Volume XI, Number 2 - June 2006

CCIM Institute’s 2006 Congressional Visit Program

This past spring, CCIM’s had two opportunities to meet with their federal legislators and advocate on behalf of the commercial real estate industry. Many CCIM’s chose to join their state delegations on Capitol Hill during NAR’s Mid Year Legislative Meeting. The issues highlighted during those visits are of great concern to commercial real estate brokers: Small Business Health Plans, Banks in Real Estate, OCC Rulings Expanding Bank Powers, and Tax Reform.

CCIM Institute Chapters were also encouraged to organize visits with the federal legislators in their local district and state offices. The issues emphasized during those visits included all the NAR issues, as well as Private Property Rights and Natural Disaster Insurance. Updates on the status of each of these issues can be found throughout this bulletin.

Debate of Mixing of Banking and Commerce Continues

Since 2002, the CCIM Institute, working with the National Association of REALTORS® has secured a one-year ban against the Treasury Department from issuing a final rule permitting national bank conglomerates to engage in real estate brokerage and management, in the House FY07 Appropriations bill. The Senate has yet to debate the legislation. The CCIM Institute and NAR also continue to add cosponsors to H.R. 111 and S. 98, which would enact a permanent ban.

In December 2005, the Office of the Comptroller of the Currency (OCC) announced it was authorizing national banks to invest in real estate projects involving the development of office buildings, hotels, residential condominiums, and windmill farms. OCC is the principal federal banking regulator for national banks. The OCC actions represent a marked departure from what is permitted by the National Bank Act, the OCC’s regulations, and previous OCC rulings regarding the types of real estate activities in which national banks may engage. The new rulings represent the OCC’s continued efforts to dramatically expand the real estate powers of national banks. The CCIM Institute is working with NAR to oppose these rulings, and have asked Members of Congress to write the OCC expressing opposition.

Extension of Real Estate Tax Provisions Still Pending

In the middle of May, the U.S. House and Senate agreed to a $70 billion tax reconciliation bill (H.R. 4297). The legislation extends the 15% capital gains tax rate and the $100,000 small business expensing deduction through December 31, 2010 and provides relief from the Alternative Minimum Tax (AMT) for the 2006 tax year. The legislation also includes about a dozen very narrow, industry-specific clarifications. Another 14 provisions, none of which affect real estate, are included to raise additional new federal revenues.

A second tax bill is expected that would extend real estate-related provisions including the 15-year life for leasehold improvements and deductions for brownfield cleanup expenditures. The timing and revenue raiser requirements for that bill are unknown.

Small Business Health Plans Fails in Senate Attempt – Fight Not Over

On Thursday, May 11, 2006, Senators failed to move to consider S. 1955, small business health plan legislation. The CCIM Institute supported the bill, cosponsored by Senators Mike Enzi (R-WY), Ben Nelson (D-NE) and Conrad Burns (R-MT). The bill would allow trade associations to negotiate health insurance coverage for members. The bill was set aside after a motion to consider a Democratic alternative to SBHPs was blocked by Senator Dick Durbin (D-IL) and S. 1955 cosponsors failed to win enough Democratic votes to avoid a filibuster on the bill. The procedural vote, which required 60 votes for passage, failed 55-43. Senators Ben Nelson and Mary Landrieu (LA) were the only Democrats voting to advance the bill while Senator Lincoln Chafee (RI) was the only Republican to oppose moving forward.

Senator Enzi has continued to work on changes to address remaining concerns with an eye to bringing up the bill once again this year. Among changes planned for consideration, were two amendments to limit the variation in premiums allowed by the bill and require SBHPs to offer all of the mandates required by 26 states. NAR and the CCIM Institute continue to push for this legislation to be passed this year.

Private Property Rights Bill Gets Hearing in the House

The Constitution Subcommittee of the House Judiciary Committee held a hearing on June 8 to discuss H.R. 4772 - The Private Property Rights Implementation Act - sponsored by Rep. Steve Chabot (R-OH). This bill would streamline access to the federal courts in regulatory takings cases. Currently, to bring this kind of case to the federal level requires many years of legal procedures at the local and state level. The CCIM Institute urged support for this legislation at the Capitol Hill Visit day. It is expected that the Full Committee will review this legislation later this month.

Natural Disaster Legislation Stalled As Hurricane Season Begins

While a number of bills have been introduced, no legislation has yet been considered in the House and Senate to deal with a federal natural disaster program. The CCIM Institute lobbied this issue at the Capitol Hill Visit day this year, urging for a federal backstop to help make disaster insurance affordable and available. Instead, Congress has been focusing on reforms to the National Flood Insurance Program. House and Senate Committee Members have passed bills reforming the program, which has been in bankruptcy since Hurricanes Katrina and Rita. Congress has increased funding for the program to keep it running, but insists that significant reforms are needed to make the program actuarially sound. Committee leadership in the House and Senate has insisted that they cannot consider any natural disaster legislation until the NFIP is reformed.

IRS Publishes Notice on Tax Deductions for Energy Efficient Buildings

In early June, the IRS published an advance notice for commercial building owners on how to qualify for a tax deduction for making their buildings energy efficient. The commercial building deduction was enacted as part of the Energy Policy Act of 2005, which the CCIM Institute supported. This allows taxpayers to deduct the cost of energy-efficient improvements installed in commercial buildings. The amount deductible can be nas much as $1.80 per square foot for buildings that achieve a 50% energy savings. Lower deductions are available for buildings that meet a lesser savings. To get a copy of the notice visit: http://www.irs.gov/pub/irs-drop/n-06-52.pdf.

TICs Update

Tenant-in-Common (TIC) transactions remain an issue with complex and unclear regulations because they can either be structured as securities or real estate. The Securities and Exchange Commission (SEC) has the authority to set rules by which real estate professionals may handle securitized TIC dealings. Currently, SEC regulations and NASD rules prohibit broker dealers from providing compensation to real estate professionals when the TIC is considered a security. NAR is in discussions with the SEC on defining a role for real estate professionals in the brokerage of securitized TIC interests, whereby they can provide real estate services and derive compensation. NAR and the CCIM Institute believe that it is in the consumer's best interest to work with a real estate professional in identifying any real estate investment opportunity, including a securitized TIC interest. In an effort to help real estate professionals who take part in the TIC marketplace avoid legal challenges and ensure proper compensation for deals, the National Association of REALTORS® has developed specific guidelines for all members. Read the publication on TICs.

CCIM Institute Legislative Affairs Subcommittee Update

The CCIM Institute Legislative Affairs Subcommittee had their biannual meeting on April 27, 2006, during the Business meetings in Vancouver, British Columbia. Chair Louis Nimkoff, CCIM, led the committee through its agenda, which included an update on the Government Affairs page of the Institute’s website, finalization of the 2006 Congressional Visits program, updates on several federal and state legislative and regulatory issues, approval of 2 new and 19 revised CCIM Institute Statements of Policy, an RCA update from Mark Macek, CCIM, and the approval of Goals and Objectives for the coming year.

New Statements of Policy

The CCIM Institute has adopted new Statements of Policy concerning National Disaster Insurance and Preparation for an Avian Flu Pandemic:

The CCIM Institute is very concerned about the availability and affordability of property insurance and urges Congress to develop a solution to this problem. A federal reinsurance program that is funded through contributions from insurers or state catastrophic insurance programs will help communities recover from disasters while preventing taxpayers from bearing many of the costs associated with such disasters.

The CCIM Institute urges all commercial brokers to familiarize themselves with the dangers associated with a possible pandemic and assess the impact one could have on their businesses, properties, employees, and clients. Commercial brokers should prepare their businesses and properties for a pandemic by establishing policies to be implemented during a pandemic and determining what resources would need to be allocated to employees and clients at such time. The CCIM Institute legislative staff will monitor and communicate this legislation to its membership.

The full statements with background information and current status, as well as the most recently updated versions of all CCIM Institute Statements of Policy, can be found on the Government relations page.

Basel Accords Update

The Federal Reserve recently released a draft notice of proposed rules that would begin implementing the Basel II Accord, an international set of standards agreed to by the central banks of the world’s ten largest economies that would govern the way banks determine the amount of capital they must hold in reserve in order to mitigate risk. This draft identified the risks as including the following real estate exposures: home equity lines of credit, residential mortgages, income producing real property, and high-volatility commercial real estate. It is anticipated that the notice of proposed rules will be published in the Federal Register within the next two months. From that time, there will be 120 days for responses to this proposed treatment of real estate exposures.

Since Basel II is widely seen as providing a competitive advantage to larger banks, the financial regulatory agencies began drafting Basel I-A, which would apply to smaller banks. It is the anticipated that both will take affect on the same schedule. Regulators maintain that the effects of both measures on the real estate markets should be minimal. However, NAR and the CCIM Institute remain concerned that Basel may limit the flow of capital available for commercial real estate development and investment.

Estate Tax Update: Votes and Compromises

A motion for cloture on the Death Tax Repeal Permanency Act of 2005 (H.R. 8), which will make the 2010 repeal of the estate tax permanent, narrowly failed on a largely party line Senate vote on Thursday, June 8th. As a result, the legislation, which has already been passed by the House, is not eligible for consideration. Supporters of the bill insist that they will keep trying for passage this session. CCIM’s who participated in the National Association of REALTOR® Hill Visits this past May lobbied their Senators for passage of the bill.

Several Senators, including Sens. Jon Kyl (R-AZ), Olympia Snowe (R-ME), and Max Baucus (D-MT), have begun crafting compromise proposals that would reform the tax and prevent it from coming back in it’s pre-2001 form after the 2010 repeal expires. Sen. Kyl, who serves as Chair of the Senate Finance Committee’s Taxation and Oversight Subcommittee, is hoping that if a complete repeal is impossible, lawmakers will be able to forge a consensus measure that would prevent the tax from returning in 2011 in its pre-2001 form. He offered such a proposal, which would increase the size of estates exempt from the tax to $5 million. Estates larger than that, up to $30 million, would be taxed at a rate equal to the top tax rate for most capital gains, with any portion of an estate over $30 million taxed at 30%, under his plan.

With the possibility that compromise might be more likely than a complete repeal, a revised position was adopted at the Mid Year Legislative Meetings outlining just what sort of compromise would be acceptable to REALTORS®. The revised position recommended that “NAR seek an estate tax regime that provides stepped-up basis for all inherited assets. If the scheduled 2010 estate tax repeal is rescinded, that NAR support a revision that (a) permits stepped-up basis, (B) taxes all assets in an estate at the same rate (i.e., rates would not depend on the type of asset), (c) excludes an amount comparable to the $5 million exclusion that would be in effect in 2010, (d) provides estate tax rates that, as nearly as possible, are the same as the tax rate for long-term capital gains, but in no event higher than the 2006 individual tax rates of the income tax structure and (e) indexes the estate tax exclusion amounts for inflation.”

This revised position does not supplant the NAR and the CCIM Institute position calling for the complete, permanent elimination of this tax.

Junk Fax Final Rule Announced

On Wednesday, May 3, 2006, the FCC issued the final rule on the federal Junk Fax Protection Act. While the content of the rule was released earlier, the printing of the final rule reveals the effective date of the regulations to be August 1, 2006. The rules establish a 30 day opt-out request compliance requirement and identify what “cost free” mechanisms fax senders can use for consumers to transmit their opt-out requests. The FCC refused to place a limit on the duration of an opt-out and established that an opt-out request would terminate the existing business relationship exemption even if the parties continued the business relationship. Read the entire rule.

Commercial Real Estate Lending Guidelines – NAR Submits Comments

Earlier this year, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the Federal Reserve published a proposed guidance recommending additional internal risk management practices that banks may undertake should they find that they have a heavy concentration in commercial real estate.

NAR has expressed concern that the proposed guidance, combined with the restructuring of capital reserve requirements under the Basel Accords, may slow the flow of capital to commercial real estate and potentially depress property values. NAR urged the regulators to evaluate the impact of the combined effect of these regulatory regimes before finalizing the guidance. In addition, NAR suggested that regulators acknowledge that banks may achieve diversity in commercial real estate through lending to different classes of real estate in different markets. View the comment letter.

State Issue Trends

The CCIM Institute legislative staff maintains a database of legislation being introduced in all 50 states. CCIM’s may access this state legislative database (log-in required).

The legislative response to the Supreme Court’s Kelo decision continues, as many state legislatures met for the first time since it was handed down last summer. Many states have introduced legislation that, among other things, either (a) explicitly prohibits the use of eminent domain or condemnation for the purpose of commercial use, economic development, or tax revenue enhancement; or (b) implicitly creates such a prohibition by excluding such purposes from those explicitly enumerated for eminent domain or condemnation. Information on these bills can be found in the database under the categories “Land Use” and “Local Planning.” The CCIM Institute supports states’ rights in deciding under what conditions eminent domain may or may not used and urges state legislatures to enact more strict standards of “public use” than the federally mandated standard under which eminent domain is permitted.

The CCIM Legislative Staff has also been tracking several bills and working with the Legislative Chairs of the appropriate Chapters to fight against forced access mandates and ensure that amendments creating such mandates are not added to bills pending in the legislatures. The CCIM Institute is opposed to unrestricted access to buildings by service providers, which would require building owners to guarantee building access to a potentially unlimited number of service providers and assume much, if not all, of the costs and liabilities associated with such access. This year, amendments creating such requirements were attached to Telecommunications Reform bills in Indiana and Rhode Island. Conversely, protections against forced access were introduced via legislation in Florida and enacted in Arizona.

Finally, legislation was introduced in Florida and South Carolina that would restrict a property owner’s right to create and enforce prohibitions on the transportation or storage of firearms in motor vehicles on their property. This obvious infringement on private property rights raises a host of liability and insurance issues, and the CCIM Legislative Staff will continue to monitor development.

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