Political Landscape is Changing, But Challenges Remain the Same

With the dramatic return to power of the Democratic Party in Congress after a 12-year hiatus, the real estate business faces a new political landscape in Washington. The industry has a full agenda in the upcoming year on many policy fronts, and we expect significant potential challenges.

Our top priority remains the Terrorism Risk Insurance Act, which was originally enacted in 2002, extended in 2005 and is now scheduled to expire on Dec. 31, 2007. Although another extension of TRIA is preferable to nothing, we will continue to work with our partners in the Coalition to Insure Against Terrorism to emphasize the need for a more permanent, long-term solution.

New House Financial Services Committee Chairman Barney Frank (D-MA), working with Republicans on the committee, is expected to hold terrorism insurance hearings early this year. We are optimistic that the committee, and possibly the full House, will approve bipartisan legislation by midyear to continue TRIA in some fashion.

Action on terrorism insurance is expected to be much more deliberative in the Senate Banking Committee, where Senator Chris Dodd (D-CT) will be chairman. We anticipate the committee will hold hearings on the subject after the House hearings; possibly focusing on alternatives to TRIA such as the Roundtable proposal to establish a voluntary mutual insurance pool for terrorism insurance.

Regarding tax policy, congressional action to add certainty on estate tax policy is unpredictable at this point. However, one important issue we hope to address is how to ensure that real estate investment partnerships and pass-through entities can obtain long-term relief from the requirements of Internal Revenue Code Section 470, which was designed to crack down on abusive "sale-in, lease-out" transactions. Unfortunately, Section 470 has sweeping applications beyond these lease transactions, applying to all real estate partnerships that have taxable and tax-exempt partners. With more than $200 billion invested in real estate by pension funds, endowments and foundations, the provision's application to real estate partnerships has the potential to disrupt a vital and broadly used arrangement for capitalizing investment real estate.

Last month, at the urging of the Roundtable and lawmakers' requests, the Treasury Department issued another one-year extension of the moratorium on applying Section 470 to partnerships. The Roundtable plans to work with congressional tax-writing committees in the New Year toward a long-term solution.

Another top priority is an extension of the time frame for the green-building tax incentive. This provision offers owners a targeted tax deduction for energy-efficient building construction and renovation equal to $1.80 per sf in expenditures. The Roundtable welcomes Congress' recent extension of the provision's effective date through 2008. However, for the tax policy to be effective, a significantly longer time frame is necessary to stimulate investment in larger, more comprehensive energy-efficiency upgrades.

On the Homeland Security front, Democrats have promised to approve legislation to put into place many of the recommendations of the 9/11 Commission. Policymakers may seek to implement the commission's endorsement of a specific national preparedness standard (NFPA 1600), to be used by insurance and credit rating industries for "assessing…insurability and creditworthiness" of individual companies. The commission also suggested that "compliance with the standard should define the standard of care owed by a company to its employees and the public for legal purposes." The Roundtable will continue to monitor this issue and emphasize solutions principally at the local and state levels.

Democrats have also argued strongly for improved intelligence sharing mechanisms between federal agencies and local police officers. Any improvements in this area will advance the ongoing work of the Real Estate Information Sharing and Analysis Center, which provides a two-way communication channel between our industry and Homeland Security officials.

The views expressed in this article are those of the author and not Real Estate Media or its publications.