Build Back Better Bill’s Potential Impact on CRE

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After months of negotiations, the U.S. House of Representatives passed the roughly $2 trillion Build Back Better bill, a social and climate spending measure that is expected to have a lasting impact on not only roads, bridges, high-speed rail and other infrastructure systems, but also the nation’s housing and real estate markets. The bill, which was approved by the U.S. Senate in August before the House followed suit Friday, contains at least $150 billion allocated for affordable housing, including $65 billion toward public housing repairs, $25 billion for rental assistance and $15 billion for the Housing Trust Fund.

The Commercial Real Estate Finance Council (CREFC) has already publicly applauded lawmakers for casting a spotlight on the CRE and multifamily industries after the passage of the Infrastructure Investment and Jobs Act on Nov. 6.

“Infrastructure is a vital concern to the success of commercial and multifamily real estate,” CREFC Executive Director Lisa Pendergast said in a Nov. 8 news release. “As an organization dedicated to maintaining liquidity in the commercial and multifamily real estate space, a vital component of the U.S. economy, CREFC welcomes these investments in transportation, water, energy, broadband, and climate resilience all of which are critical to the short, medium and long-term success of these assets and the communities they are located.”

The unprecedented $150 billion investment in affordable housing will create more than one million new affordable rental and single-family properties while also investing in down-payment assistance.

The Biden Administration has described the housing provisions as “the single largest and most comprehensive investment in affordable housing history” and notes the construction, rehabilitation and improvement of more than one million affordable homes will be responsible for “boosting housing supply and reducing price pressures for renters and homeowners.”

“It will address the capital needs of the public housing stock in big cities and rural communities all across America and ensure it is not only safe and habitable but healthier and more energy efficient as well,” President Biden said in an Oct. 28 news release that detailed the Build Back Better framework. “This legislation will create more equitable communities, through investing in community-led redevelopments projects in historically under-resourced neighborhoods and removing lead paint from hundreds of thousands of homes, as well as by incentivizing state and local zoning reforms that enable more families to reside in higher opportunity neighborhoods.”

Several key low-income housing tax credit (LIHTC) provisions are included in Build Back Better. The nine percent LIHTC per capita and small state minimum allocations will be increased by 10 percent each year, in addition to inflation, for 2022-2024. The inflation adjustment will continue for nine percent LIHTCs for 2025 and thereafter.

Another key LIHTC provision is a decrease in the 50 percent financed by test for bonds and four percent LIHTC to 25 percent for 2022 through 2026. A permanent 50 percent basis boost for properties serving extremely low-income tenants will also be enabled, as well as a 30 percent basis increase for developments in Native American areas. Because the LIHTC provisions have limited shelf lives, developers and owners alike must be ready to act quickly.

Several modifications will be made to the Right of First Refusal—converting the right to a purchase option for agreements entered into after passage, allowing the inclusion of partnership assets related to the building in the definition of the property, allowing the option holder to exercise the right of first refusal without requiring the approval of an investor or requiring a bona fide third-party offer, and changing the purchase price to only debt and not debt plus exit taxes.

There are additional energy efficiency tax credits that will interest the commercial real estate industry. The bill extends the Sec. 25C nonbusiness energy property credit to property placed in service before the end of 2031, as well as extending the 25D credit for residential energy-efficient property from its current scheduled expiration date in 2023 to 2031. Build Back Better also extends the Sec. 48C advanced energy property credit to 2031 and creates a new investment tax credit worth up to 25 percent for advanced manufacturing facilities.

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