Bisnow Economic & Political Forecast,
Edythe Kelleher, Executive Director of SFDC
The morning after the State of the Union speech, Bisnow brought together three panels of experts to discuss the state of the economic and political climate as relating to business and development. Local and national implications were analyzed. Here are some interesting topics discussed
- Investment real estate received fine treatment in the new tax law. Tax-deferred exchanges and preferential treatment for carried interest were preserved, improvements such as new HVAC systems can be immediately expensed, and depreciation of some items is sped up to only fifteen years.
- Individual homeowners, particularly those in higher-tax states, will suffer from a $10,000 cap on deduction of state and local taxes, reduction of the mortgage interest deduction to loans only up to $750,000 (down from $1 million), elimination of deductibility of home equity loan interest, and elimination of deductibility for vacation homes.
- Destruction of NAFTA would create huge disruptions to supply chains, as materials such as iron, steel and lumber became subject to tariffs.
- The dollar’s value is dropping as interest rates rise. This is a strange combination, but at least savings accounts will start earning more. Another seeming contradiction is that international tourists are down; hotels continue to succeed with domestic tourists and business travel.
- Historic tax credits were preserved, but must be spread over five years instead of one. Considering the time value of money, this effectively reduces the tax credit value by half. Emerging cities such as Cleveland and Pittsburgh will suffer.
- As corporate tax rates have fallen, the value of housing tax credits has declined to less than 90 cents on a dollar. The resulting lowered equity invested in projects must be replaced by borrowing and/or more local tax funding. Higher rents will be required to pay higher debt service.
- Just as more public investment will be required, the enormous deficit created by the tax law will result in cuts to federal spending on items like housing assistance and Community Development Block Grants (CDBG).
- The best way to provide more affordable housing is to change zoning to allow previously non-residential properties to be redeveloped with market-rate housing. This increases the supply.
The speakers and moderators were: Jim Abdo (CEO, Abdo Development), LuAnn Bennett (President, Bennett Group), David Bowers (VP & Mid-Atlantic Market Leader, Enterprise Community Partners), Jim Fetgatter (CEO, Association of Foreign Investors in Real Estate), Jeffrey Havsy (Chief Economist, CBRE), Janene Jackson (Partner, Holland & Knight), Heidi Learner (Chief Economist, Savills Studley), Phil Mendelson (Chairman, Council of the District of Columbia), Andrew Nelson (Chief U.S. Economist, Colliers International), Hans Nordby (Head of Market Analytics and Portfolio Strategy, CoStar), Yesim Sayin Taylor (Executive Director, D.C. Policy Center), and Tim Trifilo (Partner, CohnReznick).