Real estate professionals hope the nation's economic crisis will spur Congress to ease tax and environmental laws that have squeezed credit and put many borrowers out of bounds at any interest rate.

Congress, real estate lobbyists, and the Bush administration alike are expressing caution about tinkering too much with the tax code, for fear that their actions might trigger another round of unneeded construction.

Window of Opportunity?

Nevertheless, some modest retooling of the passive-loss rules and more favorable tax treatment of debt restructuring are gaining support.

The economic growth and tax fairness initiatives now being bandied about on Capitol Hill could become a vehicle for changes that fell by the wayside in previous sessions, said Steven A. Wechsler, president of the National Realty Committee.

"No tax legislation moves alone," he observed.

Emphasis Shifting to Jobs

Real estate lobbyists are expressing optimism that costly environmental rules could be rolled back this session, although little legislation has been formally introduced.

That's because environmental activism, a popular cause in good times, is expected to take a back seat to growth initiatives next year, as issues such as unemployment move to the fore.

"The fact that the economy is on the skids can't hurt" in this regard, acknowledged a spokesman for the National Realty Committee.

The committee lists the following legislative initiatives to help revive the commercial real estate markets:

Tax Proposals

* Passive loss rules. Bills already being sponsored would allow real estate entrepreneurs to be taxed under the same rules as other taxpayers on their net income. The 1986 tax reform law required investors who had used estate losses to shelter other investments to defer claiming losses until a property is sold, making real estate a less attractive investment.

A proposal by representatives Mike Andrews, D-Tex., and William Thomas, D-Calif., and senators David Boren, D-Okla., John Breaux, R-La., and Steve Symms, R-R.I., would require the real estate entrepreneur to participate in the rental activities as a business before becoming eligible to deduct losses. The entrepreneur would have to spend at least half of his or her working time and at least 500 hours operating the real estate.

* Debt restructuring. A bill by Rep. Clay Shaw, R-Fla., would roll back another 1986 reform by lifting the penalties associated with debt restructuring. Under the new proposal, tax liabilities will be deferred until a sale takes place to generate cash. A second bill introduced by Mr. Shaw would make it easier to sell foreclosed property by amending at-risk rules. The amendment would treat seller financing the same as third-party loans.

* Capital gains. The proposed budget for the 1992 fiscal year calls for a capital-gains tax cut as a way to spur investment in real estate and other assets. It continues to be the subject of what the NRC called "vicious partisan debate," with Democrats calling for a tax increase on the rich as a quid pro quo.

Environmental Policy

* Lender liability. A rule by the Environmental Protection Agency is expected to clarify that lenders may monitor or inspect real estate collateral without risking liability for environmental problems that may turn up. But industry lobbyists again will press for a legislative change that would extend the same protection to claims by state agencies and private individuals.

* Asbestos. Recent studies indicate the mere presence of asbestos does not increase health risks. The realty committee will press the EPA and the Occupational Health and Safety Administration for relief from rules that require removal of asbestos from well-maintained buildings after a sale.

* Wetlands. Congress likely will continue debate over wetlands policy, which centers on how much territory should be protected from development. Environmentalists have argued a revision last summer of the manual delineating protected wetlands would have resulted in the destruction of critical habitats such as the Florida Everglades.

The committee expects to lobby for legislation to clarify the rules and streamline the permitting process.

* Endangered Species - Re-authorization of the endangered species act is still a few years away, but lobbying already has begun over what the realty committee calls "the use of the endangered species act to carry out the no-growth agenda of the environmental community."

The listing of nonthreatened species as threatened is resulting in costly construction delays, the realty committee asserts.

It pledged to respond with legislative proposals that "will balance environmental protection with environmental development."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.