The commercial real estate industry has strengthened considerably over the past few years, and 2015 holds the promise for further growth. After discouraging gridlock on CRE legislation in 2014, it’s likely that related issues will be a priority for the Republican-led Congress in 2015. There’s even some indication of bipartisan support for legislation related to tax reform and lending.
Because many of these issues have an impact on the commercial real estate market, we’re keeping an eye on some possible legislative developments for this year – many of which are related to key issues in CRE. Of course, this is not an exhaustive list, but a few of the main players to watch for during the year.
2015 CRE Legislative Trends
#1 Commercial Drones
An intriguing marketing strategy that’s recently emerged is the use of drones for aerial photography, virtual tours, and more. The FAA is hustling to keep up with commercial interest in this tool, particularly since the passage of the FAA Modernization and Reform Act in 2012, which requires the agency to “develop a comprehensive plan to safely accelerate the integration of civil unmanned aircraft systems into the national airspace system.”
The FAA estimates that by 2020 there will be 30,000 commercial drones in operation in the U.S. The first exemption for a real estate firm was granted earlier this year, to Tierra Antigua Realty in Tucson, Ariz.
In response to the 2012 Act, over 100 bills have been introduced in state legislatures relating to the use of drones, with 43 states proposing legislation. Much of this deals with issues of privacy, addressing concerns over the use of drones by law enforcement, but as the demand from the commercial sector grows, we’re sure to see more discussion of ways to regulate the use of drones in real estate.
A funding option that is gathering momentum, crowdfunding gives smaller, accredited investors the ability to participate in the commercial real estate market.
Thanks to the JOBS Act of 2012, it’s legal for investors to buy equity in projects online, provided they meet income requirements.
This type of investment has taken off in the last few years, with over $1 billion in revenue generated through real estate crowdfunding in 2014. Sites like ProHatch, Patch of Land, and Fundrise are allowing smaller investors to participate in projects that range in value up to around $25 million. Developers appreciate this financing source that provides an alternative to more conventional routes.
This type of transparent and easily accessed investing seems to represent a shift in banking in general, and will no doubt receive the attention of legislators in 2015.
#3 Online purchases
As Internet transactions become more and more common, brick and mortar vendors are feeling the pinch. In 2013, the Senate passed the Marketplace Fairness Act, which would enable states to collect sales and use taxes on Internet purchases. This would have an effect on property taxes for commercial properties, and is worth tracking. Online businesses compete for customers with the advantage of a lower tax burden, while traditional retailers are hit with a double whammy of higher property taxes and unnecessarily high sales taxes. Passage of the 2015 version by both houses would level the playing field and greatly reduce the burden on brick and mortar merchants.
The bill has been stalled since passing the Senate, but was reintroduced in March 2015, with strong support, so we look for progress on this in the coming year.
#4 Credit and Mortgage Tax Law
Another area likely to see some movement is tax law related to credit and mortgages. President Obama has expressed support for reform, and tax issues likely to be addressed include:
- 1031 like-kind exchanges
- Mortgage Interest Deduction
- Liquidity of CRE
- SE Restructuring
- Streamlined FHA Appraisal Delivery
- Improved Credit Availability for Small Business
Watch for developments this year in the regulation of both foreign and domestic real estate investment. Legislators are eying both FIRPTA and the status of REITs. Proposed changes to the law are strongly supported in the CRE industry, since they would provide tax cuts on foreign investment in U.S. real estate.
Currently, foreign investors owning less than 5% of a publicly traded U.S. company are exempt from tax, and there is talk of raising that exemption threshold to 10%.
Another subject of discussion has been proposed regulations for REITs, and in particular what the IRS defines as real property. This is being broadened to include things like pipelines, copper wires, billboards and air-conditioning systems. It will be interesting to see if these ideas move forward in 2015.
Keeping an Eye on Legislative Trends
These legislative trends share an inclination toward increased transparency and equity in the changing CRE marketplace. We look forward to making the most of the new developments in 2015 and would love to hear your thoughts on how these changes will impact your commercial real estate business. You can also follow us on Twitter to get the latest Apto updates and relevant industry news!