This article originally appeared in the August 2025 edition of MortgagePoint magazine, online now.
David McCarthy is Managing Director, Head of Legislative Affairs at the CRE Finance Council (CREFC), where he leads the trade organization’s advocacy efforts with federal lawmakers in Washington, D.C. In addition to representing the CRE and multifamily finance industry on Capitol Hill, David supports the overall CREFC government relations effort by advising and supporting CREFC’s legislative and regulatory efforts with policy analysis and strategy.
For more than three decades, CRE Finance Council (CREFC) has served lenders, investors, and servicers engaged in the nearly $6 trillion commercial real estate finance industry. More than 400 companies and over 19,000 individuals are members of CREFC. Member firms include life company and bank balance-sheet lenders, securitized lenders, alternative, high-yield lenders, loan and bond investors, private equity firms, servicers, and rating agencies, among others. CREFC promotes capital formation, encouraging commercial real estate finance market efficiency, transparency, and liquidity. CREFC also acts as a legislative and regulatory advocate for the industry, playing a vital role in setting market standards and providing education for market participants.
Prior to joining CREFC in 2016, David was an Assistant VP in the Regulatory Affairs department at U.S. Bank in D.C. David grew up in rural Southwest Minnesota and graduated from Hamline University in St. Paul. He is a graduate of George Mason University School of Law. McCarthy also worked as a Legal Intern for the Subcommittee on the Constitution of the U.S. House of Representatives Committee on the Judiciary.
MortgagePoint had a chance to chat with McCarthy regarding Section 899 of the One Big Beautiful Bill Act, a measure that takes aim at “unfair foreign taxes,” specifically targeting the undertaxed profits rule (UTPR), digital services taxes (DSTs), and diverted profits taxes (DPTs). Section 899 was designed to increase the U.S. tax burden for investors tied to countries deemed to be engaging in unfair foreign taxation.
Section 899 represents a shift in international tax policy, designed to protect American economic interests.
McCarthy shared his thoughts on Section 899 and its projected impact on the commercial real estate space both at home and abroad.
Q: Why were real estate market participants concerned about a provision in the Reconciliation Bill known as Section 899?
McCarthy: Section 899 would authorize the Treasury Secretary to impose retaliatory taxes on certain foreign companies and individuals in response to unfair tax practices abroad. Policymakers were aiming to defend U.S. tax sovereignty amid global tax minimum tax agreements by using the provision to apply punitive tax treatment when countries employ certain extraterritorial or discriminatory taxes against U.S. companies.
While Section 899 could have served as a negating tool on the international stage, the real estate industry was concerned that the provision would broadly impact debt and equity investment into the U.S. The House and Senate version of the bill would have swept in passive, non-controlling foreign investments—including those critical to financing United States. commercial real estate. The added uncertainty around how Treasury might implement this authority—and who could be targeted—created real risk for capital inflows into U.S. markets.
Q: Why was Section 899 such a concern when it comes to capital availability for U.S. borrowers?
McCarthy: U.S. commercial real estate (CRE) relies on a global investor base as foreign capital plays a key role in portfolio lending, debt funds, securitizations, and other financing vehicles. Section 899 introduced the risk of higher, unpredictable tax rates for certain foreign investors, which could cause capital to pull back or require higher returns to compensate for new tax risk. That could translate into tighter credit conditions, higher borrowing costs, and reduced liquidity, 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 throughout 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 provision 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 market 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 reconciliation package.
Although lawmakers and Treasury were sensitive to the inbound investment 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.
