As highlighted by the Association of Foreign Investors in Real Estate in their recently released annual survey, some legislators are proposing to relieve somewhat the burden of the Foreign Investment in Real Property Tax Act in ways could help real estate investment trust stockholders, and there is a potential development this year that could move such a proposal forward.
The Real Estate Jobs and Investment Act of 2011 sponsored by Rep. Kevin Brady (R-Texas) is currently pending in congress. It would amend the Internal Revenue Code to increase to 10% from 5% the allowable ownership interest in REIT stock for purposes of taxable exemptions allowed by FIRPTA. Also pending is S. 1616. This bill, sponsored by Sen. Robert Menendez (D-N.J.), similarly, exempts certain REIT stock from the tax on foreign investment in U.S. real property interests.
According to the congressional record, S. 1616 suggests that the FIRPTA reform is needed because “the commercial real estate industry has an equity problem too large for domestic involvement alone to solve” and subsequent CRE market woes could prove debilitating to the economy.
Whether concerns in this area grow to the point where they are large enough to prioritize these bills over the many other competing legislative proposals out there, and whether the nature of REITs could change as a result of other separate reform efforts remains to be seen. But with renewed warnings about a group of 2007 commercial mortgages maturing this year into a market where those loans may not be able to refinance, it is possible.
