Senate Approves Tax Bill, Next Step Conference Committee

The United States Senate narrowly approved its version of tax reform legislation on a 51-49 vote on Friday December 1.  All Democrats voted against the bill, in addition to Senator Bob Corker (R-TN). The Senate version of the bill retains the Low Income Housing Tax Credit (Housing Credit) and private activity bonds, including multifamily Housing Bonds, which are essential for the production of roughly half of Housing Credit developments because they trigger the 4 percent Housing Credit. The Senate bill also makes several modifications directly and indirectly impacting the Housing Credit, outlined below.

The new version of the bill includes an amendment filed by Senator Pat Roberts (R-KS), which would make several additional changes to the Housing Credit:

  • Expand the Housing Credit general public use requirement exception to include veterans, and
  • Treat rural areas as difficult development areas for purposes of receiving a basis boost. This provision is offset by reducing the maximum basis boost for all types of boost-eligible developments from 130 to 125 percent. The reduced basis boost could make some properties financially infeasible, and we have and will continue to express those concerns as final negotiations progress.

The version of the bill approved by the Senate Finance Committee included several no-cost proposals to strengthen the Housing Credit, taken from the Cantwell-Hatch Affordable Housing Credit Improvement Act (S. 548), but these provisions were not included in the version of bill that was voted on Friday (12/1) night.

The corporate tax rate in the adopted measure is 20 percent, which would reduce the tax benefits associated with the Housing Credit, credit pricing and ultimately affordable housing production. We will continue to seek a compensatory adjustment to sustain affordable housing production in a lower corporate rate environment in future tax legislation.

In addition, there is a provision related to a “base erosion and anti-abuse” tax that would eliminate banks’ ability to use the Housing Credit to offset certain taxes related to foreign earnings and earnings going to foreign parent companies, which will impact some Housing Credit investors.

In addition, the Senate passed version retains the New Markets Tax Credit as well as a provision that would preserve the 20 percent Historic Tax Credit in a modified form.  To comply with budget rules, the provision spreads out the release of the HTC over the five-year compliance/recapture period (or 4% per year).  The ten percent historic tax credit was eliminated.

Now that the Senate has successfully passed its Tax Overhaul language this week the House is expected to adopt a resolution to send the measure to a conference committee to iron out the differences between the House and Senate versions.  It is still possible, though unlikely, that the House will adopt the Senate version as is.*


CRE Industry Focused on Tax Cuts for ‘Pass-Through’ Entities as Tax Reform Enters Final Stretch

The U.S. Senate and House of Representatives have started work to reconcile differences between their two tax bills, including the timetable for reducing the corporate tax rate from 35% to 20%. 

Of special interest to commercial real estate investors is how the final legislation will tax so-called "pass-through" entities such as sole proprietorships, partnerships, limited liability companies and S corporations. Tax treatment of pass-throughs is among several differences between the two bills with regard to businesses. 

Senate Republicans early Saturday passed a hastily crafted $1.5 trillion overhaul of the tax code on a party line vote of 51-49, with only Bob Corker R-TN, breaking party ranks to vote against the final draft of the bill. 

Starting with the scheduled formation of a House-Senate conference committee today and tomorrow, House Speaker Paul Ryan, R-WI, and other GOP leaders have set a goal of quickly sending a reconciled final bill to President Trump for his signature as early as the end of this week or the week of Dec. 11. The House on Monday evening voted, largely along partisan lines, to approve a motion sending its bill to conference with the Senate. 

While the reconciliation process could be volatile given the speed with which the two bills will need to merge to meet a deadline for year-end funding that expires on Dec. 8, if passed the legislation appears destined to be a major win for the commercial real estate industry. Both the Senate and House tax reform bills maintain interest deductibility and 1031 like-kind exchanges for real property, while cost recovery guidelines for depreciating real property are also generally preserved, though subject to a shorter 25 years in the Senate bill. 

"The CRE industry made out a bit better on some issues than many analysts originally thought because many lawmakers had initially talked about scrapping the 1031 exchange and carried interest, completely eliminating the state and local tax deduction, and eliminating the business debt corporate deduction," said Jeremy Scott, a attorney for the Washington, D.C.-based Tax Analysts, a non-partisan fiscal analysis group. "I don't think many of the provisions affecting real estate are going to change dramatically in conference." 

Real Estate Roundtable President and Chief Executive Officer Jeffrey DeBoer lauded the Senate vote as "another step forward for pro-growth tax policy." The Roundtable will work with lawmakers in coming days to assure that lower taxation of pass-throughs, which DeBoer called "one of the more significant new incentives to attract growth capital to businesses of all types and sizes," achieves its full potential. 

The House bill would cap the top tax rate for pass-through businesses at 25%, down from the current 39.6%. The Senate legislation would continue taxing pass-through businesses at the individual rate that would apply to the entity's owner, with a top proposed rate of 38.5%. Under an amendment demanded late Friday by GOP senators Ron Johnson of Wisconsin and Steve Daines of Montana, however, most pass-throughs would be allowed to deduct about 23% of their business income from their taxes, subject to various limitations, effectively reducing the tax rate for the highest earners by 10%. 

"It's looking like almost a slam dunk" that the conferees will accept the Senate version of the pass-through legislation, Scott said. 

"I haven't heard any indication that the House intends to push to keep its 25% deduction rather than a preferential rate for pass throughs, because they know how delicate the support for the Senate bill was in those areas," Scott said. 

Also, like-kind exchanges for real estate transactions will most likely be preserved and the deduction of carried interest is almost entirely unchanged in the final bill, he added. 

However, the CRE industry isn't getting everything it wanted from the legislation. Both the Senate and House bills limit the deductibility of corporate interest, with the Senate version with its 30% cap likely to prevail due to the need for revenue generation, Scott said. 

Very similar to the passage of the Affordable Care Act in 2010, one potential drawback is the relative speed, haste and partisan nature with which the legislation has been approved and likely reconciled by both chambers of Congress. 

"Passage of the legislation may not engender legal challenges, but it will certainly put an incredible burden on the Treasury Department and IRS when they have to write regulations to enforce some of these provisions," Scott added. "It's very likely some of the provisions simply won't work as written in the statute." 

Scott said he expects there will probably be some challenges, for example, on what qualifies for the pass-through deduction. "I do think the haste in which they put this together will put a lot of burden on Treasury and the IRS and probably cause some litigation around the edges." 

However, the broader economic benefits of the legislation, such as the corporate rate cut, are driving investor sentiment, Scott said. 

"I think the bill brings more certainty to the market than people expected, but there are a lot of things that will be hashed out in the Treasury Department, the IRS and ultimately the courts," he said. "That will ultimately affect some corporate moves and the way investors make decisions. Real estate investors in particular are going to want to see how the new pass-through rules work out before they can know 100% how it will affect their business."


Developers, Preservationists Lobby to Save Tax Credit for Historic Renovations

Commercial real estate appears to fare very well in the House and Senate tax bills being advanced in Congress, which include several notable provisions favored by the industry including keeping 1031 tax-free exchanges. It now appears increasingly likely that some form of comprehensive tax reform legislation will be passed, perhaps as early as next week. 

One long-time tax provision that may not be continued, at least in its current form, is the federal Historic Tax Credit (HTC). A Reagan Administration-era program popular with both historic preservationists and urban developers, the program is credited by supporters with generating more than $131 billion in private investment, preserving over 42,000 buildings and creating nearly 2.5 million construction and permanent jobs across the country. 

The U.S. House of Representatives, in approving its version of the sweeping Tax Cuts and Jobs Act last week, eliminated the 20% tax credit for the rehabilitation of historic, income-producing buildings certified by the National Park Service as historic structures. 

The Senate's version of the tax reform bill initially called for reducing the tax credit to 10%. However, the Senate Finance Committee on Thursday passed an amendment backed by Republican Sen. Bill Cassidy of Louisiana keeping the 20% credit in place but requiring it to be claimed over a five-year period. The legislation advances to the full Senate for an expected hearing after the Thanksgiving holiday. It remains to see what happens to the program when the House and Senate work to reconcile the two bills. 

Stephanie K. Meeks, president and CEO of the tax credit's leading supporter, the National Trust for Historic Preservation, called the Senate committee's action a "critical step forward" but noted that more work is required to preserve the credit, which Meeks said "fuels the economic engine that is bringing our downtowns, neighborhoods and Main Streets across America back to life." 

"Getting rid of it now would be shortsighted and would threaten the revival that is evident in America’s cities and towns," Meeks said. "There should be no pause, no waver or even the slightest hesitation in safeguarding this vital program." 

The tax credits have been a mainstay for developers repurposing obsolete buildings and has been used in the renovations of several high-profile properties, such as the Wrigley Building in Chicago and the Trump Organization's redevelopment of the Old Post Office in Washington, D.C. into a hotel. 

Supporters cited several recent projects, including the renovation of Drayton Mills, a rehabilitation of an abandoned mill into 289 luxury apartments in Spartanburg, SC, as a national model in using tax credits to revitalize communities. The project by the Charlotte-based Sherbert Group at the site of a former textile mill and mill warehouses constructed between 1902 and 1950 is the largest historic restoration project in South Carolina to date. 

Sen. Tim Scott, R-SC, a member of the Finance Committee, toured the property with U.S. Housing and Urban Development Secretary Ben Carson earlier this month and touted the project to the committee last week as bringing new life to a dilapidated part of the community. 

Investments in the state of Maryland in over 500 rehab projects has generated more than $2 billion in net tax income and created 28,000 jobs, including 15,000 permanent jobs, said Scott's colleague, Senate Finance Committee member Benjamin L. Cardin (D - MD) during the Nov. 17 hearing. 

Cardin also cited the $21.2 million renovation of the historic American Brewery, a massive Victorian-style brick structure in East Baltimore built in 1887, as a success story. The building stood vacant for more than 30 years before the non-profit social services organization Humanim purchased the building for the redevelopment, made possible through state and federal historic tax credits and private donations. 

Also in Baltimore, the father and son team of Donald and Thibault Manekin and their company, Seawall Development, recently converted a tin can factory on Howard Street built in 1910 into a mixed-used development. The factory shut down in the 1950s, served as interim industrial space and ultimately sat vacant for 20 years before Seawall Development, which has completed or is pursuing development of more than $200 million of creative adaptive reuse projects in Baltimore and Philadelphia, purchased and redeveloped the site into affordable workforce housing for teachers and office space for education-related nonprofits. 

"It has transformed that entire neighborhood and spurred development of homes, buildings, restaurants and other economic growth," Cardin said.


Largest Senior Housing Providers of 2017

The largest nonprofit senior living providers have once again been identified by industry association LeadingAge and specialty investment bank Ziegler. 

The 14th annual LeadingAge Ziegler 150 (LZ 150), published Monday, ranks the largest not-for-profit systems providing aging services through senior living in the United States, in order of total owned market-rate units.

The top 10 largest organizations are:

1. National Senior Campuses — 19,051 units

2. The Evangelical Lutheran Good Samaritan Society — 17,839 units

3. ACTS Retirement Services, Inc. — 7,862 units

4. Presbyterian Homes & Services — 7,135 units

5. Benedictine Health System — 5,270 units

6. Covenant Retirement Communities — 5,022 units

7. Cornerstone Affiliates (ABHOW & — 4,761 units

8. Ascension Senior Living — 4,624 units

9. Trinity Senior Living Communities  — 4,198 units

10. Retirement Housing Foundation — 4,105 units

Together, these top 10 providers represent about 30% of the total number of units for all organizations in the LZ 150, the report notes.

Once again, the state with the highest number of LZ 150 organizational headquarters is Pennsylvania. Minnesota, meanwhile, has the highest number of LZ 150 communities, at 207.

In the past 10 years, the average yearly growth rate in total nonprofit senior living units equals 3.1%. Independent living and assisted living have grown every year, the report says, but the number of skilled nursing beds has dropped.

Memory care units, meanwhile, are becoming an increasingly critical part of the annual unit counts, with 60% of this year’s LZ 150 having specialized memory care units.

Additionally, about 54% of the LZ 150 offer some type of home and community-based services to individuals who aren’t residents, the report notes.

More growth may be ahead for the largest nonprofit organizations, as 75.2% of the LZ 150 plan to reposition or expand an existing community in 2017 or 2018, the report says.***




Events (2017)

  • Cash Gill plans to attend the Missouri Real Estate Appraisers Commission’s Quarterly Commission Meeting December 7th in Jefferson City, MO.
  • Gill Group attended AHF Live’s Annual Conference and Tradeshow November 14th – 16th in Chicago, IL.
  • Gill Group attended NH&RA’s Fall Forum November 6th – 7th in Boston, MA.
  • Cash Gill attended the Missouri Real Estate Appraisers Commissions Quarterly Commission Meeting September 19th – 20th in Jefferson City, MO.
  • Gill Group attended NH&RA’s Summer Institute July 19th – 23rd in Quebec City, Canada.
  • Cash Gill attended the Missouri Real Estate Appraisers Commission’s Quarterly Commission Meeting June 12th – 13th in Jefferson City, MO.
  • Gill Group attended CARH’s Annual Meeting June 19 - 21st in Washington, DC.
  • Gill Group attended NCSHA’s Housing Credit Connect Conference and Tradeshow June 21st – 23rd in Atlanta, GA.
    • Cash Gill, of Gill Group, spoke on a panel June 22nd entitled Using Market Studies for Site Selection
  • Gill Group attended the 2017 PK Management Trade Show and Awards Dinner May 16th – 17th in Cleveland, OH.
  • Gill Group attended AHF Live’s Housing Developer’s Forum April 26th – 28th in New Orleans, LA.
  • Cash Gill, of Gill Group, gave a training session to the staff at MFA (New Mexico’s HFA) to further their knowledge on appraisal and market study processes April 20th in Albuquerque, NM.
  • Gill Group attended MHC’s Annual Meeting April 11th – 13th in Biloxi, MS.
  • Gill Group attended the Crittenden Multifamily Conference March 15th – 17th in Dallas, TX.
  • Gill Group attended the MACO Companies’ Annual Meeting March 16th – 19th in Biloxi, MS.
  • Gill Group attended the Bank of Advance’s Annual Meeting March 16th – 19th in Norfork, AR.
  • Cash Gill attended the Missouri Real Estate Appraisers Commission’s Quarterly Commission Meeting March 7th in Jefferson City, MO.
  • Gill Group attended National Housing & Rehabilitation Association’s Annual Meeting February 22nd – 26th in Bonita Springs, FL.
  • Gill Group attended the National Leased Housing Associations’ Mid-Year Meeting February 1st – 3rd in Naples, FL.
  • Gill Group and National Title & Escrow attended the Council for Affordable Rural Housing’s (CARH’s) Midyear Meeting (Strengthening Rural Housing with Valued Partnerships) January 23rd – 25th in Sarasota, FL.

Events (2016)

  • In 2016, Gill Group attended over 75 meetings and conferences across the entire United States.

GROWTH (2016 - Highlights):

  • Gill Group added over 20 staff members throughout our 15 national and regional offices including MAIs, General Certified Appraisers, PE Engineers and AIA Architects.
  • Gill Group’s subsidiary, National Title & Escrow (NTE), added two new underwriters: Fidelity National Title Insurance Company and Stewart Title Guaranty Company.
  • NTE also added a new sales representative, Jimmy Crace, bringing 20+ years of experience and well over 100 national relationships in commercial and multifamily title.

Events (2015)

  • In 2015, Gill Group attended over 50 meetings and conferences from California to New York, and just about everyone in between.

GROWTH (2015 - Highlights):

  • Gill Group added two offices in Michigan and one in Wisconsin, further expanding our staff of architects and engineers.
  • Gill Group and Greystone formed a Joint Venture to provide a full line of consulting and development services for Rental Assistance Demonstration (RAD) transactions. Gill Group and Greystone are utilizing each of our areas of expertise in a collaborative effort, with a mission to partner with PHAs across the nation in preserving and expanding the affordable housing inventory under the HUD RAD program. Our team fully understands the intricacies of the real estate and affordable housing industries, and our services are provided by professionals who are fully immersed in LIHTC executions, construction management, project accounting, regulatory compliance, real estate transactions, and opportunity development. We sit on national and state boards and have in-depth knowledge of industry trends and best practices. As a developer team, we operate as three individual entities, each with a unique set of previous transaction experiences that add value to the project at hand. As a collaborative unit, we draw upon those experiences to bring to the table creativity, fresh ideas and unsurpassable development advisory services.
  • Gill Group’s subsidiary, National Title & Escrow, added two new offices in Missouri and Arkansas, further expanding our ability to service our nationwide base of customers.

Events (2014)

  • Gill Group attended 40+ meetings and conferences throughout the United States in 2014.

GROWTH (2014 - Highlights):

  • Gill Group began the process of working with owners of affordable housing to develop a web-based program that will work hand-in-hand with our services. It will give the users of our appraisals, market studies, capital needs assessments and many other services easy access and real time usage.
  • Gill Group added 2 offices with appraisers, market analysts, engineers and architects.
    • Within the offices are 11 architects, one MAI appraiser, one general certified appraiser, four market analysts and 12 additional support staff. 

  Gill Group has published the following:

  • New York Real Estate Journal - How can low-income housing facilities translate into high profits?
  • New York Real Estate Journal - Up, up and away: Home mortgage interest rates and gasoline prices continue ascending.
  • Tax Credit Advisor - Boston MSA Market Snapshot
  • Tax Credit Advisor - Seattle MSA Market Snapshot
  • Northeast Industrial Development Resource Guide - What Appraisers Know About Investing.
  • Affordable Housing Finance – Urban and Rural Market Studies.
  • Tax Credit Advisor – LIHTC Appraisals 101
  • Affordable Housing Finance – Five Ways to Optimize a Market Study

Cash Gill, MAI has had the opportunity to speak on the following topics:

  • (Indianapolis, IN) National Council of Affordable Housing Market Analysts - Maximize Your Market: Understanding the Methodology Behind Market Studies.
  • (Reno, NV) Nevada Council of Affordable and Rural Housing - Don't Get Caught in the Red. New Guidelines for Audits and Inspections.
  • (Washington, DC) The Institute for Professional and Executive Development - Nonrecourse HUD Deals - So You Closed Your Nonrecourse HUD Deal. Now What? And Is It Really Nonrecourse?
  • (Arlington, VA) Council for Affordable and Rural Housing - Property Valuation: The Correct Way to Value Properties.
  • (New Orleans, LA) National Council of Affordable Housing Market Analysts - Affordable Housing Site Analysis
  • (Las Vegas, NV) Nevada Council of Affordable and Rural Housing - Auditing and Accounting Guidelines for Section 42 Low Income Housing Tax Credits.
  • (Washington, DC) Council for Affordable and Rural Housing - Rural Development Appraisals and Market Studies
  • (Miami, FL) Council for Affordable and Rural Housing - The Equity Market - Impact on Rural Housing
  • (Washington, DC) Council for Affordable and Rural Housing - How to Foster Affordable Green and Rural Housing Needs Assessments
  • (Indianapolis, IN) Affordable Housing Association of Indiana - Market Analysis – Best Ways Use Market Studies to Ensure Application Points
  • (Portland, ME) Enterprise Buyer/Seller Conference for RRH 515 Properties – Valuing the Product. What Is My Development Worth?
  • (Washington, DC) National Housing and Rehabilitation Association – Financing and Underwriting Special Needs Housing.
  • (Atlanta, GA) National Council of State Housing Agencies – Comprehensive Market Analysis.
  • (Chicago, IL) AHF Live – Strategies for Rural Deals.
  • (Dallas, TX) Crittenden Multifamily – Financing Special Use Properties.
  • (Washington, DC) Council for Affordable Rural Housing – Rural Housing Preservation
  • (Denver, CO) National Council of State Housing Agencies – Rural Housing Strategies
  • (Denver, CO) National Council of State Housing Agencies – Y15: Preservation and Disposition Seminar
  • (San Antonio, TX) Rural Rental Housing Association – LIHTC Legislative Update
  • (Key Largo, FL) Council for Affordable Rural Housing – How National Appraisal Practices Impact USDA Assisted Properties
  • (San Francisco, CA) National Council of State Housing Agencies – Changes and Challenges in Rural Housing Development
  • (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
  • (Franklin, TN) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
  • (Columbus, OH) Council for Rural Housing & Development of Ohio – Rural Housing Market Research
  •  (South Bend, IN) Great Lakes Capital Fund’s University of Affordable Housing – Valuation Risks Using Financing for RAD Deals
  • (Chicago, IL) National Council of State Housing Agencies – Rural Development Opportunities
  • (Orlando, FL) National Association of Housing and Redevelopment Officials – Affordable Housing Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies
  • (Alexandria, LA) Regional Affordable Housing and RAD Training – Valuation, Feasibility and Capital Needs Assessments
  • (Ft. Lauderdale, FL) Southeastern Affordable Housing Management Association (SAHMA) – Rent Comparability Studies 101
  • (Indianapolis, IN) Midwest Buyer/Seller Conference – CNAs and Appraisals
  • (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities (2014)
  • (St. Pete Beach, FL) CARH – Preservation Challenges and Opportunities
  • (Nashville, TN) TAHRA – Appraisals, Market Studies, Rent Comparability Studies and Rent Reasonableness Studies for LIHTC and RAD Transactions
  • (Los Angeles, CA) NCSHA – Successful Development in Challenging Markets
  • (Chicago, IL) AHF Live – Acquisition Challenges and Opportunities
  • (Seattle, WA) NCSHA – Rural and Native American Development Strategies
  • (French Lick, IN) AHAIN – Appraisals and CNAs
  • (French Lick, IN) AHAIN – Pulling it All Together
  • (Chicago, IL) AHF Live – Preservation of Older LIHTC Deals
  • (Albuquerque, NM) MFA – Appraisals 101 (personal training for HFA staff)
  • (Atlanta, GA) NCSHA – Using Market Studies to Inform Site Selection
  • (Napa, CA) – Finding Equity in a Haystack (upcoming)

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