Real Estate & The Economy, Transportation Infrastructure & Energy Efficiency

The Real Estate Roundtable discusses several of key topics this week:

  • ENERGY EFFICIENCY – Roundtable Testimony Urges Swift Senate Action to Spur Job-Creating Energy Retrofits
  • TRANSPORTATION INFRASTRUCTURE – Congress Passes Long-Term Transportation Funding Bill, Which Should Spur Jobs, Multi-Modal Transit, Ease Real Estate’s Ability to Coordinate With Transportation Planners; 11th Hour Deal Includes Student Loan, Flood Insurance Provisions
  • REAL ESTATE & THE ECONOMY – BOMA Report Quantifies Office Segment’s Vast Contributions to U.S., State, Local Economies; Every $1 of Office Building Expenditures Means $2.57 for U.S. Economy  

ENERGY EFFICIENCY

Roundtable Testimony Urges Swift Senate Action to Spur Job-Creating Energy Retrofits

In Senate Energy Committee testimony yesterday, Roundtable President and CEO Jeff DeBoer outlined six policy actions that Congress could take immediately to help unleash financing for energy efficiency retrofits of commercial buildings — projects he said would “get Americans back to work, with jobs that will stay in the United States, save businesses billions of dollars a year in utility bills, and help secure our country’s energy future.” Specifically, DeBoer called on policymakers to:

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Roundtable President and CEO Jeffrey DeBoertestifying before the Senate Energy Committee

(1) Reform the existing Section 179D tax deduction for energy efficient commercial buildings, as called for under forthcoming legislation from Senate Energy Committee Chairman Jeff Bingaman (D-NM) and Sen. Olympia Snowe (R-ME). Among other things, The Roundtable supports “before-and-after” energy measurements of buildings undergoing energy retrofits (as opposed to making comparisons against energy usage in a hypothetical “reference” building”). Additionally, the tax incentive should be made more useable for a broad range of stakeholders and building types, including real estate investment trusts (REITs).

(2) Authorize a Department of Energy (DOE) loan guarantee program in order to spur private-sector retrofit financing. DeBoer called for enactment of the credit support provisions in S. 1000, legislation co-sponsored by Senate Energy Committee member Jeanne Shaheen (D-NH) and Sen. Rob Portman (R-OH) that would specifically authorize DOE loan guarantees for less risky and less expensive building retrofits, with modest federal credit support projected to leverage far greater multiples of private sector funding.

Despite concern over failed loans to solar equipment manufacturer Solyndra this past year, The Roundtable maintains that federal backing for energy retrofits would facilitate job creation cost effectively and that a retrofit loan guarantee program could be developed with minimal risk to U.S. taxpayers.

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June 28, 2012 Roundtable testimony on “Financing Efficient Buildings”before the Senate Energy Committee – pdf

(3) Pass legislation to encourage real estate appraisals that value energy efficiency.  Legislation proposed by Sens. Michael Bennet (D-COL and Johnny Isakson (R-GA) would, among other things, encourage better information sharing among real estate owners, lenders and appraisers so that energy performance is more consistently, accurately and fairly valued when appraising real estate.

(4) Enact legislation authorizing voluntary programs and recognition platforms that encourage commercial tenants to cooperate with landlords in reducing their buildings’ energy use. Along these lines, Senator Bennet is developing a bill employing a market-driven, non-regulatory approach that would align building owners and lessees in cooperatively reducing demands on the energy grid. Such an approach would carry no budgetary impact, and would better reflect the choices tenants make in designing and using their leased spaces — choices that contribute greatly to a building’s “plug loads” and overall U.S. energy consumption.

(5) Reduce barriers to foreign investment in U.S. real estate by reforming the Foreign Investment in Real Property Tax Act (FIRPTA), and by permanently authorizing the “EB-5” immigrant investor program — thereby making more equity capital available to finance energy upgrades in buildings. Along these lines, the Senate should pass S. 1616, the “Real Estate Investment and Jobs Act” introduced by Sens. Robert Menendez (D-N.J.) and Mike Enzi (R-WY), which has won the support of 25 co-sponsors.

(6) Curtail the Government Services Administration’s (GSA) recent increased use of “holdover” tenancies in its commercial leasing practices, so that privately-owned commercial buildings may be re-positioned in the market when federal leases expire (thus, helping to attract new financing that can be used for capital improvement projects such as energy efficiency retrofits).

DeBoer emphasized that action must be taken to heal broader problems in commercial real estate credit markets before energy retrofit financing can begin to flow more normally. He noted the vast amount of commercial mortgages maturing between 2012 and beyond, and how eroded property values and lost equity have left many properties “underwater” and complicated borrower efforts to secure new financing.

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The entire hearing isavailable via webcast.

“There is anxiety in the real estate and lending sectors as to where all of the debt financing and equity capital will come from to retire this maturing debt,” DeBoer continued, explaining that equity capital from abroad represents a tremendous — but “largely untapped” — source of new equity that could be used to stabilize and rebalance U.S. commercial real estate loans, encourage energy efficiency upgrades, and spur job creation.

“These funds must be brought into U.S. markets now, to staunch the threat of current loan defaults and then help sustain a more accelerated pace of economic growth….. Injecting greater foreign investment into U.S. real estate markets may be channeled to encourage retrofits, and help overcome the barrier of up-front capital costs that remains the biggest impediment to energy efficiency projects.”

As for the impact of current credit market constraints on property owners’ ability to undertake energy efficiency retrofits, DeBoer said, “The sustained financial pressure on property owners and lack of credit availability has led to deferral of maintenance and upgrades on existing properties.”

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Senate Energy Committee member Jeanne Shaheen (D-NH) co-sponsoredS.1000 with Sen. Rob Portman (R-OH)

DeBoer noted that Roundtable members “are at the vanguard of innovation in making our built environment more energy efficient,” highlighting the fact that 14 companies represented through The Roundtable are partners and allies in DOE’s Better Buildings Challenge. He also asserted that Roundtable members “routinely distinguish their buildings as ‘top of class’ performers” by receiving the ENERGY STAR label and EPA “Partner of the Year” awards.

Sen. Shaheen, who has been a guest at past Roundtable meetings, asked DeBoer to comment on the challenges of quantifying energy efficiency savings, and getting lenders to recognize the benefits of energy efficiency in their lending calculations [see video of hearing @ 77:56]. DeBoer focused his response on the difficulties of obtaining “whole-building” energy usage data — of getting a “holistic picture” of total energy usage in a building — as well as proposals to build on the ENERGY STAR labeling program by creating a program recognizing tenants with superior energy management within their own leased spaces [see Senate hearing video @ approx. 80:20].

In response to questioning from Energy Committee ranking Republican Lisa Murkowski (R-AK) about the kinds of incentives that would encourage comprehensive, whole-building retrofits [see video @ 93:25], DeBoer asserted there are “simple ways” to make the Section 179D tax deduction more workable and to “truly incentivize these kinds of deep retrofits.”

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Jeff DeBoer after the hearing with Senate Energy Committee Chairman Jeff Bingaman (D-NM)

In follow-up questioning from Sen. Al Franken (D-MN) about the inability of some types of organizations and real estate ownership structures (such as REITs) to take advantage of Section 179D, DeBoer agreed that making the tax deduction transferrable to third parties (e.g., retrofit contractors) could be “very powerful” in spurring energy retrofits of existing buildings [exchange begins at approx. 100:30 on video].

Joining DeBoer on the witness panel were representatives of the Sonoma County (Calif.) Energy Independence Program [SCEIP]; Clean Energy Works Oregon (a private-non-profit that accelerates the delivery of home energy remodels); GoodCents, Atlanta, GA (which partners with utilities to reduce their energy footprints); the United Illuminating Company, Orange, CT (an investor-owned electric distribution company); and New York City Efficiency Corporation (whose mission is to help NYC achieve its energy and climate action goals by catalyzing energy efficiency retrofit financing markets for private building owners).

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TRANSPORTATION INFRASTRUCTURE

Congress Passes Long-Term Transportation Funding Bill, Which Should Spur Jobs, Multi-Modal Transit, Ease Real Estate’s Ability to Coordinate With Transportation Planners; 11th Hour Deal Includes Student Loan, Flood Insurance Provisions

After passing nine temporary highway funding bills over the past three years (the latest in March), Congress this afternoon approved legislation authorizing 27 months of federal funding for transportation infrastructure projects (nearly $80 billion for road, tunnel and bridge construction, and $21.3 billion for mass transit). The House-Senate conference report on transportation was folded into a broader legislative package that extends reduced student loan rates, and reauthorizes the flood insurance program (overhauling premiums, subsidies and deductibles in order to make the program more actuarily sound), CQRoll Callreported June 29.

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U.S. Transportation Secretary Ray LaHood,left, during the Spring 2012 Roundtable Meeting with Roundtable Board member Ross Perot, Jr. (Hillwood).

Today’s House vote on the transportation-student loan-flood insurance package was 373-52. The Senate followed shortly with a vote of 74-19, with one senator voting “present” (abcnews.com, June 29).

House-Senate transportation conferees made a significant breakthrough on Wednesday, when controversial provisions on the Keystone pipeline and the Environmental Protection Agency’s (EPA) ability to regulate coal ash were dropped from the negotiations. With the latest stopgap funding scheduled to run out tomorrow, the bipartisan compromise came just in time.

The prospect of longer-term funding for transportation infrastructure should facilitate job creation and make it easier for real estate developers and transportation planners to coordinate on critical surface transportation projects.

The Roundtable last year joined other private-sector groups and coalitions in supporting the Senate’s two-year transportation funding bill (“MAP-21,” shepherded by Environment Committee Chair Barbara Boxer [D-CA]), stating that it would “end the unconstructive cycle of shorter-term highway and transit funding that has hampered the ability of real estate and transportation planning communities to coordinate and develop surface transportation projects that best suit local, regional, state and national needs.”

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U.S. Federal Transit Administration Administrator Peter Rogoff,right, discusses infrastructure investment with former Roundtable Chairman Nelson Rising (Rising Realty Partners) during the Roundtable’s Annual Meeting in June.

Infrastructure investment — and its connection to job creation and healthy property markets — were among the broad themes in a “Rebuilding America” presentation at The Roundtable’s recent 2012 Annual Meeting. The panel was moderated by former Roundtable Chairman Nelson Rising (Rising Realty Partners) and featured U.S. Federal Transit Administration Administrator Peter Rogoff (Roundtable Weekly, June 15).

Infrastructure — and the nexus between regional transportation planning, multi-modal transportation options for commuters and urban residents, healthy economies and cities, and sustainable development — were also key topics at the Spring 2012 Roundtable Meeting, which featured a dialogue with U.S. Transportation Secretary Ray LaHood (Roundtable Weekly, April 20).

The final highway bill now on its way to the White House for President Obama’s signature reportedly reduces the number of distinct highway programs — thus, helping to ease federal budget deficits — while streamlining environmental reviews of proposed public works, a GOP priority.

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REAL ESTATE & THE ECONOMY

BOMA Report Quantifies Office Segment’s Vast Contributions to U.S., State, Local Economies; Every $1 of Office Building Expenditures Means $2.57 for U.S. Economy

study released Monday by the Building Owners and Managers Association (BOMA) Internationalquantifies and confirms the vast economic contributions made by the commercial office sector at the local, state, and national levels. The June 25 report, titled, Where America Goes to Work: The Contribution of Office Building Operations to the Economy, 2012, shows that the short- and long-term expenditures that sustain office building operations—management, maintenance, repairs, building services and utilities—generate significant, continuous and growing expenditures that support local businesses, create job demand and contribute significantly to U.S. gross domestic product (GDP).

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BOMA’s new study:Where America Goes to Work: The Contribution of Office Building Operations to the Economy.

The 2012 study (which updates the original, 2009, report), finds that the 9.9 billion square feet of commercial office space located within the 94 markets served by BOMA’s 93 local associations generated over $79 billion in direct operating expenditures in 2011, to the benefit of workers and businesses within their host jurisdictions.

“For each dollar of office building expenditures, the U.S. economy gains $2.57,” asserted the report’s author, George Mason University Professor Stephen. S. Fuller. And, for every one of those dollars, nearly 20 jobs not related to the building itself are supported (GlobeSt.com, June 26).

“When you also consider the secondary benefits resulting from how the money generated by building operations is spent and re-spent, the true impact to local, state and national economies is very significant,” Fuller continued. “Whether a tenant supports an in-building dry cleaner, hails a taxi, takes a business associate to lunch at a nearby restaurant, or grabs a soda from a sidewalk vendor, it all goes toward supporting significant job growth directly and indirectly, and helps generate new personal earnings that further stimulates the economy.”

BOMA International Chair Boyd R. Zoccola (Hokanson Companies, Inc.), who served on The Roundtable’s outgoing (FY2012) board of directors, called the study “a groundbreaking and eye-opening report” — one that “reveals just how significant a role the commercial real estate industry, and office building operations in particular, has on the U.S. economy.”

Key highlights of the study:

 For each dollar spent on office building operations, the national economy gained $2.57, with the result that $79.7 billion in annual operating expenditures contributed a total of $205.1 billion to GDP in 2011—equivalent to the state of California’s annual budget;

• For each $1 million in expenditures for office building operations, 19.6 jobs were supported nationwide. As a result, $79.7 billion in annual operating expenditures supported a total of 1.6 million indirect jobs across all sectors of the national economy in 2011—in addition to an estimated 2.2 million more jobs directly related to the on-site management and operations of the buildings;

•  The 9.9 billion square feet of commercial and government-owned office space located in the 94 markets served by BOMA’s 93 local associations provided workspace for an estimated 44.3 million office jobs.

The analysis was limited to commercial office space in buildings with a minimum of 10,000 square feet and excluded buildings owned by their occupants, as well as government-owned office buildings. The full report is available online.

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Source:  The Real Estate Rondtable

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