Legislative News

FEDERAL FOCUS

• NAIOP Joins Forces with Other Real Estate Industry Organizations to Urge Action on Credit Crisis

• State and Local Governments Call on Congress to Take Swift Action for Economic Recovery
• Real Estate Group for the States (REAGS) Participates in Climate Change and Land Use Debates

• Canada in Recession According to OECD
• Commercial Real Estate Vacancies Expected to Rise
• Economist Predicts that Construction Industry in British Columbia Faces Tough Road Ahead

• development ’08 Tax Policy Positions of the 2008 Presidential Candidates Session Recording Now Available

FEDERAL FOCUS

NAIOP Joins Forces with Other Real Estate Industry Organizations to Urge Action on Credit Crisis

NAIOP and other major national associations representing the real estate industry collaborated on a letter to United States Treasury Secretary Henry Paulsen on November 26, urging strong government action to resolve the credit crisis and reiterating the negative impact the crisis is having on the commercial real estate market.

In 2009, approximately $400 billion of commercial real estate debt is estimated to mature and serious concerns exist that insufficient credit will be available to refinance this level of commercial mortgage debt. Although current vacancy rates remain below those of past downturns in the commercial real estate market, many lenders have effectively withdrawn from the market as a result of the credit crisis and are refusing to refinance existing performing loans or demanding more stringent terms. The market in commercial mortgage-backed securities also remains frozen despite relatively low delinquency rates.

As a first step in dealing with the developing liquidity crisis for commercial real estate, NAIOP and its industry allies are advocating that the activities of the Term Asset-Backed Securities Loan Facility (TALF) announced by the Treasury Department on November 25 be extended to include commercial real estate mortgage-backed securities secured by newly or recently originated commercial mortgages. Originally, TALF was created with a focus on asset-backed securities based on credit card, auto loans and other consumer debt, but can be expanded to include debt secured by commercial mortgages. In addition, NAIOP continues to advocate against tax increases that would adversely affect real estate investment, including measures that would increase the capital gains tax, eliminate the 1031 tax exchange program and tax carried interest compensation at ordinary income rates.

Return to Headlines

STATELINE

State and Local Governments Call on Congress to Take Swift Action for Economic Recovery

On December 1, leaders from the National Governors Association (NGA) and the National Conference of State Legislatures (NCSL) called on congressional leaders and the Administration to take swift action to stabilize the nation’s economy.

State leaders argue that one of the quickest ways the federal government could act to hasten the recovery would be to invest in existing federal-state programs as these programs are already ongoing and funds can be obligated quickly. Per the NGA-NCSL press release on December 1, some of the programs with the greatest potential for speeding up the recovery include:

• Federal funding to supplement budgeting for state programs
• Infrastructure investments that create jobs; and
• More programs to assist people in the greatest need (unemployment insurance, Medicaid).

It should also be noted that the United States Conference of Mayors (USCM) is also seeking federal funding to aid ailing cities as a result of the ongoing economic downturn. The mayors are proposing a Main Street Stimulus plan, which calls for $73.2 billion in support for community block grants, clean energy programs and school and public housing construction efforts.

For more information, contact Toby Burke, senior director for state and local affairs, at (703) 904-7100, ext. 116.

Real Estate Group for the States (REAGS) Participates in Climate Change and Land Use Debates

NAIOP’s State and Local Government Affairs staff attended the Council of State Governments (CSG) annual conference earlier this month in Omaha, Neb. NAIOP is a representative member of the Real Estate Group for the States (REAGS) and the REAGS coalition holds voting seats on two policy task forces – the Energy and Environment Task Force and the Public Safety and Justice Task Force. The task forces debate resolutions and state legislation that could be proposed as model legislation to the Suggested State Legislation Committee (SSL). It is in this role that REAGS members are able to engage legislators on each task force and either promote or rebuff policy recommendations.

Over the past year, the task force members have debated the passage of a climate change resolution in the Energy and Environment Task Force. It has been increasingly difficult to find common ground on the issue due to a gap in support between the private industry members and their public sector colleagues. However, thanks to the leadership of State Representative Chris Ross (R-Penn.) and suggestions made by the private industry members, the task force unanimously approved a resolution on climate change that states, “This resolution is meant to express the Council of State Governments’ support for state and federal actions to reduce greenhouse gas emissions and to protect the economic and environmental security of the United States.” This resolution has also been approved by the Intergovernmental Relations Task Force and awaits approval by the executive committee of CSG.

Finally, REAGS coalition efforts prevented the passage of California’s SB 375 from being approved by the Suggested State Legislative Committee as model legislation. SSL requires all model legislation to meet the following criteria: the issue must be significant nationally, provide innovative but practical solutions to a problem and must address the problem comprehensively. REAGS did not feel that SB 375 met these criteria. The bill is geared towards transit-oriented development and focuses on providing guidance to local planning agencies on transportation, housing and other land use decisions passed earlier this year in California. The REAGS coalition members support the efforts made by the states to fairly revamp and clarify land use laws across the nation, however, this legislation had inherent flaws that were identified by Governor Arnold Schwarzenegger in his signing message attached to the bill. The failure to extend incentives to all types of development and drafting errors and oversights that could lead to litigation, as well as tying up federal transportation dollars, are just a few of the concerns outlined in the message to the members of the California General Assembly. The REAGS coalition distributed a copy of the Governor’s letter to the members of the SSL committee and the bill rejected by the committee without discussion.

NAIOP’s Government Affairs staff will continue to work with members of REAGS in the national policy groups to ensure that NAIOP’s message is shared nationally and to protect the interests of all NAIOP members.

For more information, contact Melissa Huffman, director for state and local affairs, at (703) 904-7100, ext. 110.

Return to Headlines

CANADA UPDATE

Canada in Recession According to OECD

According to the Paris-based Organization for Economic Cooperation and Development (OECD), Canada is now in a recession that will likely lead to a federal deficit. Canada's economy is shrinking because of its close ties to the United States as well as its vulnerability to sliding world commodity prices.

OECD chief economist Klaus Schmidt-Hebbel stated, "In our scenario, Canada is severely affected by these two factors and therefore we have a very significant recession for the case of Canada, which mainly we've projected to have started already in the fourth quarter of this year, and going on for the next two quarters until mid-2009." Canada's economy is projected to shrink 1.6 percent in the current quarter, bringing the overall growth of gross domestic product in 2008 to 0.5 percent, the OECD report said. Canada's GDP will shrink another 1.4 percent in the first quarter of 2009 and by 0.3 percent in the second quarter, the report said.

The economy will start growing again in the second half of next year, it said, but the sluggish start means the overall GDP rate for 2009 is expected to slide by 0.5 percent.

Return to Headlines

Commercial Real Estate Vacancies Expected to Rise

A recent article appearing in the Globe and Mail forecasts more commercial real estate vacancies and lower rental rates in 2009. The article was based on a commercial real estate outlook released by Cushman & Wakefield LePage which examined the office, retail, industrial and investment sectors in Canada’s top 11 markets.

The report predicts that net asking rental rates will fall by 10 percent in Toronto and Vancouver and by 5 percent in Calgary next year, due to lessening demand for office space and a “flood” of new supply hitting the market. The supply of new office space has been very tight in recent years, with vacancy rates as low as 1 percent for top quality office space in Calgary last year.

In addition, a number of new buildings are slated for completion next year which will add 4.2 million square feet of available space in Toronto; 2.7 million square feet in Calgary; 650,000 square feet in Vancouver and approximately 490,000 square feet in Halifax. Fast-growing companies and those seeking to move into more sustainable projects have welcomed this new development. However, the slowing economy and current credit crisis are causing companies to re-examine their occupancy needs.

The report also addresses the state of Canada’s industrial real estate market, which is at a virtual standstill due to the tight credit market. New supply hitting the industrial market in 2009 will also result in a sharp increase in vacancies.

Retail expansion plans will likely be put on the shelf due to low consumer confidence, the slowdown in the housing sector and the sinking value of the dollar. The report predicts that the exceptions to expansion in the retail sector will be luxury districts such as Robson Street in Vancouver and Bloor Street in Toronto.

As for the investment sector, the report states that access to capital will continue to be problematic next year and an increase in individual asset sales is expected as owners sell properties to raise equity or offset debt maturities or other obligations.

Pierre Bergevin, president and chief executive of Cushman, stated “Strong lending and conservative development practices over the past decade mean the correction in the commercial real estate market should be moderate rather than radical and Canada will be well-prepared to weather the economic downturn.”

Return to Headlines

Economist Predicts that Construction Industry in British Columbia Faces Tough Road Ahead

The CBC recently reported that British Columbia's construction industry can expect tough times ahead despite nearly $175 billion worth of project inventory this year, according to Helmut Pastrick, chief economist for Central 1 Credit Union.

The provincial government released figures on December 1, listing 863 projects that were planned or underway between July and September. That is the twenty-first consecutive quarter where there has been an increase in major projects, said Ida Chong, British Columbia's minister for technology, trade and economic development.

But the chief economist for the Central 1 Credit Union said the inventory is dated.

"It is a lagging indication of British Columbia's economy, of where it has come from, and not its future strength," Pastrick told CBC News. "The market conditions [and] the economic outlook will mean many of these projects will not start anytime soon," he added.

Pastrick predicts that the construction industry is headed for a poor year in 2009 possibly extending into 2010.

The British Columbia and Yukon Building and Construction Trades Council reports that members have already seen signs of weakness in the building sector. The council’s executive director, Wayne Peppard, said that some projects have been put on hold while others remain in the planning stage and that many workers are expecting fewer job opportunities after several years of steady employment.

Return to Headlines

FYI

If you were not able to attend development ’08: the annual meeting for commercial real estate this year, NAIOP’s Bookstore is now offering AudioPoints (audio plus PowerPoint slides) of most of the conference sessions.

With President-elect Barack Obama and a new administration entering the White House, The 2008 Tax Policy Positions of the Presidential Candidates session is particularly noteworthy from a legislative standpoint. This informative session which examined the tax policy positions of both candidates along with their future implications on our industry, was presented by members of NAIOP’s Government Affairs Subcommittee on Tax and Finance Larry Brewster and Larry Pobuda and NAIOP’s Vice President for Government Affairs, Aquiles Suarez.

For an in-depth look at how President-elect Obama’s tax policies may affect the commercial real estate industry, be sure to order a copy of the AudioPoints recording by visiting the NAIOP Bookstore.

NAIOP Legislative News Staff