Which Property Markets are at Risk from Federal Cutbacks?

by Jim Costello for CBRE

The President’s debt commission has been struggling with the difficult problem of working up a plan to prevent a U.S. debt crisis along the lines of what occurred this year in Greece and Ireland. As federal largesse is spread across the U.S. unevenly, to the extent that the solution involves spending cuts, certain states and metropolitan areas are likely to feel the pain of cutbacks more acutely.

If one were to view the situation the Federal Government is facing in terms of a loan workout, the prospects for resolution would not be very good at the moment. A lender involved in the renegotiation of a loan would look to issues like the borrower’s future potential to generate revenue, including the ability and commitment to manage the asset moving forward. The preliminary proposal put forth by the debt commission calls for a mix of tax hikes and spending cuts that in combination might work, but only 11 out of the 18 commission members voted to send the proposal on to Congress. While there does not yet seem to be a commitment to manage the budget of the Federal Government going forward, the capacity certainly exists, though it will not come from natural growth.

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