Philip Blumberg Blog

High Net Worth Real Estate Investing

I will be attending the 6th Annual High Net Worth Real Estate Investing Forum, held at the beautiful Marriot Marquis in NYC on July 27, 2007.  For more information about this forum as well as other forums and events that I will be attending, please check out: Philip Blumberg Upcoming.

REITs, private equity and carried interest taxation

Recent proposals before Congress, one from the Senate Finance Committee and the other, broader one, from the House Ways and Means Committee to raise taxes on private equity and hedge fund managers are causing a lot of comment which, broadly, falls along two lines. On the one hand some pundits say that, if enacted, the taxes will kill the private equity and hedge fund management business. Others argue that it's only just and fair that high-earners pay regular income tax rather than the 15% capital gains tax rate (private equity and hedge fund managers' earnings are assessed as "carried interest," rather than as traditional income).

As a commercial real estate professional who operates investment funds and a REIT (and thus has significant carried interest in several funds), I naturally have a direct concern in anything that might impact the performance of the industry's ability to finance equity, REITs and buy outs. It seems to me that neither proposal will be signed into legislation in their current form. Far from hitting just the high rollers, eroding carried-interest favorable tax treatment would impact hundreds of thousands of individuals who benefit from it in smaller ways -- the proposals would in effect cause widespread fallout in order to snare the handful of people they're really aimed at. Far more likely, in my opinion, is a cap above which tax treatment is normalized -- and therefore not the broad sweeping change as contemplated in the proposals.