Global Investors Don’t Care Who Wins The Election — As Long As There’s A Winner
U.S. presidential elections have always dominated the global media and play an outsized role in conversations around the world. But while the U.S. president might be the most important person in the free world, for international real estate investors deciding whether to invest in the U.S. or other major markets, it really doesn’t make much of a difference who wins the election — so long as the vote provides a clear winner.
“If it’s uncontested, the decision between Trump and Biden doesn’t make much difference,” Tristan Capital Partners Head of Investment Strategy and Research Simon Martin said.
You know what you are getting with the incumbent, President Donald Trump, he said.
“And no one looks at Joe Biden and thinks, my view on investment in the U.S. fundamentally changes. There are so many other factors at play.”
A victory for Trump or Biden might change the perception of U.S. real estate investment in some parts of Asia. And the U.S. has some headwinds more generally that might dissuade global investors. But the only thing that really worries investors is a result so close that one candidate cannot declare victory, leading to a long, drawn-out court battle over the result.
“If there are months of bickering and litigating the election outcome, the U.S. will be at a standstill,” Avison Young European Capital Markets principal Penny Hacking said. “The good news [for Europe] is the Canadians are sportier international investors and if the U.S. descends into chaos, they will focus all of their attention on Europe — where they already have people on the ground.”
She said election uncertainty could lead to a sharp decline in stock markets, which would be bad for real estate investment generally. It could lead to an instance of the “denominator effect” where the value of stocks drops, so the proportion of an investor’s portfolio that is invested in real estate rises as a result. This causes most investors to hold off putting new money into real estate.
There are some facets of a win for Trump or Biden that could impact foreign investment in U.S. real estate, but they are somewhat marginal. One of them is the attitude of the candidates toward China, and how this might affect Chinese outbound capital, and capital from Asia more generally.
“Whether it is Democrats or Republicans, there is a perception that both are negative to China right now,” Bei Capital founder and former Head of Real Estate at the China Investment Corporation Collin Lau said. “The Democrats may make it a bit easier to save face.”
But Chinese investors have not been major global players in real estate since capital controls limiting outbound investment were introduced in 2016. Maybe the trade war with China would have chilled investment in U.S. real estate, but since Chinese investors weren’t putting their money somewhere else, it is impossible to say.
But, Lau added, investors in other Asian countries do wonder, will we be the next target?
A Biden win could open up an opportunity for sustainable redevelopment.
“If you have a clean sweep for Biden, then you could see him put in place a programme of European-style environmental, social and governance regulation,” CBRE Global Investors co-Head of Global Research Sabina Kaylan said. “There could be a huge opportunity if suddenly the regulations change. The quality of the office stock is not as high in the U.S. as other parts of the world and it could be an opportunity for value-add investors to go in [and] redevelop and improve the quality of assets.”
In the business world, coverage of the two candidates has focused on the possibility of Biden bringing in tax increases, but this has not influenced the thinking of global real estate investors particularly.
“The election result isn’t something investors are asking about a lot,” Savills Head of Global Cross-Border Investment Rasheed Hassan said. “Many of the investors we speak to have become accustomed to the Trump administration and have invested in the U.S. in recent years. If there is a change, then they will be focused on whether there will still be a business-friendly environment and what, if any, changes there may be to taxation. However, taxation typically just changes pricing, it doesn’t tend to affect the overarching macro question of where do I want to invest — people just price it in.”
Instead, real estate professionals point to factors such as central bank interest rate policy, the impact of the coronavirus on the economy and underlying real estate fundamentals as being the major factors driving sentiment toward the U.S.
While investors in the Western Hemisphere have generally welcomed lower interest rates and central bank quantitative easing as being supportive of asset prices and good for real estate, that is not the feeling in every part of the world.
“The attitude in Asia is that we are careful about North America,” Lau said. “There is a lot of uncertainty about the U.S. fiscal position and the impact of QE, the impact on the currency value in the long term and the ability to finance the government debt. You can’t go on printing money forever.”
Asian investors are more wary of the risk of a government default, he said, which would push up government bond yields, taking real estate yields up with them. An investor buying now at low yields would see a lot of value destroyed in such a scenario. As a result, they are favouring investing within the Asia Pacific region.
More broadly he said: “Every day you look at the TV or social media, and you get a little dosage of some surprises and think, is this a country that's as predictable as before?”
CBRE GI’s Kaylan said the decisions taken on local taxation might actually prove more important than those by the presidential candidates.
“As you come out of COVID-19, a lot of local authority finances will be really stretched, and the taxation burden on real estate will come under scrutiny,” she said.
She said some occupiers have taken locational decisions based around whether taxes were higher or lower on either side of a municipal boundary. Investors will follow where these occupiers go.
“Local governments will need to work out whether they can raise taxes without killing a recovery, or do they just maintain higher levels of debt?”
Kaylan said CBRE GI is “tactically overweight” in terms of appetite to U.S. real estate compared to the rest of the world, but its interest lies in logistics, residential and office properties in smaller cities that would prove more resilient in the long run to the impact of the pandemic, rather than large gateway cities.
The worry about the impact of the coronavirus on U.S. offices is something that cropped up more than once among investors Bisnow interviewed.
“U.S. offices have an overall vacancy rate of 15-17%, so some U.S. cities are starting off with a high vacancy rate that could be exacerbated by a move to agile working or more working from home,” Tristan Capital’s Martin said. “These markets are more high rise, there are a lot of challenges for some of these markets compared to their equivalents in Europe.”
But he said this could have a positive impact for U.S. real estate investment volumes.
“The big challenge for Europe is that U.S. investors will have a lot to do at home for the next six to 12 months,” he said. “You’ve only got to look at the number of defaults in the CMBS market. As soon as you have any decline in the income coverage, it goes straight to the servicer.”
The presidential election will dominate TV screens, Twitter feeds and conversations across the world this week. Real estate decision-making processes, not so much.