With 'Revenge Tax' On Track, CRE Groups Race To Capitol Hill To Win Exemptions

As Congress scrambles to hammer out the One Big Beautiful Bill before July 4, commercial real estate is on the clock to secure carve-outs to a new policy that could wound the investment landscape.

Deep inside the budget the Senate is preparing to vote on in the upcoming days is a provision that would impose new taxes on capital coming from foreign investors in countries with “discriminatory” tax policies, as determined by the U.S. Treasury Department. 

The proposal, known as Section 899, sent shockwaves through the investment class. It has been dubbed a “revenge tax” by Wall Street executives and analysts who say its mere proposal has already altered the flow of capital.

“The threat of Section 899 is already having a chilling effect on investment decisions,” said Ryan McCormick, counsel responsible for tax policy at The Real Estate Roundtable, one of the sector’s leading industry groups. “These investors are highly mobile, so rather than paying the higher tax rate, they will simply invest elsewhere.”

Section 899 has been given a seal of approval by Republicans in the House of Representatives, who passed it as part of the massive budget and tax bill in a late-night vote at the end of May. The provision was amended but survived negotiations in the version of the bill unveiled by the Senate Finance Committee on June 16. 

From banks to developers, private equity to REITs, there's consensus that the new tax will make U.S. commercial real estate less attractive to foreign investors. But with broad political support for the provision, lobbyists from the sector have descended on Capitol Hill to fight to get language into the bill that would exempt most debt and equity investments into real estate from the tax. 

“We live in the realm of the practical and operate by the phrase, ‘do the doable, win the winnable,’” Bill Killmer, chief lobbyist at the Mortgage Bankers Association, told Bisnow.  

While aimed at foreign investors, Section 899 could not only drive up borrowing costs but also result in domestic investors bearing the increased tax burden, lawyers at Sidley Austin wrote in an analysis. 

It creates a tax aimed specifically at investors from countries that are deemed to have unfair foreign taxes. Most types of foreign investment from offending countries would be subject to an additional 5% tax that would climb annually, up to 20% or until the investor’s host country updated its tax policy to fit U.S. standards. 

“Section 899 is not about commercial real estate investment or commercial real estate lending. Its coverage and its intentions are probably some of the broadest that one could imagine, and through those tentacles, it impacts commercial real estate,” said Jamie Woodwell, senior vice president focused on multifamily policy at the Mortgage Bankers Association.

Industry groups and legal experts say the proposed tax would push capital away from the U.S. in an investment slowdown that would stretch across the economy and make it more difficult to finance new construction, secure debt for existing developments and attract investment in REITs.

Time is running thin for the real estate sector to convince lawmakers to make edits. The Senate, which has already added a Section 899 carve-out for bank deposit interest and certain dividends, is racing to vote on the One Big Beautiful Bill as early as Thursday. The bill would then go back to the House for a vote in the hopes of getting it to President Donald Trump’s desk before July 4. The bill's final language has not yet been released.

“The Treasury Secretary is for this, the White House is for it, both the tax-writing committee chairmen are for it, we recognize the motivations for it,” Killmer said. “We're just acknowledging that and trying to find a way to refine this and deal with some of the specific concerns that the real estate coalition has raised.”

It’s a large coalition. At least three open letters have been sent to the Senate Finance Committee, where edits to the bill’s language are being hammered out, with more than a dozen high-profile real estate groups voicing concerns. 

The Real Estate Roundtable sent a letter on June 12 asking the Senate to revise Section 899’s language to exempt noncontrolling investments in U.S. real estate, which would effectively allow profits from real estate transactions to bypass the tax. 

Ten other real estate organizations signed the letter, including the CRE Finance Council, Nareit, the American Hotel & Lodging Association, the National Multifamily Housing Council and NAIOP. 

A second letter from RER on June 23 called for the exemption of passive investments and was signed by five other real estate finance groups.

“Republican policymakers have all the keys to the kingdom on all of this. It's seen as more of a political train that's not stopping,” said David McCarthy, the head of legislative affairs at the CRE Finance Council. “So making it better around the edges is the most expedient goal.” 

Section 899 is inside the budget package as a response to recent policy changes in other countries that impact American firms, and Republicans support the measure as a way to cajole offending countries into changing their tax codes. 

Lobbyists from across the financial sector are meeting with lawmakers to try to soften language in the provision, and there’s a growing recognition on Capitol Hill that the bill could be targeted in a way that causes less disruption to commercial real estate, Killmer and McCarthy said. 

The final language of Section 899 is expected to change, although it isn’t clear exactly how, they said. 

“There's a willingness there to try to make some changes based on the input that folks in the Senate side have been hearing,” Killmer said. “We in the real estate community feel grateful that there has been an openness to have the dialogue, and I think other sectors of the economy would say the same.”

Section 899 currently gives wide latitude to the Treasury Department to determine which countries are engaging in unfair tax practices, which has raised concerns that the Trump administration could leverage the provision punitively and with little oversight. 

But it also defines specific unfair practices, including the digital service taxes gaining traction in Europe that target American tech giants. If broadly applied, Sidley Austin forecasts that the tax would cover investors from several European countries, Australia, Japan, Turkey and Canada, which is by far the top source of international capital flowing to U.S. real estate. 

Rep. Ron Estes, a Republican from Kansas on the House Ways and Means Committee and Section 899’s loudest proponent in government, has remained steadfast that the provision is needed for the U.S. to maintain what he calls its tax sovereignty. 

When asked about the provision’s potential to crush foreign investment, Estes responded that it was necessary to send a message. 

“Section 899 is a common sense provision that is in direct response to foreign nations targeting U.S. businesses,” Estes said in a statement to Bisnow. “The world needs to understand that efforts to pilfer our tax revenue and penalize the hard work of U.S. innovators and workers will not be tolerated.”