Closing a loophole within the Nevada commerce tax, which exempts real estate investment trusts, could push large corporate entities to divest from the Las Vegas Valley’s residential real estate market.
Two state assembly members — one a Democrat, and one a Republican — are a part of a growing chorus of lawmakers pointing at the exemption, which was originally written into state law in 2015 and exempted REITs even above the $4 million threshold for gross revenue. According to the state government’s website, the tax is applied to any business operating within the state whose gross revenue in a year exceeds $4 million, and rates vary by industry (ranging from 0.051 to 0.331 percent).
Democrat Assemblywoman Venicia Considine said she’s sponsored a number of bills that have ultimately failed (as they need a two-thirds majority in the Legislature) because she thinks it would be the simplest and easiest way to get corporate entities to divest from the valley’s housing market.
Residential real estate investors — which real estate analytics company Cotality defines as anyone who buys three or more properties — bought approximately 11,045 homes in Las Vegas last year, with the majority of those purchases being medium-sized investors (100 or less properties) and up.
Institutional investors, Wall Street backed-hedged funds and corporate owners have long played a significant role in Las Vegas’ housing market as a recent report from UNLV’s Lied Center for Real Estate — which pulled its data from Redfin — estimates investors have purchased more than 99,000 homes since the start of the Great Recession.
Two Las Vegas Review-Journal investigations found that the two biggest homeowners in Clark County are most likely Wall Street-backed companies, Pretium Partners and Invitation Homes, owning more than 8,000 homes combined.
Considine said closing the loophole could be a quick and easy fix for a bipartisan issue as UNLV’s latest study found that most investors are small mom and pop, owning between one and five properties, which she said isn’t something lawmakers should target. She said it’s Wall Street-backed companies, hedge funds and institutional investors that the valley needs to get out of the housing market.
“I think closing this loophole could encourage divestment by REITs, also a bill aggregating LLC rental homes to gauge if the owner’s rental income reaches the commerce tax threshold of $4 million would disincentive the bulk purchase of single-family homes and provide a fairer playing field for working families trying to buy into the American dream,” she said.
Considine said residential real estate has found itself unwittingly within the blast radius of legislation that was essentially created for the casino and gaming industry in the state.
“I have had a bill every session to close that loophole and it has not passed because it needs a two-thirds vote, because there is a weird argument that anyone who I talk to about it says, ‘Well, everybody is paying their taxes, so that doesn’t effect us at all, so that’s not going to change anything.’ But then on the flipside they are demanding a two-thirds requirement given it is going to raise taxes. So it’s a problem I’ve been trying to work on.”
She said the loophole was created due to a number of properties on the Strip are owned by REITs, however she said large investors in the residential housing market as also benefiting from this financial advantage.
Republican Assemblywoman Danielle Gallant said she would support closing the loophole within the commerce tax for REITs because she believes small mom-and-pop investors like herself would not cross over the $4 million gross revenue threshold.
“This would naturally just eat into their bottom lines and reduce how much of the market they own,” said Gallant.
Gallant said hedge funds served an important part in stabilizing Las Vegas’ housing market after the Great Recession in 2008, however they are clearly an issue in the residential market now.
“I do agree it’s a problem because the hedge funds were encouraged to dabble in this market and I think that they learned they could make money on this,” she said. “So it has made it harder for the everyday buyer to get into the market.”
The issue has taken center stage at the political level as a housing bill that made its way into Nevada’s special session this past November to limit corporate ownership of residential real estate.
Senate Bill 10, which failed by one vote in the Assembly, would have limited corporate entities from purchasing no more than 1,000 homes in a calendar year.
Gallant said this is not the answer to solve the issue of corporate housing in the valley and that if the bill passed it would have been a “nightmare” for the Secretary of State, who would have the power to cancel real estate transactions, and the local market.
“The very simplistic way that legislation was going to handle it would have opened us up to a lot of lawsuits, it’s not constitutional,” she said. “You can’t tell sellers they can’t sell to somebody, someone has a right to sell their personal property to whoever they want, to whatever buyer,” she said.
“For small mom-and-pop investors, we keep our rental properties in LLCs for liability purposes and so we would have been thrown into that pot.”
Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.