The New York Timeson Sunday led its front page with anarticle about stepped up Wall Street hiring as a sign ofanticipated economic recovery. TARP bailouts helped limit bank joblosses, but Street firms still have a long ways to go before theyramp up personnel counts to frothy 2007 levels at the peak oftransaction mania. This all brings up a question not addressed byany of the recent financial reform legislation—do we want to returnto the pre crash markets of quick fire real estate deals and tradeswhere investors look for short-term opportunistic gains inappreciation over long-term investment results from husbandingproperty cash flows?

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Of course, Wall Street firms and many real estate middlemen(brokers, lawyers, advisors) make their livings off transactionvolumes. The more trades the more fees and cuts of theaction. Where owners just buy and hold, many middlemen are largelycut out. Fewer deals mean fewer jobs and lower incomes so themarkets orient toward generating big transaction volumes.

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I was discussing the transaction reality with a Texas developerlast week. He reasons that the economy would be better served ifinvestors of all stripes—in companies, real estate, stocks andbonds-- were oriented to longer-term holding periods. Instead ofconcentrating on trading and short-term gains developers and ownerswould build businesses and projects with greater stayingpower. If a merchant builder orients to constructing aproject that he plans to flip out of as soon as it’s leased up,he’ll be more likely to cut corners and go more commodity than ifhe were to own it long-term and have to deal with the consequencesof cheaper design. The private equity investor, who buys a companyto restructure it and sell out in a few years, really isn’tinterested in building employee loyalty or ensuring the entity hasa growth plan that will extend much beyond his limited holdingperiod. And for all the pr spin, R&D too easily takes a backseat to quarterly returns.

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My Texas developer friend suggests the result of investmentmyopia is assets get “marginalized” in excess volatility, bubbles,and business strategies that work against building long-termvalue. He places the blame for our short-sightedness on thetax system, which gives investors no incentive to holdlong-term. After only one year, the long-term capitalgain tax rate kicks in—whether you hold for 13 months or 13 yearsyou pay the same percentage tax. He suggests increasing andextending the short-term tax burden on a sliding scale—making earlyyear selling more punative than the current ordinary income rate(35%) and reducing the capital gains tax to below the current 15%rate for extended holding periods of ten years or more.

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The resulting change in business behavior could shift away fromalways trying to make the quick killing to shaping businesses thathave staying power, invest in their employees, and take a greaterstake in local communities.

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It’s much easier to trade assets than create and build them intosomething more. But easy money doesn’t usually endure... witnessrecent history.

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Jonathan D. Miller

A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.