What Does the Biden Administration Mean for Commercial Real Estate?

12/23/20

Jonathan Weiss Discusses How the Incoming President and His Policies Could Shape the Near-Term Future of the Market

With the refusal of the US Supreme Court to hear a case on behalf of the state of Texas to address claims of election fraud in other states, the 2020 general election is now wrapped up and in the books. Come January 20th, 2021, Joe Biden will be the next President of the United States and various financial markets have greeted the news with cautious optimism. Economists have largely breathed a sigh of relief, as exemplified by this article from The Economist, acknowledging that a Biden administration will be a stabilizing force, favoring mostly moderate policies. However, what does this mean for commercial real estate? Biden and his running mate, Vice President-elect Kamala Harris, have laid out some ambitious policies that concern a whole host of subjects with potentially far-reaching consequences for the industry—some very positive, some more negative. Whether they will be able to implement them fully, is another story altogether. Real estate professional Jonathan or "Jonny" Weiss provides a brief outline of how a change in power is likely to impact the real estate landscape.

COVID-19 Policies

First and foremost, just about every responsible voter, investor, and business owner is happy to see a change in federal leadership as per the country’s COVID-19 response. While the Trump administration did wonders for some aspects of the economy, its policies regarding the pandemic have had the effect of instilling a deep-seated fear in American consumers and markets, alike. Biden, on the other hand, has promised to address the problem with the utmost seriousness, pledging to push a whole host of initiatives aimed at limiting the spread of the coronavirus. These include increased testing, contact tracing, and new programs designed to isolate and financially support those directly affected by the virus.

The Democratic House of Representatives, for its part, already passed the Heroes Act earlier this year, providing robust funding for such measures. All of this is looked upon as encouraging news by commercial real estate markets, which have endured an immensely disappointing 2020. The nationwide work-from-home campaign endorsed by many companies has led to an incredible amount of previously-coveted, high-end office space lying fallow, as well as declining rent revenues—and that is without mentioning the disappointing numbers reported by retail and hospitality-based businesses. According to Weiss, "if the economy, and by extension commercial real estate, is to recover, the coronavirus must first be dealt with."

Economic Stimulus

While both political parties largely agree about what ought to be done with respect to the dire medical emergency facing the country, the same cannot be said about an economic stimulus package. Although both parties publicly claim to be in favor of a new round of stimulus, in reality, they are at loggerheads over the details, chiefly the amount of money to be released to Americans.

Democrats are holding out for a $2.2 trillion dollar relief package, while Republicans endorse a far smaller $500 billion package. The current president has remained absent from the brokerage of a deal, however, the incoming president is viewed as far more likely to take an active role in hammering out a workable compromise, and even pushing through a third round of stimulus after taking office. The president-elect is on the record as saying “(a)ny package passed in a lame-duck session is, at best, just a start.” Joe Biden’s history of successful deal making with Congress during his time as vice-president in the Obama administration, as well as his own tenure in the Senate, bodes well for significant government funds to be released to Americans. A second and/or third round of stimulus money would reinforce the currently floundering street-level economy, provide much-needed relief for renters and small business owners, and work to instill confidence in investors—all of which would benefit the commercial real estate market.

Tax Policies

Although measures to combat the spread of COVID-19 and the passage of a new economic stimulus may be the most consequential facets of the incoming administration, more substantial repercussions concerning commercial real estate may be felt over a longer timeline by Biden’s proposed changes to the federal tax code. How will these changes affect the commercial real estate industry?

According to Jonathan Weiss, if implemented, it looks like something of a mixed bag. On the positive side of things, Rosa Sanchez at ABC News, states that Biden will probably attempt to remove the cap on the federal tax deduction for state and local taxes (SALT) enacted by President Trump, a law widely condemned as harmful to real estate development in high-tax states like New York and California. On the negative side of things, the president-elect has called for ending the 1031 exchange program—a mechanism used by real estate investors to defer taxes on property sales—and use the proceeds to fund social programs centered around childcare and care for the elderly. Biden has also called for eliminating the lower tax rates for carried interest, which would adversely affect partnerships that own commercial real estate. Further, he has also floated the idea of increasing taxes on inherited real estate. These proposals are vehemently opposed by the commercial real estate industry.

The difference between these proposed tax policies and the likelihood of them becoming law depends on the makeup of Congress. As it stands, Democrats, who control the House of Representatives for at least the next two years, would likely assent to all these changes, while Republicans, who currently control the Senate, but only tenuously and by no means assuredly past January, would likely block them.

The Future of the Real Estate Landscape According to Jonathan Weiss

As early as August of this year, prominent voices in the commercial real estate sector were warming up to the idea of a Biden administration, as catalogued by Jon Banister of the online periodical Bisnow, He writes that the ideal situation for the industry would be a centrist Democratic White House tempered by a Republican Senate. Translated, this broadly means that the industry wants Trump and his inadequate pandemic response gone, but would like many of his tax policies to remain. In summary, the ultimate effects of the forthcoming Biden administration on the commercial real estate industry largely hinge on control of the Senate, which has yet to be determined.

Two Senate races in Georgia are set for early January 2021, with the outcome tipping the balance of the upper chamber ever so slightly one way or the other. Should these two runoff elections produce a Republican majority, commercial real estate developers and investors will be jubilant, viewing it as the best of both worlds, as it were. If, however, the Democrats emerge victorious, the industry will still likely embrace the situation, content that a worst-case scenario regarding the COVID-19 pandemic has been avoided.

Jonathan Weiss is a real estate professional with a wide variety of interests. Originally born in New York City, his family transplanted themselves to Greenwich, Connecticut when Jonathan was only nine years old. His first passion in life was sports. After dabbling in a few others, Jonny Weiss ultimately settled on baseball, which became his primary focus throughout adolescence and early adulthood, and resulted in a slew of college baseball programs scouting him for recruitment. During freshman year, Jonathan Weiss played for Boston College, before transferring to Tulane for the next three years, and finally completing his college career at Cornell. Although he studied psychology at all these institutions, baseball remained his primary pursuit. Unfortunately, a game day injury leading to subsequent serious shoulder operations put an end to his dream of becoming a professional athlete.

After graduating from college, Jonathan Weiss experimented with a few career paths in order to figure out his raison d’être. After working briefly for a hedge fund, he shifted focus to the healthcare landscape and contemplated earning a medical degree. When that failed to capture his interest, he dabbled in the field of personal fitness, which was another non-starter. Finally, he tried his hand at real estate, fell in love with it, and has not since looked back. Jonny Weiss has been involved in the real estate business for more than five years now, excelling in various positions across multiple companies. He made the difficult decision to leave his last firm, Red Sky Capital, in order to pursue a master’s in Real Estate Finance and Investment from New York University, a degree which he obtained this past September.

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