2005: A Year of Policy Gains

Tort Reforms, Terrorism Insurance. The enactment of landmark class-action legislation early this year was a significant victory for advocates of civil-litigation reform. Our support for reform grew out of concern about the broader effect of excessive litigation on the economy and businesses that lease space from our industry, as well as real estate's increasing, direct exposure to class-action legislation, primarily in the area of mold. Thanks to the new law, it will now be easier for large, multi-state class-action lawsuits to be heard in federal court, and we should see a reduction in so-called forum shopping by plaintiffs' attorneys.

Another high-profile issue on which we saw progress was the creation of a mechanism to protect the economy from threatened as well as actual terrorist attacks. A critical first step was the Treasury's decision last year to extend the make-available provision under TRIA, which is scheduled to expire in several weeks. This fall, after months of negotiations among key policymakers, and concerted coalition efforts involving real estate and other industries, the Senate approved a compromise measure that would reform the expiring law and extend it for two years. At this writing, the House is expected to vote on a similar measure shortly.

Also in the capital and credit arena was the enactment of long overdue bankruptcy-reform legislation, which includes provisions to help property owners manage their assets more effectively when dealing with bankrupt tenants. Before these reforms, some solvent companies were getting away with filing for Chapter 11 bankruptcy protection in order to evade current lease obligations and dispose of unprofitable space, creating an unnecessary drag on the economy and representing a hidden tax on property owners.

Progress on Key Tax Policies. A key victory on the tax front was the Senate's recent approval of legislation to extend the expiring 15-year depreciation period for leasehold improvements. Without action, the cost-recovery period for these assets would revert to 39 years. The bill also would extend property owners' ability to write-off immediately environmental cleanup costs and would, for the first time, make petroleum cleanup costs eligible for expensing.

Fortunately, there is identical language in the House version of the tax bill (which means these provisions will automatically be included in any future negotiations to resolve differences between the two bills.) Importantly, this legislation also includes a two-year extension of the 15% capital gains and dividends tax rate, which is scheduled to expire in 2008. The House measure is scheduled for a final vote shortly.

On another important matter, the Treasury this past spring granted some real estate investment partnerships and pass-through entities with temporary relief from the requirements of Tax Code Section 470 and indicated it wants Congress to develop a permanent legislative solution. The Roundtable and other industry groups are working with the congressional tax-writing committees to develop a long-term solution. If this is not finalized by year-end, Treasury will likely extend the current moratorium providing temporary relief to partnerships. We will then have an opportunity to resume working on a permanent remedy next year.

Stepping up Emergency Preparedness. A key focus of our homeland and building security agenda in 2005 was on expanding industry-wide awareness of the need for sound emergency-response planning. Toward that end, the Roundtable and its real estate trade association partners in the Real Estate Information Sharing and Analysis Center ran a six-month public service ad campaign encouraging building owners and managers to step up their preparedness efforts and actively address homeland security issues. Real estate industry awareness and readiness also improved after some 60-plus real estate firms participated in a multi-million-dollar federal terrorism simulation exercise (TOP-OFF 3) involving approximately 10,000 federal and state officials and representatives of other countries.

Also this year, real estate had a valuable opportunity to shape the ongoing national debate on emergency preparedness when two senior real estate executives testified at a congressional hearing on how the nation is securing mass transit systems, office buildings, shopping malls, and other civilian soft targets from potential terrorist attacks.

New Energy Law Should Spur Green Buildings. Comprehensive energy legislation enacted this year included real estate-backed green-building tax incentives, a welcome sign from Washington that our industry can, and should be, part of the solution when it comes to a national energy strategy. Our organization made that point in a recent letter to President Bush, in which we outlined the industry's historic successes in addressing supply-and-demand challenges and in building constructive public-private partnerships for improving energy efficiency and conservation.

As we look back and reflect on our successes, so too must we look ahead and prepare for future challenges. With next year's high-stakes elections looming, policymakers have already signaled some of the high-profile issues on their radar screens. Tax code restructuring, high energy costs and their potential impact on the economy, the looming expiration of the 2003 tax cuts, and important transitions at the Federal Reserve and Supreme Court are a few such issues.

Fortunately, our industry is well-positioned to respond to whatever arises in Washington in 2006. Still, we must always remain engaged in the policymaking process, pay attention to details, and make sure our collective voice is heard by policymakers in the nation's capital.Jeffrey D. DeBoer is president and CEO of The Real Estate Roundtable, a Washington, DC commercial real estate policy organization. He may be contacted at info@rer.org. Views expressed here are the author's solely.