By Catherine Carlock – Real Estate Editor, Boston Business Journal, Nov. 9, 2020
David Begelfer, principal of CRE Strategic Advisors, says
“The likelihood of another stimulus bill, a clear and rational Covid response, and a long-overdue infrastructure bill will all bring investment and predictability to the markets. The likelihood of a tax increase and the loss of the carried interest deduction is small,” said Begelfer, who is also the former CEO of NAIOP Massachusetts. “A return to rational regulations of the environment and finance are expected and will not hurt the recovery. With a number of vaccines due out shortly and improving outcomes for those infected, the real estate industry should recover more quickly than previously forecast.”
Many in Greater Boston’s commercial real estate industry echoed those sentiments, anticipating greater stability and predictability under a President Joe Biden. However, many also expect changes in trade policy, taxation, housing, health care that could affect the industry.
The biggest questions as to the future of the industry depend on whether Democrats or Republicans control the U.S. Senate, CBRE wrote in its U.S. MarketFlash report on the implication of a Biden presidency for commercial real estate.
“The magnitude of impact on commercial real estate will depend on which party controls the Senate,” says the report, which was written by CBRE’s Richard Barkham, Spencer Levy and Darin Mellott. “The presidency and a Democratic Senate would enable Biden to enact large portions of his agenda. Most immediately, a larger federal stimulus package to support the economy would boost real estate demand in the near term. … If Republicans retain the Senate, the Biden agenda will be checked and have a more subdued effect on the broader economy and commercial real estate. A more limited fiscal stimulus package would be enacted, with less state aid and the prospect, at some point, of higher state and local real estate taxes.”
If the Republican party remains in control of the Senate, President Trump’s 2017 personal and corporate tax cuts would remain in place, the CBRE report predicts.
“Like any president, Biden will also have power to influence spending priorities and the regulatory environment and to enact trade policy. The potential for less trade friction, especially with U.S. allies, may be helpful as the economy pulls out of the pandemic-induced recession,” the CBRE report says.
Markets overall seem to favor split government, the CBRE report states, and a split government scenario supports the real-estate company’s forecast of 4.5% growth in 2021. The immediate reaction by U.S. investors to the results of the election being announced over the weekend was positive on Monday, with the Dow Jones Industrial Average trading up 4.4% and the S&P 500 trading up 2.7% as of mid-afternoon.
Tamara Small, CEO of commercial real estate industry group NAIOP Massachusetts, said the industry’s overall feeling right now is one of relief that a steady hand will guide the country.
“Predictability and stability — two things that have been lacking at the federal level — are critically important for the commercial real estate industry,” Small said. “Biden/Harris have expressed support for strengthening the economy and rebuilding relationships with global partners, both of which benefit commercial real estate development and investment.”
What’s more, while there is some correlation between the political party in power in Washington D.C. with fundamentals in the commercial real estate market, there are both economic and geopolitical factors that likely have greater influence, said real estate firm Newmark Knight Frank in its election report.
“A look at real estate returns under presidents of each party does not show a significant advantage for either party,” the report states. “Over the past 40 years, annualized total returns averaged 9.0% under Democratic presidents and 8.2% under Republican presidents.”
When asked whether the commercial real estate industry fears the departure of President Trump — famously a real estate developer prior to his election to the presidency of the United States — Begelfer of CRE Strategic Advisors said he’s not concerned.
“To be honest with you, the people in the real estate industry never viewed (Trump) really as a real-estate person,” Begelfer said. “I don’t think anyone is feeling like, ‘Oh my God, we don’t have a real estate person anymore.’ … The markets have indicated they’re not worried about a Biden presidency, and I think in Massachusetts we’re going to benefit from that tremendously.”