Fiscal cliff is a “kick in the gut” for NYC’s commercial real estate

A slew of federal policies are set to take effect in January that will radically cut federal spending and end some of the Bush-era tax cuts. But the so-called fiscal cliff will have radically different effects on commercial real estate values across the country, CoStar reported.

In New York City, “the real estate sector is about to take a big kick in the gut,” David A. Kessler, a commercial real estate specialist at public accounting firm CohnReznick, told CoStar. Kessler predicted that every commercial real estate sector will seem some decline, but the hardest hit will be office and industrial, hurt by declining government and consumer spending.

The lack of federal funds will cause increasing office vacancies and delinquent rents, and a higher proportion of Class B and Class C space will be affected, he said.

“Large users of space, which have been on the decline over the past 3 years, will continue to decline as companies cut back the amount of space needed with smaller work areas, and work from home arrangements that are becoming more common,” Kessler said.

Meanwhile, in Brooklyn, the main issue is determining where to invest capital to generate a “predictable” return and safeguard value, Minnette Le Blanc, president and CEO of real estate investment firm the Le Blanc Organization, told CoStar.

“Tax advantage should be a side benefit of an otherwise sound deal,” Le Blanc said. “And an investor selling assets based on tax rate assumptions would still be faced with the question of where to invest the liquidated capital.” [CoStar]—Leigh Kamping-Carder