Page 958 Is Giving CRE Cold Feet

[Bisnow First Draft]

Buried on Page 958 of the One Big Beautiful Bill is a sleeper clause that's giving global real estate investors cold feet about the U.S. Under Section 899 — blandly named “Enforcement Of Remedies Against Unfair Foreign Taxes” — foreign investors could get whacked with higher taxes on U.S. income if Uncle Sam doesn’t like their home country’s tax rules. The penalty starts at 5% annually and ratchets up to 20% over time. It hits hardest on core investments, where steady income — not capital growth — drives returns. And it doesn’t stop at direct holdings; fund investors get dinged too. Sources tell Bisnow that major global fund managers have already begun to alert their clients to this. Of course, no one is saying, “Don’t invest in the U.S.,” but they are stressing that — at the whim of the White House — the tax they pay on real estate income could increase.         Countries like Canada, Australia and the UK, all eyeing digital taxes on U.S. tech giants, are now squarely in the crosshairs of this potential tax backlash. The U.S. doesn’t lean on foreign capital like the UK does — its deep pool of domestic investors makes sure of that. Still, overseas money has accounted for 12% of U.S. CRE investment annually since 2010, according to MSCI. If trade policy didn’t already make U.S. real estate a tougher sell, this could seal the deal — for investors looking to park their money elsewhere. — Mike Phillips, Mark F. Bonner, Catie Dixon, Jay Rickey and Kayla Carmicheal  Not getting The First Draft in your inbox? Click here to sign up. Got any feedback or a news tip? Email first...@bisnow.com. CRE News Quiz Where is North America's biggest indoor water park? (Answer at the bottom.) On Our Radar Texas hemp ban threatens $5.5B industry — and CRE tenants. A new bill on Gov. Greg Abbott’s desk could outlaw THC-containing hemp sales, forcing the shutdown of over 8,500 businesses and jeopardizing millions of square feet of retail space. Landlords, developers and trade groups are lobbying hard for a veto, warning of lease defaults, job losses and ripple effects across commercial real estate. The legislation follows safety concerns but has drawn backlash for potentially gutting a thriving, loosely regulated industry that emerged post-2018 Farm Bill. No property? No problem … Nuveen wants your 1031. Nuveen has introduced a Delaware Statutory Trust fund that allows real estate sellers to defer capital gains taxes via 1031 exchanges, with the option to convert into shares of its $2.1B Global Cities REIT through a 721 exchange. The move targets aging property owners seeking passive income. DST fundraising hit $1.2B in early 2025, and Nuveen hopes the rebound in real estate will boost interest — though its REIT has underperformed peers like Apollo and JPMorgan in recent returns and fundraising. We goofed … In yesterday’s First Draft, we misstated the status of the 145% tariff rate on Chinese imports. That rate was reduced earlier this month (but only temporarily), though its market impact is still unfolding. But who knows, that rate might be back by the time you read this. Either way, our bad! Today’s Deep Dive: Banks' CRE Comeback Fueled By Maneuvering Bad Loans Off Their Books     Bisnow/created with assistance by DALL-E         After retreating from CRE lending, banks are back — thanks to creative deals offloading troubled loans.  Partnerships with private credit and CMBS markets let them purge balance sheets without booking massive losses. Delinquencies dropped, fresh lending rose, and banks now account for 34% of CRE originations.  But risks haven’t vanished — just shifted to less regulated private players betting on rate cuts. “There’s certainly a narrative spin: ‘Oh yeah, we’re resolving our issues,’” one loan sale advisory firm CEO told Bisnow.  “The closer you look in, the more banks are kicking the can down the road, and it could come back and bite them.” Read the full story here. This Morning's News DATA CENTERS — Nvidia Earnings Show Strong, Shifting Data Center Demand (Bisnow): Nvidia’s revenue grew 69% YOY, bringing in $44B and beating expectations. Nvidia said it missed out on $2.5B in sales due to U.S. restrictions on manufacturing for China. This is expected to grow to $8B next quarter. The company’s main revenue source, data center sales, grew 73% from this time last year. Read more here. ECONOMY — Experts Expect Trade War To Rage On (Bisnow): 24 hours after a judge ruled Trump imposing sweeping tariffs wasn't legal, the U.S. Appeals for the Federal Circuit allowed the White House to keep its largest tariffs in place while their legality is challenged. The Supreme Court is expected to weigh in on the decision. Read more here. INFRASTRUCTURE — Illinois, Texas Ease Parking Minimums (Bisnow): Illinois proposed a bill axing parking requirements for development projects near transit hubs Wednesday. The Dallas City Council passed a parking reform two weeks ago, cutting most minimum requirements by half. Both new legislation substantially lower development costs for upcoming projects. Read more here and here. ECONOMY — Inflation Eases But Fed Stays Cautious (CNBC): The Fed’s preferred inflation gauge fell to 2.1% in April — lower than expected. But FOMC minutes show fed policymakers are holding firm on delaying rate cuts. Read more here. LEGAL — 5,200 Apartments Driven Into Bankruptcy (Bisnow): Over 5,000 NYC apartments moved into bankruptcy last week after the cost to cover their debt service climbed 75% in two years. Read more here. ECONOMY — Trump Accuses China Of Breaking Trade Deal (Seeking Alpha): Trump claims China has violated its trade commitments, stoking fears of a renewed tariff offensive. Read more here.               Wikimedia Commons/Jacob Blanck         RETAIL — Costco Defies Headwinds (CNBC): The warehouse giant beat earnings expectations and plans to open 10 warehouses in its fourth fiscal quarter. Read more here. SFR — Invitation Homes Sees Mixed Leasing Trends Ahead (Seeking Alpha): The SFR giant expects renewal rent growth to decelerate but forecasts a pickup in new leases. Read more here. HOSPITALITY — Wander Raises $50M With Backing From Starwood, Fifth Wall (Wander): The short-term rental startup says the capital will accelerate its expansion and deepen its investment in WanderOS, its proprietary AI operating system that manages logistics and guest needs with hotel-grade consistency, at scale. Read more here. RETAIL — Companies Expand Despite Volatility (CoStar): Major chains that reported earnings this week said they will continue to open brick-and-mortar locations. Read more here. HOUSING — Pending Home Sales Sink 6.3% (World Property Journal): Pending home sales in the U.S. fell 6.3% from the previous month in April. The decline was felt across all four major U.S. regions. Read more here. HOUSING — Slowdown Spreads Beyond Sun Belt (Bloomberg): Once concentrated in Texas and Florida, falling home prices are now hitting markets nationwide as supply builds. Read more here.           Pixabay/xresch         PROPTECH — NJ County To Put $240B In Property Records On Blockchain (Banking Dive): One of the country’s most densely populated counties will digitize $240B in real estate data as part of a five-year partnership that seeks to reduce fraud, title disputes and administrative errors. Read more here. LEGAL — Father, Son Plead Guilty To $284M Fraud (Bisnow): Randy and Chad Miller allegedly forged letters of intent and told investors they had contracts with many teams, including Manchester United, to secure $284M in municipal bonds from the state of Arizona for a Mesa sports complex. Read more here. HOUSING — New Apartments Languish (Redfin): Less than half of newly built apartments completed in Q4 were rented within three months. This was the fifth consecutive quarter the rental absorption rate was below 50%. Read more here. HOUSING — Private Equity Now Owns 1 in 10 U.S. Apartments (Multifamily Dive): A new report shows private equity firms own 2.2M apartment units at 8,200 properties in the U.S., about 10% of the nation’s multifamily stock. Read more here. LEGAL — Retailer At Home Eyes Bankruptcy (Bloomberg): Hit by tariffs and the trade war, the home decor chain did not make its interest payment on May 15 and entered into a forbearance pact with lenders on May 23. Read more here. FINANCE — Bravo Gets A Boost For $400M In CRE Loans (Bravo): Bravo Property Trust has secured new backing from a sovereign wealth fund manager, enabling it to deploy up to $400M in bridge and construction financing. Read more here. ESG — Green Energy On Alert As Federal Cuts Loom (BBC): Grants, loans and clean energy tax credits in the IRA have funneled billions of new federal and private dollars into clean energy. Read more here. WFH — Tulsa’s $10K Remote Work Bet Pays Off Big (Bloomberg): A new study finds Tulsa’s remote worker relocation program, which has seen the city pay over 3,400 remote workers $10,000 each to move there, has delivered 4X ROI. Read more here. CAPITAL MARKETS — Emory Taps Bond Market For $1B Expansion (Bloomberg): Emory University in Atlanta is looking at borrowing over $1B of municipal debt for campus and hospital system projects, adding to the wave of colleges tapping capital markets for projects this year. Read more here. *** BTW … Most-read story on the website yesterday: 'The Crisis Has Already Started': Inside The Finances Of 4,300 Rent-Stabilized NYC Apartments Most-clicked story in yesterday’s First Draft: Will Google Still Build Housing As It Pulls Back From Real Estate?  Is it Something Beautiful? Miley Cyrus' ninth album dropped today. Kayla's review: It's her best and most honest work lyrically. Musically, Cyrus likes to reinvent her sound with each new release. This one leans toward indie pop, with a little bit of disco. Listen while you work! Your off-topic weekend read from 1929 … Before he became a Yankee legend, Lou Gehrig was just a shy, overgrown kid washing dishes at a frat house and dodging Ty Cobb’s insults. Raised on mom’s cooking and pure humility, he slugged his way from Columbia to Cooperstown. So You’ve Come For An Answer The American Dream mall in New Jersey. Even an indoor water park, snow resort and theme park haven’t helped the mall's valuation. Over the past year, the building's worth has fallen $800M to just half of what it cost to build.  *** The First Draft is produced by Director of Newsletters Jay Rickey, Managing Editor Catie Dixon, Editor-in-Chief Mark F. Bonner and Deputy Newsletter Editor Kayla Carmicheal, with an assist from AI. We’d love your feedback! Email us at first...@bisnow.com.

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