PwC’s Mitch Roschelle on Asset Classes

A self-described renaissance man, Mitch Roschelle, a U.S. real estate advisory practice leader at PwC (formerly Price WaterhouseCooper), acts as market commentator for the firm as well as a consultant for financial institutions, fund managers, owner operators and real estate investment trusts. The Commercial Observer spoke to Mr. Roschelle last week about real estate fundamentals, balancing budgets, the large number of loans maturing this year, repatriating profits and what some might consider tax nightmares.

mitch r web PwCs Mitch Roschelle on Asset Classes

Mitch Roschelle of PwC.

The Commercial Observer: What area of the accounting business is busy right now?
Mr. Roschelle: The real estate asset class has come a long way. There was a time when taxes alone were the driving force, using real estate as a tax shelter. And I think what’s interesting, where we are today, real good old-fashioned fundamentals are what’s drawing investors to real estate and what they’re looking for.

Are real estate investors more sensitive or attuned to taxes than investors in other asset classes?
It’s a physical asset and physical assets depreciate. Talk about esoteric. You have a piece of property that actually appreciates in value, you bought it for say $100 million and you sell for $200 million. But it’s a physical asset so it gets depreciation benefits. Because there’s this depreciation, the folks who invested in real estate are always looking to that as something that’s important. That gets real estate investors acutely aware of taxes.

So what are the tax nightmares out there for investors?
As the population increases and ages, it gets harder to have a balanced budget so the simple solution is to raise taxes or cut spending, which is generally less popular. You can raise your own taxes or you can raise them on someone else and that’s a lot less painful. I think that what you’ll see is the latter, particularly raised taxes on foreign investors in this country.

Wouldn’t that dissuade investment here?
New York is a top-five city on the planet, so no. The U.S. real estate market is attractive enough globally that if one country is dissuaded, someone else would invest.

What kind of a tax are you talking about?
It could be a tax on the flow of money, an excise tax—a tax on repatriating profits out of the U.S. There is a bunch of different ways that could happen.

There’s been talk of loans done during the boom coming due and creating distress. How are you preparing clients for this?
It’s not a tax issue, just an economic issue. The reality is, what we had happen was most of the holders of the debt kicked the can down the road. But what’s happening, more and more, they’re being restructured and modified.

Is there a tax benefit to taking a huge loss by giving a property back to the bank?
That’s actually a huge tax burden. If you get a property and give it back and the debt is forgiven, there is a heavy tax consequence to the borrower.

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