To be sure, there is valid reason for some trepidation. One of the hallmarks of Obama's tax proposal was to change the tax characterization of Carried Interest--a proposal that the industry was thrilled to see die in the last Congressional session. Carried Interest is the percentage of a fund's, joint venture's or limited partnership's profits that a general partner takes as compensation. Such profits are taxed at capital gains rates--15%--as opposed to ordinary income, which can be as much as 35%.

It was this proposal--along with more general plans to possibly raise the capital gains tax--that caused two out of three respondents in a national survey of 424 top CRE executives to say that John McCain, if elected, would likely have a more favorable impact on the commercial real estate industry than Barack Obama. This survey was conducted by the global law firm DLA Piper, and released in mid-September. The questionnaire didn't delve any further than that, Jay Epstien, chair of DLA Piper's US Real Estate practice, tells GlobeSt.com. "It is safe to assume, though, that tax concerns were the primary focus behind that response."

That said, though, there are a number of areas where an Obama Administration will likely be a great asset to the real estate industry. "Like the rest of America, we are hopeful that Obama will usher in a new direction in the economy," Epstien says.

The actions Obama takes as he assumes control of the $700-billion financial system bailout, for instance, will have a huge impact on the CRE industry's recovery. The President-elect will be facing certain strictures--he will not, without completely alarming the marketplace, be able to totally undo what Treasury Secretary Henry Paulson has put in place over the last six weeks or so.

However, he will be able to redirect, at some level, the focus and emphasis of these programs, though, Epstien notes. "Nothing is ever irreversible, and there are many that feel what Paulson has done could be tweaked here and there."

For instance, there are few covenants in the bailout that would force banks to begin lending to businesses--a chief concern of critics. Many banks have availed themselves of the funds made available under the capital injection, with at least one bank--PNC Financial Services Group --using its $5.2-billion proceeds to acquire National City Corp.

Libor--the overnight rate at which banks lend money to one another--has dropped to pre-crisis levels. However there are no signs that banks are relaxing enough to lend to businesses, especially real estate projects, Epstien says. "I see projects with strong performance criteria and banks still are unwilling to make loans to them merely because they are real estate loans."

"The real problem is a lack of financing," Steve Pumper, executive managing director of Transwestern's Investment Services Group, tells GlobeSt.com. "Increasing capital gains taxes and taxes on carried interest is not going to unlock the frozen credit markets." In general, assuming the economy does not take further hits, Pumper says he expects to see debt back in the marketplace at the beginning of next year, with deals starting to move by the middle of the year.

It is a big assumption that the economy won't take on additional water. Last week, the Commerce Department reported that the US economy contracted at a 0.3% annualized rate in Q3--a clear decline from Q2 when the economy grew 2.8%. If the Q4 numbers shake out anything like that, then the US will officially be in a recession.

By now there is little that can be done to divert the economy from its ultimate destination. The numbers will be what the numbers will be, says one real estate broker whose firm is undergoing consolidation. "Commercial real estate is in for a rocky ride over the next year and I don't think the government can do that much to influence that."

What an Obama Administration can do, though, is harness the optimism that has characterized its campaign from the beginning, this broker and others contacted for the article, say. "Confidence in the economy and direction of the country is an intangible--that is true," Epstien says. "But no one disputes it can have a real bottom line impact on how our economy performs."

Instant Insights /

CRE Waits for the Obama Effect

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