Real Estate Revitalization Act of 2010

Madam Speaker, I move to suspend the rules and pass the bill (H.R. 5901) to amend the Internal Revenue Code of 1986 to exempt certain stock of real estate investment trusts from the tax on foreign investment in United States real property interests, and for other purposes.

Madam Speaker, I yield myself 4 minutes.

I am pleased to introduce this bill, the Real Estate Jobs and Investment Act. This bill will help address the growing problems in the U.S. commercial real estate market by attracting new capital through alleviating punitive taxes that discourage investment in the United States real estate markets.

Currently, almost $170 billion in commercial U.S. real estate is underwater, with many of these mortgages needing to be refinanced within the next 2 to 3 years. Without a new infusion of capital, a collapse in the commercial real estate market could lead to yet another economic downturn. That is a risk that our country can simply not afford right now.

Under current U.S. tax law, foreign investors generally do not pay capital gains taxes when they sell stock in a U.S. corporation, such as a Microsoft or Google, unless that U.S. corporation is a real estate investment trust, also known as a REIT, which is like a mutual fund for real estate.

Because Federal tax law imposes certain punitive taxes on foreign investment in U.S. real estate, foreign investors are not putting their money into the U.S. commercial real estate sector. The Real Estate Jobs and Investment Act takes direct aim at this problem by doubling the amount of foreign capital that can be invested in a publicly traded real estate investment trust.

The bill is fully PAYGO compliant, so it won't increase our debt or our deficit by even a single penny.

I also want my colleagues to know that this bill will not disadvantage U.S. taxpayers over foreign taxpayers. That's because foreign investment in U.S. real property will continue to be taxed in the same manner as domestic investment. Under current tax law, only foreign investors in U.S. real estate are penalized with a special tax. This bill relieves part of the tax on real estate, a tax that does not exist when a foreigner invests in any other U.S. asset class such as stocks.

Further, this bill will not open the door to another Dubai Ports situation or to greater control of U.S. real estate by countries who do not have our best interests at heart.

This bill only increases from 5 percent to 10 percent the amount a foreign investor can place in a real estate investment trust. This is not ownership control by any means.

Any foreign investor owning more than 10 percent in one of these real estate investment vehicles will still be forced to pay the punitive tax and will have to register with the Securities and Exchange Commission.

This bill aims to correct the current tax law which discourages foreign investment in U.S. real estate and bring new investment into commercial real estate.

The bill has been endorsed by a number of organizations, including the Real Estate Roundtable, Organization for International Investment, National Association for Real Estate Investment Trusts, the International Council of Shopping Centers, the Building Owners and Managers Association, the National Association of Real Estate Investment Managers, the Association of Foreign Investors in Real Estate, the National Multi Housing Council, and the National Apartment Association.

I believe this is a commonsense reform at a time when new investments are needed in our U.S. economy. The more we can do to address the problems in commercial real estate before they boil over, the better.

I reserve the balance of my time.

Mr. Speaker, in closing, I want to thank the gentleman for his comments and remarks and also recognize we may very well have to come back to do additional work to help this industry because this is a national crisis. It's not just in New York. It's not just in Texas or Boston or L.A. or Chicago. It's really all over the country, and I think this is a small part right now to help infuse some foreign investment and cash into the system to put people back to work, to get construction workers back on the job, and to get people building out offices, office spacing, and really bringing in more capital to lift up this industry.

General Leave

I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks and include extraneous material on H.R. 5901.

I yield back the balance of my time.

Mr. Speaker, on that I demand the yeas and nays.

I yield myself such time as I may consume.

(Mr. BRADY of Texas asked and was given permission to revise and extend his remarks.)

Madam Speaker, we're all aware of the ongoing turbulence in the credit markets that has made it very difficult for owners of real estate, including commercial real estate, to obtain financing for new projects or to refinance existing ones. Transaction volumes have fallen, asset values have fallen, and rents have fallen. Our real estate markets are desperate for infusion of new capital.

One significant source of capital investment for these projects is foreign investors. It's important for Congress to periodically review the restrictions that the U.S. Tax Code imposes on foreign investment to ensure that these restrictions do not unnecessarily discourage this investment, especially during times like this.

Earlier this year, the gentleman from Ohio (Mr. Tiberi) worked with the gentleman from New York (Mr. Crowley) to introduce H.R. 4539, legislation that would modify some of the tax rules in this area collectively known as FIRPTA, the Foreign Investment in Real Property Tax Act. Today's legislation based on their earlier bill would remove an unnecessary barrier to foreign investment in the U.S. real estate market, providing increased liquidity that is sorely needed.

Under current law, foreign portfolio investors who own less than 5 percent of U.S. publicly traded companies are exempted from the more stringent tax regime under FIRPTA. This bill would simply raise that 5 percent threshold for this FIRPTA exception to 10 percent for investments in publicly traded real estate investment trusts, or REITs. This modification would encourage investment of additional capital into our real estate markets at a time when the credit markets need it most.

Let me say just a word about the offset the majority has chosen for this bill, the tightening of the IRS levy rules for Federal contractors identified as owing taxes. This provision is based on a similar proposal that was included in the President's fiscal year 2011 budget request, and it was subsequently included in H.R. 4849, the small business and infrastructure spending bill introduced by Chairman Levin, which passed the House on a mostly party-line vote on March 24 of this year.

The bill we're considering today was introduced just last night, and for the very first time, the real estate proposal that Mr. Tiberi had been working on with the gentleman from New York has been paired up with this particular offset. Since the bill with this new offset was introduced last night, we've conducted considerable due diligence on this provision, including discussion with representatives of numerous associations representing potentially affected taxpayers.

While none of these associations have offered any expressions of support for this offset, we are, at this time, unaware of any group that intends to actively oppose this bill because of this provision. Should H.R. 5901 pass the

House, I'll certainly continue to discuss this new provision with potentially affected groups to ensure it does not place any undue burden on taxpayers.

That being said, the crisis in the credit markets is a serious concern we all share, and this bill will help our struggling real estate markets get the capital they need.

I yield back the balance of my time.

Madam Speaker, I rise in support of the Real Estate Jobs and Investment Act (H.R. 5901), and I commend Congressman Crowley and the Ways and Means committee staff for the hard work that went into crafting this bill.

Even as we work hard to address the current foreclosure crisis in the residential housing market, a growing chorus of economists is warning that the commercial real estate market could very well be the next shoe to fall. In order to get in front of that looming crisis, and the additional burden on our recovery it would represent, Congress should consider any and all responsible steps we can take now to head off that outcome.

This legislation is that kind of step. By increasing from 5 percent to 10 percent the amount of foreign capital that can be invested in a publicly traded REIT before the Foreign Investment in Real Property Tax Act, FIRPTA, filing and withholding requirements kick in, we can attract more foreign investment to our commercial real estate market at a time when that investment is needed most--and we can do it in a way that doesn't disadvantage U.S. taxpayers or cede ownership control of U.S. real estate to foreign interests.

Madam Speaker, this is forward-looking legislation. It's fully paid for. I urge a ``yes'' vote.