The nation's $2.9 trillion real estate sector has a lot riding on next week's elections, with President Obama and challenger Mitt Romney offering vast differences on policies that affect the industry.
Charles Achilles, a top lobbyist for the commercial real estate association CCIM Institute, told members of its Minnesota-Dakotas chapter last week that the election's outcome will have a lasting impact on the commercial real estate market. The segment is still reeling from a lack of job growth and tight financial markets, as well as stubbornly high vacancy rates.
"Many corporate decisions on spending and job hiring are on hold given the uncertainty in the upcoming election and on whether Congress can effectively avoid a 'fiscal cliff,' as well as other unsettled issues in banking and financial regulation," said Achilles.
The two campaigns present major differences on tax, energy, economic and regulatory policies that could sway the real estate industry's near- and long-term futures.
Obama, for instance, seeks to implement the "Buffett rule" of a 30 percent tax on capital gains for people making more than $1 million per year and closing tax loopholes for the wealthy, while Romney's position is to maintain the current 15 percent capital gains rate with complete exemptions on capital gains, dividends and interest income given to those making less than $200,000 annually.
That decision will come at a time when major real estate investors are facing changing market fundamentals and squeezed operating income margins as their properties lose value and banks are demanding tougher refinancing requirements.
"It's impossible to predict right now what will happen with capital gains. But will it have an effect on your real estate businesses? Yes, it will," he predicted.
Another major difference between the camps is in the area of financial regulation, which can have a deep effect on the fortunes of commercial real estate and the availability of capital.
President Obama's first term was marked by implementing the Dodd-Frank Act, which responded to the real estate-driven financial crisis. It imposed tighter regulatory controls and costs on big banks, as well as more oversight and supervision for the nation's largest institutions.
Romney has vowed to repeal Dodd-Frank if he wins, citing it as an example of overburdening businesses with unnecessary regulations. Instead, he said he'll push for higher capital requirements and leverage limitations to promote consumer confidence in the banks.
That debate is ongoing even as $300 billion in commercial real estate loans will come due this year alone and some $2.4 trillion will mature by 2018 -- most of which were taken out during the real estate boom when terms were much easier than those available for refinancing now, Achilles noted.
"The commercial real estate sector is continuing to struggle with reduced operating income, property values and equity while finding it harder to get mortgages and financing for improvements," he said. "Many of the loans coming due are five-year balloon loans that were locked in at the height of the market in 2007."
The two presidential candidates' small business platforms also differ greatly in a way that affects the real estate industry, Achilles said. Obama favors continued funding of the Small Business Administration "504" refinancing loan program, which was expanded in 2010, while Romney is backing a Republican plan calling for a rollback of agency funding levels to pre-2008 levels.
Availability of financing for small business tenants will have a major effect on office and retail occupancy levels, he warned.
Don Jacobson is a St. Paul-based freelance writer.