Co-Star recently reported on a proposal by the Associated General Contractors of America, an industry trade group, to help stimulate construction projects in the US. The full plan is included below.
What's striking about this proposal is that it explicitly recognizes what really drives new construction and investment, e.g., employment and consumer demand, but then goes on to list a couple dozen proposals that may have limited or no impact on either employment or consumer demand.
Not all the proposals are bad per se, but many are the types of things that lead to one-time bumps or special tax treatment. For example, the report suggests that faster cost recovery provisions related to leasehold improvements should be made permanent, e.g., speed up depreciation. While this may be a fine idea, it's not the sort of thing our CRE market needs for a wholesale comeback.
And speaking of taxes, that's where many of the proposals are focused - tax reform or tax provisions. All 12 of the proposals to "boost private sector demand" are tax-based. We question whether developers and companies will take on a new construction projects because of more lenient tax laws instead of actual demand. They might, but there seems to be a bigger problem anyway - getting the capital.
From our perspective, the bottleneck for new construction (useful, needed construction that leads to permanent, private-sector jobs, not the types of projects AGC suggests just to maintain artificially needed construction jobs, like "navigation and flood control needs") is two-fold: 1) money, and 2) money.
We see strong demand for new projects. New industrial, particularly in NEO, seems to be coming back. Large users don't want antiquated buildings - they want modern, efficient buildings. That has created opportunities. The medical and senior housing markets are also seeing strong demand for new builds or renovations. Retail, on the other hand, unless in the strongest of markets, is not going to resurge for awhile.
But the problem with all of this is money, capital, investment, call it what you will. A significant amount of our time is spent on, and clients continue to seek, capital for new projects. And while it is possible to find investment money, it's very difficult.
Unfortunately, AGC doesn't really address this. Just one proposal addresses private investment in real estate projects, though a few others indirectly address it, such as expanding private activity bonds or Build America Bonds - both of which can lead to the over leverage problems we've already had.
We understand AGC is a trade group and must endorse and push a certain legislative agenda that specifically supports its member base. We just wish the proposal was less about tax incentives and more about finding money for the people trying to get their projects moving.