The American Jobs and Closing Tax Loopholes Act, currently before the Senate, includes a provision that is threatening local commercial real estate professionals.
They say that the added tax on carried interest profit structures used by hedge funds, venture capitalists and commercial real estate partnerships could be disastrous.
Carried interest compensation results when firms like [real estate professional Robert] Scanlan’s use limited partners as sources of equity to fund commercial real estate projects that the firm believes it can add value to. Those projects range from ground-up construction to existing underperforming properties that a firm turns around with better management and marketing. Once the projects become profitable, they are sold and the limited partners are paid back. The general partner’s share is paid for with the additional profits from the value added - the carried interest.
“It’s the general partner’s sweat equity,” said Chad Rheingold, vice president with WYSE Investment Services Co. and president of the Institute of Real Estate Management in Oregon. “Carried interest is performance-based compensation for the real estate operational expertise of the general partner.”
Read more at the Daily Journal of Commerce.