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White House Proposes National 5% Rent Cap

July 23, 2024

Last week, the White House officially announced a proposal to cap rent growth at 5% on multifamily properties owned by large landlords. As written, Congress would need to enact Biden’s proposal via a change in the tax code.

• On July 22, CREFC and other real estate organizations sent a letter to Biden opposing the rent control proposal.

Why it matters: The proposal, announced at an event last week in Nevada, is part of a larger initiative to reduce housing costs, which President Biden referenced at the June presidential debate and the NATO press conference earlier this month. The move also follows the recent Federal Housing Finance Agency announcement on tenant protections for GSE multifamily loans.

By the numbers: According to the White House’s fact sheet, the most recent plan includes the following initiatives:

• Legislation forcing corporate landlords to choose to either cap rent increases on existing units at 5% or risk losing accelerated depreciation for federal tax;
• Repurposing public land sustainably to build additional affordable housing units; and
• Rehabilitating distressed housing, building more affordable housing, and revitalizing neighborhoods.

Go deeper: The rent control squarely targets “corporate landlords”, who have been a continual punching bag for the Biden administration. Biden frames the proposal as “anti-gouging” as opposed to traditional rent control, as proposed in a 2021 NYU Furman Center Study.

If enacted, the rent control legislation would operate as follows:

• Coverage: Applies to landlords with more than 50 units in their portfolio;
• Exceptions: Exempts new construction and substantial renovation or rehabilitation;
• Rent Cap Tradeoff: Landlords would be eligible for existing accelerated depreciation only if rent growth is capped at or below 5% annually. The fact sheet does not provide details on what would be included in the 5% number, but the administration’s crusade against “junk fees” would suggest that other costs could be lumped in.
• Time frame: The limitations would apply in 2024, 2025, and 2026.

Last week’s announcement includes a directive to the Bureau of Land Management to assess surplus federal land that can be repurposed to build more affordable housing across the country. This would be in addition to other initiatives to examine unused federal buildings.

Yes, but: As covered in the letter to Biden, CREFC and other trades have repeatedly opposed the Biden Administration’s attempt to enact nationwide rent control, in particular, via FHFA and the GSEs.

• “Rent control policies have proven time and again to increase rents, reduce the capital needed to boost the supply of housing, and ultimately hurt renters today and in the future.” Real Estate Coalition Letter to President Biden.
• Instead, the coalition supports production and cost-reduction measures designed to increase the overall supply of housing.
• Click here for yesterday’s letter to Biden.
• Click here for our previous joint letter to FHFA on the issue of rent control.

The bottom line: The rent control proposal is unlikely to be enacted this year in a divided Congress, but we expect the White House to continue implementing tenant-focused policies via regulation and FHFA.

• However, the use of the tax code to implement a rent cap could be more easily passed via the “reconciliation process” if Democrats were to win the House, Senate, and Presidency.

Contact David McCarthy (dmccarthy@crefc.org) or Sairah Burki (sburki@crefc.org) with questions. 

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ESG Disclosure Ramps Up, Increasingly Important in M&A

July 23, 2024

Recent surveys from top accounting firms, Deloitte and KPMG, demonstrate that companies are increasingly focused on ESG-related disclosure and reporting.

• CREFC’s 2024 Sustainability Survey, specific to the CRE finance industry, also shows that nearly 88% of respondents have or are developing a sustainability framework.

According to Deloitte’s survey, nearly 75% of public companies anticipate investing in new technology to help improve their ESG disclosure capabilities over the next year. Data quality remains the top challenge with respect to reporting.

• Survey respondents included 300 executives, among them senior finance, accounting, sustainability, and legal professionals, at publicly owned companies with revenue of at least $500 million.

Furthermore, according to KPMG, respondents to a recent survey (600 active dealmakers from 35 geographies) report an increased importance of ESG due diligence over the past 12 to 18 months:

• 80% indicate that ESG considerations are on their M&A agenda;
• 45% of surveyed investors share that a material ESG due diligence finding had significant deal implications; and
• 55% of survey respondents are willing to pay a premium of between 1-10% for assets with high ESG maturity.

The bottom line: While Federal regulation such as the Securities and Exchange Commission’s (SEC) climate reporting requirements face serious challenges, a focus on sustainability continues to move forward at the corporate level.

Additionally, as Sustainable Fitch reports, “individual states have stepped in and now play a significant role:"

“Rules being proposed in the states of Illinois and New York are positioned to expand mandatory climate disclosure requirements to thousands of U.S. entities and entities doing business in the U.S., beyond what has already been achieved since the passing of California’s climate rules.”

CREFC’s Sustainability Initiative continues to closely track sustainability-related regulatory developments at the Federal and, where significant, state levels.

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Biden Bows Out; Dems Rally to Harris

July 23, 2024

After growing pressure from Democratic officials, donors, staff, and lawmakers, President Joe Biden officially withdrew from the presidential race.

• Biden quickly threw his support behind Vice Presidential Kamala Harris for the Democratic nomination.
• Harris declared her intent to run and quickly wracked up major endorsements from likely challengers and party leaders.
• From a policy perspective, Harris will begin to define herself in the race. In 2019-2020, she was more progressive on some issues than Biden, but she never had to pivot to a general election message.

Why it matters: The move upends an already tumultuous race, but allows Democrats to move past the questions of Biden’s age and refocus their message. See our separate story on Biden’s polling numbers since the debate.

What they’re saying: The timing is short, but a nomination battle is looking unlikely as Harris consolidates support from different wings of the party. As of Monday evening, the endorsements were as follows:

• Harris quickly locked in endorsements from Congressional Progressive Caucus Chair Pramila Jayapal (D-CA), New Democrat Coalition Chair Annie Kuster (D-NH), the Congressional Black Caucus, Congressional Hispanic Caucus Chair Nanette Barragán (D-CA), and progressive star Rep. Alexandria Ocasio-Cortez (D-NY).
• Numerous senators also backed Harris: Elizabeth Warren (D-MA), Patty Murray (D-WA), Mark Warner (D-VA), Mark Kelly (D-AZ), Kirsten Gillibrand (D-NY), Chris Murphy (D-CT), Tina Smith (D-MN), John Fetterman (D-PA), Dick Durbin (D-IL), and Sherrod Brown (D-OH), among others.
• Potential challengers also rallied to Harris, including Gov. Gavin Newsom (D-CA), Gov. Josh Shapiro (D-PA), Gov. Andy Beshear (D-KY), Gov. J.B. Pritzker (D-IL), Gov. Wes Moore (D-MD), Gov. Phil Murphy (D-NJ), Gov. Gretchen Whitmer (D-MI), and Transportation Secretary Pete Buttigieg.
• Top Democratic congressional leadership, including Senate Majority Leader Chuck Schumer (D-NY), House Minority Leader Hakeem Jeffries (D-NY), and former House Speaker Nancy Pelosi, released statements following the Sunday announcement but did not mention or endorse Harris. However, Pelosi endorsed Harris on Monday and the others could follow suit in short order.
• Former President Barack Obama, reportedly a key figure in the campaign to push Biden out, has not endorsed Harris. Former President Bill Clinton and 2016 nominee Hillary Clinton quickly endorsed Harris.

What’s next: Biden has released his delegates and the campaign has officially switched to “Harris for President.” The convention runs from August 19 to 22.

• Depending on what challengers emerge, Democrats may convene some pre-convention process or forum for candidates.
• The vice presidential candidate speculation has begun, with names like Sen. Mark Kelly (D-AZ), Gov. Roy Cooper (D-NC), and Gov. Josh Shapiro (D-PA) being floated.
• Sen. Joe Manchin (I-WV), who left the Democratic party earlier this year, briefly flirted with re-joining to run at the convention. He later confirmed he would not run for the nomination.

The bottom line: This is a developing story, but the positive reaction from donors, elected Democrats, and Democratic voters point to Harris being the nominee.

Contact David McCarthy (dmccarthy@crefc.org) with questions.

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