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37 August 2025 August 2025 » themortgagepoint.com T H E E X C H A N G E translate into tighter credit conditions, higher borrowing costs, and reduced li- quidity, especially for borrowers already facing limited financing options. U.S. CRE borrowers could have directly borne the increased tax burden. Many loan agreements with foreign lenders contain provisions that put the risk of increased international taxes on the borrower rather than the lender. If the tax rate goes up, the borrower pays it. This is often because tax treaties between the United States. and certain countries govern the tax treatment of these transactions, and there can be a risk of fluctuation if a party unilaterally backs out of the treaty. Q: What is the importance of overseas capital providers for the U.S. commercial property market? McCarthy: Foreign capital has long been a key pillar of the U.S. commercial real estate market. It provides important diversification, supports liquidity across asset classes, and often complements and fills gaps in domestic financing. Reducing participation, or even creating uncertainty around it, can have ripple effects through- out the financing ecosystem. One illustrative data point is that in 2024, approximately $260 billion of U.S. CRE loans were held on foreign bank balance sheets, according to Federal Reserve data. At least $200 billion of that total had exposure to Section 899 retaliation. Q: Was there any initial impact from this proposal? McCarthy: Yes. Even before the provi- sion became law, it created considerable concern among market participants, including foreign investors who began reevaluating their exposure to U.S. real estate. We had heard from lenders with foreign parent companies that projects were on pause. The uncertainty alone was enough to disrupt transactions, which highlights how sensitive the mar- ket is to perceived policy risk. The market turmoil around the Liberation Day tariffs certainly was a backdrop to the concern. Section 899 as written was not destined to be a dormant policy tool, and investors were rightfully wary of the risks. Q: How likely is Section 899 to be passed into law by U.S. lawmakers? What is the resolution and what happens now? McCarthy: At this stage, it appears that Section 899 will not be enacted in its current form. Treasury leadership formally requested its removal, and congressional tax writers followed suit in the most recent revisions to the recon- ciliation package. Although lawmakers and Treasury were sensitive to the inbound invest- ment concerns, the G7 agreement on the underlying global minimum tax issue was enough to prompt policymakers to change course. The other nations themselves saw the potential negative impacts of the policy, as well, and took action to come to an agreement. House Ways and Means Chair Jason Smith and Senate Finance Chair Mike Crapo noted, however, that they would not hesitate to pass similar legislation in the future if U.S. taxpayers are treated unfairly abroad. Q: What did CREFC and other industry groups do when it comes to Section 899? McCarthy: CREFC worked closely with other real estate trade associations to educate policymakers about the unintended consequences of Section 899. The industry engaged directly with congressional tax writers and Treasury officials, flagged concerns in joint letters, and pushed for exemptions to protect passive real estate debt and equity investment. Other industries with a global investor and business base also highlighted the issue. That sustained advocacy—coupled with market feedback—helped build the case for the multilateral agreement Treasury brokered. "Foreign capital has long been a key pillar of the U.S. commercial real estate market … Reducing participation, or even creating uncertainty around it, can have ripple effects throughout the financing ecosystem."