State and local governments are cash-strapped but they’re also moving forward on agendas to promote energy efficiency and deal with foreclosures. That combination is almost certainly going to put pressure on commercial property owners and their property managers.
As of March, all but two states were wrestling with budget deficits and two-thirds of them had passed laws to shore things up through tax-raising measures of up to 5 percent. What’s more, the federal health care bill enacted in March will put further budgetary pressure on them a few years down the road because states will be responsible to pay for medicaid benefits to persons under 65 years of age. That unfunded mandate is one of the main reasons some states are pursuing court action against the law, although the lawsuits are unlikely to succeed, says Chuck Achilles, vice president of legislation and research for the Institute of Real Estate Management. Achilles addressed a property management forum Friday at the Midyear Legislative Meetings in Washington.
Against this fiscal background, state and local governments continue to move forward on public policy priorities, and Achilles pointed to some laws enacted in New York and Chicago that could be indicators of what other localities might do.
In Chicago, to address growing commercial foreclosures and the stress they place on neighborhoods as well as public resources, the city will be requiring property managers to meet new requirements to secure vacant properties. Among other things, managers will have to replace plywood window and door covers with commercial grade steel coverings within six months of the property becoming vacant. The requirement elicited a spontaneous grown among those in attendance. Managers will also have to install security lighting and an alarm system tied to a third-party security provider, among other things.
In New York City, the government has enacted a law requiring 30-percent building energy-use reduction within certain timeframes. The law requires managers to impose energy conservation measures, make lighting retrofits, and be subject to audits.
At the federal level, with Congress looking to make a dent in its budget deficit, some lawmakers continue to pursue changes to the capital gains tax rate on the carried interests of partnerships. The legislative proposals are intended to raise more tax revenue from hedge funds, but the legislative efforts threaten to snag real estate partnerships, which represent the lion’s share of the partnerships that would be affected by the legislation.
Achilles said IREM members earlier this year made some inroads in educating members of Congress about the inequity the legislation imposes, and members appeared willing to consider rewriting the legislation to target its impact on hedge funds and exempt real estate partnerships.
Carried interest is the term given to the non-equity interest of general partners in an investnent partnership.