By Aquiles Suarez
Congress is expected to close out the year this week with an agreement to pass a continuing budget resolution that will avoid a government shutdown before Christmas. That will push the funding debate to at least March 2025, when NAIOP will again be advocating on behalf of its members in what will be the biggest tax reform fight of the last decade. But a strong year for advocacy in 2024 prepares us well for the future.
NAIOP’s End-of-Year Federal Legislative and Political Update Webinar, which was held on Dec. 6, detailed strides made on our top public policy and legislative priorities for 2024 and previewed what NAIOP would be working on in 2025. Positive news on the public policy front were also a feature of an earlier NAIOP podcast held shortly after the November elections, which focused on the election results and what Republican control of the White House and Congress would mean for commercial real estate.
The bottom line is that 2024 proved to be a strong year on many of our federal advocacy goals. At the beginning of the year, we prioritized a number of items:
- introduction of legislation to create an adaptive reuse tax credit for conversion of underutilized commercial buildings to residential;
- educating Congress on the importance of continuing supportive tax policy for commercial real estate; and
- the impact of Federal Reserve policy and regulations on bank lending for the industry.
In addition, we continued working with Congress to highlight areas of executive agency regulatory overreach that negatively affected real estate.
The need for an incentive to spur the conversions of vacant office and commercial structures arose as a result of COVID-19. The resulting work-from-home trends led to high-vacancy rates and underutilization of commercial structures in many communities, with severe economic consequences: depressed market values for underutilized structures and lower property taxes, leading to strained local government. For the most part, Class A buildings have again become competitive in the marketplace, but Class B and C buildings with high vacancy rates are unlikely to return to prior occupancy levels. Some of these could be converted to residential, thereby benefiting local markets and communities facing a housing shortage, if the related high costs of conversion were partially offset.
With that in mind, we worked with Reps. Mike Carey (R-OH) and Jimmy Gomez (D-CA) to introduce H.R. 9002, The Revitalizing Downtowns and Mainstreets Act, a bipartisan bill to create a 20% tax credit for the eligible conversion costs. Introduced midyear, the congressional elections made passage of major tax legislation more difficult, but the issue of housing and community development will arise again next year as part of a broader tax reform debate, and H.R. 9002 will be part of that discussion.
The broader tax discussion expected in 2025 as a result of the expiration of many provisions of the Tax Cuts and Jobs Act of 2017 was why NAIOP spent much of 2024 educating members of Congress on tax policies important to our members. Not until the November elections were concluded did we have some clear indication as to the likely direction of tax policy. The importance of capital gains tax rates being lower than ordinary income rates, Section 1031 like-kind exchanges, continuation of the 20% deduction for real estate partnerships, carried interest taxation, deductibility of interest on business debt, and favorable depreciation provisions were all areas that had to be reinforced with members of the House and Senate tax-writing committees. NAIOP government affairs staff spent countless hours with members of Congress and their staff to ensure that support for provisions important to commercial real estate was strong.
The continued availability of credit for commercial real estate was a critical concern, and working with our real estate and banking allies, we highlighted the negative impact that Federal Reserve policy was having on bank lending to the industry with members of Congress. In addition to the rapid increase in interest rates that had been imposed by the Fed prior to this year, regulations proposed by the Fed would have constrained bank lending even further by raising the capital reserve requirements on major banks by nearly 20%. As a result, Federal Reserve Chairman Jerome Powell was confronted in congressional hearings on the issue. Subsequently, the Federal Reserve revised and scaled back its proposed rule to reduce increases in bank capital requirements.
A strong year on tax and finance issues was accompanied by other wins on the federal regulatory front. In particular, for two years NAIOP had raised serious concerns with a climate disclosure regulation proposed by the Securities and Exchange Commission (SEC). Of primary concern was the requirement that corporations disclose their “Scope 3” greenhouse gas emissions – the indirect emissions from upstream and downstream activities in that company’s value chain, which would have required information from tenants and owners of real estate that may not be readily available and subject businesses to civil liability. NAIOP educated members of Congress on the potential impact of the regulation and with its allies submitted comments to the SEC. Ultimately, the SEC reissued its rule, dropping the Scope 3 requirement.
This year was a notable one for NAIOP regarding its federal advocacy. With a new presidential administration assuming power in January 2025, NAIOP and its members will play an important role, working to ensure that commercial real estate has a strong voice on Capitol Hill.
