The Impact of Section 899 of the One Big Beautiful Bill on the U.S. Commercial Real Estate Market

In the summer of 2025, as President Donald Trump’s administration worked to reshape the nation’s tax landscape with the passage of the “One Big Beautiful Bill,” a provision known as Section 899 raised significant concerns within the U.S. commercial real estate (CRE) industry. This provision aimed to address what policymakers described as “unfair foreign taxes” by imposing retaliatory taxes on foreign entities that the U.S. deemed to be engaging in discriminatory tax practices. While intended to defend American economic interests and tax sovereignty, Section 899 introduced an element of uncertainty that had far-reaching implications for foreign investment in U.S. commercial real estate.

David McCarthy, Managing Director and Head of Legislative Affairs at the CRE Finance Council (CREFC), provided valuable insights into the potential consequences of this provision. In an exclusive interview with MortgagePoint, McCarthy explained why Section 899 was particularly concerning for CRE stakeholders and how it could have altered the dynamics of capital availability in the U.S. commercial property market.

What Was Section 899 and Why Was It a Concern?

Section 899 of the One Big Beautiful Bill gave the U.S. Treasury Secretary the authority to impose retaliatory taxes on foreign companies and individuals whose tax practices were considered unfair by the U.S. government. The provision was introduced as a way to protect U.S. tax sovereignty amid global tax negotiations, particularly those centered around a global minimum tax agreement.

While the provision aimed to address what the U.S. government viewed as unfair foreign taxation, McCarthy pointed out that Section 899 would have had unintended consequences for U.S. commercial real estate. Specifically, it could have impacted passive, non-controlling foreign investments—an essential source of capital for the CRE market. The potential for higher, unpredictable tax rates for foreign investors created concerns about reduced capital inflows, higher borrowing costs, and tighter credit conditions for U.S. borrowers.

McCarthy emphasized that uncertainty about how the Treasury would implement the provision created real risks for capital flows into U.S. commercial real estate markets. Foreign capital plays a crucial role in financing U.S. commercial properties, including portfolio lending, debt funds, securitizations, and other financing vehicles.

The Importance of Foreign Capital in U.S. CRE

Foreign capital has long been a cornerstone of the U.S. commercial real estate market, providing crucial diversification and liquidity, particularly across asset classes such as office buildings, multifamily complexes, and industrial properties. McCarthy highlighted that reducing or creating uncertainty around foreign participation could have serious ripple effects throughout the financing ecosystem.

According to Federal Reserve data from 2024, approximately $260 billion of U.S. commercial real estate loans were held on foreign bank balance sheets, with more than $200 billion of that exposure vulnerable to Section 899 retaliation. The loss of foreign capital could have led to a reduction in liquidity, making it more difficult for borrowers to access financing and raising borrowing costs across the board.

Initial Impact and Market Concerns

Even before Section 899 became law, the provision had already caused significant concern among market participants. McCarthy noted that foreign investors began reevaluating their exposure to U.S. real estate, with some lenders suspending projects due to the uncertainty surrounding the potential tax implications. This disruption highlighted how sensitive the CRE market is to policy risk. The mere threat of punitive tax treatment was enough to stymie transactions, as investors feared that the retaliatory taxes could undermine the profitability of their investments.

The uncertainty surrounding Section 899 contributed to broader concerns in the market, including the disruptions caused by the “Liberation Day” tariffs and the potential for future trade wars. As foreign investors began to pull back or pause their investments, the commercial real estate market experienced a notable slowdown.

A Change in Course: Section 899 Will Not Be Enacted in Its Current Form

Fortunately for the U.S. commercial real estate market, the concerns surrounding Section 899 did not go unheard. McCarthy explained that the Treasury Department formally requested the removal of the provision, and congressional tax writers agreed to revise the reconciliation package. The global consensus among the G7 countries on a minimum global tax rate helped defuse the situation, prompting policymakers to abandon Section 899 in its original form.

However, McCarthy emphasized that while Section 899 may not be enacted as originally written, lawmakers and Treasury officials have signaled that they would not hesitate to pursue similar legislation if foreign countries continue to treat U.S. taxpayers unfairly. This opens the door for potential future legislative efforts, but for now, the immediate threat to U.S. commercial real estate capital flows has been mitigated.

CREFC’s Advocacy Efforts

The CRE Finance Council, along with other real estate trade associations, played a key role in advocating against Section 899. McCarthy outlined how CREFC worked tirelessly to educate lawmakers about the potential negative impacts of the provision on U.S. commercial real estate. The council engaged directly with congressional tax writers and Treasury officials, filed joint letters, and pushed for exemptions to protect passive real estate investments. These efforts, combined with market feedback from industry participants, helped build the case for the multilateral agreement brokered by Treasury.

CREFC’s advocacy demonstrated the importance of industry collaboration in shaping policy outcomes that ensure the continued health and growth of U.S. commercial real estate markets.

Conclusion: The Road Ahead for U.S. CRE

Although Section 899 may have been temporarily set aside, McCarthy’s insights underscore the fragility of the U.S. commercial real estate market in the face of shifting tax and trade policies. Foreign capital remains a vital component of the market, and any measures that disrupt its flow can have far-reaching consequences for borrowers, lenders, and investors alike.

Looking ahead, the U.S. commercial real estate market must remain vigilant to potential policy changes that could impact capital availability and financing conditions. As the global tax landscape continues to evolve, it is crucial for industry stakeholders to stay engaged and advocate for policies that protect the interests of the commercial real estate sector and maintain its competitive edge on the world stage. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.