Roundtable Weekly

  • JOB CREATION & INVESTMENT  – EB-5 “Immigrant Investor” Bill on Its Way to White House; Fed Launches “QE3,” Other Steps to Jumpstart Weak Economic Recovery
  • TERRORISM INSURANCE – Real Estate, Insurance Industry Stakeholders Testify on TRIA’s Critical Role in Making Terrorism Insurance Coverage Available, Urge that Program Not be Allowed to Expire in 2014
  • PUBLIC & COMMERCIAL BUILDINGS POLICY – GSA Announces New Public Buildings Commissioner; EPA Delays Action on Lead-Paint Rules for Commercial, Public Buildings   

JOB CREATION & INVESTMENT

EB-5 “Immigrant Investor” Bill on Its Way to White House; Fed Launches “QE3,” Other Steps to Jumpstart Weak Economic Recovery

The House last night voted overwhelmingly (412-3) to approve Roundtable-supported legislation authorizing a three-year extension of the U.S. Citizen and Immigration Service’s (USCIS) EB-5 “immigrant investor” program, which grants visas to foreigners who invest $1 million (or $500,000 in high unemployment areas) in a U.S. business that generates at least 10 jobs over two years. Similar legislation cleared the Senate just before the August congressional recess. The legislation is now cleared to go to the White House for President Obama’s expected signature.

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Roundtable-supported legislation authorizing a three-year extension of the U.S. Citizen and Immigration Service’s (USCIS) EB-5 “immigrant investor” program passed the House this week.

The Roundtable has been a strong advocate for the program’s extension, as a growing number of real estate companies have tapped into EB-5 as a creative means to assemble funds for a variety of development projects.

As The New York Times reported Sept. 6, developers for Hilton Worldwide, Hyatt Hotels and Starwood Hotels & Resorts have all turned to EB-5 financing over the past 18 months. “It’s created liquidity in a relatively illiquid market,” said Marriott’s chief development officer, Anthony Capuano. Added Hilton’s Craig Mance (senior vice president for development for North America): “It’s a method of financing that’s current, available and very credible. It’s helping deals move forward.”

In Senate Energy Committee testimony this past June, Roundtable President and CEO Jeffrey DeBoer urged Congress to extend EB-5 beyond September 2012 as one of several actions that may help unleash financing for job-creating energy efficiency retrofits (and help address the equity gap complicating refinancing efforts in commercial real estate). “A signature element of The Roundtable’s agenda is to enable policies that bring more foreign investment capital into U.S. real estate,” said DeBoer, adding that “extending the EB-5 program is a major step in the right direction.”

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Senate Judiciary Committee Chairman Patrick Leahy (D-VT), is a key sponsor of the Senate EB-5 bill.

Senate Judiciary Committee Chairman Patrick Leahy (D-VT), a key sponsor of the Senate EB-5 bill, praised the program’s track record in a Senate floor statement last month, saying it has “brought tens of thousands of jobs and billions in capital investment to communities across the United States at no cost to the taxpayer. This program represents one small corner of our overall immigration system, yet it results in enormous benefits for so many communities … to help raise the capital [for] innovation and economic growth.”

The House vote on EB-5 was delayed this week by partisan debate over a “continuing resolution (“CR”) — stopgap funding legislation to keep the federal government open and operating (at current levels) through the elections and into next spring (through March 27). The key holdup has been debate over the looming, across-the-board budget cuts that take effect on Jan. 1. In response to a GOP bill that would exempt the defense budget from deep “sequestration” budget cuts, the White House issued a veto threat on Wednesday, saying it would not back down from the difficult political agreement reached by both parties as part of the July 2011 debt ceiling standoff.

The Senate is out today and returns next Wednesday, when it is expected to approve the House-passed CR. The chamber is not expected to take up the House GOP sequestration bill.

Fed Launches “QE3,” Other Steps to Jumpstart Economic Recovery

Meanwhile, in a bold move to shore up the wavering economic recovery, the Federal Reserve yesterday announced a third round of bond purchases, or “quantitative easing,” along with a pledge to keep short-term rates at “exceptionally low levels” until mid-2015, and to continue the Fed’s “Operation Twist” program (which involves shifting its holdings of Treasury bonds from shorter to longer-term maturities).

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The  Federal Reserve yesterday announced a third round of bond purchases, or “quantitative easing,” along with a pledge to keep short-term rates at “exceptionally low levels” until mid-2015.

 

Economist Michael Gapen of Barclays Capital predicted the Fed’s “QE3” purchases of agency mortgage-backed securities would trim mortgage rates by a quarter- to half-percentage point and add two tenths of a percentage point to economic growth over the next year (USA Today, Sept. 13). Moody’s Analytics’ Mark Zandi, a previous Roundtable meeting guest, said the action could create as many as 350,000 new jobs and cut unemployment by another two-tenths of a percentage point over the coming year.

The Fed’s latest round of bond purchases begins today — at a pace of $40 billion per month — but has no end date as yet, giving the central bank the flexibility to keep the program in place as long as it deems necessary. In an official statement, the Fed said its latest bond-buying policy “should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative” (CNN Money, Sept. 13).

The Fed also indicated it will “employ its other policy tools” if the “labor market does not improve substantially.” The need for policy action to spur employment was reinforced by last week’s anemic Labor Department report showing that only 96,000 new U.S. jobs had been created in August — and that the unemployment rate had fallen from 8.3% to 8.1% because of the lowest level of labor force participation in more than 30 years.

At the Fall 2012 Roundtable Meeting on Oct. 2, real estate industry and trade association leaders will have an opportunity to share insights and anecdotal data on the commercial real estate recovery with Fed Governor Jerome H. Powell. The commercial real sector, which depends on an expanding economy and strong job growth to spur demand for commercial space (and to maintain healthy property values), continues to face headwinds from the weak economy, uncertainty over an array of federal policies (particularly looming tax policy questions), and concerns over the European debt situation and global economy.

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TERRORISM INSURANCE

Real Estate, Insurance Industry Stakeholders Testify on TRIA’s Critical Role in Making Terrorism Insurance Coverage Available, Urge that Program Not be Allowed to Expire in 2014

As the nation marked the 11th anniversary of 9/11 on Tuesday, a House Financial Services subcommittee held a hearing to discuss the effectiveness of the Terrorism Risk Insurance Act (TRIA) over the past decade, its impact on various economic sectors (such as commercial real estate), the private sector’s capacity to offer coverage without a federal backstop, and other potential options for encouraging greater private-sector participation in the terrorism insurance marketplace. While the law does not sunset until the end of 2014, debate on whether it should be reauthorized again — and what future changes may be needed in the program — is already underway, as evident at this week’s hearing.

TRIA hearing Sept 11 2012 - Witnesses

A House Financial Services subcommittee held a hearing to discuss the effectiveness of the Terrorism Risk Insurance Act (TRIA) over the past decade.  Watch the webcast here.

TRIA was initially adopted in 2002 to address the collapse of the private market for terrorism insurance in the wake of 9/11, and to increase reinsurance capacity for large terrorism events. It was subsequently reauthorized in 2005 and 2007. The law requires insurers to offer terrorism insurance to their commercial policy holders; requires states to regulate this type of insurance; and directs the U.S. Treasury Secretary to administer a program for sharing terrorism losses.

Among the 12 witnesses testifying before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity was Rolf Lundberg of the U.S. Chamber of Commerce, who spoke on behalf of the Coalition to Insure Against Terrorism (CIAT). This broad coalition of commercial insurance consumers was formed after 9/11 by The Real Estate Roundtable and others to ensure that American businesses could obtain comprehensive and affordable terrorism insurance. CIAT’s membership includes some 79 major trade and membership associations, representing virtually every sector of the U.S. economy.

Lundberg said TRIA made terrorism coverage available again (in the aftermath of 9/11) — delivering it through a private insurance mechanism that actually protects taxpayers. Although private terrorism insurance capacity has increased, federal assistance remains essential, according to Lundberg. Like others on the panel, he urged Congress to extend the program before it expires in late 2014.

TRIA hearing Sept 11 2012 - Rolf Lundberg

Rolf Lundberg of the U.S. Chamber of Commerce, testified on behalf of the Coalition to Insure Against Terrorism (CIAT), which includes The Roundtable.

Joining him on the first witness panel were representatives of the Insurance Information Institute; the conservative Heritage Foundation; the Wharton School’s Risk Management and Decision Processes Center; the Risk and Insurance Management Society, Inc. (RIMS); and the National Association of Realtors (NAR).

The second panel included representatives from the Financial Services Roundtable; National Association of Mutual Insurance Companies; Independent Insurance Agents & Brokers of America; Property Casualty Insurers Association of America; American Insurance Association; and the Reinsurance Association of America.

A majority of the witnesses called for an extension of TRIA, and most of those testifying on behalf of the insurance industry said insurers would be unable to provide continued terrorism coverage at an affordable rate if the program were allowed to expire. Several subcommittee lawmakers also expressed concern about what would happen if the federal government abandoned the program.

The Heritage Foundation witness, David C. John, said the program was designed to be a short-term solution following 9/11 and that the private market should now bear the risk. Similar sentiments were expressed by Subcommittee Chair Judy Biggert (R-IL), who said “TRIA was always meant to fill a temporary vacuum in the private market,” and that the hearing was an opportunity to “look closely at whether the private sector is ready to step in and provide reliable reinsurance and insurance coverage for terrorism-related losses without a federal backstop.”

TRIA hearing Sept 11 2012 - Chair Biggert

Subcommittee Chair Judy Biggert (R-IL) said “TRIA was always meant to fill a temporary vacuum in the private market.”

In response to such assertions, Dr. Robert P. Hartwig, of the Insurance Information Institute, said terrorism risk today remains almost as uninsurable as it was a decade ago. Jon Jensen, of the Independent Insurance Agents & Brokers of America, said similarly that the conditions that warranted TRIA’s original enactment a decade ago still exist today.

A key challenge facing insurers is that terrorism risk cannot be modeled or predicted accurately, given the constantly changing nature of terrorism. Hartwig cited estimates by insurance broker Aon that 70%–80% of the market would encounter terrorism exclusions if the program were discontinued. Thus, capacity in the marketplace is largely contingent upon the program’s continuation.

Testifying on behalf of NAR, Linda St. Peter (Prudential Connecticut Realty)said the backstop provided by TRIA allows the U.S. government and private insurance companies to share losses in the event of a major terrorist attack. Although the commercial real estate finance market is starting to show signs of life, she said any disruption in the availability of terrorism insurance would have serious consequences for commercial real estate’s fragile recovery.

  TRIA hearing Sept 11 2012 - Linda St. Peter

Linda St. Peter (Prudential Connecticut Realty) testified on behalf of the National Association of Realtors (NAR).

With primary insurers still largely averse to exposing themselves to potentially catastrophic terrorism losses, St. Peter said there are concerns about TRIA’s uncertain future and the potential unavailability of terrorism risk coverage after 2014. The law’s potential sunset could “create a spike in terrorism coverage premiums or make coverage unavailable in many markets,” she continued, adding that the loss of terrorism coverage would cause many commercial loans to go into technical default. According to industry sources, 84 percent of outstanding commercial mortgage balances require terrorism insurance.

Despite the successful reauthorization of the program in 2005 and 2007 — and the fact that terrorism remains a clear and present danger — many anticipate that the next TRIA reauthorization effort may be the most challenging, particularly amid Washington’s increasingly tight budget constraints and increased concerns about the impact of federal programs on taxpayers.

With that in mind, The Roundtable is organizing a working group as part of its Real Estate Capital Policy Advisory Committee (RECPAC) and Homeland Security Task Force (HSTF) to begin planning our advocacy efforts on this important issue.

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PUBLIC & COMMERCIAL BUILDINGS POLICY

GSA Announces New Public Buildings Commissioner; EPA Delays Action on Lead-Paint Rules for Commercial, Public Buildings

The U.S. General Services Administration (GSA) last week appointed Defense Department official Dorothy Robyn as commissioner of the Public Buildings Service (PBS), which oversees a vast portfolio of federal buildings and the leasing of private commercial space by federal agencies. Robyn will take over for acting PBS Commissioner Linda Chero, who was appointed in April after a scandal that resulted in the dismissal of PBS Commissioner Robert Peck and other top GSA officials.

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Dorothy Robyn has been appointed commissioner of the Public Buildings Service (PBS), which oversees a vast portfolio of federal buildings and the leasing of private commercial space by federal agencies.

During Robyn’s three years as the Pentagon’s deputy undersecretary for installations and environment, she oversaw the completion of the Base Closure and Realignment (BRAC) process and a portfolio of more than 29 million acres of land, 300,000 buildings and 2.2 billion sq. ft. of building space (The Washington Post, Sept. 4). In her new role at PBS, she will oversee an inventory of over 370 million sq. ft. of federal workspace for 1.1 million federal employees in more than 9,600 public and private buildings.

Acting GSA Administrator Dan Tangherlini said Robyn’s work at the Pentagon often required coordinating with GSA. “During this time, Dorothy has gained valuable experience working with GSA to identify ways that this agency and DOD can encourage greater innovation and cost efficiency from construction firms and make federal buildings more energy efficient and sustainable,” Tangherlini wrote to employees.

The Roundtable has enjoyed a positive working relationship with the GSA’s Public Buildings Service over the years, both with Peck and his predecessor, David Winstead (now with the Washington law firm Ballard Spahr).

It is unclear how Robyn’s appointment might affect Administration and congressional efforts to downsize the federal building portfolio (or EPA efforts to regulate potential lead paint hazards in public buildings – see below). In 2011 testimony before Congress, The Roundtable expressed concern about the potential impact of federal building sales on the still-wobbly commercial real estate market [Roundtable Weekly, April 1, 2011].

EPA Efforts to Regulate Lead Paint Dust in Commercial, Public Buildings Delayed Substantially

The U.S. Environmental Protection Agency (EPA), which has signaled its intent for several years to develop regulations governing possible lead paint hazards that might arise during renovation of commercial or public buildings, has signed a litigation settlement with environmental groups significantly delaying the release of proposed regulations.

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The  Roundtable has pressed EPA to obtain more data before proceeding with potential new regulations covering lead dust in public and commercial buildings as a result of renovation and remodeling activities.

 

EPA had been under a June 15, 2012 deadline to issue a “Lead Renovation Repair and Painting” (LRRP) rule covering exterior commercial renovations. With the settlement agreement, however, the issuance of proposed rules is now delayed by nearly three years — until July 1, 2015. Any final rule with a regulatory impact on real estate is not expected for well over four years — until December 31, 2016.

EPA has indicated plans to expand its lead paint regulatory program for pre-1978 housing and extrapolate it to commercial buildings — even though Congress only granted the agency authority to issue guidelines for work practices applicable to RRP [renovation/ repair/ painting] activities.

Working through a coalition of real estate industry trade groups (as well as Capitol Hill allies), The Roundtable has pressed EPA to obtain more data before proceeding with potential new regulations covering lead dust in public and commercial buildings as a result of renovation and remodeling activities.

In a Dec. 2010 letter to EPA, The Roundtable and 14 national real estate organizations wrote: “As EPA itself has noted . . . the development of lead hazard standards for public and commercial buildings is fraught with uncertainty due to the minimal data that are available regarding the prevalence of lead dust in these types of buildings and other factors that are critical to the development of a reasonable standard.”

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Senate legislation introduced this past March (S. 2148) would require EPA to carefully study any possible lead-based paint hazards in commercial buildings — and submit its findings to Congress for review — before proposing regulations covering the commercial and public building sectors.

 

As of this writing, EPA has still not followed through on statutory directives (e.g., the Toxic Substances Control Act of 1976) to conduct such studies in the commercial buildings context and to report on the results to Congress.

Senate legislation introduced this past March (S. 2148) would require EPA to carefully study any possible lead-based paint hazards in commercial buildings — and submit its findings to Congress for review — before proposing regulations covering the commercial and public building sectors. The bill also would require EPA to ensure that on-site “test kits” are available to contractors, in order to ensure accurate readings of purported lead-based paint hazards that may arise from renovation and remodeling activities, but which do not require expensive laboratory analysis. (Roundtable Weekly, March 9) Companion legislation has been introduced in the House (H.R. 5911).

The Roundtable will continue working with EPA, Congress (which has oversight authority over the agency) and its real estate organization partners in coming years to prepare our industry’s response to any federal regulatory actions in this area.

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Source:  The Real Estate Roundtable

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