Real Estate

From the Experts: Top 10 Real Estate Issues

The Counselors of Real Estate (CRE) recently identified common cross-industry issues that are impacting real estate executives. These issues cover shifting demographics, capital markets, new uses of technology, and the role of sustainability.  My interpretation of the results are below:

  • Demographics: An aging population will have an impact on demand for real estate, however millions of new pensioners will push fund managers to focus on asset allocation decisions on stable asset classes, including real estate. On the other hand, the redirection of public funds to retirement systems will challenge the ability to provide basic services and infrastructure.
  • Capital Markets and Finance: Liquidity leads the list of concerns. Indeed, access to capital is causing uncertainty in many industries. Specifically for real estate, the capital "hangover" from previous over-allocations will continue to limit capital for some time into the future. That being said, there is a spark of hope as cash-strapped state and local governments create development opportunities by leveraging their hard assets through Public-Private Partnerships. The dynamics of political gridlock and global economic crises, paired with civil discord in pockets around the world are also concerning for future fundraising efforts.
  • Technology: the increased use of technology in process automation and alternative workplace strategies is shrinking the need for industrial and office space. Meanwhile, the internet is turning traditional "brick and mortar" stores into Amazon.com showrooms, as shoppers turn to web-shopping rather than cash-and carry approach, resulting in less demand for retail space.
  • Sustainability is well-integrated through global enterprise. From corporate governance and management to reporting systems and supply chains, executives are building sustainability into the fabric of their organizations. Real estate is still and will continue to be the primary focus in many corporations' sustainability strategies.

What is Tax Increment Financing (TIF)?

We often hear of terms in real estate that get thrown around with little to no explanation. I would like to take a few minutes to shine a light on the TIF concept and use. Tax Increment Financing (TIF) is a tool for financing economic development. While conceptually similar, individual TIF programs and legislation are uniquely designed and applied in each state that has authorized the use of this financing mechanism. The low-interest debt that is issued to developers on behalf of the government is backed by future gains in tax revenues. Typically these tax revenues originate from increased property values, but alternative tax bases, such as increases in sales tax volume can also be considered as collateral. Some quick notes about TIF include the following:

  • Not a tax credit program, unlike historical tax credits, new market tax credits, energy tax credits, etc.
  • Rule of Thumb ratios of private to public funding (TIF is a portion of the public financing mix) range from 8:1 to 12:1. However the public funding is typically front-loaded on the project schedule to account for heavy investment in public infrastructure.
  • Due to budget constraints, has become the primary (in some cases, the only) tool that municipalities use to finance improvements related to the public benefit.
  • Freezes collection of tax increases in designated TIF districts in order to fund debt offerings. In some cases the freeze is 20+ years.
  • Can set-aside portions of debt to fund social programs such as workforce development, job retention, libraries, schools, daycares, etc. This will help alleviate community concerns of lost tax revenues.
  • Reserved for blight, brownfields, or targeted industry growth; but in most states, greenfield development is accomplished under the umbrella of “economic development”
  • TIFs do not directly affect tax rates in the community, but may raise overall tax collections due to increased property values and sales volume.
  • TIF needs are assessed using at least one of the following three categories:
    1. TIF District Designations (Blight, Economic Development, etc.)
    2. “But For” test
    3. Cost/benefit analysis
  • Typically administered through the local redevelopment agency.

I hope this article helps the reader better understand what TIF is, and how it can be administered. If you have additional questions, please drop me a note.

The US Investing in the US? Moving AFRICOM Stateside

The United States Africa Command, also known as U.S. AFRICOM, is one of nine Unified Combatant Commands of the U.S. Department of Defense (DoD). As one of six that are regionally focused, it is devoted solely to Africa. U.S. AFRICOM is responsible to the Secretary of Defense for U.S. military relations with 53 African countries. The command was created by presidential order in 2007 and was officially activated October 1, 2007. It became fully operational October 1, 2008, with General Kip Ward serving as its first commander.  General Carter Ham became the second commander of U.S. AFRICOM on March 9, 2011, just in time to address the challenges of relocating headquarter operations from Stuttgart, Germany to the US. Recent speculation, has AFRICOM relocating approximately 1,500 positions to either a) Charleston, SC on or near the Charleston Air Force Base or Naval Station; b) Hampton Roads, VA to replace the Joint Forces Command that has recently been shutdown, and c) Atlanta, GA at either Robbins Air Force Base or Fort MacPherson, which has recently undergone a BRAC action.

At a recent hearing, billed as posture hearing for AFRICOM and U.S. Transportation Command, a number of Defense Department officials expected Libya to be the lawmaker’s prime focus. But relatively few questions focused on military operations, many actually focused on U.S. military involvement in Africa as a whole and TRANSCOM operations. But a good number of comments involved the location of AFRICOM’s headquarters. Defense Secretary Robert Gates has asked AFRICOM Commander Ham to examine the “stationing” of AFRICOM’s headquarters, which is currently located in Stuttgart, Germany.

“He’s essentially asked me to start from a clean sheet of paper,” Ham said during Tuesday afternoon’s HASC hearing.

Prior to AFRICOM’s stand-up in 2007, U.S. Central Command, U.S. European Command and U.S. Pacific Command all oversaw portions of the vast continent. Ham will be examining numerous factors, including security, suitability, quality of life, transportation nodes and accessibility to the Africa when evaluating potential locations.

“That process has begun,” he said. “We will look at first of all to make sure we’ve got the methodology right and then we will look at a wide variety of locations to see which we think would make the most suitable for the command to accomplish its mission.”

That said, numerous members of the House Armed Services Committee feel their communities have what it takes to host the combatant command.

Rep. Joe Wilson, R-S.C., was the first to dive deep into the subject, touting Charleston, his birthplace.

“Charleston in the transportation hub for the Unites States Transportation Command, as well as the primary seaport for container traffic between the Unites States and the South Atlantic,” he said. “The Charleston Air Force Base provides all the strategic airlift support for Africa, for our government to include embassy support.”

Wilson also touted the “cultural linkage” he observed during a visit to west African country Liberia.

“The great cultural association of west Africa to Charleston is very clear,” he said. “It’s a shared culture, in fact we have the same accents and I felt right at home when I was visiting with the people in Monrovia.”

Although, he’s not a frequent visitor to Charleston, Ham is a fan of the city. “I’ve only had the opportunity to visit Charleston once, but it was just a few years ago and it was indeed a very enjoyable visit to a great city,” he said.

But Rep. Hank Johnson, D-Ga., would have none of that and touted his home state’s busy commercial cargo operations at Hartsfield-Jackson Atlanta International Airport, military aviation facilities, its colleges and the state’s quality of life.

“When I’ve been to South Carolina, Charleston, I’ve enjoyed myself in that area, but I would also point everyone to the fact I live in the Atlanta, Georgia, area, which is the transportation hub of the southeast,” he said.

Enter Rep. Austin Scott, R-Ga., who represents Georgia’s eighth district, which includes Robbins Air Force Base. It’s also not far from a number of other Air Force and Army bases. “Both the Air Force and the Army are extremely important to us and as you look for additional commands, I think [in] Georgia, you’ll find welcome and open arms there.”

But there were those members representing districts even further west that wanted to tout their home state — or territory in one case.

“I were to tell you about all the advantages of living on a tropical island, it would take all day, so we’ll put it off for another time,” joked Delegate Madeleine Bordallo, D-Guam.

 

Ref: Transcripts from U.S. AFRICOM Public Affairs at www.africom.mil

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