OFFENBECHER
OFFENBECHER | Conversion crisis: local condo developers seeing red | ||
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Nov 18, 2008 Conversion crisis: local condo developers seeing red
Conversion crisis: local condo developers seeing red
By Hilary Reeves, Paul Schrag and Breanne Coats Tuesday’s historic election brought more than change to the White House; it also brought uncertainty for businesses in increasingly uncertain times. President-elect Barack Obama faces an uphill battle against a sinking economy; and the nation’s business community will soon discover whether Obama’s promises to deliver affordable health care and aggressive, job-creating policies come to pass. Meanwhile, gubernatorial victor Chris Gregoire has much to prove to the many business owners who hung their hopes on the small business experience of her Republican opponent, Dino Rossi, and her promise to make Washington more business-friendly. The staff of the Business Examiner spent the past week discussing the candidates with small business owners and operators across the South Sound. Many of them remain uncertain as to what the election results will bring in terms of relief in the months to come, but there was one sentiment that permeated the discussion, regardless of location and sector: Hope. Real Estate Ethan Offenbecher, vice president of Coldwell Banker Commercial Offenbecher in Puyallup, said the way to stimulate the national economy is to create jobs by helping to grow business, which often involves ownership in commercial real estate. While both presidential campaigns focused their tax policies on income tax cuts for the middle class, it is what they didn’t say that’s important. “Under an Obama administration, taxation on returns and on capital gains will have an impact on the commercial real estate industry,” Offenbecher said. “It’s possible that the Democrats would re-introduce a bill on carried interest that changes the way returns on real estate partners are taxed. This proposal would tax returns at the ordinary income rate, rather than increase taxation from the current capital gains rate of 15 percent to the Ordinary Income Rate, which can be as much as 35 percent. As well, the Obama campaign plans to raise capital gains rates to 20 percent for most real estate investors and developers.” The silver lining, Offenbecher said, is that investors looking to sell their properties are likely to want to purchase other properties via a 1031 Tax Deferred Exchange. “This allows investors to defer the capital gains tax on investment real estate and has been an excellent tool in growing our investors’ portfolios,” he said. Offenbecher said the South Sound needs two things from the governor in the coming years: a business-friendly climate and local infrastructure. “When we grow and retain business, we create jobs and demand for housing and work space,” he said. Financials Deanna and Bob Cleaveland, and Bill Pickles of Cornerstone Financial Strategies in University Place, are glad the election was so decisive. The trio of financial planning professionals believe it’s critical for business owners to begin creating a plan to handle the coming change. “There’s a need for business owners and individuals to have a planning team in place to maximize the changes that are inevitable with a new presidential administration,” said Bob Cleaveland. “If there’s one thing that we’ve learned in the past year, it’s that the markets don’t like uncertainty. If nothing else, the market will now have certainty. Calming or not, I think there’ll be some direction.” Potentially on the docket for change in the federal tax code, on which President Obama is likely to do significant work, and the financial markets that could stabilize now that a decision as to who will lead has taken place. “During the past six to eight weeks, there’s been a lot of volatility in the financial markets,” said Pickles. “We (didn’t) have a political judgment one way or another, but there’s a lot of change that can happen. There are significant differences in the way both candidates expressed their tax policy. No matter what policy is put into place, it’s going to require that people be proactive in their planning work.” Health Care Larry Loo, CEO of Puget Sound Health Partners, isn’t particularly concerned about the prospect of a universal health care model – a matter of heated debate during the presidential election – unless it somehow connects to the Medicare system. Loo’s organization is among a growing number seeking to capitalize on the growth of patients entering the Medicare system, and it offers a range of so-called Medicare Advantage plans to augment standard Medicare coverage, usually for a nominal premium. Insurance providers would face challenges under a universal health care model, said Loo, as oversight is shifted to whatever federal agency is designated or created to manage the program. Loo has been happy dealing with the state Insurance Commissioner Mike Kreidler. Being governed simultaneously by state and federal agencies, however, is challenging, he said. A massive, national system would likely see additional regulatory struggles and would require a great deal of retooling to work efficiently. “There are a lot of things that would make it tough to create a national system right away,” said Loo. “There would have to be a lot of changes.” Insurance carriers, participating in a universal plan, for example, would have a hard time quantifying risk. If every potential client had to be accepted, companies would have to find some way to adjust for massive, aggregated pools of risk, with very few controls. One of the key issues, said Loo, will be screening and control of what is expected to be a flood of new patients with vastly different levels of health risk. If that doesn’t happen, he said, many carriers would be priced out of the market. As president and CEO of Franciscan Health System, Joe Wilczek considers universal health care of some sort among the most viable solutions to challenges facing his industry. “The most critical issue we’re all facing is the 49 million uninsured people in the United States,” said Wilczek, adding that another eight or nine million people are under-insured and can’t afford the basic medical care that they need. “Our emergency rooms are so overcrowded.” Patients end up in emergency rooms because they lack access to preventative and primary care. Those who can’t afford to go to the doctor generally wait until their health issues reach crisis points and then go to emergency rooms. Often, those patients can’t pay their bills and hospitals are forced to write off the cost of their care as bad debt. That loss ultimately becomes the responsibility of taxpayers. “We need to find a minimum health plan for everybody,” said Wilczek. “We can’t continue to see primary care patients in the emergency room. An emergency room visit costs about $1,300. An office visit with a physician is closer to $100. It’s silly for us as a society to keep paying for it this way.” Transportation Scott Gordon, chief information officer for Pacific-based Gordon Trucking was watching the governor’s race closely, he said. He favored Rossi because of his relatively pro-business stance. “This is a tough state to do business in,” said Gordon. “Especially when you’re in an industry where the margins are tight.” Gordon would like to see an increased focus on improving the roads his company’s drivers traverse every day. The current condition of the state’s roads is inadequate, he said, adding that he and his company would prefer that state transportation dollars go to improving roads over expanding mass transit. “If we don’t start investing in infrastructure, we’re looking at some problems that none of us want to face,” said Gordon. “There are freeway junctions that become parking lots every day. Dino’s perspective is more pinned to road infrastructure. The more that goes to roads, the better off we are.” Energy Brad Burkhartzmeyer, president of Tacoma-based Sun’s Eye Power Co., said that cutting dependence on oil and coal as energy sources will be crucial, if businesses want to operate far into the future. His company designs and installs solar power arrays for residential and business customers who want to save money on power bills. Some can even make a little money, if they generate enough surplus power to be able to sell it back to utility companies. Demand for solar power systems is booming in Washington thanks to incentive packages that passed with strong support from Gov. Gregoire. If it weren’t for the current banking crisis, Burkhartzmeyer said, he would be swimming in work. The Democratic governor’s support for clean and renewable energy, which are projected to be a multi-billion-dollar growth industry in the Pacific Northwest, are among the reason’s Burkhartzmeyer said he is glad she was re-elected. Restaurants & Retail Washington Retail Association’s and Washington Restaurant Association’s leaders said this election was important because it determined the level of government balance at the state and national levels. If the same party has a majority in the legislature and sits in the executive office, then Jan Teague, president and CEO of the Washington Retail Association said, there is a kind of unchecked agenda. She did not directly endorse a presidential or gubernatorial candidate, but said the Democrat’s union-friendly views are a concern to her members. “If we have Republicans in those positions, then we have not just more balance, but probably more attention to balancing the budgets,” Teague said. “That’s a challenge in this economic climate, and it needs to be a high priority.” The problem with Democrats winning the election, she said, is that one of their ways of balancing a budget is to tax business interests. Those taxes can be a “nightmare” for business owners. The state restaurant association, meanwhile, was not shy about endorsing Dino Rossi for governor. One of the biggest concerns it had with having Gregoire remain in office and a Democratic legislature is that together they will continue to raise taxes and not try to reduce the struggle many restaurants are having during this economic climate. A big tax increase will result in more failed restaurants, association CEO Anthony Anton said. Non-profits Most nonprofit businesses depend on other people’s ability to give, so this economic climate could potentially be extremely problematic for many within this sector. Not-for-profit business leaders are concerned about how the candidates will work the state and nation through these economic issues, said Rick Allen, president of United Way of Pierce County. “I wouldn’t say any candidate was the nonprofit candidate,” Allen said. While candidates might actively support a few types of non-profits, others that don’t fit in those categories could receive little or no attention. It would have been problematic for the entire nonprofit community to have backed a particular candidate, even though certain organizations would inevitably have benefited from having certain candidates win. An interesting aspect of the President-elect is that he has experience working at a local level with people who have lost jobs, Allen said. And while he appreciates Obama’s unique perspective, Allen is not sure how that experience will play out in the long run. “Right now, I think it is positive,” he said. “Who knows? It could be a big negative. He might already have particular biases or objectives.” Washington’s nonprofit community has been focused on early learning and has been really pushing this issue to the forefront, Allen said. |
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