This Commercial Connections exclusive explores the importance of energy efficiency legislation and increases in credit union activity on commercial real estate. Read it now.
Energy Efficiency Legislation
Since 2005, Section 179D, the Energy Efficient Commercial Buildings Deduction, has rewarded commercial building owners for improving their buildings’ energy efficiency. Commercial building owners who meet the efficiency requirements (via the building envelope, HVAC system, hot water, or the interior lighting system) will receive a deduction of as much as $1.80 per square foot in the year the upgrade goes into service, and it is available for both new construction and retrofits. 179D does this while giving the building owners flexibility of choice in how they accomplish that goal. In addition to reducing energy consumption and money, these improvements can also increase a property’s attractiveness to new tenants and help it retain value as it ages. Congress has passed short-term extensions for 179D several times, but allowed it to expire at the end of 2016. NAR supports 179D and participates in an industry coalition devoted to reauthorizing it and will continue to advocate for a long-term extension, preferably retroactively avoiding any gaps in its coverage, in the 115th Congress.
Bottom Line: Failure to reauthorize 179D will result in the loss of a valuable tax deduction for property managers faced with the need to make the expensive construction and renovations tenants expect.
National Flood Insurance Program Reform and Reauthorization
Flooding is the most expensive and common natural disaster in the U.S., and without the federally run National Flood Insurance Program (NFIP), business owners in more than 20,000 communities nationwide could have difficulty obtaining a mortgage or insurance to protect their properties. The NFIP’s current authorization will expire on September 30, 2017. NAR has ardently supported a long-term reauthorization and strengthening of the NFIP, improving the accuracy of flood maps, and encouraging the development of private market options to keep costs competitive. As it stands now, the NFIP is nearly $30billion in debt to the Treasury, the result of catastrophic losses beginning with Hurricane Katrina in 2005, which the program had to borrow from taxpayers to cover. NAR recognizes the need for reforms to the program to put it on the path to self-sufficiency, and the need to avoid gaps in its authorization, which would negatively affect property values and sales in flood plains. NAR is working closely with Congress, FEMA, and other commercial real estate industry groups to craft a reauthorization bill that addresses these issues, improves the NFIP, and protects property-owners from gaps in coverage.
Bottom Line: Loss of government assistance represents a direct threat to commercial real estate values and a potentially devastating financial quagmire for property managers and investors.
Increases in Credit Union Activity
According to the NAR’s 2016 Commercial Lending Survey, funding from credit unions accounts for only 6% of deals that members closed. However, two rules passed in 2016 by the National Credit Union Administration (NCUA) were designed to increase the amount of business that credit unions are permitted to do. First, the Member Business Loan (MBL) rule expanded how credit unions evaluate loan applications made by members. The rule grants more autonomy and flexibility to credit union boards during the loan evaluation process. The second rule change expanded the field of membership requirements for customers joining credit unions, making the potential customer base for credit unions less restrictive.
Bottom Line: These two rules increase both the number of credit union members and the amount of lending from credit unions to their members, resulting in more lending options for REALTORS® and their clients.
By: Erin Stackley, Stephanie A. Spear (National Association of REALTORS®)
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