Accounting Trends
THOUGHT LEADER
Industry Research
THOUGHT LEADER
Property Insurance
THOUGHT LEADER
HOWARD ROTH
Global Real Estate Manager
Ernst & Young
What is a big accounting trend
you’re seeing right now?
Increasingly, businesses with a substantial amount of real estate have been
approaching the IRS for a private letter
ruling, granting them permission to
realign their businesses under a REIT
structure. The primary driver behind
this is simple: demand is high in today’s
economy for income-producing assets
and, as a result, the market has shown
REITs considerable preferential treatment because of their reliable income
stream. In today’s business climate,
where companies are considering all
options for increasing value to their
shareholders, many of those that own a
significant amount of property are
exploring the process of REIT conversion. And in almost every case where
companies have converted their real
estate holdings to REITs, the market
has rewarded them for it. But it is a
long process with significant tax and
operational considerations that can
take up to 18 months from start to finish. Those that do go down this road
should view it as a long-term change.
See more of Roth’s columns at:
www.globest.com/HowardRoth
HESSAM NADJI
Managing Director, Real Estate
and Advisory Services
Marcus & Millichap
Real Estate Investment Services
Will the housing recovery hold
up in 2013?
The recovery is real, and it is sustainable. There are two million jobs that are
being created. Household formation has
outstripped new housing supply by a factor of two over the past four years, and
that’s why the market has found its balance again. The low interest rates, of
course are very helpful. It’s a lifestyle
issue as well. People aren’t just looking
at it as a speculative investment as they
were before. A loss or cut of the mort-gage-interest deduction seems to be very
unlikely given the broad nature of that
tax credit for the US population. In the
rental market, what’s interesting about
this recovery is that you have lifestyle
choices being made. People are wanting
to rent to be near work in urban areas
versus what we’ve seen in the past. That
reduces the speculative buying on the
for-sale side of the equation, which is
very favorable for the long-term prospects of this recovery. It’s not a speculative, frenzy-driven recovery.
This is from a recent CNBC appearance by
Nadji. Get more at: www.globest.com/Nadji
JOSEPH FOBERT
Real Estate Practice Leader
AIG
What is the biggest insurance
challenge facing the industry?
The greatest challenge facing the insurance industry comes from the increased
globalization of business and the effects
that global catastrophes have on multiple,
interconnected insureds. Insurance was
originally designed as a contract between
two parties, wherein the affect of one natural occurrence typically had little widespread effects. Today, from earthquakes in
Japan and New Zealand to floods in
Thailand, global events are taking a toll
on the industry. The year 2011 is estimated to have been the costliest on record for
both total and insured losses, and 2012 is
already coming in above the 10-year averages in both categories. Large “super
storms” like Sandy over increasingly dense
urban areas demonstrate the toll the
industry must be prepared to face. The
spreading of risk across the globe puts a
greater burden on the industry for stronger capital solvency and for having sufficient funds to cover this increased exposure, while fulfilling the main purpose of
allowing insureds the financial security
and peace of mind that the industry will
be there to pay and mitigate losses.
Learn more about AIG’s real estate practice
at: http://tinyurl.com/aq4a8vz
The REM Thought Leadership Program extends across our entire media platform (Real Estate Forum, GlobeSt.com and the RealShare Conference Series), providing
expert commentary and business advice from a variety of industry thought leaders. To learn more, visit: www.ALMRealEstateMediaGroup.com/ThoughtLeadership
