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Plan To Mute Commercial Real Estate Drop


A tax incentive for business owners would avoid the looming commercial real estate loan crisis while creating 1.3 million jobs

A tax incentive for business owners would avoid the looming commercial real estate loan crisis while creating 1.3 million jobs. This is the claim in a report released in late June by a green-building advocacy research group.

"This report is the first to illustrate how dramatic job creation through limited energy-efficiency tax incentives can prevent a meltdown in the commercial real estate market," says Edward Mazria, CEO of Architecture 2030, a building-sector energy research organization. "Without a swift plan from Congress, the commercial real estate (CRE) crisis could cripple the economic recovery, raise unemployment, and lead to scores of small business and community and regional bank failures."

Mazria is a co-author of the report, titled "The Imminent Commercial Real Estate Crisis and The CRE Solution." The report recommends a three-year, tiered tax incentive tied to specific energy-reduction targets.

CRE transactions have declined 90% since 2007. Between now and 2014, $1.4 trillion in CRE loans are coming due; more than half of these are currently underwater. Commercial property values have plummeted by more than 40%, and commercial vacancies rates continue to increase. By April, the construction industry had lost more than 2 million jobs, and another 35,000 jobs were dropped in May, mostly in the commercial building sector. Also, at the end of May, the FDIC reported that its "problem bank list" had grown from 702 to 775 since the end of the 2009 fourth quarter.

Congress can simultaneously address the looming CRE crisis and crippling construction unemployment by building upon the existing Energy Efficient Commercial Building Tax Deduction (26 U.S.C. 179(d)) from $1.80 per square foot to a range of $3 to $9 per square foot for new and existing commercial buildings meeting specific energy-reduction targets.

For each $6 billion of deferred CRE revenue, for example, this plan would generate $73.4 billion in new private spending, $15.9 billion in new federal tax revenue, and $5.25 billion in state and local government tax revenue, according to the report findings.

The 14-page report can be viewed at Architecture2030.org.