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June 15, 2012

Darkening Economic Clouds, Euro-Zone Worries, 2012 Elections Loom Large at Roundtable’s 2012 Annual Gathering; Industry, Political Leaders Examine Jobs Potential of Energy Efficiency, Infrastructure Investments


Darkening Economic Clouds, Euro-Zone Worries, 2012 Elections Loom Large at Roundtable’s 2012 Annual Gathering; Industry, Political Leaders Examine Jobs Potential of Energy Efficiency, Infrastructure Investments   

2012 RER Annual Meeting wideshot

The Roundtable's 2012 Annual Meeting was held in Washington, DC

Sandwiched between a Fed report bemoaning the erosion of U.S. household wealth and the central bank’s highly watched policy meeting next week, The Roundtable’s 2012 Annual Meeting yesterday was, not surprisingly, heavily focused on concerns about renewed U.S. economic slowing, escalating euro-zone debt worries, the “fiscal cliff” looming at year-end, and how all of this uncertainty might affect commercial real estate’s slow and uneven recovery. With this year’s high-stakes elections only a few months away, a briefing by the Romney presidential camp and projections by veteran political pundits Charlie Cook and Stuart Rothenberg were also very timely.  

Drawing on decades of combined experience in identifying key battleground states and handicapping political races, Cook and Rothenberg offered insights into the nation’s highly polarized political landscape, as well as factors driving this year’s presidential elections.

Charlie Cook and Stuart Rothenberg

Charlie Cook (left) and Stuart Rothenberg

Rothenberg projected that neither party would end up with a big governing mandate, a result that would mean continued Washington gridlock in 2013 and beyond. Cook focused on the huge pool of undecided swing voters — whom he characterized as largely “pessimistic” — agreeing with Rothenberg this is not going to be a “wave election.” The main question, said Cook, is whether businesses and consumers go in to an economic “fetal position” — cutting back sharply on spending in the face of the fiscal cliff and renewed economic slowing — and the degree to which the economy trumps other issues.

Speaking on behalf of presumptive GOP presidential candidate Mitt Romney, former U.S. Congressman Rick Lazio (R-NY) outlined key planks in the governor’s economic platform.

Job Creation Panel   

Discussion of the U.S. political landscape was followed by a panel discussion on job creation. As moderator and Roundtable board member Debra Cafaro (Ventas, Inc.) asserted, disappointing U.S. jobs data for May “wasn’t a fluke,” since it was preceded by similarly disappointing results the previous two months. “The economy now seems to be following the spring slowdown pattern of the last two years,” she said, explaining that “a bright spot of accelerating growth [was] followed by a slump.”

Deb Cafaro Job Creation panel - side3

Joining Roundtable board member Debra Cafaro (Ventas, Inc.) to talk about how to solve the jobs crisis were (right to left) Senate Real Estate Caucus Co-Chair Ben Cardin (D-MD); Sen. Jon Tester (D-MT); and Rep. Chris Van Hollen (D-MD).

[CRE executives made similar comments in The Roundtable Q2 Sentiment Survey (released in early May), recalling last year’s economic roller-coaster and expressing concern about a potential repeat of similar shocks this year.]

Joining Cafaro to talk about how to solve the jobs crisis were Senate Real Estate Caucus Co-Chair Ben Cardin (D-MD), who sits on the tax-writing Finance Committee as well as the Small Business Committee; Sen. Jon Tester (D-MT), who chairs the Senate Banking Subcommittee on Economic Policy, among other committee assignments; and Rep. Chris Van Hollen (D-MD), the top Democrat on the House Budget Committee and a member of the deficit “super committee” that worked unsuccessfully to hammer out a spending-and-tax deal this past fall.

The panel’s main focus was on spurring hiring by small businesses, and the promise of energy retrofits, infrastructure investment, and tourism (especially from abroad) as engines of job creation.  

2012_AnnualRep 150x192 Cover

The Roundtable's 2012 Annual Report: Managing Risks & Opportunities

As detailed its newly released Annual Report for 2012, The Roundtable’s agenda for creating and protecting jobs includes: 

Advocating policy changes to encourage more foreign equity and debt investment in U.S. commercial real estate, which would facilitate debt refinancing and help avert rising foreclosures (e.g., through proposed changes in the Foreign Investment in Real Property Tax Act of 1980 [FIRPTA] and guidance on the “Effectively Connected Income” [ECI] rules)

Urging policy reforms to spur energy efficiency retrofits in commercial buildings (e.g., through reform of the existing Section 179D tax deduction, “green” appraisal standards that take energy efficiency into account, and other ideas for creating new financing options for such investment)

Recommending permanent funding for the U.S. Citizenship and Immigration Services’ EB-5 “Immigrant Investor” program, which serves as an important funding source for real estate development projects (including energy retrofits)

Urging longer-term federal funding for transportation infrastructure , which would allow real estate developers and transportation planners to better coordinate on critical surface transportation projects (including multi-modal transit projects that contribute to healthy, “24/7 cities”

Infrastructure Panel     

Nelson Rising Annual 2012

Roundtable Chairman Nelson Rising (Rising Realty Partners)

Infrastructure investment — and its connection to job creation and healthy property markets (both residential and commercial) — were among the broad themes in a separate “Rebuilding America” presentation moderated by former Roundtable Chairman Nelson Rising (Rising Realty Partners). The panel’s special guest, U.S. Federal Transit Administration Administrator Peter Rogoff, presided over the disbursement of over $8 billion that the Obama Administration made available for transit systems across the country through the 2009 economic-stimulus law. 

As the two discussed, House-Senate conferees continue working to negotiate a compromise between the two-year Senate transportation funding bill and the House GOP approach, which includes language to expedite construction of the Keystone XL pipeline.

In a Nov. 2011 letter of support for the Senate bill (“MAP-21”), Roundtable President and CEO Jeff DeBoer said the measure represents “a significant step” in the direction of transportation policies that are balanced, prudent and forward-thinking. “The bill advances bipartisan solutions to maintain, improve and modernize our infrastructure — while furthering the critically important objective of getting Americans back to work,” he stated [Roundtable Weekly, Nov. 10]  

FTA Peter Rogoff

Federal Transit Administration Administrator Peter Rogoff

Yesterday’s panel discussion also touched on the federal Transportation Infrastructure Finance and Innovation Act (TIFIA) program, which provides federal credit assistance in the form of direct loans, loan guarantees, and standby lines of credit to finance regionally or nationally significant surface transportation projects — thereby helping to fill market gaps and leverage federal funds by attracting substantial private co-investment. The Senate’s MAP-21 bill would ensure sustained funding for this valuable program.

As noted in the 2012 Annual Report, The Roundtable has taken an increasingly higher profile on transportation infrastructure issues — given the nexus between regional transportation planning, multi-modal transportation options for commuters and urban residents, healthy economies and cities, and sustainable development.

Avoiding the “Fiscal Cliff” and “Taxmaggedon” at Year-End   

Later in the program, former House Ways and Means Committee ranking Republican Jim McCrery, former House Ways and Means Tax Counsel Robert J. Leonard, and former Treasury Assistant Secretary Michael B. Levy joined The Roundtable’s Jeff DeBoer in a conversation about upcoming policy battles over the Dec. 31 expiration of the Bush tax cuts, automatic (“sequestration”) spending cuts scheduled to take effect Jan. 1, 2013, and expectations of renewed battles over the U.S. debt ceiling in late 2012 or early 2013.  

Jeff DeBoer panel - 2012 Annual Meeting Fiscal Cliff

 Left to right: Roundtable President and CEO Jeffrey DeBoer; former House Ways and Means Tax Counsel Robert J. Leonard; former Treasury Assistant Secretary Michael B. Levy; former House Ways and Means Committee ranking Republican Jim McCrery  

In congressional testimony last week, Fed Chairman Bernanke again urged Congress to avert the dreaded fiscal cliff at year-end by addressing these looming policy questions. Economists warn that inaction on these issues could shave 3–5 percent from GDP in 2013.

While offering reassurances that the Fed is prepared to take additional monetary policy action to prevent another recession, Bernanke put the onus on Congress to act first, saying it must “try to avoid a situation where you have a massive cut in spending and increase in taxes all hitting at one moment” (msnbc.com, June 7).

It remains to be seen whether lawmakers ultimately reach a budget-and-tax agreement before Dec. 31, although expectations for a “lame-duck” agreement are quickly morphing into projections that Congress might do a short-term extension to buy more time for debate. Under all of the potential year-end scenarios, there would be risk for the nation’s commercial real estate sector (e.g., the potential for renewed recession in 2013 if Congress fails to act in a timely manner, or the possibility that a “rushed” tax restructuring fails to reflect real estate’s role in the economy).

Fears of Euro-Zone Contagion, Economic Slowing, Reduced Capital & Credit Flows  

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Dr. Sam Chandan  

In a special joint meeting of The Roundtable’s Research and Real Estate Capital Policy Advisory committees yesterday, economist Sam Chandan discussed escalating euro-zone concerns — including investors’ reaction to last week’s bailout plan for Spain’s banks and Greece’s potential departure from the euro — and how it could affect global capital and credit flows.

In the wake of last summer’s unprecedented U.S. debt downgrade, wild swings in global equities markets prompted CMBS spreads to widen, raising fresh concerns that real estate liquidity would again become harder to come by. Although capital and credit have become more available in “gateway markets” (particularly for top-rated “core assets”), both remain constrained in smaller markets across the country, clouding the outlook for a broader commercial real estate recovery. 

RECPAC 2012 Annual ws

The RECPAC meeting covered Basel III, lease accounting standards and other capital and credit issues affecting CRE.

The RECPAC meeting also covered last week’s developments on the Basel III capital accord and efforts by a Roundtable working group to develop a coordinated response. Additionally, there was discussion of Wednesday’s decision by the Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) to go back to a two-pronged approach in their lease accounting standards project — reflecting stakeholder views that there is more than one type of lease and these should be accounted for differently.

The new approach reportedly focuses on whether a lease involves the transfer of ownership rights or of right-of-use.  A
Globe.St.com report today quoted Leasing 101’s Bill Bosco as saying the new approach is “great news for the commercial real estate industry.”

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