How to Avert a $1.4T Commercial Real Estate Crisis

A tax deduction tied to specific energy reduction targets can create 1.3 million jobs while restoring credit capacity and liquidity in a commercial real estate market that faces a looming crisis, a new report says.

“The Imminent Commercial Real Estate Crisis and The CRE Solution” by independent, nonprofit research organization Architecture 2030 recommends providing a three-year, tiered tax incentive.

It would be made available by amending the 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 that meet the energy reduction targets of the research group’s 2030 Challenge. The challenge sets forth a series of increasingly stringent standards for fossil fuel reduction in new and existing buildings — the target being carbon neutrality by 2030.

The report says swift action by Congress on such a proposal is necessary to avert a crisis resulting from:

• A 90 percent plunge in commercial real estate transactions since 2007.
• $1.4 trillion in CRE loans coming due from now until 2014, and more than half of them are currently underwater.
• The more than 40 percent drop in commercial property values and a persistent increase in the rate of commercial vacancies.
• The loss of more than 2 million jobs in the construction industry as of April this year — with another 35,000 jobs lost in May, mostly in the commercial building sector.
• The FDIC’s report at the close of May that its “problem bank list” had grown from 702 to 775 since the end of the 2009 fourth quarter.

“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,” said Edward Mazria, CEO of Architecture 2030. “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.”

The report can be downloaded from Architecture 2030 at www.architecture2030.org/pdfs/theCREsolution.pdf