Jacques Gordon, international director for strategy and research for LaSalle Investment Management, believes it may take at least until 2004 for the effects to trickle down to real estate owners and investors.

"We are kind of downplaying with our clients the ability of this particular package or proposals or any Congressional action on taxes to really move the needle any faster in '03 on either GDP or job growth," Gordon tells GlobeSt.com. "Of those two, job growth is what real estate investors need to focus on, especially in the office sector."

However, the first sector to benefit will likely be retail, Gordon believes, if only because consumers will have a bit more confidence as well as dollars in their billfolds. "It would take time for more service-sector job growth to take effect. What you'd have then, is retail, and arguably warehouse space, which increasingly is distribution space serving retail benefiting the fastest," Gordon says.

Lagging will be multifamily and office properties, though the former should rebound sooner, Gordon adds. "Apartments really need job growth as well. What we've learned this last go-around is the combination of cheap housing ownership finance plus job shrinkage or job loss has hurt the apartment market," he says.

Hotels, which displayed signs of new life in early 2002 before faltering again, also could be a long haul for investors willing to put their "at-risk" money to work. While leisure destinations could benefit from increased consumer confidence and spending, Gordon notes convention-oriented and full-service hotels thrive or suffer depending on business spending. Businesses, Gordon notes, are not a major beneficiary of the tax proposals.

Meanwhile, Gordon advice includes volatility for REITs, who won't benefit from the elimination of the double taxation of dividends. However, he notes REITs already offer a significantly higher yield than most stocks.

All is not bleak for the office market, Gordon adds, especially those central business districts that host investment banks. More preferred stock may be issued by investment banks, who also will be helping their clients adjust their capital structure. New York City, Chicago and San Francisco would be most likely to reap those benefits.

Instant Insights /

No Quick Fix for Real Estate Seen in Tax Package

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