(Editor’s Note: This story originally appeared in ALM sister publication, GlobeSt.com.)
Last week the Treasury Department startled the REIT sector with the announcement that it was closing, effective immediately, a perceived loophole to the PATH Act.
This week Treasury has backtracked somewhat by stating that the new regulations that “force” a “deemed sale election” for some C corporation to REIT conversion transactions will be corrected “to give effective date relief” for conversions that relate back to a spin-off that occurred before Dec. 7, 2015, according to a client note by tax expert Robert Willens of Robert Willens LLC.
This slight change will save Colony Capital, NorthStar Realty Finance and NorthStar Asset Management’s $58 billion proposed equity REIT, which fit the initial criteria, according to Willens.
Accordingly, it appears that the NSAM conversion transaction, even though it takes place well within 10 years of a precedent spin-off transaction, will be wholly unaffected by the new regulations — i.e., the assets of NSAM will not be deemed sold at the time of the conversion transaction — since such precedent spin-off transaction occurred well before December 7, 2015. Thus, these new regulations will in no way affect the decision whether to proceed with the merger in which NSAM and Colony Capital are scheduled to merge with and into NSAM.
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