Roundtable Weekly Newsletter by The Real Estate Roundtable

This week’s newletter by The Real Estate Rountable contains the following articles we thought would be of interest to you:

  • CRE OUTLOOK & THE ECONOMY
    Roundtable Survey: Stronger Job Creation Needed to Accelerate CRE Recovery, Especially in Non-“Gateway” Markets; Increased Private-Sector Job Creation Offset by Unexpected Rise in Unemployment Rate; QE2 Effect on Jobs Likely to be “Moderate and Delayed”
  • ENERGY EFFICIENCY TAX INCENTIVES
    The Roundtable Joins Over 80 Groups and Companies Calling for Reform of Tax Incentives for Energy Efficient Buildings
  • GSES & MORTGAGE FINANCE
    Covered Bonds Bill Advances in House; Real Estate Groups Lay Out Principles for Reforming GSEs, Improving Multifamily Housing Finance

CRE OUTLOOK & THE ECONOMY

Roundtable Survey: Stronger Job Creation Needed to Accelerate CRE Recovery, Especially in Non-“Gateway” Markets; Increased Private-Sector Job Creation Offset by Unexpected Rise in Unemployment Rate; QE2 Effect on Jobs Likely to be “Moderate and Delayed” 

The Real Estate Roundtable’s Q2 Sentiment Survey, released Wednesday, shows that without strong improvement in U.S. job markets and demand for business space, the nation’s commercial real estate sector will likely continue its slow, “bifurcated” recovery over the coming year — with top urban markets outpacing recovery in secondary, non-“gateway” markets. Although the monthly jobs report released today by the U.S. Labor Department (DOL) shows higher-than-expected gains in private-sector job creation, the unemployment rate climbed back up in April (from 8.8 percent to 9.0 percent) — the first such increase in five months, The Wall Street Journal reported.

 Visual_cover_2Q_2011_Sentiment 

Respondents to The Roundtable’s Q2 2011 Sentiment Survey  said they expect asset values to continue to rise, though few expect dramatic movement in the coming year. 

The Roundtable’s Overall Sentiment Index for Q2 2011 was unchanged since the last quarter at 77; however, the inversion of the Future and Current indices suggests a moderating, though still positive, trend. Respondents said they expect asset values to continue to rise, though few expect dramatic movement in the coming year. There was also a sense among those polled that capital is materially more available, although expectations for the future are moderating slightly.

“It’s all about jobs,” said Roundtable President and CEO Jeffrey DeBoer. “Individual segments of the market may be recovering, but until private sector job creation picks up, we will not be out of the economic danger zone.”  Two “headwinds” that could hamper recovery in the broader U.S. economy as well as commercial real estate are the “huge pipeline of maturing commercial mortgages and large fiscal issues facing state and local governments,” said DeBoer. According to today’s DOL report, government employment fell by 24,000 in April, primarily because of budget cut-backs at the state and local government levels.

Anecdotally, survey respondents pointed to a “market that is (generally) healing” and “definitely stronger than a year ago” — with “lots of activity chasing core [well located, well leased]” assets, especially in markets such as New York, Boston and Washington, D.C. At the same time, there were concerns about the economy remaining fragile, “fundamentals remaining challenging in most markets,” the sustainability of current conditions, global crises and instability, and interest rate policy.

“The flatter trajectory we’re seeing in the Q2 Sentiment Index is a reflection of these ongoing economic risks and uncertainty,” DeBoer concluded.

Among the nearly 6 million Americans who are unemployed, 43.4 percent have been out of work for more than six months (as of April). Other recent signs that the recovery may be losing steam are the Q1 decline in consumer spending—largely due to higher gasoline prices; a sharp increase in the number of Americans filing new claims for jobless benefits; and decreased activity (and job growth) in the services sector.

Separately, a New York Fed report on May 4 projected that the central bank’s latest round of quantitative easing (“QE2”), set to expire at the end of next month, is only likely to reduce unemployment by a quarter-percentage point by Q2 2013, at most.  A year later, in Q2 2014, the program’s effect on unemployment will be down to 0.20 percentage points, because of a gradual diminution of QE2’s effect (BNA Daily Report for Executives, May 6).

Resource: Monthly U.S. unemployment rate, 1948-present (updated through March 2011)

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ENERGY EFFICIENCY TAX INCENTIVES

The Roundtable Joins Over 80 Groups and Companies Calling for Reform of Tax Incentives for Energy Efficient Buildings   

A broad-based coalition of over 80 diverse stakeholders – including real estate companies and organizations, energy and environmental advocates, contracting groups, efficiency financiers, and equipment and materials suppliers – has joined The Roundtable in calling on the Senate to reform the current tax incentive for energy efficient commercial and multifamily buildings.

 2011_05_05_Section_179D_coalition 

The May 5 coalition letter to key members of the Senate Finance and Energy committees urging modification of the 179D tax deduction  

In a May 5 letter to key members of the Senate Finance and Energy committees, the coalition explained that the present 179D tax deduction should be modified to increase its effectiveness in encouraging retrofits of existing buildings. The letter goes on to endorse principles for tax reform championed and developed in recent months by The Roundtable, the U.S. Green Building, Council, the Natural Resources Defense Council, and other key organizations.

These reform principles include:

creating a framework for tax incentives based on actual and verifiable improvements in a building’s energy performance;

developing a “sliding scale” for incentives that reward achievable yet meaningful strides in efficiency;

assisting both tenants and owners by providing incentives for retrofits of large “defined spaces” in a building; and

making any awards maximally available to REITS and other corporate structures that may otherwise have limited appetite to benefit from tax incentives.

The May 5 letter also complements ideas announced earlier this year by The White House through its “Better Buildings Initiative,” which recognizes that tax incentives for building retrofits can be a significant vehicle to creating well-paying domestic jobs for the nation’s skilled construction workforce – while also enhancing our country’s energy security and providing environmental benefits through lower greenhouse gas emissions.

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GSES & MORTGAGE FINANCE

Covered Bonds Bill Advances in House; Real Estate Groups Lay Out Principles for Reforming GSEs, Improving Multifamily Housing Finance  

In a welcome policy development potentially affecting CRE liquidity, a House Financial Services subcommittee this week approved Roundtable-backed covered bonds legislation. The bill, authored by subcommittee Chairman Scott Garrett (R-NJ), would create the framework for a covered bond market in the United States, which could help “wean the $10.6 trillion U.S. mortgage market off government support” (by reducing the role of GSEs Fannie Mae and Freddie Mac), Reuters reported Tuesday.

Garrett_Scott_Rep_Chairman_crop 

Rep. Scott Garrett (R-NJ) 

The loans underlying the bonds would remain on the issuer’s balance sheet, rather than being sold to Fannie or Freddie for repackaging as securities for investors. (Reuters, May 3, 2011)

Rather than serving as a replacement to existing asset backed securitization markets, Garrett said covered bonds represent “an additional arrow in the quiver” for funding home mortgages. Rep. Carolyn Maloney (D-NY), a past Roundtable meeting guest, reportedly said covered bonds are “a strong tool we could use to help … our housing market rebound,” while cautioning that they are not a panacea.

Sen. Charles Schumer (D-NY) indicated last month he is considering introducing Senate companion legislation to Garrett’s bill.

In National Journal on Monday, a , urging U.S. policymakers to carefully weigh policy choices in this area and to work closely with private-sector stakeholders. While emphasizing the need to attract private money back to mortgage finance markets, the coalition also said “an appropriate and clearly defined role for the government is essential to preserving financial stability.”  

 2011_05_06_Ad_open_letter_housing_finance 

In National Journal, a coalition of real estate organizations (including The Roundtable) outlined a set of principles for GSE and multifamily financing reform. 

According to the 17 signatories on the “open letter” to Congress and the Administration, efforts to restore and repair the nation’s housing finance system should recognize that:

A stable housing sector is essential for a robust economic recovery and long-term prosperity, and that housing . . . promotes social and economic benefits that warrant it being a national policy priority. 

Private capital must be the dominant source of mortgage credit, and it must also bear the primary risk in any future housing finance system. 

Some continuing and predictable government role is necessary to promote investor confidence and ensure liquidity and stability for homeownership and rental housing. 

Changes to the mortgage finance system must be done carefully and over a reasonable transition period to ensure that a reliable mortgage finance system is in place to function effectively in the years ahead.

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Source:  The Real Estate Roundtable

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