of the aisle. The Health Insurance Marketplace Modernization and Affordability Act (HIMMA) of 2005, or S. 1955, would authorize the creation of fully-insured small business health plans but does not allow for the much criticized, self-insured SBHPs allowed in S. 406. In addition, the compromise bill establishes a set of federal coverage mandates for small group insurance plans and a process for harmonizing the states' small group insurance regulations for both SBHPs and traditional small group insurance products.Patriot Act UpdateOver the summer, both the House and Senate passed reauthorizations of the U.S. Patriot Act, which granted the government enhanced powers to combat terrorist activity by, in part, more closely following suspect financial transactions. The existing legislation granted the government broad authority to seize the confidential client records of businesses. The Senate reauthorization would require the government to demonstrate that the business records being seized are part of an ongoing investigation of suspected espionage or terrorist activity. The President has yet to act.On a related note, the Treasury has begun thinking about what rules and regulations should apply to "persons involved in settlements and closings." The Patriot Act defines such persons as a financial institution that would be subject to regulation. Currently, the Treasury is focusing on the financial aspects of a closing transaction. U.S. House Passes Bill to Restrict Eminent DomainThe U.S. House of Representatives passed legislation by a vote of 376-38 on November 3rd to withhold federal economic development funds for two years from state and local governments that seize private property for commercial use. The bill, H.R. 4128, was a reaction to the recent Supreme Court decision in Kelo v New London which affirmed the use of eminent domain for economic development. The bill now moves to the Senate, where there is a companion bill.The CCIM Institute approved a new policy on eminent domain on October 16, 2005 during the Legislative Affairs Subcommittee meeting in Scottsdale, Arizona. The position reads that the CCIM Institute supports states’ rights in deciding under what conditions eminent domain may or may not be used. Further, the Institute urges state legislatures and local municipalities to respect the rights of property owners by limiting the circumstances under which eminent domain is permitted. REMIC UpdateThe CCIM Institute lobbied on Capitol Hill in April 2005 to change IRS rules on Real Estate Investment Conduits (REMIC) that would permit common changes to real property or collateral. In effect, amending the REMIC rules would make it easier for commercial property owners, whose loans are securitized, to reposition their property thus making securitization more appealing to borrowers.The CCIM Institute along with NAR encourages legislative action on this issue through having REMIC modifications added to language on an upcoming tax bill or placed on the House Suspension calendar. Congressional Response to DisastersDozens of bills have been introduced in Congress offering a myriad of solutions to the aftermath of the recent Hurricane season. The House has passed 3 CCIM - supported bills providing waivers for federal housing programs including Section 8, rural housing and CDBG. While the Senate is yet to act, HUD and Rural Housing have been waiving many of these requirements.In addition, Congress has passed a bill increasing borrowing authority for the National Flood Insurance Program (NFIP) to enable it to make payments on claims as a result of Hurricanes Katrina, Rita and Wilma. Additional increases in this authority are also pending. It is expected that the NFIP will be subject to a major overhaul in the coming months, and Congress is likely to review a federal natural disaster insurance program that would include other types of disasters such as tornadoes, earthquakes, volcanoes, and tsunamis. One major post-Katrina tax bill has been passed, and another is still be debated. The bill that has been signed by the President was focused on helping individual tax payers in the Gulf area. However, it did include a provision on "involuntary conversions" that would extend (from two years to five years) the period during which residential and commercial property owners may reinvest Katrina-related insurance proceeds without having to pay capital gain. A more business-focused bill is now being debated in the House and Senate, and the current proposals include a number of pro-real estate provisions. One proposal includes a depreciation provision similar to one enacted after September 11 for New York. This provision would allow businesses in the "Gulf Opportunity Zone" (GO Zone) to write off 50% of the cost of new equipment and certain commercial and multifamily rental real estate expenditures placed in service through 2007 (2008 for real property). Another provision would extend deductibility for "brownfields" cleanup costs in the GO Zone for two years (currently the program is set to expire in December of this year); and include petroleum as an eligible contaminants for brownfields. Additionally, this proposal would provide partial (50 percent) expensing for demolition and cleanup costs. Several proposals also include important provisions for outside the Gulf region. One provision would extend brownfields remediation expensing for one year. Another will extend 15-year depreciation for leasehold improvements for one year (this provision is set to revert to 39 years on January 1, 2006). Debate still rages on all of these proposals. New Flood Insurance LawsOn November 18th, the Senate and the House both approved legislation that raises the amount the National Flood Insurance Program (NFIP) can borrow from the Treasury to $18.5 billion annually. In September, Congress voted to raise the borrowing authority to $3.5 billion from $1.5 billion. Using its increased borrowing powers, the NFIP will be able to resume payments to flood victims.President Bush had signed two bills into law in September. H.R. 804, introduced by Rep. Baker (R-LA), amends the National Flood Insurance Act to declare that flood assistance must not be considered a source of income when determining eligibility for or benefit levels for federal income assistance programs such as Social Security, Medicaid, or food stamps. The second bill, H.R. 3669, temporarily increases the National Flood Insurance Program's (NFIP) borrowing authority to pay claims, which assists in facilitating flood claims to victims of Katrina. 2005 CCIM Institute Legislative Affairs Subcommittee Leadership Chair, Lou Nimkoff, CCIM Vice Chair, Jay Verro, CCIM CCIM Institute Legislative Staff Charles Achilles, IREM VP Legislation & Research, 312-329-6020, cachille@irem.org Vijay Yadlapati, CCIM Legislative Liaison, 312-329-6033, vyadlapati@ccim.com back to the top ^ |