From Polls to Policies & Properties
Every four years, real estate observers dust off their crystal balls and make their “best guesses” as to what the results of the presidential election will mean for CRE, and this year was no exception. As always, opinions can vary widely, and consensus can be hard to find.
“I think the overall ‘red shift’ pervading down to even local ballots generally bodes well for more pro-development attitudes, but I doubt many cities outright flipped from anti-development to pro development; the shift was on the margin, so not likely a paradigm shift,” observes Gabriel Silverstein, SIOR, principal/president for Angelic Real Estate in Austin, Texas.
One key issue, he adds, is the pending expiration next year of much of the 2017 tax bill from the first Trump administration. “I expect with the winning of the House by the GOP that next year will mean most of those get extended for many more years, and very probably there will be additional tax provision changes that will benefit real estate investors and business owners,” he shares.
Silverstein believes the biggest question without an answer is what happens to inflation – which, he notes, will have a significant effect on interest rates. While many have predicted that proposed tariffs will add to inflation, he notes that “Donald Trump has been very keen to avoid triggering higher inflation historically, and it would be surprising to see him ignore that restraining factor. Also, his intent is not to reduce competition, which would raise prices, but the opposite, to increase production by incentivizing onshoring of more manufacturing. Therefore, I expect some complimentary incentive opportunities for companies that do bring more production stateside or remain domestically for adding new factories.”
Energy is also a key issue for Bryce Custer, SIOR, broker, petrochemical and energy services with NAISpring in Ohio and West Virginia. He notes that the greatest resource in his region is natural gas from shale, but that power has been one of the biggest challenges in recent years. “Data centers are a big driver of power, but industry in general has at the same time been shutting down coal power plants, which has created a real power issue,” he asserts. However, he predicts, with the new Trump administration “We will have a significant increase in manufacturing facilities in the U.S.” This, he says, will not only include American companies’ reshoring back to America, but a significant number of European companies coming to here U.S. as well. In fact, he shares, he met only last week with companies from Turkey and other areas of Europe.
“Much of the government policies that directly impact CRE are based on policies in the local jurisdictions, so the federal government elections may not have immediate direct impact on those local policies,” says Landon Williams, SIOR, who runs the capital markets division for the Memphis office of Cushman & Wakefield. However, he adds, “The expectation is that the current administration will make pro-business decisions to help strengthen the economy overall. Since President Trump is a real estate guy, I assume his decades of experience in real estate development influences his decisions favorably to the real estate industry.”
Joseph Guay, real estate section leader for the law firm of Holland & Knight, also foresees benefits for CRE. "In real estate, I would expect to see an uptick in deal flow as we will likely have a pro-business approach to the economy," he said in a recent article in Law360 . He also noted the potential for changes at the Federal Reserve, adding, "I think that there will be pressure on the Fed to continue to lower interest rates and create opportunities for growth in the real estate space, including housing, prop tech and hospitality."
I suspect the market won’t go from 0 mph to 100 mph overnight, but I expect a notable increase in transacted deals in the first half of 2025.
And Arlon Brown, SIOR, director-brokerage/commercial real estate advisor for NAI/Parsons Commercial Group in Boston, says that while on a national level zoning laws, emissions, etc. will be more liberal, on a local level “things will remain the same, especially in the Northeast and West Coast. In regard to tax regulation, I think that the new administration will be more favorable to commercial real estate, with shorter depreciation schedules, more tax credits and tax incentives. Federal Programs to encourage development in urban areas will bring in more opportunity zones, which will have more liberal rules.”
But while real estate observers and experts are more than willing to predict some important and significant changes for CRE in the next four years, CBRE offers a more measured outlook. Commenting on their recent study, they stated the following: “Presidential elections have no material impact on commercial real estate investment activity or values in the months immediately before or after they take place. However, certain policies that are enacted over the course of a presidential administration can present significant risks or opportunities. These include government spending and the federal budget deficit, individual and corporate income taxes and regulation in such areas as energy and housing.”
WHAT WILL THE IMPACT BE?
Custer, whose focus is primarily land development and industry (manufacturing), is already seeing positive movement in the market. “Last year we saw a dip in lease rates, but now they’re beginning to climb again,” he shares. “We’re starting to see more demand in our market for facilities from 50,000 to 150,000 square feet that have manufacturing capabilities – infrastructure for cranes, for instance – coming into higher demand. At the same time, while we’ve seen construction costs go up the past four years, I now believe they’re beginning to normalize.” He predicts that some of the older facilities that can be used for manufacturing will also increase in value over the next year or two.
“The impact on property values will probably increase as more people want to get into the commercial real estate business for tax credit and depreciation deals like we have seen in the past,” says Brown. “Investment strategy will be geared to high income wage earners to shelter their income with tax credits and accelerated depreciation. Market conditions will favor buildings that will have tax advantages.”
“Investors and operating businesses alike are going to watch the presidential decisions closely as tariffs, deregulations, extension of the 2017 Tax Cuts and Jobs Act, and other key policies will almost certainly impact strategies and decisions for those investors and operating businesses,” predicts Williams. “Most are anticipating and hoping for sustainable growth in business, which should also help clarify real estate investment decisions. There’s also a less tangible metric, which is the overall sentiment in the market – which seems to be largely positive and hopeful. That positive connotation can aid in investors being more proactive to move forward when they’ve been holding steady in the recent past.”
Silverstein says the overall CRE market tone is positive towards a second Trump administration – not just in reference to his own CRE background, but the policy impact of the incoming president’s business perspective and attitude. “Market optimism buoys values, be it optimism about occupancy, rents, financing costs, or more than one thing at a time,” he observes. “I think in the short term, subject to interest rates not curtailing it, the market should see higher transactions volumes on investment sales, and also higher leasing volumes.”
Much of the government policies that directly impact CRE are based on policies in the local jurisdictions, so the federal government elections may not have immediate direct impact on those local policies.
One of the big unanswered questions for CRE, Silverstein continues, is what happens with interest rates, banking regulations, and therefore inflation. “I am not convinced that renewed inflation is a given under the new administration,” he asserts, although he concedes it may be “the biggest open question going into 2025.”
In the longer term, he adds, the efficiency overhaul Trump is seeking through the new Department of Government Efficiency “could be the biggest driver of interest rates long term, and that’s the national debt’s level vis-a-vis GDP.”
Finally, he says, CRE professionals should be on the alert for changes concerning the 1031 exchange. “Multiple attempts to eliminate that tax law provision have failed as it relates to CRE, but real estate professionals should not become complacent and need to realize and remember that the 1031 exchange has in fact been eliminated for pretty much every asset class except real estate,” he cautions.
Another tax provision in potential danger is carried interest treatment, Silverstein asserts. “While any changes in that would directly impact only a small group of market participants on a large scale, it will still have an impact on even smaller investors who have outside/passive investing partners in their capitalization structures,” he notes. “It remains to be seen if the tax treatment of carried interest will change in the next tax bill.”
CHANGES IN STRATEGY?
How, if at all, do SIORs plan to adapt their strategies to prepare for the post-election landscape? “There is quite clearly more confidence growing in the market right now, and we have a number of deals that we’ll launch in Q1 of 2025 to capitalize on the renewed activity in the market,” says Williams. “I suspect the market won’t go from 0 mph to 100 mph overnight, but I expect a notable increase in transacted deals in the first half of 2025. With a willing seller, and multiple willing buyers, we can make a market on any given deal, and that’s what we intend to do.”
“We are waiting to see how the dust clears before changing our strategy,” says Brown. “Even with Congress controlled by the Republicans, the full House will be up for re-election in two years and a third of the Senators will be up for re-election. We will have to see what their take is on benefits to the wealthy; they all want to get re-elected themselves.”
Silverstein agrees. “In general, we have been waiting for tangible and consistent data that will drive down interest rates, and arguably we now have it, so if inflation does not reverse trend, that should create a lot of opportunities in 2025, thought it may limit the number of distressed deals that are forced into the market by lenders,” he observes. “We have a keen eye on refinancing opportunities as rates hopefully fall, but otherwise we aren’t per se making any major changes in strategy as a result of the election…not yet.".
CONTRIBUTING MEMBERS