The following roundtable session took place during the 1995 IREM Annual Convention in Atlanta.
JPM: How could proposed changes in government policy or laws affect real estate during 1996?
Stephen Barber (Region 12): In our region, the proposed tax law changes, particularly the reduction of capital gains, are seen as a plus. We have inventory that owners would like to sell.
However, with unemployment rates from 3.6 percent in Portland to 7 percent in Anchorage, it is a fairly tight market so we do not expect most government to have much impact.
Paul Dastugue III (Region 5): We also expect capital gains reductions to have significant impact in our region. Our concern is that as these properties are sold, we'll lose our property management accounts. We find that, for strategic reasons, we must become buyers of real estate, so every tax advantage helps.
Craig Cardwell (Region 13): Personally, I think managers have to begin considering this option. If you do not control you own destiny, someone else will control it for you. Companies that sold properties to REITs have lost significant portions of their portfolios under management and are left with underutilized capacities.
We expect that the HUD reinvention will have a negative effect on the multifamily inventory because there are a significant number of subsidized properties in the region. Managers are also concerned about the overall housing affordability issue for those who fall below the safety net.
Patricia Nooney (Region 10): HUD reinvention will affect many managers in our region. There is generally a wait-and-see attitude now, as people do not believe that all of the proposed changes will be implemented. However, we do expect some negative impact.
Laurie Langlois (Region 1): The East Coast has one of the most sizable concentrations of assisted housing in the nation. Therefore, whatever HUD decides can critically affect our e+conomics. However, because many managers in the East were involved in the recent FHA reorganization, we do not expect any real changes from a government agency to take place in less than a year.
On the other hand, HUD's reinvention may also spur some business. We are already seeing the privatization of some public housing in our region. Housing authorities are ill-equipped to manage properties with the decreased subsidizes HUD is already putting into effect, so we anticipate that more of the properties will be put into private hands.
Rent control was recently defeated in Massachusetts, but we have not seen large rent increases as yet. No one is interested in making any rash moves.
Enis Hartz (Region 2): Our region also has a very large concentration of HUD housing, so we are also concerned, but we also feel that privatization offers opportunities. That will be the flip side of what is being taken away.
Victor Ortiz (Region 9): Some people feel that the HUD reinvention will make the bureaucracy easier to deal with.
Scott Gardner (Region 7): We don't fear the HUD reinvention; our thought is, "How much worse can it be?" We see the plan as a real opportunity in restructuring our portfolio and earning additional fees. If Congress can address the recapture of the capital gains issue, we may be able to transfer some properties to new owners.
We are also managing two properties on an experimental basis for the local housing authority, which has worked out very well for us both.
The problem now is that we do not have the housing product, and people are too nervous to build.
Terence Tom (Region 11): Several major metropolitan areas in California have extensive HUD programs, so the HUD reinvention will have a negative impact in our region. The plan also creates a Catch 22 situation for the federal government. If HUD does not give money to residents for rent, owners will not have funds to pay their mortgages, and defaults will increase. Because the federal government insures many of these loans, it will ultimately pay the price.
Capital gains reform will not spur sales in California and Hawaii. Owners would be happy to just get their value back; most are only selling out of desperation or through foreclosure.
Richard Forsyth (Region 8): Things are so good in our region and job creation is so strong, we are not concerned about HUD reinvention. We are hoping that it will spur some new construction of affordable housing.
Richard Houser (Region 3): Our region has its share of the more than 900,000 units subsidized by HUD, especially in the District of Columbia. According to the Congressional sources I spoke with, HUD hopes to maximize incentives for owners to upgrade properties and permit properties to compete under market conditions. However, because mark-to-market is still being considered by Congress, we will probably not see any activity for two years or more.
Molly Wood (Region 7): The number one effect of HUD's mark-to-market in our region is fear. Everywhere you go in the region there are properties that will be affected. NHP has moved the bulk of its operations to Indianapolis, which has helped to focus the region's concerns on this topic.
Properties are being held off the market in our region as owners wait to see what will happen with the tax laws. If the laws change favorably in 1996, we could see a great deal of property changing hands and some sizable brokerage fees resulting.
Michael McCreary (Region 4): Government policies are taking a back seat in Atlanta to preparation for the world's largest party - the 1996 Olympics. No one is certain what will happen when the games are over, but projections indicate that 90 percent of the real growth Atlanta has experienced is permanent. We do expect the proverbial hangover, but it may be no more than a flattening.
There was a threat of temporary rent controls because of perceived price gouging for housing during the Olympics. Leases were not being renewed, and tenants were told they had to vacate during the games. However, demand for housing has not been as strong as the Atlanta Committee for Olympic Games had anticipated, so concerns have died down.
The real story after the Olympics is that the office building market is great, and we have had 9,000 apartment units on line in 1995 with vacancies under 5 percent.
William McCarthy (Division Council Direction-West Canada): The big issue that will benefit Canada for the next year is the defeat of the separatist referendum in Quebec. But the so-called "neverendum" is far from over. In 1980, separation was defeated 60 percent to 40 percent; in 1995, the margin was only 1.2 percent. However, a win is a win, so we are optimistic about moderate growth for Canada in 1996.
Our other concern is whether or not the separation issue will take the federal and provincial governments' focus away from the budget deficit and high taxation. Canada has the highest property taxes of any industrialized nation; 4.1 percent of our GDP comes from property taxes, compared to 3.1 percent in the U.S.
JPM: How are the Internet and online services affecting your business and your properties? What opportunities do you see for real estate online in the future?
Barber: In our region, we believe that opportunities on the Internet are very positive and that we should get on the bandwagon immediately. As an example, an Anchorage developer sold his entire building on the Internet, using digital graphics to show the renovations. MLS services will be opened up, and more companies will have regional offices connected instantly.
It could also affect smaller management companies that lag behind. Brokerage fees and commercial leasing fees could be affected if consumers carry out their own transactions. The question is "how are you going to control it?"
Dastugue: Almost every chapter in Region 5 reported that they are relying on computerized databases for demographic and geographic information. We used to get the information from universities; now we keep it ourselves.
It is amazing how fast technology changes. Someone told me that the first Apollo moon landing was powered by a 286 computer.
Cardwell: Connectivity …