IREM and CCIM Take Commercial Real Estate Issues to Capitol Hill
213 Meetings with Legislators from 32 States Focus on Mortgage Market Liquidity, Carried Interest and Internet Sales Tax Fairness and Proposed Lease Accounting Changes
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Chicago, April 24, 2012 -Some 265 members of the Institute of Real Estate Management (IREM) and the CCIM Institute recently visited Capitol Hill to raise awareness of key issues affecting the commercial real estate industry. IREM and CCIM Members representing 32 states, the District of Columbia and Puerto Rico held 213 meetings with their respective senators, representatives and their staffs to voice the industry’s concerns about:
- The lack of adequate multifamily and commercial mortgage market liquidity.
- Tax and real estate issues, specifically as they relate to carried interest and Internet sales tax fairness.
- Lease accounting, specifically as it relates to the new lease accounting rule changes proposed by the Financial Accounting Standards Board (FASB).
MULTIFAMILY & COMMERCIAL MORTGAGE MARKET LIQUIDITY
Situation at-a-glance: While the broader economy is starting to turn around, the commercial real estate sector continues to struggle due to reduced operating income, property values and equity. Additionally, commercial practitioners continue to experience difficulty in obtaining financing and refinancing for mortgages, construction and land development loans as well as small business loans and short term loans for capital improvements. The hundreds of billions of dollars in commercial real estate loans coming due within the next year will dramatically exacerbate the problems.
IREM and CCIM Position: IREM and CCIM support protecting and enhancing a healthy flow of capital to multifamily and commercial real estate. Recent regulations, proposals, and actions – such as Dodd-Frank – have become too extreme, which hinders commercial real estate recovery and limits further economic growth.
Action Urged: IREM and CCIM support two initiatives that can help with the liquidity crisis:
- Develop Covered Bond Market – Covered bonds are securities created from loans, including mortgage loans. They are similar to mortgage-based securities (MBS), but with one major difference: The loans backing the bonds remain on the balance sheets of the issuing banks. Covered bonds have long been an important factor in strengthening financial markets in other countries.
IREM urges Congress to pass H.R. 940 (the “United States Covered Bond Act of 2011) and S.2231,” which will allow for the development of a covered bond market in the United States.
- Increase Credit Union Lending Cap -- During previous economic crises consumers and businesses have relied on credit unions to fill the gaps where banks could not serve them. Today, however, credit unions are hampered by a business lending cap of 12.25% of total assets. More than half of the outstanding business loans held by credit unions have been extended by those approaching or at the cap. That means that credit unions with experience in handling commercial loans are unable to support significant economic growth and development.
IREM and CCIM urge Congress to pass H.R. 1418 and S. 2231, which would increase the credit union lending cap to 27.5% for qualified credit unions, thereby increasing liquidity for small businesses.
TAXES & REAL ESTATE
Situation at-a-glance: Real estate is strongly affected by the way it is taxed. The turmoil in the industry created by tax changes of the Tax Reform Act of 1986 provides evidence of the extent to which the tax treatment of real estate matters.
IREM and CCIM Position: IREM and CCIM believe that it is our nation’s best interest for Congress to encourage real estate investment in the United States by creating a tax system that recognizes inflation and a tax differential in the calculation of capital gains from real estate while stimulating economic investment. This would level the playing field for those who choose to invest in commercial real estate.
- A Look at Carried Interest:
A carried interest is designed to act as an incentive for a general partner to maintain and enhance the value of a given real estate property so that the operation of the property is a value-added proposition. The carried interest of the general partner(s) historically has been taxed at capital gains rates, just as the limited partners’ gains are taxed at capital gains rates.
IREM and CCIM oppose any proposal that would eliminate capital gains treatment for any carried interest of a real estate partnership. The real estate sector is facing an economic crisis. Making changes that would further hinder the flow of capital into real estate markets will prolong the weakening of our economy.
- A Look at Internet Sales Tax Fairness:
Under current law, purchases made online are subject to sales tax through what is known as a use tax. Consumers who live in states with a sales tax are legally obligated to report and pay sales taxes on ALL purchases made online, although the majority of them are unaware of this obligation, and very few pay this sales tax. Conversely, brick and mortar retailers are required by law to collect the tax on behalf of the state. This inequity is putting some stores out of businesses because online retailers are not paying the same rate in taxes.
IREM and CCIM support consistent state/local sales/use taxes for economically equivalent transactions in the state or locality in which the goods are delivered. IREM and CCIM support a level playing field for local in-store retailers and remote merchants (including Internet merchants). IREM and CCIM believe that local and state governments should enforce existing taxes rather than create new ones. IREM and CCIM firmly oppose any new programs that would impose taxes on the cost of such services, such as fees and other costs associated with the purchase and ownership of real estate.
IREM and CCIM urge congress to support H.R. 3179 and S. 1832 to modernize our nation’s tax policy and provide equity between online and brick-and-mortar retailers.
FINANCIAL ACCOUNTING STANDARDS BOARD LEASE ACCOUNTING
Situation at-a-glance: In 2010, the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) proposed new lease accounting rule changes that, if implemented, could have adverse economic consequences for American businesses and the commercial real estate industry. Under the proposal, U.S. companies that lease office, industrial, and retail space would be required to capitalize the costs of that lease – similar to as if they purchased the property – instead of recognizing the true costs of the lease transaction. For businesses leasing space, especially small businesses, this will change real estate leases into a major liability, with many businesses likely to shorten lease terms to minimize the impact.
A coalition of non-profit and commercial organizations funded a project to determine the economic impact of the proposed FASB and IASB changes to real estate operating leases. Among other findings: the proposed accounting standard would increase the apparent liabilities of U.S. publicly traded companies by $1.5 trillion, the equivalent Gross State Product of 20 states.
IREM and CCIM Position: IREM and CCIM are concerned that despite the grave economic consequences raised by investors and businesses, FASB and IASB have repeatedly failed to acknowledge the negative impact that the proposed lease accounting rule could have on businesses, commercial property and the U.S. economy. Accordingly, accounting policy should reflect economic activity, not drive it. IREM and CCIM oppose lease accounting changes that would treat the income producing real estate business as a financing business on company balance sheets. Such a step would not accurately depict the unique characteristics of the investment real estate sector and, in turn, discounts the usefulness of the industry’s financial statements. Further, IREM and CCIM have asked legislators to sign onto a “Dear Colleague” letter requesting the FASB to undertake and publish an economic impact study before any revised regulations are finalized.
ABOUT THE CCIM INSTITUTE
The CCIM Institute is an affiliate of the NATIONAL ASSOCIATION OF REALTORS (NAR). The Institute confers the Certified Commercial Investment Member (CCIM) designation through an extensive curriculum and experiential requirements. The CCIM designation was established in 1969 and is recognized as the mark of professionalism and knowledge in commercial investment real estate.
Membership includes qualified professionals in all disciplines of commercial investment real estate, as well as allied professionals in appraisal, banking, corporate real estate, taxation, and law. Of the approximately 125,000 commercial real estate practitioners nationwide, 9,000 currently hold the CCIM designation, with an additional 4,000 candidates actively pursuing the designation.
Recognized for its preeminence within the industry, the CCIM curriculum represents the core knowledge expected of commercial investment practitioners, regardless of the diversity of specializations within the industry. The CCIM curriculum consists of four core courses that incorporate the essential CCIM skill sets: financial analysis, market analysis, user decision analysis, and investment analysis for commercial investment real estate. Additional curriculum requirements may be completed through CCIM elective courses, transfer credit for graduate education or professional recognition, and qualifying non-CCIM education.
ABOUT THE INSTITUTE OF REAL ESTATE MANAGEMENT
The Institute of Real Estate Management (IREM) is an international community of real estate managers across all property types dedicated to ethical business practices and maximizing the value of investment real estate. An affiliate of the National Association of Realtors, IREM has been a trusted source for knowledge, advocacy and networking for the real estate management community for more than 80 years.
IREM is the only professional real estate management association serving both the multi-family and commercial real estate sectors and has 80 U.S. chapters, 14 international chapters, and several other partnerships around the globe. Worldwide membership includes nearly 18,000 individual members and over 535 corporate members.
IREM promotes ethical real estate management practices through its credentialed membership programs, including the Certified Property Manager (CPM) designation, the Accredited Residential Manager (ARM) certification, the Accredited Commercial Manager (ACoM) certification, and the Accredited Management Organization (AMO) accreditation. These esteemed credentials certify competence and professionalism for those engaged in real estate management. IREM also offers CPM Candidate, Associate, Student, and Academic memberships. All members are bound by the strictly enforced IREM Code of Professional Ethics.
Collectively, CPM Members in the United States manage nearly $2 trillion in real estate assets, including 11.4 million residential units and 10.4 billion net square feet of commercial space. To learn more about the IREM and its chapter network, call (800) 837-0706, ext. 4650 (outside the U.S. call (312) 329-6000) or visit www.irem.org.