| The potential commercial real estate crisis pales in | | | | powder" because it has not yet been used), with |
| size compared to the magnitude of the recent | | | | another $61 billion currently being raised in 2010. |
| residential debacle, but it is certainly big enough to | | | | These funds could be used to refinance properties, |
| ruin an economic recovery that still has shaky legs | | | | buy toxic real debt from banks and purchase |
| Something needs to be done, and soon. | | | | properties in need of capital infusions. All these |
| Forget the happy talk in the national media and from | | | | activities would have trickle down benefits for our |
| politicians. The facts show a different story. The | | | | economy in terms of employment, tax base, and |
| Federal Reserve's March 2010 Federal Reserve Beige | | | | healthy banks. The reason the powder stays dry is |
| Book Survey reveals that the twelve Fed districts | | | | mainly political uncertainty in the U.S. regarding tax |
| report weak real commercial real estate and many of | | | | increases and regulations that would increase costs |
| the districts reporting further declines from the | | | | for private investment. |
| previous period. Moody's Investors Service reports | | | | #2 - Walk the talk about being part of a global |
| that its index for February 2010 shows further price | | | | economy, and open up U.S. markets to more foreign |
| declines for commercial real estate. Banking statistics | | | | investment by removing obsolete restrictions and |
| show commercial loan defaults are creeping up at | | | | taxes imposed by the Foreign Investment in Real |
| accelerating rates. Why is it that at time when it | | | | Property Tax Act (FIRPTA). This act, passed in l980, |
| would be logical to assume that incentives offered to | | | | was a move to protect U.S. farmland from being |
| private industry would help alleviate the commercial | | | | purchased by overseas investors. It imposed a tax |
| real estate meltdown, only disincentives are being | | | | that made it extra costly for sovereign wealth funds |
| pushed through? Nero fiddles while Rome burns. Let's | | | | and overseas investors to buy commercial real |
| can the post-mortem hearings on the residential | | | | estate in the U.S. as a way of discouraging |
| debacle and focus on the next big thing. | | | | investment, and later it was modified to include |
| There are three relatively quick and simple actions | | | | indirect ownership through real estate securities (i.e. |
| that could be taken by the U.S. lawmakers to | | | | REITS stocks). It is outdated and outmoded. |
| immediately rev-up investment to help stabilize the | | | | #3 - While busily putting together thousands of |
| $6.7 trillion dollar commercial real estate industry: | | | | pages of bank regulations, include one that offers |
| #1 - Make a decision on what how carried interest on | | | | incentives for banks to recognize loan losses and |
| real estate partnerships will be taxed. This will take | | | | start re-building balance sheets without playing games. |
| the uncertainty of political risk out of the equation | | | | Remember the basic management theory - you get |
| and will help capital flow into the market. And please, | | | | the behavior you reward. |
| try to remember what the increase in taxes will do | | | | In summary, private investment should be |
| to already distressed pricing of assets. | | | | encouraged, not penalized, for stepping in to help |
| The amount of capital available is significant. Research | | | | stabilize commercial real estate. It is past time for |
| firm Preqin ( estimates that through 2009, $44 billion | | | | Washington to focus on this looming crisis without |
| was raised for investment in distressed estate debt | | | | waiting for disaster and once again going to |
| and equity in the United States (termed "dry | | | | unsuspecting taxpayers for bail outs. |