IREM Takes Commercial Real Estate Issues to Capitol Hill
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230-Plus Meetings with Legislators From 38 States Focus on Tax Treatment Priorities and Commercial Mortgage Market Liquidity Issues
(Chicago, May 19, 2010) More than 265 members of the Institute of Real Estate Management (IREM®) – joined by members of the CCIM Institute – recently visited Capitol Hill to raise awareness of key issues affecting the commercial real estate industry. IREM® Members representing 38 states and the District of Columbia held more than 230 meetings with their respective senators, representatives and their staffs to voice the industry’s concerns about:
- Tax treatment priorities – including capital gains, carried interest, and leasehold improvements
- Commercial mortgage market liquidity priorities – including credit union lending, term extensions, accelerated depreciation, and mortgage insurance.
TAX TREATMENT PRIORITIES
Issue Highlights – Under current law, capital gains are taxed at a maximum rate of 15%. That rate is temporary, however, and will revert to 20% as of January 1, 2010. Congress should encourage real estate investment by recognizing inflation and a tax differential in the calculation of capital gains from real estate. At the same time, it should stimulate economic investment, and consequently level the playing field for those who choose to invest in commercial real estate.
IREM Position – IREM strongly supports legislation to continue the capital gains rate at 15%. Increasing the capital gains rate would be especially detrimental at this time in our economy.
Issue Highlights – 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) has historically been taxed at capital gains rates, just as the limited partners’ gains are taxed at capital gains rates.
IREM Position – IREM urges Congress to oppose an increase to the tax treatment of carried interest for real estate partnerships. The real estate sector is facing an economic crisis. Making changes that would further hinder the flow of capital into real estate markets will significantly impede our economic recovery.
Issue Highlights – The permanent law 39-year recovery period for interior building improvements is not economically realistic. Neither the leases nor the improvements are likely to last that long. A realistic cost recovery period, such as 10 or 15 years, provides an incentive for building owners to upgrade and improve their space.
IREM Position – IREM urges support for legislation to extend the 15-year recovery period for leasehold improvements – and encourages making the provision permanent.
COMMERCIAL MORTGAGE MARKET LIQUIDITY PRIORITIES
Credit Union Lending
Issue Highlights – During previous crises, consumer and businesses have relied on credit unions to fill in 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.
IREM Position – IREM urges support for H.R. 3380 and S. 2919, which would increase the cap on credit union lending to 25%.
Issue Highlights -- For properties that can support their current debt, a simple loan extension makes perfect sense. As most commercial loans are short term, these loans refinance frequently. Instead of requiring a refinance at the end of a loan term (and having to deal with the equity gap), lenders could be encouraged to extend the term of the current loan.
IREM Position – IREM asks Congress to urge the Federal Reserve and Treasury to provide guidance and encouragement to lenders on term extensions.
Issue Highlights -- Improved cash flow for investors/owners of commercial real estate would help to fend off some of the challenges the market faces. The most effective means of improving the cash flow on real property is to provide more generous depreciation allowances. Some combination of accelerated depreciation (or shorter recovery periods) and passive loss relief would be significant investor incentives.
IREM Position -- IREM urges support for an accelerated depreciation model that will incentivize new investment in performing properties.
Issue Highlights – Commercial real estate loans are generally short term – sometimes even less than five years. The problem commercial properties are having is that, when they go to refinance an existing loan, there can be a significant difference between the current appraised value of the property and the debt currently serving the property. A mortgage insurance program would not insure the entire value of the loan, but instead would offer insurance on the difference between the current value and the debt service on performing properties.
IREM Position -- IREM supports a short-term insurance or guarantee program limited to performing properties to cover the equity gap.
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.