It’s no secret that federal, state, and local governments are grappling with financial problems. To raise revenue, the federal government is looking at selling its vacant, excess, and under-utilized commercial real estate. They say the sell-off could generate $15 billion in proceeds and expense savings—but keep in mind, this is the federal government doing its own estimating.
Similarly, a Texas State Senate subcommittee will apparently be looking at the potential sale of state properties to help close its budget shortfall for fiscal 2012-2013. If this happens, commercial real estate firms could acquire these properties. However, this would put more assets on the market and effectively make the federal government a competitor with owners and developers in the private sector who have properties they’re trying to sell.
Cost-cutting efforts by the government can also adversely impact the real estate industry. For example, the Texas legislature has proposed cutting Medicaid spending in Texas by 10 percent. A Medicaid cut will significantly impact medical real estate, with hospitals in rural areas being particularly hard hit. Skilled nursing facilities in Texas will also be gashed. It is estimated that approximately 80 percent of residents in Texas nursing homes depend on Medicaid or Medicare, so a rate cut would significantly reduce the funds those nursing homes receive. Cutting Medicaid could lead to facility closures and the displacement of residents. It could also have a chilling effect on the development of new nursing homes and the sale and refinancing of existing facilities.
Another point to consider: Cuts in other governmental programs will almost certainly mean less money available for development of infrastructure, transit and transportation facilities, affordable housing, and financing. As governments continue to grapple with its budgetary woes, no one can predict the outcome. But whatever happens, it will affect the real estate industry. And for the near future at least, the signs are that the impact may not be so pleasant.
Dan Aaron is a shareholder at Munsch Hardt Kopf and Harr PC. Contact him at email@example.com.