Local real estate moguls aren't sweating over the new tax laws. So where are they putting their money? B Y J ACK WYNN
few years back, the people who were dabbling in residential real estate could hardly wait to tell you about it. The cocktail party smug index was at an all-time high. Today, even small-time investors have awakened-some of them rudely-to the one fact the pros never forgot : Residential real estate in the Washington area has always been priced to make money as long as it appreciated rapidly. Granted, through the mid-'70s the appreciation was so good you had to strap yourself in to keep from getting giddy. It was a wild ride. But the recent recession and prohibitive interest rates combined to make the conversion of paper profits into real bucks a tougher proposition. It didn't matter how much money you were ahead if you couldn't sell or get out of the deal. The cocktail party chitchat turned to other things.
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OPPORTUNITY KNOCKING
Is there still money to be made by investing in Washington area real estate? The answer to that question is a definite "yes." There is always money to be made in real estate. "But now more than ever, you have to know what you're doing," says Jon J. Prager, chairman of Finalco Group Inc., "Look, they forgot to marbleize the top of that column," said "Biackie" Auger (seated), partner in Maywash Associates, which bou~~t the Ma:y_flower Hotel in 1966 for $14 mt~lwn and ~ spending $65 million on a restoration that wt/1 make it worth over $150 million. Others include Richard Cohen (left), whose family owns 40 percent of the hotel; Kingdon Gould Jr. (right}, and the Stouffer Hotel Corp., which manages the hotel. Bernard Awenenti (center) is the hotel's general manager.
a McLean tax-advantage investment firm. "The days when you could simply sit on the back patio of your Capitol Hill town house and listen to your equity grow are over." According to Prager, there are many places in the real estate market that remain attractive investments, but there are also good reasons for being skittish. "In recent months, the infusion of more discretionary capital into the upper-middle-income and upper-income classes bas caused real estate partnerships to loom larger on the horizon than ever before," he points out. "One of the significant financial advantages of partnerships, of course, is that many offer possibilities for sheltering income as well as achieving long-term gains." ~hen a general partner organizes a group of mvestors to pool their resources to buy, the present tax laws provide them with attractive depreciation allowances on the front end and tax credits on April 15. In the meantime, normal market appreciation works to make their investment fmancially attr.active over th.e life of the partnership, defmed as the penod of time until the prop~rty is milked for as much advantage as the mvestors can gain from it and is sold. But this "can't lose" type of investment is shed?ing some of its luster, and many real estate mvestment specialists, like H. Lynn Hopewell of Hopewell Rembert Advisors Inc. in Falls Church, are raising some warning flags in front of their clients. "Until the Reagan tax program shakes out,'' says Hopewell, "we are urging caution." That's not likely to happen until 1987 when the Congress sorts out the differences and preferences in the Regan tax plan, the BradleyGephart bill, and the Kemp-Kasten bill, he SPECIAL SECfiON OF THE WASHINGTON DoSSIER I APRIL 1985 43