NAIOP’s second Advantage Series webinar took place this week, providing a legislative update to members on key priorities for the association and the industry in 2017: tax reform, infrastructure, and the availability of capital and credit.
Aquiles Suarez, NAIOP’s vice president for government affairs, who led the webinar, started the discussion with a look at tax reform. Suarez explained that the overarching goal of the House GOP Blueprint for Tax Reform is to “broaden the base” by collecting taxes from more sources, which means getting rid of credits and deductions, and to “lower tax rates, particularly the corporate tax rate,” with the argument that our corporations are at a disadvantage when competing internationally. However, roadblocks to passing the plan include the recent failure to pass the Affordable Care Act repeal (which means that an additional $1 trillion in offsets must be identified to ensure the tax plan is “revenue neutral”) and pushback on the Border Adjustment Tax.
Suarez delved into specific tax reform concerns for the CRE industry and how he anticipates they could affect members’ businesses, including:
- Immediate expensing versus depreciation,
- Like-kind exchanges (this provision does not account for the cost of land, and therefore is not a complete substitute for Section 1031),
- Carried interest, and
- Deductibility of interest payments.
Next, Suarez covered infrastructure, “one of the feel-good things that everyone ran on.” Trump’s infrastructure proposal emphasizes tax incentives for the private sector and the creation of public-private partnerships. “Senate Democrats, on the other hand, also want to spend $1 trillion over a decade, but they want it to be fully funded by the federal government,” he said. And while infrastructure investment generally enjoys bipartisan support, there are potential roadblocks, including opposition from the House Freedom Caucus due to cost.
Moving to capital and credit availability, Suarez stated, “We’re a little bit worried that we might have a credit crunch when a lot of the refinancing is necessary, and we don’t want to just sit back and watch – we want to be proactive and make sure Congress is aware of this.” While overall capital from all sources is still available, bank lending to CRE has already become more restricted. The Basel Committee has forced banks to treat acquisition and development loans to commercial real estate differently – banks must keep more capital against CRE loans, which they now call High Volatility Commercial Real Estate (HVCRE) loans.
At the close of the webinar, attendees submitted questions that Suarez addressed, including: “Why does the failed Obamacare repeal make tax reform harder?” “What will all the changes proposed by the Blueprint do to property values, rents, etc.?” “Is tax reform going to happen this year?” “What do you think the infrastructure plan might actually invest in?” “How much revenue would be raised by repatriating the overseas funds?” and “How much revenue would be raised by taxing carried interest at regular rates?”
NAIOP members can hear Suarez’ responses to these questions and more insights into legislative issues affecting CRE by viewing the archived version of the full webinar online.
The NAIOP Advantage Series is an exclusive member benefit, delivering expert insights to help members make informed business decisions. Not a NAIOP member? Learn more about how NAIOP membership connects you with people, knowledge and education to help you stay ahead of the curve.