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RE recovery will depend upon federal action.

As real estate industry professionals, we are continually barraged by news media and legislators who attend our ABO luncheon meetings and ask the question: "When will we emerge from the morass of the recession?"

I gave them all the same answer: Although real estate has been the engine that has pulled the economy out of bad times it cannot accomplish that function today with the Internal Revenue Service's strange regulations that keep strangling us.

It is sufficiently difficult and adventurous for a developer to embark upon a new project when the market is soft. But, unless the developer is allowed to deduct losses while he waits for the economy to turn around, there is no logical reason for him to pursue development.

This is a ludicrous state of affairs because real estate is the only industry in America that is not allowed to deduct passive activity losses from income.

Congressional inaction regarding positive, constructive changes in the Tax Law affecting the Passive Activity Loss Rules have put a jackboot on our throat. This position by the federal government simply will not allow us to commence new development. Stagnation will be the status quo.

During this period of protracted softness, entrepreneurs and investor groups with low overhead costs have been afforded an opportunity to stockpile considerable sums of cash which, in better times, would have been put to use. For example, New York City now has entrepreneurs who are looking for opportunities to develop niche housing situations.

The seed money for real estate recovery is in hand. Lending institutions, however, are still in shock from real estate portfolio losses. The outlook remains dim for a diminishing of the credit crunch.

There is one bright ray of hope. There seems to be a growing level of understanding within Congress that credit fuels development. If headway cannot be made in tax reform, then Congress appears ready to consider measures that would again encourage lending institutions to abandon their fear of real estate financing.

Our elected leaders in government should understand that even if "ready credit" became a reality and the tax regulations were changed overnight, it would take years for new development to take root and bear fruit for the economy at large.

The country, the economy and the industry need help now if we are going to start turning things around - 1994/1995 is way too late.
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Title Annotation:Review and Forecast, Section III; real estate industry
Author:Belson, Jerome
Publication:Real Estate Weekly
Date:Jun 24, 1992
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