Election complicates commercial real estate forecast

  • By Tom Hoban Realty Markets
  • Wednesday, August 29, 2012 3:20pm

Two divergent real estate views for the rest of the year seem to be emerging.

One suggests a low transaction volume as investors consider the future tax implications on property transactions depending on who wins November’s presidential elections. President Barack Obama is clear that the temporary tax cuts of President George W. Bush will not be extended beyond this year if he wins. Gov. Mitt Romney says the tax cuts will be extended. Not being able to gauge which candidate will prevail means buyers and sellers may be reluctant to make moves until that is clearer. Uncertainty is never good for markets.

The other view suggests robust transaction activity for the balance of this year as buyers and sellers race to get deals done while they can still measure the tax impact with certainty. Moves will need to be made soon before the November election outcome alters that view, though, since it typically takes about 90 days from mutual agreement to close on a purchase. Residential real estate is seeing a boost of transactions this summer, but that doesn’t always translate to the commercial sector. Retail and office vacancy rates are still very high and their values are based on the strength of their tenant’s business. Confidence is still a bit soft.

The influence that taxes have on buy or sell decisions is only a marginal component of the overall decision, but it can be the difference maker and very often is in markets like we see today. What is unquestionable is that interest rates cannot go any lower, so the buyer’s cost of funds is as favorable as it can be. The biggest variables today remain confidence in the economy and, more immediately, the tax effect on net proceeds from a sale.

For these reasons, politics is a bigger discussion in real estate circles than in most presidential election years. Curiously, many investors are less interested in the particular candidate as they are about what Americans really want, manifesting in how they vote in November. Normally, a president presiding over a recession and chronically high unemployment for this long would not win re-election. But President Obama and how Americans react to him are unusual when he’s compared to Gov. Romney.

Inflation, many predict, is a virtual certainty in the next 12 to 18 months as the growing federal debt has to be addressed no matter which party wins the White House, Congress and Senate in November. But that will be the story next year. For now, all eyes are on the fall elections and reacting to which direction voters want to go. Tax effects or not, it is an election that very much will reflect the priorities of Americans as the contrast of ideas between the two presidential candidates is considerable.

Tom Hoban is CEO of The Coast Group of companies in Everett. Contact him at 425-339-3638, tomhoban@coastmgt.com or -->