NAR Signs Letter Supporting US REIT Act: What’s In The Bill?
Some commercial real estate advocacy news from the Hill: Hon. Patrick J. Tiberi (R-OH) and Hon. Richard E. Neal (D-MA), both co-sponsors of H.R. 5746, also known as the Update And Streamline REIT Act (U.S. REIT ACT) received a letter from NAR and major trade associations in support of the Congressmen’s bill.
June 11, 2012
The Honorable Patrick J. Tiberi The Honorable Richard E. Neal
United States House of Representatives United States House of Representatives
106 Cannon House Office Building 2208 Rayburn House Office Building
Washington, D.C. 20515 Washington, D.C. 20515
Dear Representatives Tiberi and Neal:
On behalf of the commercial real estate industry, we are writing to express our support for H.R. 5746, the Update and Streamline REIT Act (U.S. REIT Act), and to thank you for your leadership in co-sponsoring this non-controversial, bipartisan legislation.
In 1960, Congress enacted the original tax provisions that created the opportunity for individual investors to obtain the benefits of large scale, income-producing real estate while diversifying their investment portfolio. Today, REITs are widely held entities that own about $900 billion of commercial real estate properties, amounting to approximately 20% of investment grade commercial real estate in this country. At little or no revenue cost, the U.S. REIT Act would make a number of narrowly targeted, but important, changes to the tax rules applicable to REITs to enable them to operate effectively, keep up with market changes, and remain consistent with the Congressional goal of more than five decades ago of making professionally managed, income producing real estate available to investors from all walks of life.
Commercial real estate is an important contributor to the U.S. economy and impacts the way in which Americans live, work, shop, and carry on business. REITs are a small but significant part of the larger real estate community. We applaud your efforts to keep the rules governing REITs up to date to make it easier for investors to diversify their retirement and savings portfolios, and we fully support H.R. 5746.
American Hotel & Lodging Association
American Land Title Association
American Resort Development Association
American Seniors Housing Association
Building Owners and Managers Association (BOMA) International
CRE Finance Council
Institute of Real Estate Management
International Council of Shopping Centers
Investment Program Association
Manufactured Housing Institute
NAIOP, Commercial Real Estate Development Association
National Apartment Association
National Association of Real Estate Investment Trusts
National Association of Realtors
National Multi Housing Council
Realtors Land Institute
Society of Industrial and Office Realtors
The Real Estate Roundtable
So What’s In The Bill?
The U.S. REIT act (full text of the bill here) (detailed summary from REIT.com here) proposes changes in the law governing the sale of REIT assets, the distribution of dividends and other aspects. A quick summary follows:
Dealer Sales Safe Harbor Provisions
Under some conditions, REITs can earn a stiff penalty of 100% taxability on the sale of certain assets. In “prohibited transactions” or “dealer sales” as currently defined, an rental or timber asset meets certain thresholds of capital improvements made to a rental property or a REIT has performed greater than seven sales during that year. The bill proposes the liberalization of these requirements, making it easier to operate effectively and with the liquidity they need.
The Preferential Dividend
Tthe current rules on distribution of dividends among a REIT’s investors are under proposed change. The change is proposed in the wake of the Regulated Investment Company Modernization Act, signed into law in 2010. In that law, mutual fund preferential dividend distribution rules were liberalized; the U.S. REIT act seeks similar loosening and related changes.
More: Income and Asset Tests, Duplicative Taxation
Also up for change is the formula allowing what ratios of asset classes REITs may hold, as well as a change in accounting rule that seeks to avoid the current potential for double taxation.