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How Are We Represented on Capitol Hill?

(Our lobbying associations get relatively high marks from respondents to last week’s Feedback Poll. Some 67% applaud our mouthpieces for talking our part “very well.” But clearly there is room for improvement with 27% saying that representation “could be better” and 7% rating lobbyists “poorly.” Commentator DeBoer provides a frank assessment of those numbers and paints a picture of the issues facing the industry.-ed.)

First, a general comment about the poll results, which sound pretty good. Some 67% know and understand that real estate has issues at stake here in Washington. They apparently believe that the way the industry is organized is effective and that, by and large, we’re doing a good job representing them.

Of course the 27% who say we could do better and the 7% who think its poor is an indication that we need to work harder and better and continue to evolve the delivery of our message. Frankly, I think I would have checked that we could do better. We can always sharpen our message. Making the case last week to Policymaker A doesn’t mean that this week Policymaker B has any continuity of awareness of the importance of an issue.

In terms of those issues, we divide things up into what’s immediately before us, what we expect to be before us in a month or so and what will be before us longer term. Right now there are three primary areas on which we need to have extreme focus.

One is an old issue, but we can’t seem to drive a stake completely through it. That’s the issue of terrorism insurance. The program that’s been in place since 2001 expires at the end of this year, and it serves as a good example of constant reeducation and making the same points over and over again. And we’re making them–over and over again.

We don’t believe the private markets alone can provide the kind of support the economy needs, so we’re trying to get it extended. The House will have a hearing in a couple of weeks on this issue, and we expect it to pass legislation this summer and then it’s on to the Senate. We’re optimistic that we’ll find a solution and that the solution will be better than the current law.

While permanency is something we’re striving for in this matter, the fact is that any Congress can change anything any time they want. The point is that we need and want a long-term solution, and we’re optimistic.

Moving into the tax arena, we’re dealing with a couple of current tax rules that are also going to expire this year if Congress doesn’t do anything. And if they don’t do anything, it will result in tax increases for the industry for certain types of transactions. One is cleaning up brownfields. We’re pushing to extend and improve that law, which allows people to write off the cost of cleaning up contamination. In addition to extending it, we’re trying to get petroleum products included in the contamination that qualifies for cleanup. We’re optimistic there as well.

The same argument holds for leasehold improvements. If you’re an office or retail owner and you’re building out space for a tenant, you write those expenses off over 15 years. If Congress doesn’t act and you do the very same buildout one year from today, you will recover the costs over 39 years, and there will be a dramatic tax increase.

These three issues need to be dealt with this year, and within them there are other issues that are percolating that we need to pay close attention to and see how they evolve. In the insurance area, there is a lot of concern about natural-catastrophe insurance in general. We’re watching that to see how it evolves and if the private markets can address these problems without Congressional action.

In the tax area, because Congress is always looking for revenue, there are some proposals we’re watching very carefully to see how they might affect us. One is the way so-called carried interests–the interest a general partner takes when he forms a partnership–are taxed. Current law treats it as a capital gain and some people want to more than double the tax. We need to educate members of Congress to the fact that it’s not just a hedge-fund issue but a real economic issue for real estate.

Looking forward, the energy debate is heating up. How real estate participates in that debate is extremely important.

In terms of changes in Congress, I am neither more nor less optimistic. It sounds trite, but our issues are not Republican or Democratic. These are economic, American issues. Both parties own or develop real estate. The election hasn’t had much of an impact on our outlook other than to underscore that our job is one of constant education and re-evaluation of how these arguments can best be presented on Capitol Hill.

Jeffrey DeBoer is president and CEO of the Washington, DC-based Real Estate Roundtable. The views expressed in this article are the author’s own.

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