Passage of $858B Tax Deal Good News for CRE

With the U.S. Senate's approval of the big $858 billion tax bill--officially, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010--the White House is celebrating and the commercial real estate industry is smiling, too.

December 15, 2010
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user Rob Crawley

With the U.S. Senate’s passage of the big $858 billion tax bill–officially, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010–the White House is celebrating and the commercial real estate industry is smiling, too.

Many congressional Democrats openly criticized the proposal–the crux of which calls for an extension of the Bush-era tax cuts–but the Senate was hardly deterred and gave the tax deal the green light with a none-too-surprising vote of 81-19. “I know that not every Member of Congress likes every piece of this bill, and it includes some provisions that I oppose,” President Barack Obama said. “But as a whole, this package will grow our economy, create jobs, and help middle class families across the country.”

It will also help commercial real estate.

“The fact that the marginal tax rate did not go up is a big benefit to investors and thereby a benefit to commercial properties, and the maintenance of the capital gains rate is equally important,” Robert Bridges, Assistant Professor of Clinical Finance and Business Economics at the USC Marshall School of Business, told CPE. Bridges is also former Managing Co-Director of the Ross Program in Real Estate at the Lusk Center for Real Estate at USC. “The lifting of the cloud of uncertainty is the really big issue here, even though it is short-term in nature. The extension of the Bush tax cuts is just a two-year extension. “It would have been much better if they had decided to make it permanent, but the extension is second best.”

It seems no one backing the bill is being too greedy, concluding that keeping the Bush tax cut in place for another two years is far better than repealing it altogether. Commercial real estate development association NAIOP lauded the Senate for its work today, and offered specifics on how the bill will be advantageous to the industry. Thomas J. Bisacquino, president and CEO of NAIOP, noted that for commercial real estate, the legislation brings significant value to property owners and developersand their ability to depreciate certain leasehold improvements, restaurant buildings and improvements as well as retail improvements over 15 years. He added that also included was an extension of a provision that allows for the expensing of costs associated with cleaning up brownfield sites.

While the tax package is widely seen as a positive for the world of commercial property in the U.S., it does have a few drawbacks. “From the perspective of commercial real estate, the tax benefits that are being enjoyed are not counterbalanced with cuts in government spending,” Bridges said. “Long-term interest rates are definitely something that has an impact on commercial real estate, so spending without government cuts would cause the prospect of inflation and the potential for higher interest rates down the road.”

Now the bill is in the hands of the House of Representatives and supporters are hoping members will forward it to the president’s desk for his John Hancock before recess.