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The time has come to repeal the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA).

Unemployment of 4.3%, a 16-year low, signals full employment and suggests wage growth and inflation ahead.

Along with job growth, gains in housing prices and the stock market have boosted household wealth to a record $94.8T.

We are approaching the fourth-longest recovery period since World War II.

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ECONOMIC SNAPSHOT

The time has come to repeal the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) and unlock billions of dollars for potential investment in U.S. real estate. Under this antiquated double standard, the U.S. singles out foreign investors’ real estate dispositions for taxation, a disincentive to investment that unfairly burdens the property sector alone.

Meanwhile, a “lower for longer” theme has characterized this economic recovery, with solid but tempered growth in consumer spending, jobs, wages, inflation and interest rates. Unemployment of 4.3%, a 16-year low, signals full employment and suggests wage growth and inflation ahead. However, the historically low labor force participation rate of 62.9% indicates remaining slack that could allow further employment gains and relieve excessive wage-growth pressure.

Along with job growth, gains in housing prices and the stock market have boosted household wealth to a record $94.8T, with household debt rising to almost $13T. Strengthening that foundation for continued growth are improved corporate profitability and steady, 2.5% annualized wage growth. While the economy has failed to generate the trajectory achieved in other recoveries, there appears to be far less risk of overheating and a prognosis for continued steady growth. We are approaching the fourth-longest recovery period since World War II, but aggregate GDP growth remains well below the historical average of 3.22%.

The Real Estate Roundtable has educated lawmakers on the need to rescind FIRPTA, building bipartisan support over several years. In a year when tax reform is on the menu, repealing the measure would add tremendous liquidity that could offset slowing institutional allocations to real estate.







20 FAST FACTS

1 Puerto Rico’s bankruptcy declaration is the largest ever by a municipality at $123B, including $74B in debt and $49B in pension obligations, dwarfing Detroit’s $18B.
2 S&P 500 profits jumped 13.6% year-over-year in the first quarter with revenues up 7.2% for the same period, the best performance in five years.
3 Stock repurchases were down 18% in the first quarter, suggesting companies are now willing to invest more in their core businesses.
4 China’s stressed debt markets present an inverted yield curve, meaning long-term yields have fallen below shorter-term interest rates, a frequent precursor of recessions.
5 Moody’s downgraded China’s bond rating to A1 from Aa3 due to expected erosion in financial strength from total debt reaching 253% of GDP.
6 The International Monetary Fund calculated gross debt in the global non-financial sector at $217T or 325% of GDP in third quarter 2016, more than triple that in 1999.
7 The Senate Banking Committee has begun work to overhaul Fannie Mae and Freddie Mac, which have been operating under conservatorship since 2008.


8 Standard & Poor’s downgraded Illinois to BBB-, one notch above junk status, due to a Republican-Democrat standoff and lack of a state budget for two consecutive years. The state’s retirement, health and debt payments now absorb 29% of general fund expenditures.
9 Apple, Facebook, Amazon, Microsoft and Google account for a third of stock market gains so far this year.
10 In Spain, Banco Popular failed and reopened overnight in June with barely a ripple in the bond markets
11 Italian banks Veneto Banca and Banca Popolare di Vicenza, which appear destined to fail, will be wound down by the European Central Bank.
12 Berkshire Hathaway provided a $1.8B lifeline to Home Capital Group, Canada’s largest non-bank mortgage lender, in June.
13 Home sales to first-time buyers surged to 424,000 in first quarter 2017, up 11% from a year prior and representing 38% of all single-family sales, providing first signs of homeownership rebound.
14 Pension funds increased caution in first quarter 2017 with $8B in pledges, down from $12.7B a year prior and $11.9B in first quarter 2015, FPL Advisory Group reported.
15 CMBS volume of approximately $30B in the first half of 2017 reflected a slow first quarter after new risk retention rules and other factors impeded issuance.
16 All 34 major U.S. banks passed stress test in June, releasing them to increase dividends and stock repurchases.
17 Distressed commercial real estate (CRE) debt holdings at the top 500 banks are back to normal at $8.7B, down 14.5% from $10.2B in 2015, while nonperforming loans represent just 0.6% of outstanding portfolios, according to Real Estate Alert.
18 With 2,880 store closings across retail in 2017 through early April, Credit Suisse forecasts a total of 8,640 by year’s end.
19 Los Angeles industrial market vacancy fell to a record low of 1.1% in first quarter 2017 and likely tightened further in the second quarter.
20 Asset pricing, particularly of financial assets, has reached record highs across the board in 2017, while commodity prices have improved. Price gains have slowed for CRE, yet it remains a preferred asset class due to property fundamentals and high relative yields.
Tom McNearney

the BRIEFING is an aggregation by Tom McNearney, Transwestern Chief Investment Officer, of other articles and reports. Tom leads Transwestern’s capital market efforts for development and investment nationwide. Tom also serves on the firm’s investment committee and board of directors, and he directs the execution and expansion of the firm’s principal investment activities across the country.

TRANSWESTERN

the BRIEFING
THE NATIONAL ECONOMY AT A GLANCE
JULY 2017


DISCLAIMER
Copyright © 2017 TRANSWESTERN. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.


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