Changes in real estate-related legislation might be the furthest thing from your mind as your to-do list grows and demands for your time increase. However, in the near future, actions by local, state, and federal governments could seriously affect the buildings you develop, own, or operate. To get a leg up on some of the hottest issues surfacing recently, Buildings provides this update on passed and pending legislation. Find out what’s going on in Washington, D.C., and in your city.
The nearly 1-year-old verdict in Kelo v. New London is still causing as much controversy today as it did the day the gavel dropped. When the U.S. Supreme Court weighed in favor of the southeastern Connecticut town, it set the precedent that local governments could seize private property (in this case, Susette Kelo’s home) for economic-development purposes. Any celebration to be had by private developers has stalled due to growing opposition and anti-eminent domain sentiment from the public. As the population has increased, so, too, has a not-in-my-backyard (NIMBY) philosophy. In February 2006, the Hingham, MA-based Saint Consulting Group released survey results quantifying the public’s hostility toward the Kelo ruling. According to the political analyst, by late fall of 2005, 83 percent of Americans surveyed voiced opposition to the ruling, with 63 percent of those interviewed disagreeing strongly.
The uproar that ensued from the Supreme Court’s 5-4 decision has created a flurry of activity on Capitol Hill. Less than 6 months after the ruling, the U.S. House of Representatives passed legislation that would discourage the condemnation of homes, businesses, and farms for the sake of private development. Under the Private Property Rights Protection Act of 2005 (HR 4128), federal economic-development funds would be denied to jurisdictions for 2 years if eminent domain was used for the purpose of private commercial development. The Washington, D.C.-based Urban Land Institute issued a release explaining the legislation: “Courts would have the authority to determine whether a particular project constitutes economic development, and a new private right of action would be established allowing citizens to sue local government for potential violations.” While the House passed the bill with overwhelming support (376 to 38), the legislation has stalled in the Senate.
The federal government isn’t alone in its effort to prohibit eminent domain for redevelopment purposes; action from states and cities has also been prolific. The Herndon, VA-based National Association of Industrial and Office Properties (NAIOP) reported in April that it was tracking more than 500 eminent domain bills, and 10 states were successful in enacting reforms in 2006.
With NIMBY concerns growing, real estate developers will have to work even harder to campaign for support from the public when embarking on projects. Otherwise, new commercial developments are liable to stall.
The Americans with Disabilities Act Notification Act
A growing number of industry organizations are offering support for the ADA Notification Act (HR 2804), a bill introduced by Florida Congressman Mark Foley on June 8, 2005. The purpose of the bill is to amend title III of the Americans with Disabilities Act (ADA) of 1990 “to require, as a precondition to commencing a civil action with respect to a place of public accommodation or a commercial facility, that an opportunity be provided to correct alleged violations.”
The New York City-based Intl. Council of Shopping Centers (ICSC), Chicago-based Institute of Real Estate Management (IREM), and NAIOP have all announced support for Foley’s efforts. When NAIOP released its legislative priorities for 2006, ADA reform was among the five legislative issues noted: “Congress must re-address the ADA to ensure that fewer abuses are perpetrated against property owners. NAIOP believes that property owners should have a 90-day grace period to fix violations before being penalized, and efforts should be made to stop litigation abuses, enhancing the ADA premise of equal and fair treatment to all.”
This legislation was formed in direct response to steep attorney fees and the “drive-by” lawsuits proliferating across the United States, especially in states like Florida where Foley resides. In a June 2005 release from Foley’s office, the congressman explained, “Under the ADA, anyone can sue any business for allegedly violating the law. No notice to the business owner of an alleged violation is required. Unfortunately, thousands of lawsuits have been filed as a result of unscrupulous lawyers who have used the ADA as a money-maker, blanketing communities with lawsuits without regard for the small businesses that are in their crosshairs.”
If passed, the amendment to the ADA would help the avoidance of costly lawsuits for owners and managers who may be unaware of violations. “Providing property managers [with] time to correct deficiencies will allow them to invest their resources in making their properties accessible, rather than spending time and money in court,” explains IREM in a Legislative Bulletin issued during the summer of 2005.
Energy Policy Act
On Aug. 8, 2005, the Energy Policy Act of 2005 (HR 6) was signed into law. The purpose of the EPAct is to promote energy-efficiency practices by offering tax incentives to consumers and businesses. Of special interest to building owners, developers, and facilities professionals is a provision (Sec. 1331) issuing a tax deduction for commercial buildings that implement energy-conservation and efficiency measures.
Sec. 1331 provides a tax deduction for eligible buildings that reduce annual energy and power consumption by 50 percent as compared to a base building defined by the ASHRAE/IESNA 90.1-2001 Energy Standard for Buildings Except Low-Rise Residential Buildings. Commercial facilities (offices, retail buildings, warehouses, etc.), rental housing that is four stories or taller, publicly owned buildings, and systems placed in service between 2006 and 2007 are eligible. According to the Alexandria, VA-based National Association of State Energy Officials, “The deduction would equal the cost of energy-efficient property installed during construction, with a maximum deduction of $1.80 per square foot of the building. Additionally, a partial deduction of $0.60 per square foot would be provided for building subsystems.” Separate building systems that qualify for the partial deduction include:
- Interior lighting systems.
- Heating, cooling, ventilation, and hot-water systems.
- Building envelope.
Combined with provisions that award tax credits and incentives for energy-efficient appliances and residential construction, as well as investment in solar energy, fuel cells, and stationary microturbine power plants, the Washington, D.C.-based Alliance to Save Energy estimates that the EPAct will help the United States reduce its energy consumption by 2 quads. The Rosslyn, VA-based National Electrical Manufacturers Association (NEMA) reports that the United States currently consumes approximately 100 quads of energy annually. To find out more about the EPAct, visit (www.efficientbuildings.org).
Tax Relief Extension Reconciliation Act of 2005
The Tax Relief Extension Reconciliation Act of 2005 (HR 4297) will extend the Spring 2003 economic stimulus legislation that lowered the capital gains tax rate to 15 percent through 2008. While the HR 4297 legislation was passed by the House in 2005, the Senate bill excluded the 2-year capital gains tax extension. Three senators and five representatives were named tax-reconciliation conferees and tasked with reaching a compromise; that agreement (in the form of a conference report) was reached in early May. HR 4297 will extend capital gains and dividends tax cuts for 2 more years (until 2010).
In a position statement posted online, Washington, D.C.-based BOMA Intl. explains the impact of capital-gains tax on real estate: “The sale or exchange of a capital asset results in either a capital gain or loss. If your asset sells for a lower price than its acquisition price, then the sale creates a capital loss. If your asset sells for a higher price than its acquisition price, then the sale creates a capital gain. By taxing gain on a capital asset, government discourages a range of real estate activities that are economically desirable: the acquisition and development of commercial properties, lending to finance or refinance investment in those properties, and the employment of skilled workers involved in construction, renovation, and remodeling work.”
Passage of HR 4297 occurred in early May. At press time, the bill was awaiting the President’s signature. “The extension of the tax cuts on capital gains and dividends will continue to help supplement and bolster our already strong economy,” says BOMA Intl. Chairman David W. Hewett, principal at Trammell Crow Co., Auburn Hills, MI.
Unfortunately, the other provisions previously considered part of HR 4297 were not included in the legislation. It is possible that other extensions, such as the 15-year leasehold depreciation, may be included in a second bill that is still being negotiated, or attached to the pension bill that is in conference.
Terrorism Risk Insurance Extension Act
Congress extended the Terrorism Risk Insurance Act of 2002 (TRIA) just 9 days before its expiration, much to the relief of many building owners and managers. The new legislation - the Terrorism Risk Insurance Extension Act (TRIEA) (S 467) - was signed by President Bush on Dec. 22, 2005, and promises to extend the success of the original legislation for another 2 years. TRIA has been hailed as a triumph, and has enabled building owners to obtain adequate insurance at reasonable costs to protect against terrorism and war risks. Without this insurance, it is nearly impossible for commercial property owners to operate and acquire properties, refinance loans, and to sell commercial-baked securities.
TRIEA called for the President’s Working Group on Financial Markets (PWG) to study the long-term availability and affordability of terrorism risk insurance. On May 1, 2006, the Washington, D.C.-based Coalition to Insure Against Terrorism (CIAT) responded to the PWG’s solicitation for public comments. As reported by NAIOP, “The comments filed on behalf of CIAT stress that the consumers and investors still lack the confidence that terrorism coverage will be available following the program’s termination.” TRIEA is set to expire at the end of 2007.
|Tips for Contacting Your Congressmen
Complaints and compliments have more value when they’re shared. To voice your opinions about pending legislation, put pen to paper and mail a letter to your elected officials. Here are a few tips to help:
To find out who the elected officials are in your area, visit (www.congress.org), enter your zip code, and click “go.”
Jana J. Madsen ([email protected]) is managing editor at Buildings magazine.