Remarks of Jeffrey D. DeBoer to Eastdil Secured Retail Symposium Four Seasons Hotel Washington, DC February, 12, 2014

Transcription

1 Remarks of Jeffrey D. DeBoer to Eastdil Secured Retail Symposium Four Seasons Hotel Washington, DC February, 12, 2014 Good afternoon. Thank you for inviting me to speak today. I see many friends here today and several Roundtable members. You are to be congratulated for being here in light of the coming snow storm which typically scares people away from Washington even more than usual! I do want to thank Eric Zimmermann specifically for thinking of me for this... and of course Roy March who serves on the Board of Directors for The Real Estate Roundtable and who is a terrific industry and thought leader. I plan to speak for a few minutes and then leave some time for questions. I also am providing you with a copy of our just released 2014 national policy agenda... titled Together -- Jobs, the Economy and Real Estate. Please take a moment in the coming days to review it... and if you have comments or suggestions about anything raised in it please contact me... my door and phones are always open. Also, visit our website at I thought when the Olympics started I would have a nice escape from day-to-day Washington. Unfortunately that hasn't been the case. In many ways, the Olympics have only reminded us of some of the issues and dramas we struggle with here politically. For example, as has been widely reported, Russia has implemented the most intensive security in Olympics history. The government is monitoring every ... every social media message... and they listen in on every phone call. In fact, people are now comparing Russian security to the standard set here in Washington.

2 February 12, 2014 Page 2 Of course terrorism is no laughing matter... and its ongoing threat does remind me why it is so important that Washington extend the terrorism risk insurance program that is now set to expire at the end of and why the work we do with the Department of Homeland security regarding sharing threat information is one of the most underappreciated, yet important activities of the organized real estate industry in Washington... more on both of these activities in a minute. And the Olympics are of course about fair international competition... which is a buzz phrase here in Washington that has ignited a debate over comprehensive tax reform, reform of the foreign investment in real property tax act (FIRPTA), and whether or not international accounting standards regarding leases should be more uniform. And we can talk about these important issues as well. But... most importantly I suppose... the Olympics are about winning. So at first it came as no surprise that the Jamaican Bobsled team had called in Governor Chris Christie to offer them advice on how to win. After all, he has successfully been elected and reelected as a Republican in a staunchly Democratic state. But then the truth... as it always does... came out. The real reason the bobsled team called in Governor Christie for help was that they had rarely seen someone go downhill faster... and yet continue to climb the hill again. Winning is after all what we at the Real Estate Roundtable seek to do... win in the very competitive arena of Washington public policy...and we want to prevail by making our case in a sound, well researched and fact based manner. While Olympians train for years to be the best that they can be... we use our policy advisory committee structure to identify, review, and analyze issues... and we call on the broad-based commercial real estate industry to help explain to policymakers the real world impact that policy decisions can have on our industry and the economy... and the team of Roundtable staff is constantly on Capitol Hill reinforcing the message. So the Olympics are not an escape from policymaking and political drama here... but in fact a mirror... and if it were the summer Olympics now going on the mirror would be a marathon... because that's what policymaking has turned out to be... a marathon in getting the right tax policy for real estate, a marathon in making sure that we have appropriate regulations for lenders and borrowers... a marathon to ensure liquidity is not choked off by the expiration of the terror insurance program... and a marathon in promoting real estate as part of the solution to the energy problems facing our country. But the biggest marathon that we at The Real Estate Roundtable are running is the marathon to make sure that policymakers understand the connectivity between healthy growing real estate markets and an expanding, job creating overall economy.

3 February 12, 2014 Page 3 Just yesterday, I had lunch with a young member of the House of Representatives, and I was reminded how necessary it is that we consistently make a solid case to lawmakers, the public, and the press that real estate is a positive force for economic growth. It seems obvious to us. But at lunch yesterday when I was going over this with the Congressman he said: "you know Jeff, it makes perfect sense that we need strong real estate markets to have a strong economy. And, we need healthy real estate to fund the needs of our communities... the roads, the teachers, the police and the firemen. But most of the time people on Capitol Hill just don't connect the dots." So... as you can see from the policy agenda that I have distributed to all of you... that's one of our primary missions... making sure that Congress understands that harming real estate activities is bad for local economies, lenders portfolios, and jobs - but it takes hard, consistent work on Capitol Hill to make this message stick... and it takes an active engaged industry... including everyone in this room... to reinforce this message when you speak with national political leaders. Let me get a bit more specific on the key issues and where we need your help. And just to preempt a couple of questions that I always get in talks like this... I want to make it clear that we are not simply a "special interest" advancing issues that solely relate to real estate ownership, development and financing. We also actively lend our support to large scale efforts on issues such as immigration reform, deficit reduction and making sure Congress understands the ramifications of playing Russian roulette with the nation's credit rating. But, as I hope you know, our bread and butter is working on specific real estate tax, banking, environmental and security related issues. Consider the big issues we are now working on in Washington. Tax reform alone is a potential game changer. Limiting the ability to deduct the interest associated with business debt on new and old deals. Taxing all capital gains as ordinary income. Lengthening depreciation on all new and existing real estate assets... and on all leasehold improvements... to 43 years. Losing the like-kind exchange rules. Taxing large partnerships as corporations. These are just a few risks we face as evidence by recent Capitol Hill proposals. And in each case we need to ground our position in the facts about the economics of real estate and we need the help of industry leaders like you to reinforce our views. Fortunately, in addition to risks, there are also opportunities in tax reform and we have worked very hard to get well positioned on a few items.

4 February 12, 2014 Page 4 Working with NAREIT we are now in a good position to see the FIRPTA laws reformed to ease the structuring problems associated with bringing in additional foreign equity capital to commercial real estate. Here there are three operative proposals: increase the current law portfolio exemption for foreign owners of publicly traded REITS from 5% to 10%; repealing the IRS notice that taxes all liquidating distributions from private domestic REITs as FIRPTA gain, and, allowing investment from foreign pension plans to come into the US real estate market thru any vehicle and be free from FIRPTA. These proposals all have strong support on Capitol Hill and with the Administration... but we need a larger tax bill to attach it to... and we need to continue to explain why current law is not correct. Also, I know there are a lot of retail owners and investors here today so you should know that we are working with ICSC to continue to build the case for the Main Street Fairness bill to level the playing field between all types of retailers. The level playing field legislation passed the Senate last year and just this morning the Chair of the House Judiciary Committee announced that he will hold a hearing next month on this issue. There is opposition to this bill in the House but we will not give up... and I know ISCS will not give up... and, with your help, we will eventually have equality in treatment of sales tax collection among all types of retailers. We have also worked hard to make sure that the EB-5 immigrant investor program continues. More and more development and infrastructure projects across the U.S. have turned to EB-5 funds from foreign investors. The Roundtable pushed to get the program extended when it expired several years ago, and as a result, EB-5 is authorized through September In the immigration reform bill that passed the Senate last year, we supported provisions that would make the EB-5 program permanent so developers and investors can continue to rely on this program as a source to assemble capital and get development projects off the ground. As Congress continues to consider immigration reform, The Roundtable will make sure that EB-5 is part of the discussion. We also have a strong campaign going to improve the incentive to retrofit existing buildings to make them more energy efficient. Energy efficiency legislation has generated growing interest on Capitol Hill. The Roundtable has been at the negotiation table to make sure that the main bill moving through the legislative process the so-called Shaheen-Portman bill has more carrots than sticks for the real estate industry. We ve fought against mandatory federal building energy codes. But at the same time, we developed a proposal to better align commercial landlords and tenants with an incentive-based program to encourage high energy performance in tenant fit-outs of leased spaces. Our Tenant Star proposal a home grown product developed by The Roundtable s Sustainability Committee, under the leadership of Tony Malkin passed the House Energy Committee two weeks ago. We ll continue our efforts to make sure that Tenant Star advances in both the House and Senate. And, we will continue to work to make the current tax provision for energy retrofits more useable. But perhaps the most important issue we face today is a key to future liquidity and that concerns our work to extend the terrorism insurance law which is set to expire at the end of 2014.

5 February 12, 2014 Page 5 We can all look back to those 14 months after 9-11 when the financing world shut down for real estate across the country because we could not obtain full insurance on projects, including terror cover. We did a survey at the time that established nearly $15 billion dollars in stalled or cancelled real estate transactions due to no terror insurance... the White House said that equaled about 300,000 construction workers that were idled because of this problem. We do not want that to occur again. But to extend the law... that is set to expire at year-end... takes hard work, sound research, and significant man hours on Capitol Hill. This will not be an easy lift. Many legislators simply do not understand why the private insurance marketplace cannot model terrorism risk and price it into the marketplace. They need to be reminded that terrorism is a man-made threat. One that is constantly evolving. One that strikes in a totally unpredictable manner at totally unpredictable times. There is no track record for terrorism like there is for natural catastrophic disasters and there is no season for terrorism. We have made these and other points at several recent hearings in the House and Senate on this issue. And, we will continue to press the case. This is a program that works and one that really doesn't cost the government anything to have. It will not stop terror from occurring... but it does allow our businesses to get financing in the face of the ongoing terrorist threat and it will allow our economy to recover in a quicker and more orderly way should terrorism again occur in the U.S. Congress will likely take this issue go down to the wire... close to the end of this year... we need to work hard to make them understand the urgency of early action... that each passing day will increase financing difficulties for our industry and will be an additional barrier to new construction. So we need your help. I invite you to go to our coalition website "insureagainstterrorism.org"... to learn more and to see directly how you can contact Congress to urge action. So, our major specific issues are: 1) extend the terror insurance law to keep liquidity; 2) make sure we are not punished in tax reform like we were in 1986 tax reform; 3) reform FIRPTA; 4) enact Main Street Fairness; 5) find ways to help building owners be more energy efficient without government mandates. And, at the same time, we strive to keep Washington aware of the positive economic engine that is commercial real estate. With that I will stop and take any questions about Washington, our policy priorities... or the Olympics. Thank you.