Is 2012 Different, or Just 2011 "2.0"?

CRE Finance World, Summer 2012

Is 2012 Different, or just 2011 “2.0”? Michael P. Flood Vice President, Legislative & Regulatory Policy CRE Finance Council W on favorite at Belmont. Then the wheels came off – the short-term legislative scenarios do not change, a wholesaleElections Dictate Fate of UniverseSo much of what happens in Washington for the remainder of thisyear and into next with taxes, budgets and regulatory oversightwill depend on the outcome of the November elections. Whilee all remember what happened to the industry in 2011.We compare it to Big Brown’s charge for the TripleCrown in 2008. He handily won both the KentuckyDerby and the Preakness and was projected an odds literally — as a crack in one of his hoofs was discovered shortly reshuffle caused by a disruptive day on November 6 will alter what before race day. Big Brown finished dead last at Belmont — the happens during the next session of Congress. first Triple Crown threat ever to do so — after his jockey pulled him up because he “had no horse.” More important is the lame duck work that Congress must first do after it returns from its election recess, as this will deliver the Early last year, we also had a CRE Triple Crown threat with an economic platform for the country for 2013. While it is too soon upturn in economic data, $20 billion in CMBS issuance through to predict voter sentiment, we’ll briefly discuss the two most likely June, and a record year brewing in portfolio lending. Then, as scenarios that could come out of the November elections. the CRE horse entered the far turn of the year, we found a few “cracks” in our issuance hoof. July brought a ratings snafu, which The House of Representatives appears as if it will remain in was quickly followed by the Greek debt crisis. Finally, we burned Republican hands. The net gain of 25 seats necessary for the our $2 ticket when Congress pulled up our Big Brown by spending Democrats to take control is an awfully high a bar to reach. six months failing to raise the debt ceiling until, at the 11th hour, it kicked the can down the road to this year. The Senate is the biggest wild card. In that body, Democrats hold 53 seats to Republicans 47. A total of 33 seats are up for re- But is 2012 a repeat of 2011? We see, for example, positive devel- election this year, with Democrats defending the majority — 23 opments in the CMBS arena, with $10.8 billion issued and another to 10. Many in D.C. are forecasting a Republican victory, but we $8–10 billion in the pipeline. At the same time, the election of remain skeptical. The loss of Olympia Snowe in Maine and Richard Francoise Hollande in France and the inability of Greece to form Lugar in Indiana create better odds for the Democrats to hold the a government has some concerned that it will be increasingly majority. However, it could be an extremely thin majority, as small difficult for the EU to come to major agreements to end the debt as one or two votes or perhaps even a split 50-50 Senate. A 50-50 crisis. Here in the U.S., a Congress with a 12% approval rating split means that the party that wins the Presidency will control the must deal with its self-created “taxmageddon” before 2013 — Senate and its committees — as the Vice-President breaks all ties. most likely after the November 2012 elections. Washington will have a scant 2 months to determine what to do with $500 billion If Obama remains President, he’ll most likely have to deal with a in expiring tax cuts. Republican House and a split Senate. That said, Obama may also be more flexible on issues such as how Dodd-Frank is enacted We’ll leave marketplace and debt crisis questions to the experts (but not whether it should be repealed) and the Keystone pipeline, and instead provide our analysis of how Congress and the regula- considering he has no further elections (voters) to worry about. tors will operate the remainder of this year. We qualify our analysis with the fact that there are five months to go, so the electoral look- However, should Mitt Romney win it would likely mean that the ing glass is charcoal grey. What we do know is that the outcome of Senate has turned Republican. If so, and the House remains in the November elections will truly determine the regulatory playing Republican hands, many things are possible. Notably, these could field for the industry. include large-scale tax reform, entitlement reforms to secure the CRE Finance World Summer 2012 6


CRE Finance World, Summer 2012
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