ATLANTA — An online survey of commercial real estate professionals conducted by France Media in the wake of the race for the White House reveals two-thirds of respondents (67 percent) believe that President Barack Obama’s re-election will have a negative impact on the industry. Respondents are particularly concerned about Obama’s impact on the capital gains tax as well as the overall health of the job market.
Not all participants find Obama’s victory to be a negative for the industry, however. Approximately 15 percent of respondents are uncertain whether his re-election will be a plus or minus for the industry, 10.9 percent believe his election will positively affect commercial real estate and nearly 7 percent indicate his election won’t have an impact.
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Bob Bach, national director of market analytics for Newmark Grubb Knight Frank, observes that the commercial real estate industry views Obama’s election as negative because Gov. Mitt Romney was a more attractive choice for the business community in general.
“The business community believed that Romney, having been a businessman himself, would have run the economy more like a business, relying more than the president on spending cuts rather than tax increases to balance the budget,” says Bach. “In fact, Romney promised to cut taxes and cut spending even more to pay for them.”
The largely negative sentiment surrounding Obama’s win centers on his performance since taking office in 2009. A number of respondents indicate that the swelling national debt and the high unemployment rate during his time in the White House have hurt the industry. The U.S. Treasury Department reported in September that the national debt now exceeds $16 trillion.
Besides job creation and the capital gains tax, which is set to climb to 23.8 percent from 15 percent in January 2013, respondents are also wary of the availability of capital for real estate investments and financing for the next four years.
“Obama needs to take the handcuffs off the lenders,” writes Jack Snedigar, president of Spectrum Commercial Properties, a Greenville, S.C.-based commercial real estate services firm. “Our greatest challenge is the availability of capital with reasonable equity requirements.”
In terms of real estate investments, William Cutler, managing director of Alder Real Estate Group, a commercial real estate integrated services firm based in Miami, is convinced that the industry will sustain itself as long as there’s not too much government involvement.
“Our political leaders [should] maintain patience and allow a steady recovery to occur, and resist the temptation to overstimulate the flow of capital into the real estate sector, which would lead to the next boom and bust cycle. Real estate investment will do fine on its own,” says Cutler.
GROWING PAINS ON JOBS FRONT
The current state of the employment market is having the most extreme impact on commercial real estate, according to respondents who were asked to rate the importance of several factors influencing the industry on a scale of 1 to 5, with 1 representing no impact and 5 indicating an extreme impact. Respondents feel very strongly that the struggling employment market needs to markedly improve in order to bolster the real estate market.
When asked what’s the greatest challenge facing the real estate industry, Chris Dunbar, president of High Point, N.C.-based Blue Ridge Cos., a commercial and residential real estate development and management firm, cites “employment, or lack thereof.” Similarly, Chris Cox of Goldsboro, N.C.-based Cox Construction & Properties, a land and commercial property seller, responds simply, “jobs, jobs jobs.”
The U.S. economy added 171,000 non-farm payroll jobs in October, according to the Bureau of Labor Statistics (BLS) in its latest jobs report, which was higher than economists’ consensus forecast of 125,000 jobs. Also, the BLS adjusted the August and September figures upward. August saw 192,000 jobs added, which was much higher than the initially reported total of 96,000. September was also revised from 114,000 jobs added to 148,000.
The unemployment rate, though, ticked up slightly to 7.9 percent in October.
“Until the president lets free enterprise take its course, I do not feel we will have any substantial increase in employment and economic growth,” opines Bernie Diana, a self-employed broker based in Connecticut.
CAPITAL GAINS
Survey participants are wary of the capital gains tax hike set for January 2013. In fact, capital gains registered the most fives (extreme impact) in the survey question asking respondents to rank the importance of several factors facing the commercial real estate industry. The graph below shows the breakdown of how respondents broke down each option.
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“Empirical evidence proves that debt and taxes have a huge crowding-out effect on capital creation,” writes Ralph Hemphill, principal advisor at HemphillSolutions.com, an independent real estate solutions firm. “In turn, large-scale government spending/investment, as a result of the debt/taxes, drastically skews the efficient deployment of resources creating a giant negative influence on private investment and economic growth.”
Worries about tax policies were also highlighted in the 2013 Emerging Trends report from PriceWaterhouseCoopers and Urban Land Institute. On a scale of 1 to 5 with 1 representing no importance and 5 representing great importance, respondents gave tax policies a 3.85.
Bach, the economist with Newmark Knight Grubb Frank, indicates that the overall health of the economy will benefit the commercial real estate industry much more than Obama’s policies.
“The economy is likely to play a larger role than regulatory and tax policy in the health of the commercial real estate industry,” emphasizes Bach.
METHODOLOGY
France Media launched the survey in the days following the election. Two-thirds of the 111 respondents to the survey are either concentrated on the West Coast or Southeast, and the rest are scattered throughout the U.S.
The breakdown of respondents by job discipline is as follows:
- 41 percent are brokers
- 26 percent are owners/investors
- 20 percent are developers
- 10 percent are lenders
- 3 percent are property managers
— John Nelson