Containing Costs: BOMA Battles Cost Increases to CRE
Mark Covington manages Building Owners and Managers Association International-Greater Phoenix’s office in the support of the association’s 310 local members who collectively manage more than 60 MSF of office, industrial, retail, medical and other commercial real estate in Metro Phoenix.
“The commercial real estate industry contributes more than $1.8 billion annually to the Arizona economy,” Covington said. “Our buildings house and support more than 47,000 jobs and $600 million in personal earnings each year. Our members strive to make their buildings the most attractive, comfortable, healthy and efficient for their tenants. We’re proud of our contribution to making Phoenix and Arizona a great place to live and work.”
AZRE caught up with Covington to talk about BOMA’s optimism and what we can expect to see in Arizona in the future.
What are some reasons for BOMA members to be optimistic and what challenges do you still see in the future?
While many economists are very optimistic about the outlook for commercial real estate, there are still many concerns. One of our key advocacy goals is to convince Congress to extend the Terrorism Risk Insurance Act (TRIA) program. BOMA feels the TRIA program must remain in effect until the reinsurance industry is prepared to accurately underwrite and assume the whole risk. Without adequate insurance, it is difficult, if not impossible, to operate our acquired properties, refinance loans and sell commercially backed securities.
Leasehold improvements are another area in which we need government action. To appreciate leasehold improvements at a rate of 1/39 year until the improvement goes “out of service” runs counter to common sense and the reality of the marketplace. It’s a hidden and inequitable tax in the commercial real estate industry and the text that should be amended to more closely reflect the reality of the marketplace.
We are also working very closely with the International Code Council (ICC) to ensure the upcoming versions of our building, plumbing, fire and energy codes are reasonable and accomplish the purposes for which they are intended without overly onerous provisions that increase costs without providing commensurate benefits.
What are some property management trends in Phoenix?
One of the key trends, which is not confined to Phoenix, is a requirement to be more and more productive. Property managers have increasing portfolios and are required to practice better time management and use technology as productively as possible to maximize what they can accomplish in a day.
What is on BOMA’s radar for 2014?
At the local and state level, we intend to continue to oppose any measures that increase costs to the commercial real estate industry. We also intend to support measures that help to cap unreasonable valuation increases for commercial property.
We would also strongly support measures that would further discourage metal theft by increasing penalties.
At the national level, we will continue to support tax incentives for energy efficiency upgrades and other efforts that encourage CRE participation but do not mandate specific building improvements. BOMA supports voluntary incentive-based programs to reduce greenhouse gas emissions. We also support incentives to promote investment in water-efficient products or commercial buildings such as toilets, urinals, faucet shower heads, side irrigation systems and efficient HVAC systems.
In the financial area, BOMA strongly opposes altering tax codes requiring carry interest be taxed as ordinary income. BOMA also supports efforts to reduce or eliminate taxes on capital gains. BOMA strongly supports efforts to make the depreciation of leasehold improvements more realistic. The tax code should be amended to more closely mirror marketplace reality.