IMPACT OF THE TAX REFORM ACT ON THE SECURITIZATION OF REAL ESTATE: AN EXAMINATION, THE THEORY, ACTUAL PREDICTIONS AND CURRENT ISSUES, 1986-1990.

摘要

The study examines the impact of the 1986 changes in U.S. tax policy on the financial characteristics of the securitized real estate industry. The study uses multiple regression, time series, and cash flow analysis methods. Time series analyses were applied to 22 years of data, 1970-1991, and cash flow analyses for data from 1971-1989. Exponential smoothing and multiple regression time series were applied to test the "tilt," (critical event in the series). The external variables used were the consumer price index, mortgage rates, foreign investment in the U.S., and individual tax rates. At the macro-economic-level, capital investment in commercial real estate as a variable was selected. Industry level variables were real estate partnership assets and losses. Public data were obtained from the Bureau of the Census, Internal Revenue Service and Securities Exchange Commission. Public real estate syndication sales and performance data were obtained from the Robert A. Stanger & Company. Real estate effective tax and depreciation rates were computed and tested. To analyze public real estate partnership performance, cash flow analysis using nominal yield return, internal rates of return, and capitalized earnings techniques were used.; Multiple regression analysis revealed the real estate tax base rate (computed tax rate) as the main predictor variable for the public real estate partnership industry, with a coefficient of determination (R{dollar}sp2{dollar}) of 87 percent for 1970-1991. Segmentation analysis revealed the computed tax rate as the strongest influence on syndication sales for 1970-1985, with R{dollar}sp2{dollar} of 95 percent. For 1986-1991, time was the predominant influence, R{dollar}sp2{dollar} of 99 percent. At the industry level, similar results were achieved with R{dollar}sp2{dollar} of 75 percent for 1970-1985, and R{dollar}sp2{dollar} of 99 percent for 1986-1991. At the macro-economic level, mortgage rates surfaced as the primary predictor variable. Changes in tax policy are accurately measured for the real estate industry, which anticipated positive tax changes (1981-1982) and negative tax changes (1985-1986). Syndication sales rapidly increased in 1981 and then declined in 1986.; Cash flow analysis covered 75 percent of the public syndication industry using 571 projects from 66 underwriters, ranging in size from {dollar}1 million to {dollar}525 million. These projects raised {dollar}25,710 million in capital and purchased {dollar}47,436 million in commercial real estate. Both nominal yield and internal rates of return analyses show a negative return for projects originating in 1982, and a dramatic downturn for projects originating in 1987-1989. The study identified many projects valued principally for tax benefits that contained no other capitalized value. Tax benefits were factored into returns on investment but were not large enough to cause most projects to "pass" a reasonable test of internal rate of return analysis. Comparing capitalized earnings valuation with original capital syndication raised in 571 projects indicate that the real estate syndication market has lost 28 percent of its value.