CRE After the Election: Getting Beyond Uncertainty
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WASHINGTON, DC-Tuesday night President Barack Obama was declared the victor in his quest for a second term—a quest that cost both parties $6 billion and led to the placement of some $1.2 billion in ads. Still, though, the bottom line is that Washington will remain largely the same with the White House and the Senate in the hands of the Democrats and the House of Representatives in the hands of Republicans.
Some of the faces are different, of course, and from Wall Street's perspective not in a good way. Elizabeth Warren, for example, won the Senate seat in Massachusetts, and it is believed she will use her high-profile seat to continue to push for financial reform. On the other hand, many of the top tax writers in both parties that held seats in the House and Senate were re-elected, Congressional paper The Hill pointed out.
One theme that we've heard constantly throughout the year was the uncertainty that grew prior to the election. That being the case, now at least, Washington can finally get to work. "Our perspective has been that getting rid of all of the uncertainty will be key to moving forward and having a positive impact on commercial real estate," Kevin Wayer, co-president of Jones Lang LaSalle's Public Institutions practice, tells GlobeSt.com. "The fact is, the election is now out of the way and we as a country can focus on major issues such as job growth."
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However, while that scenario may play out, there is another, darker possibility: that Capitol Hill will remain deadlocked on tax and spending issues. This paralyzed state of affairs is what businesses, including and especially the commercial real estate community, dread the most. Uncertainty has been the buzzword when pundits talked about the lack of investment and leasing activity—uncertainty in tax and fiscal policies for starters, and more urgently, uncertainty whether Congress will come to an agreement about the fiscal cliff, which is estimated to cost the construction industry alone some $2 billion.
To be sure, Speaker of the House John Boehner (R-Ohio) is expected to deliver a statement Wednesday on the need to find some agreement on the fiscal cliff. However, rumblings from the political class suggest that it will be a hard sell for House Republicans to compromise.
"I don’t see Republicans making overtures with these election results," David Johnson, principal with Strategic Vision tells GlobeSt.com. "It will be partly because of spite and partly due to ideological conviction but there is a good chance the fiscal cliff will come to pass." Johnson said that Republicans are feeling too embittered about the tone of the campaign, which many felt set out to smear Gov. Romney personally.
That said, there is hope that businesses will move forward with decisions and actions even if Congress cannot come to an agreement. Businesses do not make decisions or invest based on tax or fiscal policies, Peter Cohan of Peter S. Cohan & Assoc. tells GlobeSt.com. "They do it because of demand, because they don’t want to miss a profit cycle. If there is demand for a product or service, they'll hire and expand." Increasingly, the economy is giving off signs that such demand is percolating.
Also, even with a divided Washington, there is momentum on certain issues dear to the heart of the CRE community, JLL's Wayer says. "Given that Washington doesn’t need to focus on an election for two years, now is a good time for work to get done." Superstorm Sandy, for example, has underscored a need for infrastructure investment.
"We believe that the president has plans for this area and we are hoping to see more investment in infrastructure," Wayer says. Also, the US is in a position to attract some of the international capital eager to invest in real estate. For the DC market, which has been hurt by the state of paralysis, any movement at all would be a good thing. "The sooner we get a budget in place so agencies can plan and move forward the better for all," he says.
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