Obama Proposes $50B Infrastructure Investment

WASHINGTON, DC-President Obama is calling for more investment in infrastructure spending as well as a tax measure allowing firms to fully deduct equipment purchases. The former is likely to have a bigger impact on commercial real estate than the latter – assuming, that is, Congress even passes the measures. At bottom, though, even if the measures do become enacted they are likely to give a minimal boost to commercial real estate activity in the short run. The long run is another matter.

“These measures – especially the infrastructure investment - could prove to be good for the economy in the long term,” Greg Leisch, principal with Delta Associates, tells GlobeSt.com. “What we have built since World War II has fallen into disrepair; this is something that has needed to be done for a long time.”

Obama is calling for at least $50 billion--more likely more--to be spent over five years repairing or rebuilding some 150,000 miles of roads, building 4,000 miles of rails and 150 miles of runways. He is also calling for a measure that would increase companies’ bonus depreciation of equipment costs by 100% from the 50% it has been for the last two years. The measure would make the tax deduction retroactive to Sept. 8, 2010.

At best, this proposal would have only a peripheral impact on commercial real estate, presumably in the industrial sector. That is because it is the lack of jobs that is dampening demand for commercial real estate, Leisch explains--not unfavorable tax treatment or lack of funding. True, liquidity has been an issue for firms--but what drives investment is ultimately demand. And that, he says, is simply not there except for multifamily products. “The infrastructure program will drive construction jobs, certainly. But those jobs typically create demand for housing, not commercial real estate.”