President Donald Trump has not conceded the race for the White House, but commercial property experts are looking ahead to 2021 and anticipating a Joe Biden administration and a divided Congress.
The scenario could be positive for commercial real estate, with increased emphasis on fighting the pandemic, boosting affordable housing, tackling infrastructure needs and possibly avoiding tax reform that could hurt investors, such as changes to 1031 exchanges and Opportunity Zones.
“(Next year) looks promising for the real estate industry,” said Ira Weinstein, managing principal & Opportunity Zones practice leader at CohnReznick.
“We can expect a measured level of stimulus that will focus on healthy buildings and short-term economic support that will buy some time among residential and commercial tenancy. Housing—and particularly affordable—has been a mainstay of the campaign platform and will be front-and-center domestic policy and that will support a major asset class with ripple effect. Wall Street seems supportive and that will mean short-term capital flow, while the focus on sustainability will bode well for the long term.”
The pandemic imperative
Biden has shown that his priority is to get the spread of COVID-19 under control, said Laura Jackson, senior managing director in the tax advisory group of the Real Estate Solutions practice at FTI Consulting.
“I think there’s an assumption that he’s going to take it more seriously by insisting everyone wear a mask and follow the science,” Jackson said. “The more we can create a safe environment for people to return to the office or feel comfortable with senior housing and apartment living, the better it will be for real estate. All of those things are very important, so hopefully a Biden presidency would improve the trajectory of the real estate recovery in that regard.”
Economist Hugh Kelly, curriculum chair at the Fordham Real Estate Institute, said dealing with COVID-19 is needed to improve the economy. “Our economic problem was triggered by a public health problem, remains tied to the public health problem and won’t be solved until the public health problem is solved,” Kelly said.
Meanwhile, several commercial real estate and multifamily experts say another federal stimulus bill is desperately needed to help renters and landlords impacted by the pandemic and should be passed either in the lame duck session of Congress or in early 2021.
“We think it’s critical that either unemployment or rental assistance is in the next stimulus package,” said Mike Flood, senior vice president of commercial and multifamily policy at the Mortgage Bankers Association.
“We are looking to make sure there is assistance for renters and landlords alike,” agreed Cindy Chetti, senior vice president of government affairs at the National Multifamily Housing Council, adding that eviction moratoriums are not a long-term solution.
The HEROES Act passed in May by the Democrat-controlled House of Representatives included $100 billion in emergency rental assistance and this time Republicans might approve it, noted Ken Rosen, chairman of Rosen Consulting Group and the Fisher Center for Real Estate and Urban Economics at the Haas School of Business at the University of California, Berkeley.
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Flood, Chetti and Rosen expect Biden to have a big focus on affordable housing. During the campaign, Biden issued a wide-ranging plan to invest about $650 billion in federal funds to improve public housing and provide more forms of rental assistance, including Section 8 vouchers.
“You might see some specific aid for the rental housing sector focused on infrastructure and housing issues for the cities. I think they might be able to get enough Republican votes to get that through,” Rosen said. “And there might be an initiative related to infrastructure that would benefit mass transit and cities.”
The new administration, Chetti said, might look to pass an infrastructure package in the first 100 days. “It checks two boxes—one is the crumbling infrastructure of the U.S., and it would also give the economy the shot in the arm it might need because of COVID-19,” she said.
A Biden administration would be better for cities, particularly on transportation and infrastructure, Kelly said. Biden has indicated he would consider funds for major infrastructure projects like The Gateway Program to build new and improved Hudson River train tunnels between New York and New Jersey.
GSEs, regulatory reform
A new administration means new Cabinet secretaries and leaders of important federal agencies including the Treasury, Department of Housing and Urban Development, Securities and Exchange Commission and Federal Deposit Insurance Corp. Flood said to watch who Biden picks for these key roles.
“People make policy. Those individuals come in with their own thoughts and views,” he said.
The term of Mark Calabria, director of the Federal Housing Finance Agency, does not end until 2024. The director can only be removed by the president “for cause,” unless an upcoming U.S. Supreme Court case changes that directive. If Calabria is not removed, Flood said he would continue the Trump administration’s goal of ending the government-sponsored enterprise conservatorship and privatizing Fannie Mae and Freddie Mac. Flood mentioned that the FHFA director also determines what the GSE multifamily lending caps are each year. The Biden administration might push for a certain percentage to go toward affordable housing.
Tax reform on hold?
While the balance of power in the U.S. Senate will come down to two Jan. 5 runoff elections in Georgia, sources say they expect the Senate will be too close to pass tax reform early, no matter which party takes control. That’s important because Biden has proposed eliminating the 1031 exchange and raising capital gains tax rates for individuals with incomes higher than $1 million, along with other tax-related incentives used by commercial real estate investors.
“We remain ever vigilant and make the case that they are not loopholes but really help folks invest in real estate,” said Matthew Berger, NMHC vice president of tax.
Jackson concurred: “What I think might happen is once they start analyzing the data further and really understand how much 1031s provide for the economy, they might move the repeal of 1031s down the priority list because they create deal flow, which ultimately creates jobs.”
Biden and the Democrats have also called for changes to the Qualified Opportunity Zones program, which was part of Trump’s 2017 Tax Cuts and Jobs Act and encourages private development in low-income areas, with deferment of capital gains and reduction of tax liabilities.
There’s bipartisan support, Jackson said, but expect some changes, including increased reporting, transparency and review of the Zones.
“I think the concept of Qualified Opportunity Zones is right, but they probably need to fine tune it a little to achieve the benefits desired,” she said.