S.E.C. Real Estate Observer

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No matter which political party each of us favors, it is important that we know what changes might happen that could affect our and our clients’ financial positions. In my opinion, it is time to watch what our representatives in Washington may be about to do to our industry.

For instance, John Edwards has made no secret of the fact that he favors substantial changes in the nation’s tax policies. The fact that Edwards is in third place certainly does not put his ideas out of the question. Edwards has been very specific about his programs, forcing Senators Clinton and Obama to follow suit. According to The Economist, Mr. Edwards, a trial lawyer from North Carolina, has pledged to do the following: end the war in Iraq; provide universal health care; address global warming; and eliminate poverty in America within 30 years. He has laid out a comprehensive blueprint to do all this. Just political rhetoric, you might say. That is precisely the point. He is the only one of the three main Democrats running for the nation’s highest office who has made his thoughts so public that it makes his ideas even more dangerous. Clinton, Obama, and even the Republicans are going to have to respond. How will the candidates respond to the national media when asked, “Do you think Blackstone is making too much money?” Same thing with Exxon.

So how does Edwards plan to fund his policies? He wants to raise taxes on hedge fund managers such as Blackstone and Morgan Stanley. He plans to propose taxing the “carried interests” of those running the funds. This has already drifted over to carried interests for real estate ventures. It would affect the independent oil and gas producers too, at a time when we need more domestic drilling instead of less.

What other storms are brewing out there? Is there any doubt in anyone’s mind that the long-term capital gains tax rate is at risk? A hike in the long-term rate of 5 percentage points is only 5 percent, unless you consider that it is a 33 percent jump. Of course, it will be used to provide health care and stamp out poverty-and maybe offer the United States Congress another little raise too.

The storms are not only at the federal level either. In Texas a liberal jurist decided that he would rule that the general partner of a limited liability company had personal liability, for the first time piercing the corporate veil of an LLC. What about our members who reside in “the other 47 states” that have state income taxes? How will an increase in the federal capital gains tax affect them on the state level?

It is August. We have a lame duck president in the White House. It won’t be long until November 2008. The Society of Exchange Counselors is probably not the correct organization for true political action; we are too small and do not have a staff to run that kind of activity. But each Member should get active and get our clients involved as well. Find out what your local organizations, such as your commercial boards, state boards, and NAR & CCIM, etc., are doing. Make it a point to meet your US Congressman and Senators.

Let’s not wait for the Perfect Storm to sweep us overboard. And remember, no matter what happens over the next few months we remain one of the most creative commercial real estate organizations in the nation. We will need to use our skills to stop as much of the damage as we can, before it happens.