office and industrial propertiesMitch Roschelle, a regular on Fox Business and Bloomberg TV, joins us for Part 2 in his two part series to discuss how the new tax bill will impact commercial real estate.

Mitch is a Partner at PwC, and currently serves as one of the firm’s Business Development Leaders. He was a founder of PwC’s Real Estate Advisory practice, and has over 30 years of experience serving a wide array of real estate investors, foreign and domestic. Mitch is a widely-recognized commentator on real estate, housing, business trends, capital markets, the retail industry and the economy. He is a frequent public speaker, and a regular guest and panel member on Fox Business Network, and Bloomberg TV and Radio. Mitch is the creator and co-host of 7DayYield a PwC-sponsored, weekly YouTube program covering trends in the financial services industry. He is the co-publisher of Emerging Trends in Real Estate, a widely-circualted global annual market forecast.

An active proponent of corporate social responsibility, Mitch serves as a trustee of the PwC Charitable Foundation, where he leads its grant-making efforts in youth education and financial literacy. Additionally, Mitch is a member of the Board of Directors of PENCIL.

He resides in Armonk, New York, with his wife Debbie and their teenage twin boys, and their golden retriever Charlie.

Follow Mitch on Twitter: @Mitch_Roschelle


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RealCrowd – All opinions expressed by Adam, Tyler, and podcast guests, are solely their own opinions and do not reflect the opinion of RealCrowd. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. To gain a better understanding of the risks associated with commercial real estate investing please consult your advisors.

Adam Hooper – Hey, Tyler.

Tyler Stewart – Hey, Adam, how are you today?

Adam Hooper – I’m good. It’s episode two.

Tyler Stewart – Episode two, part two,

Adam Hooper – Part two.

Tyler Stewart – with Mitch Roschelle, partner at PwC.

Adam Hooper – Yep, we’re following up the very well-received first episode.

Tyler Stewart – Yeah.

Adam Hooper – Of this two-part series.

Tyler Stewart – Yeah. So much good information.

Adam Hooper – Yeah, so this we talk a little bit deeper about macro pictures, where we’re going with some of the specifics of the tax bill. We talk about some of Mitch’s kind of macro pictures on all the different asset classes, and again, really solid overview of when we’re going to see some of the timing of these things come together and how that’s going to play out as we roll here into 2018.

Tyler Stewart – Yeah, Mitch is going to do a good job of kind of breaking down each piece of this tax bill that’s going to impact commercial real estate investors, so be sure to listen out for that, take some notes. Okay, well again, that’s enough of us talking. I know people want to hear Mitch, so let’s get back into it, but before we do that, as always, if you have any questions, comments, or concerns, or show ideas, please send us an email to and we always appreciate those ratings and reviews on iTunes, Google Play, and SoundCloud.

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Adam Hooper – Well, let’s take a switch back to housing, and we talked about that a little bit earlier. There’s everything going on with the mortgage deduction, reducing the cap of how much you can do, the state and local taxes, and the 10K limit there. What is the sentiment around… let’s split it up into current home owners, and then maybe people that are looking to buy a home. How is this impacting them and what’s that outlook?

Mitch Roschelle – If you follow my Twitter feed, you’ll… And by the way, for those of you listening and not driving in your car right now, it’s @mitch_roschelle, it’s R-O-S-C-H-E-L-L-E. I’m always shamelessly trolling for Twitter followers.

Adam Hooper – That’s a good plug, we’ll allow that.

Mitch Roschelle – Yeah, it’s a good plug. I should have done it three times by now, but in any event, I’ve commented a bunch on that. Let’s remember this: the median house price in this country is, let’s call it $250,000 just to have a round number. That mortgage deduction cap is three times that.

Adam Hooper – Not going to have much of an impact.

Mitch Roschelle – Right, so let’s talk about property taxes for a second. If the median house price is $250, property tax, median numbers, low $3,000s, so that $10,000 cap is three times that. Now that cap is to take care of both property taxes and other state and local taxes, so it’s really a hit in high-tax states. It’s a hit in the markets like… I live in Westchester County. If you look at all the stuff in the New York Times, all the charts, they put a big warning sign over where I live in suburban New York but that’s not necessarily reflective of America as a whole when you have a median house price of 250, and you raise your family in that median house, and let’s remember, if we fell asleep in statistics class whenever we took it, median means half are more and half are less, so half of the homes in America are selling for less than $250,000. I’m bullish on how this still leaves the incentive out there. The question you didn’t ask, not that there’s anything wrong with your questions, but is when you double the standard deduction to 24,000 or approximately, roughly, for a couple married filing joint, you’ve taken away, on its face, the incremental incentive of the mortgage deduction, because the mortgage deduction really only kicks in if the sum total of all of your itemized deductions exceeds that standard deduction. That’s well above where the median house price is. The sweet spot of this is continuing to be able to deduct mortgage, but at the same time incrementally losing the benefit

Mitch Roschelle – of the state and local taxes because you’re over the 24,000. We’re going to see this play out in the right side of where you draw the line in old homes, where the left side is less than 250 and the right side is more than 250. That’s where we’re going to see it play out, and I referenced earlier the analysis about a 4% reduction in home values as a result, and they did, in that analysis, which was really well done, by Moody’s Analytics, they really did take it down to the geographic level and took the tax benefit into account. It’s still a little unclear there, but there’s still enough incentives. What doesn’t get a lot of press, similarly and this is not real estate specific, but the behavior will be the same, is the loss of the charitable contribution. Now you can still deduct charitable contributions, just like you can deduct mortgage interest, in fact there’s no cap on that whatsoever, however, when all of these things that people did because they felt that they were getting an incremental benefit from doing it from a tax perspective, or said another way, the government was your partner in that contribution, when you don’t feel the incremental benefit, will the incentive change and people stop doing it? If you listen to the state and local I’m sorry, forgive me, merging topics. You’ve listened to the world of philanthropy, the estimates that they’re throwing out there of the hit to the industry, their industry, is enormous. Now that may be crying wolf, who knows, but that’s a consideration.

Mitch Roschelle – You have to watch all of those things over time, and realize that elected officials like to put their stamps on things that change society and so forth. So this is all… Another Congress could pick this thing back up again and try to adjust things in here that they think aren’t working. That’s when the lobbying starts. I know the president talked about draining the swamp, and he put all the lobbyists in the category of the swamp, but they were alive, and well, and active, going into the passage of this Tax Cuts and Job Act.

Adam Hooper – And so housing, again, you will see how that plays out. It’s similar to my question on the timing of jobs and how that impacted. Do we have any idea when this impact on the housing pricing might come forth?

Mitch Roschelle – I’ll give you a really short-term answer to that. If you look at the housing numbers that came out in December, so those were November numbers, everything was really strong. Home builder confidence was up. Starts were up. Sales were up. That’s about as off-season as you can get in the housing sales market. Supply remains low. We’re still talking like three month supply of new and existing homes. That’s scary, but the housing starts number was up. What’s interesting is going into the discussion of the tax bill, and when the initial framework was rolled out, the lobbying efforts from the National Association of Realtors, and the home builders association, was really, really aggressive, and they were pushing hard about how bad this is going to be for the housing market. Fast forward, their rhetoric has changed quite a bit. They’re way more optimistic than they were. Perhaps they got the concessions that they were looking for, but look at the behavior. Housing starts are up. Home sales are up, and home builder confidence is up, and you heard that sound of sort of skepticism in my voice intentionally, that it’s inconsistent with what one would expect. In answer to your question, in the short term I think we’re going to see more short-term, positive behavior in the housing market than one would have expected, and that could be good because, again, there’s a knock-on effect. Enthusiasm breeds more enthusiasm, but I don’t want to see us going into the housing market, to go into the next selling season

Mitch Roschelle – in the the spring of 2018, with three months’ supply. That’s just not good for anybody. I’ve always said, you can’t buy a house that’s not for sale. You can buy a house that’s not on the market, but you can’t buy one that’s not for sale, and if you do, it’s just going to drive up prices more, again, putting more pressure on affordability.

Adam Hooper – And also with that delta that you said of in the creation of new households, these demographic shifts that we’ve been talking about in the podcasts for the last year, of the boomers and millennials, should be, or could be some good trends for continued success in the multi-family investment space. Switching from homeownership to investments in commercial properties, is this across the board for all commercial real estate, different asset classes are going to benefit more, different geographies, different sectors, or is this just kind of an across-the-board, rising-tide situation?

Mitch Roschelle – No, I don’t think it’s rising tide, because retail’s still in kind of a bad way–

Adam Hooper – Challenged, yeah.

Mitch Roschelle – And the challenge is a good word. We have 10 times more retail per square foot than Germany does. We’re at 20-something square feet per person, and they’re like two-something square feet per person, and whenever I put a chart up when I speak, somebody raises their hand and goes, “Is that metric?” No, it’s not metric. They are very efficient with respect to retail, so we’re probably under-demolished in terms of retail. Let’s look at multi-family. I made the business case for industrial. That is not a new story. Funny thing about industrial, when it started to become very popular in Emerging Trends, and I said on, I think CNBC, that it was the least sexy of all of the real estate food groups, somebody said to me, “Can you stop talking about industrial?” And I said, “Why? It’s the number one thing to invest in,” in whatever, 2013, ’14, whenever we broke it in Emerging Trends, and they said, “Well, we want to invest in it, and if you tell people in Emerging Trends, then everybody’s going to know about it.” I was like, “Well okay, 1,000 people responded to the survey and picked it number one, so you’re not alone, pal.” But industrial’s still strong, and it’s part of the supply chain. Last mile is really important to industrial. It’s really about moving that closer to where the people live, which is urban infill industrial, which is going to be an interesting thing to watch happen. Office is the thing that I’m not entirely sure about. I talked about the suburbs before. Something interesting happened in Emerging Trends this year.

Mitch Roschelle – Fort Lauderdale made it to the top 10 cities. Never even close to the top 10 cities before. In fact, I think we lumped South Florida into one basket years ago, until we broke out individual sub-markets more, and when we decided to go look at it, and unpack why, what we found out is that commutation is becoming a bigger and bigger issue for young families that are trying to buy their first home, or rent their first apartment, and that when affordability becomes a challenge, whether it be in rents or in home prices, they start moving further away, as I said earlier, but when commuting becomes a hassle, and if you know Florida, and you sit on 95 from Broward County to Dade County, and you just listen to your podcast, you know–

Adam Hooper – You’re either doing 95 miles an hour or five.

Mitch Roschelle – Exactly.

Adam Hooper – Not much in between.

Mitch Roschelle – You nailed it. What happens is they start moving further and further away. What’s interesting is, jobs chase people, not the other way around, so what employers have done is realize, you know what? Broward County’s not a bad place. It’s way more affordable to do business than Dade County, and look at all these people who hate commuting. We’re going to open up there. So what you’re seeing is this suburbanication, I made up a word there–

Adam Hooper – I like that.

Mitch Roschelle – of not only where people live, but where people work. So the suburban office… It’s so funny when I think of Fort Lauderdale, because I got into this business in the ’80s in the wake of the 1986 tax act, when tax syndications blew up, I was knee-deep in workouts, and there was a ton of them in Florida. So there were all these buildings that were in tax shelters in the ’80s that I worked on the bankruptcies of, three decades ago. These are the hot buildings to work in today. If we only knew 30 years ago, but the fact of the matter is people just want to live closer. I don’t entirely have a great answer for you, forgive me, and your audience, for what’s happening in office, because office is going through its own transformation. Less square footage for employee, that’s a trend, and the shared space players, in the sharing economy in office: huge. And that’s happening more and more and more and more. There’s massive disruption going on in office, and you got to sort of pick your spots there. Yeah, invest in a well-tenanted office building. That’s always a good thing, but you got to look at who those tenants are a lot differently, because you have to figure out the role of disruption, and how quick disruption happens in different industries. We watched retail get disrupted over the course of 20 years. Pick another industry and you can watch it get disrupted in three quarters. Look at the taxi and limousine business in every major market in the country. They think that they would get disrupted as quickly as they did?

Mitch Roschelle – No way. The lodging industry has proven its resilience because it got disrupted by all of the opaque sites that exist to let you book hotels through them, as opposed to booking through… What’s happened in that industry? It’s gotten matured, and all of those opaque sites have merged, and there’s really only one, or two, or three players in that industry right now, but what the lodging industry did, they evolved themselves, and learned how to coexist with those players, and adjust their pricing, but some industries just aren’t resilient enough. You got to really look at office from a risk of disruption perspective, but suburban office is interesting. The other thing about office that’s very interesting is medical office, because there’s one thing I’ll tell you is we have an aging population. My dad’s 91 years old, God bless him. The fact of the matter is I think his only job at 91 is going to the doctor every day. If you look at, not to go down the Affordable Care Act rabbit hole, but if you look at Medicare and Medicaid, and the way it all works, there’s an incentive on the part of the health service providers, health care providers, to book multiple appointments, to have you come back every day, because that’s how they get paid. There’s a growing demand for repurposing suburban office into medical office, and so you got to look at office a little bit differently than you did in the past, but I think office is going to get disrupted, and our avid readers of Emerging Trends

Mitch Roschelle – have seen us talking about that for some time. That’s the food groups of real estate. The one we didn’t talk about is land, and land’s interesting because at the federal level there’s an impetus to deregulate, and I would argue that the only thing that’s truly happened in deregulation, that’s really, really noteworthy, is we’ve, at least in the financial services industry for example, what we’ve done is we’ve slowed down the pace of enactment of regulations, but we’ve also changed the referees who are responsible for implementing those regulations, and we’ve made things a bit easier. What we haven’t done is deregulate at the state and local level. What may happen, as state and local governments try to figure out how to balance their own budgets because things are going to shift, what they may do is be forced to deregulate because the cost of regulation in their budget is going to be something that they’re going to come to realize they’re going to have to get deregulatory, but if you’re a builder, and I talk to them all the time, as you guys do all the time as well, the thing that drives them crazy is the amount of state and local regulations around just trying to build something on a piece of land. That’s the future of real estate, as I sit in my basement.

Tyler Stewart – Yeah wow. Wow, that was great. You mentioned the four food groups of commercial real estate. I’m going to combine two different ideas here, which could be dangerous.

Mitch Roschelle – This is Adam speaking, right?

Tyler Stewart – This is Tyler.

Adam Hooper – I don’t do dangerous much, but this could be dangerous.

Tyler Stewart – You mentioned commercial real estate used to be location, location, location. It’s now becoming jobs, jobs, jobs. With the Jobs Act and what will hopefully boost the jobs economy and bring more jobs to the US, where you do you see the location of those jobs trending to? Do you see certain states or regions benefiting more from the…

Mitch Roschelle – Any place that’s affordable to do business, and affordable to live, is going to see the benefit of that, more than the places that are the opposite. The little secret sauce buried in those places is higher education. Little bit of a history on Austin. Austin has been in the top 10 rankings of Emerging Trends for, not a decade, but closing in on it, maybe seven years. When it first happened, I got into an argument with one of our researchers/the guy who used to, emphasis on used to, write Emerging Trends, because he didn’t think it was real. He thought it was like people just went through the list, and it started with an A, so they checked it off, and I said, “Well, why did they check off Atlanta?” Albuquerque wasn’t in the list, nor Amarillo, but the fact of the matter is, here’s what’s going on in Austin: you have this secret sauce, which is not only UT Austin, but there are other schools that are there. When you have a combination of higher-education institutions that pump out skilled labor, that can live there affordably, companies looking for labor go to those cities in search of talent, and when they find it’s there, and they find it’s affordable to do business, they stay there, and you get yourself in a virtuous cycle. The thing that’s going to speed up the virtuous cycle is all of these jobs getting created there, and as talent starts sort of rushing to there, just the velocity of that virtuous cycle just becomes its own little force of nature. If you want to find the where, go look at those affordable-to-do-business places.

Mitch Roschelle – Go look at Salt Lake City. Go look at I’m going to give you a crazy one: Detroit, Michigan. The number of startups in Detroit is staggering. Cleveland, Ohio. Detroit has some of the education. All the kids go to Michigan in Ann Arbor, and then they kind of find their way to… Cleveland doesn’t have as much in terms of higher education, but I did speak there this year, and I was blown away at the number of institutions that do exist there. Case Western’s there. There’s a bunch of other ones. But go look at that. Columbus, Ohio. I call Columbus, Ohio, the cold version of Austin, Texas. The unanswered question is, why? Because the higher-education institution is attractive to not just millennials and Gen Z behind them, but also the baby boomers, because as they look for things to do in semi-retirement, the culture and the other ancillary benefits of being in a city with a serious educational institution are very attractive to the baby boomers. One thing I’ll tell you is, tomorrow is jobs Friday, we’ll see what the workforce participation rate is, and maybe it ticks up a little bit, which is great, but the workforce participation rate in this country has been falling precipitously over time. This is not new. This has been happening since like the ’50s, and if you look at that, I’ll tell you that there’s one exception. The workforce participation rate that’s captured in the headline number is Americans 16 to 64. That’s the definition of the American workforce by the Bureau of Labor Statistics. If you look at the workforce participation rate for Americans 65 to 74,

Mitch Roschelle – that workforce participation rate is growing, and growing considerably. That’s important in those municipalities, or those cities, what have you, that have that higher education, because that’s where baby boomers want to go, and they’re still in the labor market, people. Don’t write them off. You asked for where, and I gave you five pages and not 140 characters. Appreciate that. You can cut me up all you want in the edit room, but the where is those cities, and look for the secret sauce.

Tyler Stewart – Yeah, if we want those 140 characters, where do we go again?

Mitch Roschelle – Oh, it’s @mitch_roschelle, and it’s R-O-S-C-H-E-L-L-E, and if you follow me, then you can also follow my dog, who has a similar Twitter handle.

Adam Hooper – There you go. Okay, so we’ve got three more main things I want to touch if we’ve got the time today, first of which is depreciation schedules for, specifically, and we’re talking about commercial real estate here, that’s a pretty big impact on tax. This new bill accelerates the historic distribution, or the depreciation schedules. That’s right?

Mitch Roschelle – As I understand it, yes. If you look at a big picture, and stepping back from the wonkiness of depreciation schedules for a second, if you look at the important thing in the bill, it’s the immediate expensing in general. That benefits real estate as well, but the whole impetus was to get companies to invest. If you look at the passthrough rules, we talked about them earlier, there are benefits to capital that are different than the benefits to the service side, which gets people to think about buying, as opposed to leasing. I don’t want to get into the weeds, or the rules that haven’t been written yet by Treasury, but if you just look at the purpose, the purpose of all of it was to get people to buy and invest capital in physical assets, and plant and equipment, and the depreciation rules are supportive of creating those incentives. So again, good for, in the investment sales business, good for real estate developers, good for the real estate ecosystem.

Adam Hooper – Yeah, specifically on the non-residential side, the depreciation going from 39 years to 25 years, to get it in line, now residential also at 25 years, that should have a meaningful tax impact for investors and commercial properties.

Mitch Roschelle – As long as I’ve been in this business, depreciation has been a tax incentive. I remember days of investment tax credit, which was really an immediate write-off on steroids. 15-year lifes for depreciation. All of that created tremendous incentives to invest in real estate. We haven’t gone as short as 10 and 15 years on some different kinds of property, but the fact of the matter is, by shortening depreciation lives, you do create incentives for investment.

RealCrowd – Thanks again for listening to the RealCrowd podcast. If you like what you’re hearing, please visit to learn more, and subscribe at iTunes, Google Music, and SoundCloud. RealCrowd, invest smarter.

RealCrowd User – My name is Jack, and I’ve been in the financial services industry for over 30 years. I’ve done six different deals. When I first started doing these deals, I was looking for sort of core real estate cash flow. I wasn’t looking for a lot of upside return. I wanted more immediate yield, and so I went conservative to start, and then as I’ve gone through, I’ve just looked, really at the quality of the sponsors, first and foremost, and their level of experience. Now I’m trying to mix in different types of properties, different geographies. I wanted some core plus, and a little bit of development, so it’s still pretty, in my view, a conservative portfolio. It’s mostly focused on sponsors, and then looking at the projections as far as how much of the return would come from current income and yield, and how much of it would be based on appreciation, and thinking through whether or not, you know, how much risk there is in the appreciation being realized. So it’s really a portfolio approach for me, looking at different sponsors, different geographies, different property types, and even different types of properties as far as core, or core plus, or development. I’m looking for I guess I would start with a certain level of return, because my investments are primarily in equities, and I look at the direct real estate investing through RealCrowd as being a diversification play, but I also want a pretty substantial rate of return, so I typically look for properties that have a yield of seven, eight, nine percent current income, and then an IRR that’s in the mid to upper teens,

RealCrowd User – low twenties in some cases. So I start with returns. I focus on sponsor. I look for property types that I don’t have already invested in the portfolio, and then I guess finally look at geography. Well I think that diversification’s important to any portfolio. I looked at a number of different crowdfunding portals. I chose RealCrowd because I like the transparency. I like the fact that the sponsors pay a fee to be on the portal, and that there’s not built-in fees for RealCrowd in the compensation structure of the deal, ’cause these deals are fairly complicated to understand anyway because you’ve got to pay a management fee, and incentive fee, and things like that, and if there are embedded fees from the portal provider, it just makes the complexity so much higher. So I think the key, for me, is the transparency, and I just think that direct real estate is a great complement to a lot of other stock and bond portfolios. I think it provides inflation protection, current income, and appreciation potential, and for me, direct real estate is better than REITs, which are more subject to market fluctuation in price, and I just think with the minimums that are out there now, and the quality of the sponsors, it’s a really good way for a lot of investors to access direct real estate without the hassles of property management on your own. So I think it’s an important advancement for a lot of investors to diversify their portfolios.

RealCrowd – Thanks again for listening to the RealCrowd podcast. If you like what you’re hearing, please visit to learn more, and subscribe at iTunes, Google Music, and SoundCloud. RealCrowd, invest smarter.

Adam Hooper – Next up, the 1031 exchanges. I know that’s hard to take a high level on that one. You said that we could spend a couple hours just on that alone, but by and large, 1031s didn’t get hurt, or they remain relatively unchanged from what they were historically.

Mitch Roschelle – Correct, so 1031s got a pass. There was talk about taking them away. They got a pass, for the most part, and you know, 1031s are very, very important in the estate planning as well. In all the political rhetoric, when we talk about estate… it’s estate-with-an-e taxes, it was the farmer who was passing the family farm down to the next generation. Well, so too does the role of like-kind exchanges play in some of that estate planning, which is to protect that wealth so that it can continue to get passed from generation to generation and not have the government step in and take away some of that wealth so that jobs couldn’t be created. I mean, that’s the Republicans, and I’ve spoken to a lot of congressmen and senators about it as they were guests on Mornings With Maria, which I do a couple of times a month on Fox Business, and that’s who they were thinking about. When they personified who they were trying to protect in restoring, or preserving, some of these provisions of the existing tax law, they were looking at those small business owners who were passing that business from generation to generation.

Adam Hooper – The 1031 is certainly an interesting topic for a lot of our listeners. It’s not directly applicable to most of the deals that we see on RealCrowd. Again, those are interest in LLCs, which still I don’t believe you can exchange, even with the new law, but that is obviously a topic that listeners are interested in. Good to hear that remains relatively unchanged. Now getting more to the management side…

Mitch Roschelle – And one thing on 1031s, just to if I went two miles deep on most answers and I went like five inches deep on 1031s. What I end up finding about 1031s is, whenever you talk about them, and especially with audiences, the questions that audiences have are always case-specific, because there are so many rules involved, and people want to know about their fact pattern, so that’s why I went an inch deep there, as opposed to how deep I went on other things, but what I would suggest is if you did a segment on 1031s, I’d grab one of my 1031 dudes and they can get real deep, but I’ve always found, whenever I’m in something on 1031s, and questions come from the audience, the questions are always about that person’s–

Adam Hooper – Very case-specific, yeah.

Mitch Roschelle – It’s never about 1031s in general, and by the way, I wanted to get through this with not mentioning a code section, so let the record reflect that you–

Adam Hooper – That was me. I brought that up. I’ll take the hit for that one. Okay, so last major topic we want to talk about is the carried interest. More so applicable for the managers out there than necessarily our investor listeners. What changed about carried interest? Commonly in our world, the promote, the sponsor promote is carried interest, one and the same, different term.

Mitch Roschelle – The holding period is the only thing that really happened there. If I were to make a prediction about the next wave of tax reform, if there’s anything that happens after this, carry’s in play. I don’t necessarily buy that notion that big private equity was lobbying really hard. I think that the reason why carry was left alone was because of the role that private equity does play in aggregating capital, and ultimately creating jobs, and I don’t think they wanted to overly disrupt the ecosystem of private equity because of how vital they are to our capital markets in this country. If we had a different regime in our country, as relates to private equity, then perhaps let’s say the EU, would capital that invests in private equity shift towards another jurisdiction because the rules are different? Because if you look at private equity, US-based private equity sponsors invest around the planet, but they aren’t necessarily wed to being US-based private equity sponsors. If they found a regime that was better, they arguably could do it elsewhere, where the sponsor be located. I’m not saying that one of our private equity players picks up and moves there. My point is that there would be tax incentives that would make it disadvantageous there, when new private equity players are emerging, they’ll emerge elsewhere. So I think that Congress was trying to protect the formation and distribution of capital, and not overly disrupt it as other things were happening that were disrupting the capital markets, so–

Adam Hooper – Yeah, and the change that you mentioned, the timing, is the shift of when long-term capital gains are triggered from one year to now three years. Is that correct?

Mitch Roschelle – Correct.

Adam Hooper – And so in our world, that could have an impact. This is Adam, personally I believe real estate should be a longer-term asset class. A lot of our space in the crowdfunding world was much shorter-term deals, which were 18 to 24 month, lot of kind of fix-and-flip, heavy value-add, get-in-get-out, get past that year and then you’re good on long-term capital gains. We could see that having a pretty big impact on just the business plans of sponsors going in there. That’s a pretty big change, ordinary income versus long-term capital gains, that could have an impact in our space. Is that something that you have seen, or–

Mitch Roschelle – Yeah, you nailed it. I love when a host answers their own question. Makes my life easier. I can sip my water, but the fact of the matter is I don’t believe that the writers of the tax bill in the House or in the Senate, were as granular as to think about the behavior in flipping, and whether or not they wanted to disincentivize flipping by forcing people to hold longer. I don’t think so. We could do a show on flipping, and its virtues and lack of virtues, or whatever, but I don’t think they were that granular. I think they were looking bigger picture at the formation of capital, and saying, is one year really long term? Let’s be realistic. Like, what are the holding periods? Is one year really long term? And I think they were looking at the big dollars, and not necessarily all of the dollars, and if you look at the big dollars, you have to look at private equity, and the big players in private equity, and they hold for three years. Do what they do, they hold for three years. Don’t forget, the other thing they wanted to make sure that happened is when companies are acquired by private equity, and those companies are monetized, using private-equity-speak, in capital transactions that happen in the future, public IPOs are not uncommon. They could take a company that was public, make it private, do stuff to it, and then take them public again for their exit. That generally takes many years, and often more than three, but what they wanted to make sure was when those public exits happened, they’re happening on the NASDAQ

Mitch Roschelle – or on the New York Stock Exchange. They’re not happening in another country on another exchange. That’s what was all part of it, but I think carry’s still going to be in play. It’s a word if you made a word cloud of things that come up in the midterm election rhetoric, carry’s going to be a visible word in the word cloud. Infrastructure’s going to be a visible word in the word cloud too. We haven’t talked about infrastructure and how it all gets paid for, but I think you got to look at carry as something that continues to get discussion. I’m not saying they’re going to start writing legislation around it, and have a 2.0 of the Tax Cuts and Job Act, but I think carry would be remaining something that gets talked about, potentially as a source of revenue. The interesting thing was, I think it was CBO, Congressional Budget Office, who scored one of the proposals about carry. Interestingly enough, taxing carry at something other than long-term capital gain rates, did not yield the billions of dollars of revenue that were expected, to pay for things that they were looking for pay-fors. So there didn’t seem to be as much juice in it. Don’t know, we’ll see.

Tyler Stewart – In the ongoing discussions that may occur around carried, do you have a sense for the direction? Is it going to be a hold period thing?

Mitch Roschelle – Yeah, no, I don’t know. If you lengthen the hold period beyond three years, do you really start changing… that gets into the squishy part of whether or not legislation is interfering with the business model. It would be some other tax rate. We didn’t create a special tax rate for pass throughs. We implemented this 20% deduction. We may create a special tax rate for something that’s called carry.

Adam Hooper – Separate from short-term and long-term capital gains.

Mitch Roschelle – Right. Short-term is–

Adam Hooper – Ordinary income, yeah.

Mitch Roschelle – Yeah right, so just as we’ve sort of done in the past legislations create new tax rates for dividends, do you do something with respect to carry? It’s a compromise strategy. The question is, is anybody in Washington capable of compromise? That’s why I bring up infrastructure, because infrastructure is something that is always referred to as being bipartisan, yet in the last nine years in Washington, I can’t think of too many things that are bipartisan. Hurricane disaster relief: bipartisan, but can’t think of too many things legislatively that are bipartisan.

Adam Hooper – We had our jobs act, the 2012 jobs act. I think that was a pretty bipartisan effort.

Mitch Roschelle – Yeah, I think so. I think so, but different time, right?

Adam Hooper – Very much so.

Mitch Roschelle – Affordable Care Act, okay? It required 60 votes in the Senate, because they didn’t do it with reconciliation. Those Republicans who voted in favor of it, how many of them are still around, and A and B, is there a single Republican who views it as being bipartisan? They certainly aren’t on the campaign trail.

Adam Hooper – Right.

Tyler Stewart – Yeah.

Adam Hooper – ‘K, well I think we’re–

Mitch Roschelle – Are we out of time, guys?

Adam Hooper – I think we might I mean, again, we could probably spend another many, many hours on each of these issues, but that’s a pretty we might actually even split this into, uh–

Mitch Roschelle – That’s when I start sending you dudes a bill.

Adam Hooper – Before we start closing out… Tax bill’s passed. Lots of work before this actually comes into effect. Lots of regs that need to be written. Unknown timing. Unknown outcome on what 2018 actually looks like from a practical standpoint.

Mitch Roschelle – All of the above, but it’s the law of the land, and lest we forget it’s the law of the land. Whether you voted for the president who signed it, whether you voted for the congressman or woman in your congressional district who voted yea or nay for it, whether you voted for the senator in your state, or the two senators in your state who voted yea or nay for it, the fact of the matter is it’s the law of the land, okay?

Tyler Stewart – And we just need to figure out how to interpret it.

Mitch Roschelle – Right, and how it’s going to impact our business, whatever your business is, and how optimistic our industry, real estate industry will be going forward, in light of the legislation. My bet is optimism, the favorable, positive optimism in the real estate industry continues. It’s linked with the economy, and they economy’s continuing to grow and expand.

Adam Hooper – And do you want to give us just a few indicators you’re looking at as 2018 chugs along?

Mitch Roschelle – Yeah, I mentioned inflation, keeping an eye on inflation. Definitely looking at GDP. Looking closely at the housing market, housing starts in particular. Don’t really start focusing on home sales until we get into the season, but starts is one I’m looking at. Home builder confidence, definitely care about that, and retail sales, post-Christmas, want to look at retail sales. Also, look at auto sales. Reason why you look at auto sales is that the number one vehicle sold in this country is the pickup truck, and the pickup truck is the biggest capital investment of most small business owners, for a variety of reasons. I didn’t even tell you what kind of business it was. Those businesses are LLCs. They now have tax incentives that they didn’t have before. I’m not saying go out and buy stocks in automobile manufacturers. I’m not making an investment recommendation. What I’m saying is look at auto sales as a leading indicator of whether or not the tax incentives that were baked into 500-plus-pages legislation are actually having the effect, because when you have people making investment decisions, what kind of investments do they make? I’ll kind of leave you with this. I was in a, I believe, an Uber or Lyft car, or car service car, coming home from New York City after something. I was on the phone with a producer from Fox Business Network, I just gave them more plugs than I gave myself, about a segment that I was doing the following day, but the conversation ended up just becoming more of a conversation than prep for a segment, and unbeknownst to me,

Mitch Roschelle – not only was the Uber driver a listener, a Fox listener on satellite radio in the car, but was listening, and he was an immigrant to this country, and he said, “So you like the tax bill?” And I said, “You know, yeah, you know,” and you know, like, “Dude, you were listening to my whole conversation,” and he said, “I like it too,” and I said, “Why do you like it?” And forgive me, it was not a sharing economy kind of thing, it was a car service guy, so he’s a business owner. He owned his own car that he leased a medallion, that’s the way car services work in cities. He leased a medallion from the car service company, and he says, “I’m going to buy a second car,” and I said, “That’s interesting.” I said, “You can’t drive two cars at the same time, my friend,” and he goes, “No,” he goes, “I’m going to hire somebody.” I said, “Really?” And he says, “I’m going to create a job. “Isn’t that was this tax legislation was all about?” And I’ve never told that story on the air before, so you should be flattered that it’s your air that I’m telling it on.

Adam Hooper – There we go.

Tyler Stewart – We’re honored.

Mitch Roschelle – I’ll tell you a similar… No, you should be. Tell you another story of a guy who is a charter fishing captain in the East End of Long Island, which is the Hamptons, if you’ve heard of that, and he’s got a big Trump/Pence sticker on the side of his boat, so you know which way he leans, but he said that if the tax bill passed as it had been talked about, this is last I saw him was in the summer, he said he was going to invest and potentially buy another boat, and he said, “I can’t drive two boats at the same time. I’ll have to create jobs.” Your question was, what are the things you’re looking at, Mitch? I’m going to look at purchases of pickup trucks because I think pickup trucks could be a leading indicator of whether or not people are making investments, because if you already own a pickup truck for whatever your business is, you can’t drive two of them. You got to hire somebody to drive the second one, and so maybe I’ll create the pickup truck…

Adam Hooper – Pickup truck index, leading indicator. There you go.

Mitch Roschelle – Leading indicator–

Adam Hooper – Pickup trucks and charter fishing boats.

Mitch Roschelle – Charter fishing boats are a harder thing to measure than pickup trucks, but I like to always, and hopefully I did it with you guys, sort of give you insight that maybe you didn’t hear elsewhere, and that’s why I concocted on the fly, the pickup truck index.

Adam Hooper – Well I like it, and I think those are real-world examples of impacts that this is having, that kind of supports the goals, that those are good things here. I personally like that we’re talking about fishing. We should probably head out there and go chase some stripers out on the island, think that’s–

Mitch Roschelle – Wow, now let’s do a show on that.

Adam Hooper – You tell me when and I’ll be out there.

Mitch Roschelle – But you know what? The stripers on the East End of Long Island are a little over-fished. You guys are in Georgia? Where are you guys?

Adam Hooper – No, we’re in Portland. We’ve got a bunch of steelhead out this way.

Mitch Roschelle – Oh okay, there you go. Well, if you take a diagonal across this country and land your G5 in Florida, the place to fish is Islamorada in the Florida Keys, which is the self-appointed sport fishing capital of the world, and let me tell you something, it is. That is the greatest… When I fish down there I always text a fishing buddy of mine back home, and I fish in Long Island Sound in New York, and I always text him pictures of the fish, and he once texted me, “Mitch, our fish suck.” I was holding a mahi, holding a sailfish, holding this big grouper, and he goes, “Mitch, our fish suck.” Steelhead are fun, so maybe I’ll make my way out to Portland.

Adam Hooper – Yeah, do that, and then we’ll go catch a tarpon on the fly down in the Keys. That’s a bucket list for sure.

Mitch Roschelle – Both bend the rod, so–

Adam Hooper – Mitch, you want to take a second to talk about PENCIL?

Mitch Roschelle – Oh yeah, thank you for doing that. So if I step back a little bit, one of the things we’ve done at PwC, I’ll give a plug for my firm, is we try to figure out how to marry the desire of our people to give back to the communities they serve, and institutionally our desire to give back to the communities we serve, with someplace where, and a way that we can do it, and skills-based volunteerism is really a strategic imperative to businesses like ours that are all a function of the aggregation of our people. Five years ago, we made a commitment to try to tackle the financial literacy crisis that exists in this country. When I was asked to lead that effort on behalf of our firm, one of the things I noticed was we had all these people who wanted to volunteer. I had to get them organized. We created a curriculum to teach financial literacy in schools, but what we had a hard time doing was getting into schools to do it. I stumbled across PENCIL, which is a New York City-based not-for-profit, who had a portfolio of schools, and what PENCIL does is it matches up companies that want to do good in schools with schools that need good done in them, and that is not our official tagline, but that’s the one I’ve always used to describe what we do. I’ve been a member of the board of PENCIL for about five years now, and what we really try to do is change the lives of New York City public school kids by bringing in resources that companies have that they take for granted. How to get a virus off of a computer is something that people in companies know how to do

Mitch Roschelle – because we have people who do that for a living. We just bring those people into a school, and help the schools just de-virus their computers. That’s one example. We have a studio in our offices in PwC, 300 Madison in New York, and we have a crew of folks who produce videos for us. They wanted to volunteer in schools, so through PENCIL I got them connected to a school, and for the last three years they’ve been teaching video production and storytelling to kids in a New York City public school.

Adam Hooper – That’s great.

Tyler Stewart – That’s awesome.

Mitch Roschelle – It’s not necessarily the skill that you would think that exists in a Big Four professional services firm. That’s what PENCIL’s enabled us to do. It’s a great organization, and I thank you both, Tyler and Adam, for letting me give a shout-out.

Tyler Stewart – Absolutely, and then we have a lot of listeners and investors in the New York area, and business owners, if they wanted to get involved with PENCIL, how could they go about doing that?

Mitch Roschelle – You can just contact me. I don’t know if in the link you’ll put my email address, or they can follow me on Twitter, and I’ll follow them back and DM me. You talk about crowd, just to mention crowd for a second, I run the New York City Half Marathon every year, and I crowdfund raising money for PENCIL, along with 15 of my colleagues from PwC, and we’ve raised about $35,000 each year using CrowdRise as a platform. If you want to get part of that crowd too, and if you’re a listener in New York City, and you want a spot in the half marathon, ping me. Maybe I can crowbar you in as well. PENCIL’s a great organization, and just find me, and I’m happy to connect the dots.

Adam Hooper – And one last time, what’s that Twitter handle?

Mitch Roschelle – It’s mitch, M-I-T-C-H, underscore, roschelle, R-O-S-C-H-E-L-L-E (@mitch_roschelle), and tweet me, and I’ll tweet you back.

Adam Hooper – Perfect, well Mitch, this was awesome, and listeners, as always, if you have any comments or questions, send us an email to We always appreciate ratings, reviews, feedback, iTunes, Google Play, SoundCloud, or wherever you listen to the podcast. If you’re interested check us out,, to see what we’re up to. Thanks and we look forward to bringing you more episodes here in season two.

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