Wednesday, September 12, 2012

Terrorism and Real Estate Update

On September 11, 2012, Linda St. Peter, Operations Manager for Prudential Connecticut Realty in Wallingford, CT, testified on behalf of NAR at the House Financial Services Subcommittee on Insurance, Housing, and Community Opportunity hearing on “TRIA at Ten Years: The Future of the Terrorism Risk Insurance Program.”  In her testimony (attached), Ms. St. Peter urged Congress to extend the Terrorism Risk Insurance Act (TRIA) beyond its current December 2014 authorization to ensure that adequate insurance coverage is available for our nation’s businesses.

Following the Sept. 11 attacks private insurers backed out of the terrorism insurance marketplace prompting Congress to enact TRIA in 2002, a federal insurance backstop that allows the federal government and private insurance companies to share losses in the event of a major terrorist attack. The program has since been reauthorized by Congress twice – in 2005 and 2007.  TRIA helped stabilize commercial real estate markets by making terrorism coverage available and more affordable over time.

While the cost and availability of terrorism insurance has generally improved, currently there is concern that the uncertain future of TRIA may cause insurance prices to fluctuate and prompt insurers to drop coverage.  This became evident in both 2005 and 2007 when private insurers became reluctant to offer terrorism coverage due to the uncertainty regarding the program’s extension.  Ultimately, the uncertainty of insurance pricing impacts the net operating income of businesses and property values.  The potential unavailability of terrorism coverage could impact financing agreements and potentially hurt the fragile commercial real estate recovery.

Yesterday’s hearing is just the first step in a much longer journey to extend the federal government’s role in the terrorism risk insurance market.  Despite our successful legislative efforts in 2002, 2005 and 2007, and the fact that terrorism remains a clear and present danger, most anticipate this next effort to extend a federal program will be the most challenging.  While the program does not sunset until 2014, efforts to reauthorize the federal program will begin in earnest in 2013.  

Furthermore, a copy of the witness list is attached along with the hearing memo and a Congressional Research Service report on TRIA.  Also, the following link provides an archived webcast of the hearing:

Monday, September 10, 2012

A Report from Wayne Caplan on Commercial Real Estate Political and Regulatory Issues

Wayne Caplan

As Council Chair of Political and Regulatory Affairs, the time has come for an update on some of the current issues facing the commercial real estate industry.

There are many issues to discuss at any given time.
While we are to a large degree paralyzed as far as anything getting resolved until after the November Presidential election, below is information on three of the more important / questioned items at the present time.

1.       The 3.8% TAX
Firstly,  there have been several requests out there for clarification on the 3.8% Tax that will be implemented as part of the Affordable Care Act (aka “Obamacare”, or ACA).
While there are a number of new taxes buried within the ACA, this particular tax has been falsely labeled as a tax on all real estate sale transactions (commercial and residential).
This is not the case, as it is an investment/income based tax, not one based on a given real estate transaction. However, there are ramifications to this tax, specifically to higher income earners.
This, in addition to a potential capital gains tax increase (which will happen if the Bush tax cuts expire at years end as scheduled) could be a reason for some investors/property owners to unload commercial property before the end of calendar year 2012, especially if they are not going to engage in a 1031 tax free exchange.

Below is a link to NAR’s description of the 3.8% tax for anyone who would like some clarification:

2.       Lease Accounting Standards

The Financial Accounting Standards Board (FASB) and their international counterpart (IASB) has proposed eliminating all operating leases, forcing companies to capitalize their lease liabilities on their balance sheets.
This change, if it goes into effect, would create large devaluations of all companies, big and small, with any leasehold exposure, not to mention greatly affect the length of lease terms that corporations are willing to commit to. All in all, this would have dire ramifications on both the leasing and investment sales parts of our brokerage businesses.

Below is a link to ICSC’s public policy page discussing this matter which has lots of links and discussion on the subject.

While NAR, ICSC, and other real estate trade organizations have, if nothing else, delayed and clouded this potentially harmful new policy, it is still expected to be implemented in some fashion.
There cannot be enough discussion on this item with our elected officials and regulatory community.

3.       Sales Tax Fairness

The Main Street Fairness Act to level the playing field on sales tax collection between on-line and physical retailers has seen lots of progress.
There are bills in the House and Senate to ensure that physical retailers are able to fairly compete with on-line retailers.
While we all have enjoyed tax-free internet shopping, most people agree that traditional retailers are being endangered by on-line retailers having the advantage of not having to charge sales tax in many instances.

Below is a link to ICSC’s page on Sales Tax Fairness, and where it stands to date.

Saturday, September 8, 2012

It is Easy Being Green!

Steven Rosenberg is the Founder of Green Purpose LLC

Steven is the Founder of a unique company called Green Purpose.
"Green Purpose is an eco-minded enterprise that provides communities with innovative solutions for reducing landfill waste. The company operates on a membership business model, in which residents of Champaign County and surrounding areas can pay a nominal monthly fee to utilize their recycling services. Green Purpose is different from most traditional recycling centers; they offer the community a convenient one-stop location for dropping off both recyclable AND reusable items. With research and an attention to each customer's needs, they are developing new solutions for a world in constant change.

Green Purpose also provides B2B services for industrial clients interested in striving for zero waste.  They offer advanced solutions for assessing, designing, and implementing state of the art recycling programs for reducing expenses and landfill waste. The company’s programs and services are aimed at creating long-term, practical solutions to our community’s growing waste problem. Their experience includes working with many different industries, ranging from advertising to retail. They help their clients to develop appropriate infrastructure and procedures, while exploring the full range of appropriate options and strategies for maximizing waste reduction."

To watch the entire TV interview with Steven Rosenberg CLICK HERE!