HERNDON, Va., February 27, 2009 — Thomas J. Bisacquino, president of NAIOP, the Commercial Real Estate Development Association, issued the following statement on President Obama’s proposal to increase the level of taxation on carried interest compensation, which would impact many partners in real estate development ventures:
“President Obama’s proposed budget would tax a “carried interest,” currently treated as capital gains, as ordinary income. While media reports often only link carried interest compensation with Wall Street hedge fund managers, this proposal would have a broad devastating impact on the commercial real estate development industry.
At a time when the real estate industry is struggling, this would increase taxes on entrepreneurs from the current level of 15 percent to as high as 39.6 percent. This would be a severe blow to entrepreneurs wanting to undertake new deals, which are the source for much of the industry’s job creation. Straightforwardly, many development projects will not be undertaken if this becomes law. Proposals to tax carried interest at ordinary income rates, without regard or differentiation as to the nature of the underlying investment, would adversely impact the flow of capital to real estate deals.
The Obama administration recently undertook efforts to alleviate the severe credit crisis now affecting commercial real estate by expanding the activities of the Term Asset Backed Lending Facility (TALF) to include commercial real estate debt — an action NAIOP applauded. This most recent proposal by the Obama administration to increase taxes on the industry is totally at odds with their prior actions, which was recognition of the difficulties currently affecting the credit and capital markets in commercial real estate.
A healthy real estate economy is vital to a prosperous U.S. economy and produces an immense ripple effect with job creation and personal earnings that quickly roll over into increased consumer spending. The most recent data available cites total real estate construction spending of $1.16 trillion — approximately 8.5 percent of the nation’s Gross Domestic Product. Commercial development supports 4.89 million full-time equivalent jobs in the United States and generates personal earnings of $170.1 billion.”
