Commercial Real Estate Braces for Biden or Trump After 2024
Here’s what either's election would mean for the industry and its markets
By Brian Pascus January 15, 2024 6:00 am
reprints
On the surface, they might not seem very similar, but presidential elections are a bit like theoretical physics: Everything is relative.
“If you’re a Republican, you think the economy is a disaster and was much better when Donald Trump was in power, and, if you’re Democrat, you feel Joe Biden has created a record number of jobs, inflation is down and that we’re clearly in a recovery,” explained Evan Stavisky, founder partner at the Parkside Group, a political consulting firm.
As for commercial real estate, the choice is centered around the economy. Capital markets remain fragile, despite a glimmer of optimism regarding potential interest rate reductions, while once dependable asset classes like multifamily and office each carry question marks surrounding cap rates, expected rent levels, and absorption patterns.
“The issue for Biden is that no matter the good economic news — the reduction of inflation, the job numbers — it doesn’t seem to make people feel better,” said Hank Sheinkopf, a Democratic political consultant. “With Trump, some people in commercial real estate may feel he’ll be more likely to help them and do things to help their conditions. Why? Because he comes from real estate, but he’s also subject to economic conditions should he win the presidency.”
Trump, more so than Biden, elicits a wary, if not mutual, respect from commercial real estate professionals, mainly due to his decades-long career as a developer of condominiums, office buildings, hotels, golf courses and casinos. Not for nothing, he’s the first person outside the political or military classes ever to become president.
“I think it’s the fact that he’s a business person,” said Timothy King, managing partner of SVN CPEX Real Estate. “Our lawmakers at every level, from the federal government to the city council, seem to have no concept of the free market, capitalism or how things even work.”
Others in commercial real estate concede Trump’s business credentials despite his unpredictable personality.
“He’s a marketing genius, but you never know what to expect, truthfully,” said Jeffrey Gural, chairman of GFP Real Estate who currently sits on President Biden’s Public Buildings Reform Board. “I think even Trump would admit that you never know what to expect from Donald.”
Biden, on the other hand, passed a $1 trillion infrastructure law. But he’s also viewed as an exemplar of Beltway politics and top-down government, having served with only a four-year break as either a senator, vice president or president since 1973.
“Just consider that one is a patron saint of free market capitalism and the other is the godfather of big government,” said King. “Whether it’s CRE or any business in the country, most businesses flourish with lower taxation and less regulation. You don’t have to be a partisan politician or die-hard MAGA or Biden supporter to recognize that reality. “
But Trump also generates more attention than the sitting president due to his penchant for controversy and ceaseless capacity to generate chaos.
“The fear that will start to grip the private sector, in my view, is that we are literally on the precipice of losing our democratic norms,” said former New York Mayor Bill de Blasio. “The free enterprise system relies on a consistent legal system and thrives on democracy itself, the free exchange of ideas. And all that is in doubt right now because of Donald Trump.
“I think a lot of people in the business community will eventually wake up to that reality, that [electing Trump] will create destabilization in our country and be profoundly disruptive to business,” de Blasio added.
The 2024 election offers America a unique choice, in that for the first time since 1892
the nation will choose between an incumbent and a former president in a race where both men have a long record attached to basically every issue, especially those that concern commercial real estate.
SALT in the wounds
For the first part of his career, Donald Trump’s name was synonymous with real estate.
In Chicago, the 100-story Trump International Hotel and Tower is the second-tallest building in the city, just below Willis Tower; in Miami, the Trump National Doral has hosted numerous PGA tournaments on its 72 holes; and in New York, Trump Tower, Trump Place and Trump Parc laid the foundation for the 45th president’s international business career.
For much of the 1980s and 1990s, Trump lorded over Atlantic City, where his three hotel-casinos turned the seaside resort town into a kind of personal fiefdom. However, by the 2010s — and after several personal bankruptcies — what was once all glitz and glamour to the rapacious developer became derelict and discarded, largely abandoned for greener pastures and whiter houses.
Gural has known Trump for many years, and was even asked by him to write a cover blurb for one of his books. But Gural, who is also a Biden donor, said that Trump has always looked out for himself rather than the larger commercial real estate industry.
“He was never really part of the real estate community, he was his own brand,” said Gural. “I give him credit for that. Sometimes he advocated for things that would benefit him that would not benefit the rest of the industry, so I don’t think we can count on him necessarily.”
Nowhere was Trump’s self-interest and betrayal of commercial real estate — specifically, his former turf in New York — more apparent than in his 2017 Tax Cuts and Jobs Act, which became the signature law of his administration. There, Trump allowed for a $10,000 cap on state and local tax (SALT) deductions, a measure widely viewed as unfavorable for high-tax, high-earner, heavily populated blue states like New York, Illinois, Massachusetts and California.
Prior to the cap, residents in those states could write off higher state income tax from their federal tax returns. For example, a Los Angeles resident making $1 million a year who paid $100,000 to Sacramento in state and local taxes saw their federal taxable income jump from $900,000 to $990,000 based on the $10,000 cap — a consideration residents in blue states have had to wrestle with for the last six years when determining their next move.
“The loss of the SALT deductibility, which has made New York substantially less competitive, is the factor above and beyond remote work for some of commercial real estate’s difficulty,” said Kathryn Wylde, president and CEO of the Partnership for New York City, a business trade association. “While the impact is on individuals and not on companies, and it’s not directly affecting CRE tenants, it’s affecting their key talent and has contributed to the current issues.”
Wylde recalled rushing down to the White House in April 2017 with Related’s Stephen Ross and Tishman Speyer’s Jerry Speyer, part of a consortium of New York City real estate executives pleading with Trump not to cap state and local tax deductions. But Trump’s $1.7 trillion tax cut needed to find revenue from somewhere, and instituting a SALT deduction cap on states that previously paid lower federal taxes was the solution.
“Initially, he was sympathetic, but then he was talked out of it by those who wanted to reduce corporate taxes instead,” said Wylde. “There was a trade made, and basically the cap on state and local tax deduction was the issue.”
Gural described the SALT deduction cap as the central policy problem facing commercial real estate interests in big cities like New York. The SALT cap is scheduled to expire in 2025, so long as it isn’t renewed by congressional Republicans, or a president, eager to stick it to blue states.
“The fact that you can’t deduct gives incentive to wealthy people to move to Florida,” said Gural. “The biggest boon would be if Democrats took control and squashed that particular tax provision. When the GOP controlled the Senate, House and presidency, Trump screwed his friends in New York by passing that.”
But there are other issues in Trump’s expiring tax law that are important to the real estate community. For one, cuts on individual tax rates and corporate tax rates could increase under a second Biden administration, while generous pass-through provisions and interest deductibility for business expenses might also be axed when the law is reviewed by a divided Congress.
“Whether it’s Trump or Biden, whoever is president will have to deal with a huge number of tax provisions that are expiring a year from now, and figure out how they want to address those, both in terms of keeping the economy going and raising revenue for the government,” said Jeffrey DeBoer, president and CEO of The Real Estate Roundtable, an industry trade group.
Trump’s 2017 tax changes also included “opportunity zones,” which were designed to foster through tax breaks development in areas deemed blighted. The legislation drew early fans in real estate, who bought sites within the zones to build everything from self-storage to hotels.
Gateway to re-election?
While no real estate baron, Scranton’s Joe Biden has made an impact on the industry in his first three years in office.
In November 2021, Biden signed into law the bipartisan Infrastructure Investment and Jobs Act, a $1 trillion spending package devoted largely to national transportation, clean water and electrical grid projects — something commercial real estate pros certainly care about.
Developer Don Peebles, chairman of the Peebles Corporation, said that while the industry has yet to see the full effects of the law’s ambitious infrastructure appropriations, they will likely be apparent for any developments connected to regional transit in the coming years.
“It has an ability to affect commercial real estate in environments where infrastructure money can support transit-oriented development,” said Peebles. He said the infrastructure spending is proving to be helpful both in “cities like Atlanta, which have a much more sophisticated view of mass transit, and cities like Boston, which have a more myopic approach.”
Peebles also noted that Biden’s White House is quietly putting its weight behind the bipartisan Workforce Housing Tax Credit Act in the Senate, a middle-income housing tax credit modeled after the Federal Low-Income Housing Tax Credit of 1986. The workforce housing credit would allow state housing agencies to allocate federal tax credits to private real estate developers who build rental housing for tenants earning 60 to 100 percent of area median income.
“The one policy that has been sorely needed in the commercial real estate industry that has not been addressed in government is how to deal with workforce housing,” said Peebles. “If they get that legislation through, it will have a tremendous positive effect on our industry because it will stimulate a new sector of development.”
Under Biden, the Department of Housing and Urban Development is appropriating $85 million in a competitive grant process to develop adaptive reuse strategies to turn obsolete commercial real estate into affordable housing.
Biden is also hoping voters in New York and New Jersey remember the Gateway project, which includes long-delayed tunnel construction and repairs beneath the Hudson River linking the two states that aims to relieve Amtrak congestion coming out of Penn Station in Manhattan. More than $10 billion has been allocated to the project under Biden. Construction on Gateway is well underway, after having spent years languishing as a political football thrown around by former New Jersey Gov. Chris Christie and even Trump when he was president.
“I think the Gateway project is a significant positive. That’s now moving forward and that’s a big credit to Biden and [Senator] Chuck Schumer, in particular,” said Wylde. “Trump screwed around with it, or, at least he delayed it.”
But Biden might also be undermined by the bipartisan deals he hasn’t yet been able to pass, namely, a grand bargain on immigration and border security with House and Senate Republicans.
“I think the biggest challenge facing both the commercial real estate community, and the finances of cities and states, is the asylum-seeker situation,” said George Fontas, a political and communications strategist. “It’s the single biggest unbudgeted item for states and cities, and there appears to be zero solution for it until after the election.”
The numbers of asylum seekers and migrants now living in America’s largest cities are truly astonishing: New York City has reported 150,000, and Chicago has reported nearly 15,000, as of January 2023. Even a state like Massachusetts, deep in the Northeast, gained an estimated 120,000 undocumented residents between 2020 and 2021, according to Axios.
“Functionally, on the ground, the entities that have to deal with the real estate implications of this [crisis] are the state and local officials,” said Fontas. “But it’s an issue that encompasses all levels of government, and federal action, or inaction, dictates what happens on the ground.
“It’s one of those things where we’re all in this together, and inaction at federal level spells disaster at ownership level,” he added.
A phenomenon once merely dismissed as a concern for border states like Texas and Arizona has finally spilled over into the North. For now, those in the real estate industry can only hold their breath on a much-needed resolution.
“The only question is who provides the most competence to the money community,” said Sheinkopf. “People with money don’t have any place to go in a city like New York except real estate. The question becomes who will make you the most confident to reinvest in cities: Is it Trump or is it Biden? And the likely answer is nobody.”
Interest rates and uncertainty
Finally, if there wasn’t enough anxiety around politics, a tenuous economic recovery remains on everyone’s mind.
While the CRE industry has endured 11 interest rate hikes totaling 500 basis points since March 2022 and some of the worst inflation in 40 years, there does appear to be light at the end of the tunnel. A long-derided “soft landing” of the economy that avoids a recession is now a distinct possibility since the Federal Reserve has forecasted up to three interest cuts in 2024.
“Interest rates are probably not going to be a political football right now. They’re probably not going to get worse in the middle of the election year,” said Stavisky. “There’s a state of economic equilibrium where both inflation and growth have stabilized.”
Andrew Kirtzman, a political consultant and a biographer of Rudy Giuliani, said the new interest rate narrative plays into the favor of both Biden and commercial real estate at large.
“Biden goes into this election with a strong argument on the economy: unemployment rate is very low, inflation is dropping, the job market is terrific,” said Kirtzman. “He’s got a major perception problem — there’s some sticky economic facts as the fallout from inflation is working against him — but the more interest rates are going to drop, the better environment it becomes for borrowing.”
A recovered economy still might not be enough for Biden. Trump retains an enduring political hold on a significant portion of the country, and as much disgust as he generates from one group of Americans, he generates an equal, if not greater, amount of fascination and attraction from another.
Despite his multiple indictments (91 counts) and numerous controversies, Trump may very well be re-elected to office in November.
New York’s Wylde believes a Trump re-election would cause innumerable problems for the city.
“The social unrest and political instability that would be associated with a Trump presidency would have a chilling effect on New York real estate values,” she said. “Because, clearly, New York would be a hotbed of resistance, if you will. That’s the biggest concern, and that’s the biggest concern of business. It’s not just real estate.”
Kirtzman noted that there are existential fears on both sides of the electorate regarding each candidate. For Republicans, it’s the threat that their presidential candidate could be convicted of a crime; for Democrats, there’s a sinking fear that the entire democratic way of government is in jeopardy.
“We’re in uncharted territory,” said Kirtzman. “That’s frightening for the market. It’s frightening for lenders, and it’s frightening for buyers.”
Brian Pascus can be reached at bpascus@commercialobserver.com.
