Uncertainty Stalls Hotel Developer

From Free Enterprise

Tom Torgerson (right) says that his hotel and restaurant development company will start “winding down” if the administration gets another term to pursue its tax and regulatory agenda.

Like everyone else in the country, Tom Torgerson is keeping a sharp eye on the upcoming elections, and the results will have ramifications for him as well as his company far beyond Election Day.

“The outcome of these elections will have a dramatic impact on the rate of our future development,” says the 54-year-old CEO and chairman of Torgerson Properties Inc.

Torgerson Properties, which operates 28 hotels and 9 restaurants, has $75 million in new projects planned in 2013 and 2014, including at least 4 new hotels and 3 franchised restaurants, for a total of 660 new jobs added to the Minnesota economy.

However, Torgerson says that he’s prepared to walk away from those projects—and take a financial hit—if he doesn’t feel that the environment after the elections is conducive to expanding his business.

“Right now, we’ve got the most development deals teed up that we’ve ever had in the company’s history,” Torgerson says. “And they are structured in a way that there are some costs if we don’t proceed. I’ve got some good years left in me and enjoy what we do, so I’m willing to take a gamble. If the right things happen, we can go forward.”

His concerns about the future and the policies advocated by the current administration—particularly on taxes and regulations—are causing him to delay his expansion plans.

Torgerson Properties is organized as a pass-through entity, which means that business profits are taxed at the individual tax rate.

President Obama has suggested letting the 2001 and 2003 tax rates expire, in which case successful business owners like Torgerson will face a marginal rate as high as 39.6%, which when combined with state and local taxes, will impose almost a 45% top marginal rate on income. This is greater than in any other industrialized country. In addition, because of the new health care law, beginning in 2013, the Medicare tax will increase from 2.9% to 3.8% for those making more than $200,000.

“I’m certainly open to a tax system overhaul,” Torgerson says, adding that he could tolerate his taxes going up some if the size of government was reduced and the tax code was simplified and streamlined.

Torgerson believes that the business community is poised to start investing again if and when Washington makes the right decisions. “My belief is that there is a major eruption of optimism in the business environment waiting to happen. That’s why I’m teeing up these projects. If our country gets back on track, there’s a huge opportunity, and I’m trying to position our company to take advantage of that if that happens.”

But if the administration gets another four years and continues pursuing the same tax and regulatory policies, “it’s time for me to start winding down,” the 30-year business veteran says.

From Free Enterprise