Commercial Real Estate Has High Hopes for President Trump, Part II

This boded well for the real estate market, especially with the Federal Reserve expected to cut interest rates another 25 basis points on Thursday.

“With the election results settled, the real estate market will benefit from the reduction in uncertainty,” ​​Adelaide Polsinelli, vice chair of Compass, said in an email. “Lower capital gains taxes, which Trump has previously supported, could encourage more frequent buying and selling, potentially increasing transaction volume across residential and commercial real estate.”

If successful, Trump’s proposal to raise import tariffs by 10 to 20 percent is seen as a sign that industrial real estate could have another wave of success in the industrial market as companies seek to reduce the increased cost of overseas manufacturing.

“Trump’s long-standing advocacy for bringing manufacturing back to the U.S. suggests a likely boost in demand for industrial spaces like logistics hubs, warehouses and manufacturing facilities, as companies may need more space to accommodate domestic production and distribution needs,” Polsinelli added.

The stock market already reacted with enthusiasm to Trump with share prices spiking and the ​​Dow Jones Industrial Average gaining 1,508 points, amounting to a 3.57 percent one-day increase.

Briggs Elwell, CEO and co-founder of RLTYco, which provides financial and tax services to real estate clients, sees the stock and bond markets’ spike as a temporary bump, and the real cash is expected to flow later on in more sustainable ways.

“At the end of the day, when you take out all the emotion and you exclusively look at the financial components of the election, the markets are saying that this is a positive for real estate,” Elwell told CO. “Knee-jerk reactions happen, but the reality is that the frontrunner that’s driving the market surge are the banks, and they’re banking on the fact that under a Trump administration you have a trend towards lower rates, and you’re going to have less regulation at the end of the day.”

Wednesday morning saw Trump with a 5 million vote lead in the national tally, which would be the first time since 2004 a Republican won the popular vote. And Democrats lost control of the U.S. Senate and may have lost their chance at the majority in the House of Representatives, creating a scenario reminiscent of Trump’s victory in 2016.

Leland Collins of FTI Consulting sees the first year of Trump’s new administration dealing with tax matters, mostly related to the Tax Cuts and Jobs Act (TCJA), also known as the “Trump tax cuts,” which were enacted in 2018 but are set to expire in 2025.

“Real estate’s in a really precarious spot here,” Collins said in an interview. “I will caveat everything by saying that we don’t know the House right now, and the House really will propel how much of his policy that we’ve been hearing from Trump actually gets enacted. What I’ve been hearing from my D.C. colleagues is that 2025 will be all about tax.” 

Collins’s colleagues and clients were concerned about tax increases, such as carried interest from capital gains rather than a simpler and lower income tax, if Harris won the election.

“There was a lot of discussion from Democrats about increasing, or rather limiting, how much carried interest could be classified as long-term capital gains,” Collins said. “And, in fact, there was discussion about changing that to always being ordinary income, without any kind of reference to a holding period like it currently is. Now that obviously would impact private equity and asset managers quite a bit.”

Now, those changes may no longer be on the table. Trump has not made any tax proposals, and Collins is still waiting for the 100-day plan that usually is released by a president-elect closer to inauguration.

“I will say that the corporate tax rate increases that were being discussed are really probably off the table at this point,” Collins said. “So, for tax rate increases, those are things that I don’t expect clients to have to worry about going forward. … It should spur investment into U.S. real estate and other types of private equity funds, because tax rates are lower.

“I do see this as being positive, and not to mention it takes a lot of restructuring off the table that clients would have had to consider,” Collins added.

Tali Berzak, a broker also with Compass, foresees investors eventually taking money out of the stock market and deploying it into something more stable, like real estate.

“I can tell you that almost all the people that I work for were hopeful for [a Trump] administration, and I think some of that has to do with their perspective on how that will help the buyer and investor pool,” Berzak said. “There’s something about a Trump administration where you’re not exactly sure what his policies are, and they’re not always overarching concepts. Sometimes they’re more haphazard. Because of that, the stock market can yo-yo a bit, and so investors might make a decision to park their money in an asset versus keeping everything in the market.”

By midmorning, however, real estate stocks were not flourishing with the rest of the market. For instance, CBRE was down 2.6 percent, Cushman & Wakefield dipped slightly by 0.1 percent, Newmark fell 2.4 percent and JLL dropped 5.4 percent, SeekingAlpha reported.

Residential brokerages saw the steepest drop with Redfin dropping by 3.5 percent, Zillow by 5.5 percent, Compass by 7.1 percent and Opendoor Technologies by 4.4 percent.

However, the stock drop might not be hurting some in the industry who are expected to benefit from a Trump presidency.

Alexander Goldfarb of investment bank Piper Sandler argued to Crain’s New York Business that real estate could get a “lighter regulatory touch” under a Trump administration, and it could be especially helpful for Newmark CEO Barry Gosin.

Howard Lutnick, the executive chairman of Newmark, is the co-chair of Trump’s transition team. Lutnick taking a more full-time job with the future administration could give Gosin a freer hand in running Newmark.

“Barry and Howard have a wonderful relationship and built a great firm,” Goldfarb said to Crain’s. “But the time might be right for a change.”

Shaun Pappas, an attorney from Starr Associates who represents developers like Harry Macklowe, Michael Stern of JDS Development Group and Taconic, believes that many investors have been holding back on making big decisions until the election was over. Regardless of how the chips fell, commercial real estate investors will be acting with a sense of stability.

“There’s a perception of Trump being good for real estate — obviously, it’s where he came from — and I think that people have been hesitant to jump back into the market over the last six months based on the election,” Pappas said. “I think now we’re at a point where we know what we’re in for, and, whether you like it or not, or whatever your political leanings are, at least you have a foundation of stability and knowing who’s going to be in charge.”

And it’s kind of like the “devil you know,” since Trump already served in the White House.

Adam Henick of Current Real Estate Advisors believes, like Pappas, that the market would have seen a post-election rebound no matter which “devil” the Electoral College selected.

“I think that with everyone’s political views aside, having the election in the background and behind us is a very healthy step for all markets here — not only commercial real estate leasing markets, but financial markets as well,” Henick said. “Markets like certainty, and I think that’s the news we got on election night as the results rolled in.”

Mark Hallum can be reached at mhallum@commercialobserver.com.