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April 2010
Regulatory Reform Expected on the Senate Floor before May – Derivatives End-User Fly-In Scheduled
On Monday, March 22, the Senate Banking Committee met to consider the Restoring American Financial Stability Act of 2010, its 1,336 page comprehensive financial regulatory reform proposal. After only twenty minutes of debate, comprised almost entirely by opening statements by Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL), the Committee approved the proposal for consideration by the entire Senate by a party-line vote of 13-10. To read the comprehensive proposal, CLICK HERE.
Of particular concern to some NAREIT members, this proposal would impose significant costs and requirements on business end-users that rely on derivatives, such as interest rate swaps, to manage risk. Negotiations on these provisions will continue before the bill comes to the Senate floor, which is expected be as soon as the week of April 26.
It is also anticipated that the Senate Agriculture Committee, under the leadership of Chairman Blanche Lincoln (D-AR) and Ranking Member Saxby Chambliss (R-GA), will produce a bipartisan derivatives reform proposal in the coming days that will address many of the concerns raised by end-users. However, Obama Administration officials, including Treasury Secretary Timothy Geithner and CFTC Chairman Gary Gensler, have indicated they will oppose efforts to exempt end-users from new requirements.
NAREIT and our partners in the Coalition for Derivatives End-Users have scheduled a "fly-in" on Tuesday, April 20. NAREIT members are invited to join with executives from a broad range of industries to encourage Senators to support clear exemptions for businesses to use derivatives to manage risk, so that they are not required to tie up significant amounts of working capital to satisfy mark-to-market margin requirements.
If you, or someone else from your company, would like to participate, please contact Kirk Freeman, Senior Director, Government Relations, at 202-739-9415 or kfreeman@nareit.com.
NAREIT Opposes Effort to Expand State Regulation of Securities Offerings in Senate Financial Regulatory Reform Bill
A provision contained in the comprehensive financial regulatory reform legislation referred to above would permit states to impose their own set of regulations on private securities offerings utilized by many U.S. companies, including listed and publicly-registered, non-traded REITs.
On April 8, NAREIT joined the U.S. Chamber of Commerce, the Real Estate Investment Securities Association, the Investment Program Association, The Real Estate Roundtable, the Financial Services Roundtable, the Private Equity Council, and the Securities Industry and Financial Markets Association in sending a letter to all members of the U.S. Senate indicating that the language included in Section 926 of the bill passed by the Senate Banking Committee would “significantly harm the ability of companies to raise capital and expand their enterprises through private placements” pursuant to Rule 506 of Regulation D (“Reg D”) of the Securities Act of 1933. To view Section 926 in the Senate Banking Committee bill, CLICK HERE. To view the letter supported by NAREIT, CLICK HERE.
Rule 506 offerings have become the standard by which companies raise money privately from investors. In 1996, as part of the National Securities Markets Improvement Act (NSMIA), Congress provided a federal preemption from state securities laws, known as “Blue Sky laws,” for securities covered under Rule 506. Section 926 of the Senate Banking Committee bill would effectively repeal this preemption by granting authority to the SEC to determine which securities would be “covered” by Rule 506, and thus allow individual states to impose their own, unique requirements on any “non-covered” securities.
As the joint letter states, Section 926 would unwind “clear Congressional intent to facilitate capital formation in the U.S. by streamlining and modernizing the regulatory framework governing private offerings,” and “create uncertainty and additional expenses that would preclude many business from engaging in private offerings under Reg D.” NAREIT and the other signatories to the letter believe Section 926 lacks an understanding of the critical importance of private placement financing and the mechanics by which such financing occurs, especially at a time when capital is already scarce.
Efforts are underway to address this issue before the comprehensive reform bill is brought to the Senate floor. It is also important to note that the financial regulatory reform bill passed by the House of Representatives last December did not include changes like those proposed in Section 926, making it an issue that would need to be resolved if the two chambers combine their proposals into a final bill that could be sent to the President.
House Ways and Means Committee to Review Energy Tax Incentives
On April 14, the House Ways and Means Committee is scheduled to hold a hearing on “Energy Tax Incentives and the Green Job Economy.” NAREIT will submit written testimony to this hearing, requesting that appropriate attention be paid to REITs as Congress considers energy tax incentives.
Specifically, NAREIT has been working with lawmakers to address many of the issues facing REITs that would like to benefit from current or proposed energy tax incentives. Among other things, NAREIT supports H.R. 4599, the "Renewable Energy Expansion Act of 2010," introduced by Rep. Earl Blumenauer (D-OR), which would provide a refundable tax credit for investments in renewable energy projects entered into before Jan. 1, 2013.
This proposal is one way to extend an expiring grants program that was included as part of the "American Recovery and Reinvestment Act of 2009" (Pub. L. 111-5). Importantly, this proposal includes language authored by Rep. Linda Sanchez (D-CA) that would allow REITs to receive the refundable credit without regard to the dividends paid deduction. For more information on the proposals offered by Rep. Blumenauer and Rep. Sanchez, CLICK HERE.
NAREIT has also been working with members of the House and Senate who have proposed enhancements to the existing deduction for energy efficient commercial buildings and the extension of credits for the construction of new energy efficient homes to all apartments. Specifically, NAREIT is seeking language that would harmonize the energy efficient buildings deduction for tax and earnings and profits purposes and allowing a REIT to elect an economically equivalent deduction for apartments and senior living facilities that would otherwise benefit from the expanded energy efficient home credit.
Lawmakers, Obama Administration and Industry Representatives Consider the Future of Housing Finance and the Government-sponsored Enterprises (GSE)
On March 23, the House Financial Services Committee held a hearing titled, "Housing Finance-What Should the New System Be Able to Do?" During this hearing, members of the Committee heard from Treasury Secretary Timothy Geithner, as well as industry representatives and affordable housing advocates, on possible reforms to the Government-sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.
Lawmakers and the invited witnesses discussed issues related to the role the GSEs play in promoting private lending by enabling a secondary market for mortgage securities, as well as their critical support for financing in the multifamily sector.
Secretary Geithner spoke of the Obama Administration's intent to develop a GSE reform proposal in the coming months. Among other things, he said this proposal should continue to promote private investment in mortgage finance. “Through securitization and other forms of intermediation, a well functioning mortgage finance system should be able to draw efficiently upon a wide variety of sources of capital and investment,” he said in his prepared statement. He also noted the important role of rental housing, testifying that, “Government support for multifamily housing is important and should continue in a future housing finance system to ensure that consumers have access to affordable rental options.”
Several real estate organizations, including the National Multi Housing Council, the Mortgage Bankers Association and the National Association of Realtors also participated in this hearing. To read their prepared testimonies, CLICK HERE.
NAREIT will continue to monitor developments related to GSE reform, with particular interest in proposals that may impact multifamily, senior living, and mortgage REITs. If you or your company would like to lend your expertise in this area, please contact Robert Dibblee, Vice President, Government Relations at 202-739-9411 or rdibblee@nareit.com or Kirk Freeman, Senior Director, Government Relations at 202-739-9415 or kfreeman@nareit.com.
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