No Carried Interest Tax Increase

On December 17th, President Obama signed into law a massive bi-partisan tax package that included no increase in the Carried Interest or Developer’s “Promote.”   This carried interest or promote has been a fundamental part of real estate partnerships for decades.    Investing partners grant this interest to the general partners to recognize the value these partners bring to the ventures as well as the risks they take.  Current tax law treats this carried interest as a capital gain, as it represents a return on an underlying long-term capital asset, as well as risk and entrepreneurial activity.  Although the House attempted to re-tax this gain as general income (a much higher percentage), the Senate removed this from the Bill that was signed by President Obama.

Apartment Insurance Costs Decline

Apartment firms benefited from lower insurance costs in 2010, according to the National Multi Housing Council’s annual Apartment Cost of Risk Survey (ACORS). 

The mean (nonweighted) average Total Cost of Risk (TCR) decreased by about 6% from 2009 to 2010.  (Total Cost of Risk reflects the cost of the three principal components of the insurance premium: property, general liability and workers’ compensation.)  The weighted average cost of risk, which is less distorted by very large or very small respondents, dropped by a full 14%.      

“Our findings show that it’s a buyers’ market,” commented Jeanne McGlynn Delgado, NMHC’s Vice President of Business and Risk Management Policy.  “The momentum of insurance rate decreases accelerated in 2010, following decreases in 2008 and 2009.”

Apartment Market Conditions Continue to Improve

The apartment market continued its improvement over the last three months, according to NMHC’s latest Quarterly Survey of Apartment Market Conditions. 

“The apartment market continues to gather strength,” said NMHC Chief Economist Mark Obrinsky.  “Just 15 months ago, apartment demand was still falling, sales were declining, equity finance was getting harder or more costly to find and debt finance was still worsening.  In the last nine months, all four areas have been improving dramatically.  Indeed, the strong responses in each of our last three quarterly surveys indicate widespread improvement throughout 2010.” 

Full survey results are posted at www.nmhc.org/goto/quarterlysurvey.

US Policy to Favor Apartments Over Houses

A recent report by FBR Capital Markets says Congress will push for Fannie Mae, Freddie Mac, or whatever entity results from the reform of housing finance to increase investment in apartment construction and sales. Apartment investors will find it less expensive to build new apartment communities or purchase existing ones, according to FBR Capital Markets Analyst Paul Miller. More and more investors are turning their attention to the multifamily housing sector, with apartment funds returning 33 percent on average this year.

Reis Reports Strong 3rd Quarter in Apartment Market

Reis Inc. reports that the country’s apartment market strengthened in the third quarter, with national vacancies seeing one of the sharpest declines on record. Robust demand enabled apartment owners to modestly increase rents for the third consecutive quarter — a reversal from the freebies and discounts desperate owners coughed up during the downturn to retain and attract residents. The U.S. apartment-vacancy rate stood at 7.2 percent as of Sept. 30, down from the second quarter’s 7.8 percent. Researchers note that the summer months are prime ones for apartments as students enter and exit college. The college trend alone helped demand top more than 84,000 units, the largest number of units leased in a single quarter since Reis started publishing such data 11 years ago.

Indiana to Vote on Real Estate Tax Limits

Indiana voters will go to the polls Nov. 2 to decide whether to amend the state’s Constitution to limit property tax bills. The amendment mirrors current state law, which limits residential tax bills to 1 percent of the property’s assessed value. Tax bills for rental properties, vacation homes, and agricultural land is limited to 2 percent of assessed value, while the limit for commercial property is 3 percent of assessed value. The Hoosier Property Tax Reform Alliance — a coalition of individuals and groups — has launched a campaign in support of the amendment. Among its members is the Indiana Apartment Association, the Indiana Association of Realtors, and the Indiana Builders Association.

Fed Questions Economic Benefits of Homeownership

A recent publication by researchers at the Federal Reserve Bank of Philadelphia brings into question the economic value of homeownership in the US.  The publication represents a growing sentiment among academians and policy makers that the “American Dream” of homeownership has become an unhealthy “American Obsession”.  Homeownership has risen from 40% before WWII to over 70% today, driven largely by US governement policies that encourage homeownership, many of which are now seen to be the root of the recent financial crisis.  As concerns grow about the sustainability of the American homeownership model, future government policies will likely place more emphasis on rental housing.

 http://www.philadelphiafed.org/research-and-data/publications/business-review/2010/q3/brq310_benefits-and-costs-of-homeownership.pdf