Eliot Spitzer Discusses the Election, Economic Policy, Tax Reform and What it Means for Real Estate

spitzer-300Oct 3, 2012

Eliot Spitzer has had several acts to his career, which has not been without its share of controversy. Lawyer. Prosecutor. Attorney general. Governor. Political commentator. And, now, real estate investor. Along the way he’s had his highs—prosecuting the Gambino crime family when working in the New York County District Attorney’s office and cracking down on financial excesses as attorney general. And lows—resigning as New York Governor just over a year into his term. Through it all he’s retained a thirst for surveying the political and economic scene and speaking out where he sees rights and wrongs. He has emerged as a sharp-tongued commentator on politics and economics, first for CNN and now for Current TV. He also writes a blog for online magazine Slate.

After stepping down as governor, Spitzer joined the family business Spitzer Enterprises. He is the son of Bernard Spitzer—a long-time New York real estate mogul, who, as of 2008, had built an estimated net worth of $500 million.

During his career Bernard Spitzer developed a slew of high-profile luxury apartment buildings in Manhattan, along with a handful of commercial buildings.

Eliot Spitzer now works in the Crown Building on Fifth Avenue—a property Spitzer Enterprises owns—with an office that overlooks Central Park.

Since he joined the firm, Spitzer Enterprises has made at least two high-profile commercial real estate acquisitions in the Washington, D.C., market. In 2009, it acquired 1615 L Street for $180 million. And in 2011 it bought 4800 Hampden Lane in Bethesda, Md., for $90.3 million.

The firm is looking to take advantage of distress. For 1615 L Street, a 412,000-sq.-ft. property, the firm paid $42 million in cash and assumed a $138 million mortgage. The overall price was about $30 million less than the property had traded for in 2006.

Spitzer remains deeply passionate about politics and about the direction of the financial sector. With a background in public service and a burgeoning career as a property investor, Spitzer is uniquely situated to comment on the political and financial scenes.

In a wide-ranging interview with NREI, Spitzer shared his thoughts about the upcoming presidential election, the state of Wall Street and his approach to real estate investment.

Spitzer remains a partisan Democrat and sharp critic of Republican policies. (For alternative thoughts on the upcoming election, check out our roundup of quotes from 16 industry pros.)

NREI: How does the political scene affect commercial real estate? We’re sitting here shortly after the national conventions. What are your reactions to them?

Spitzer: I wear my politics on my sleeve. I don’t wear them as a partisan. I was a Democrat while I was in office. I’m still a Democrat and part of that party. But it’s not because I’m a Democrat as a partisan. It’s because I happen to believe the principals articulated by the Democratic Party have made more economic sense.

Those two conventions really articulated two different economic worldviews. I would be worried if we were to return to what I hear the Republican Party propounding as its desired course, which is [taking] fiscal and regulatory approaches that did not generate meaningful growth during the periods that they were implemented as opposed to a more reasoned and balanced approach that President Obama has implemented. This approach would have been viewed many years back as an entirely bipartisan/centrist approach of fiscal stimulus, tax reform that is designed to keep government spending at a historically appropriate level, fund appropriate infrastructure, defense, education and entitlement programs while simultaneously reining in what needs to be reined in, which is the trajectory of long-term health costs. That’s what Obama is talking about in trying to thread the needle in a tough political and economic environment.

This isn’t high-level economics. It’s simple arithmetic. The arithmetic of the Republican approach doesn’t work. That’s been proven for the last four years. How does that affect commercial real estate or residential real estate?

If you don’t have long-term balanced growth, real estate is going to suffer. We went through the boom and bust of the residential crisis, the mortgage crisis. It was a consequence of the policies primarily of the Republican deregulatory worldview that permitted the bubble to be inflated. There are lots of villains. I’m not trying to put that in a partisan light. It’s a more nuanced story. But if there is one worldview that led to the crisis, it was a deregulatory, laissez-faire perspective about debt and financing that had cataclysmic consequences. That’s what the other side wants to go back to.

I had a fascinating interview with Richard Posner. He was the leading light, the father of the economic worldview that led us down that deregulatory path. And he said, “Hey, guys, that didn’t work.” He’s an incredibly smart guy who was willing to look at the evidence and said, “You know what? We need to appreciate when deregulation fails. And he’s also an avowed Keynesian. He makes no bones about that.”

I’m looking forward to the debates because if they’re done properly they will lead to an intellectual engagement that we haven’t yet seen. When it comes to Romney I’d like to ask if him if he’d taken the oath of office in January 2009, with the economy in free fall as it was, what would he have proposed to do? I’m hard-pressed to believe he wouldn’t have proposed a stimulus of some sort—an old-fashioned Keynesian stimulus. It did work. And for all his harrumphing that the stimulus was cronyism—they like to use Solyndra as the exclusive example of what the stimulus was about—I’d like to have him be forced to admit he would have proposed a stimulus and here’s how he would have done it. And if he merely says he would have cut taxes, the answer is that one-third of the stimulus was a tax cut. Frankly, the part the economists think was the most effective was direct government spending. That’s where you get the most immediate return. That’s why on a macro level I think we’ll be better off if the president wins and he’s able to put in place larger economic policies that he’s been pushing for.

NREI: For the past couple of years business leaders have talked a lot about uncertainty as holding back activity and that includes uncertainty stemming from Washington and not knowing what may happen with taxation and regulation. Do you think that argument holds water?

Spitzer: Can I tell you something? This whole argument about uncertainty is one of the greatest canards that’s propagated out there. Uncertainty about what? There is always uncertainty about what’s going to happen. Congress can always change tax rates. It could repeal the capital gains differential tomorrow. Ronald Reagan did that.

It’s an excuse by people who want to blame somebody. There is uncertainty out there. Smart business folks love uncertainty. It creates opportunity. It creates diverging views about value, which creates the chance to buy and sell and make money. The uncertainty that people don’t like is the uncertainty caused by the cataclysm that was… Read more…

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