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Democrats Win Control Of The Senate, Paving Way For Biden Agenda

Democrats have retaken the U.S. Senate after Raphael Warnock and Jon Ossoff both unseated Republican incumbents, giving the party control of Congress and the White House and a path to pass sweeping legislation. The Associated Press declared Ossoff the victor in his race over Sen. David Perdue Wednesday afternoon.

Vice President-elect Kamala Harris will be the deciding factor in any vote in the Senate that has a 50-50 tie, with Ossoff and Warnock replacing Perdue and Sen. Kelly Loeffler.

Senator-elect Rev. Raphael Warnock.

The wins put Democrats in control of the presidency, the Senate and the House of Representatives for the first time since 2009 and position President-elect Joe Biden to enact major economic policy changes that will impact commercial real estate, including changes to the tax code that could roil investment markets.

With Democrats narrowly in control of the Senate, Biden will have a far easier time getting his choice for Cabinet nominations, including former Federal Reserve Chairman Janet Yellen for Treasury Secretary, Neera Tanden as head of the Office of Management and Budget and Rep. Marcia Fudge for Secretary of Housing and Urban Development.

Many commercial real estate leaders had expressed hope that Republicans would maintain control of the Senate to keep the status quo in economic policy for at least the next two years, with Republicans poised to block many of Biden’s policy priorities.

But others contend the Democratic sweep would benefit the U.S. economy in the coming year.

"I think that commercial real estate is going to benefit from the country having higher GDP growth. It's just a result of having a decent human being as president as opposed to the untrustworthy, lying grifter who is the present occupant," said Phil Tague, the president of AMLI Residential, which owns more than 20,000 apartments in nine states. 

Tague said while some of President Donald Trump's past policies benefited commercial real estate, "the end never justifies the means. The means have really been horrible in dividing our country and damaging and sometimes even destroying relationships with other countries."

During his campaign, Biden vowed to push for an aggressive, $2 trillion sustainability platform that would include retrofitting 4 million buildings across the country. Such a program could potentially create thousands of commercial real estate jobs.

Biden has vowed $46B to improve the nation’s roads and bridges and expand regional and national railroad and transit systems in what he called a "second great railroad revolution” and encourage the development of more than a million affordable housing units.

Many CRE leaders fear Biden's agenda will come at the expense of U.S. businesses and the commercial real estate industry, from increasing regulations that will add to operating costs, raising the corporate tax rate and dismantling the popular 1031 exchange program.

Senator-elect Jon Ossoff during a November campaign speech in Atlanta.

The tax plan on which Biden campaigned could have "a very chilling effect on real estate values," said David Marvin, who develops and operates hospitality properties across the Southeast.

With the proposed increase in capital gains tax, Marvin said the rate would be on par with taxes paid on ordinary income, which could reset commercial real estate prices across the board.

"I think that one possible consequence of the new tax laws as proposed will be to encourage more long-term holding and less churning of property," Marvin said. "There are transactions that are driven by tax considerations. That impetus to drive a deal could be eliminated or diminished."

Colliers International Atlanta President Bob Mathews said there is little doubt real estate investors are reconsidering plans in the U.S. on the prospect of higher taxes. But Mathews said he doubted tax policy will be one of the first things Biden attempts to tackle, leaving the possibility that 2021 will be a busy year for investment sales brokers.

“The emergency right now is the health emergency," he said.

He also expects there to be pushback against Biden's tax proposals by moderate members of his party, such as West Virginia Sen. Joe Manchin.

“I am hopeful that there are enough centrists, both Republicans and Democrats, who can moderate the tendencies of the far, far left," Mathews said. “It would be a shock to me that they could walk in and plop down and pass laws without there being a move by the centrists ... to slow things down.”

Biden could be more open to offering federal aid for restaurants and multifamily and retail landlords. The House passed $120B in financial aid for independent restaurants last year as part of a broader, $2.2 trillion stimulus package that was never brought to the Senate floor. 

While Trump last month signed into law a $900B coronavirus relief package that includes $25B for rental assistance, some $300B for Paycheck Protection Program loans and $15B for music venues and movie theaters, some real estate leaders said the package didn't go far enough in helping other parts of the economy.

Biden's first order of business, he has said, is trying to tackle the coronavirus, which has continued to surge all over the country. In recent weeks, large swaths of the country have shut down indoor dining and restricted other activities, and the rollout of a vaccine has been slower than hoped.

Marvin said that will likely mean Biden's initial push with Congress will be further stimulus, especially packages aimed more at the restaurant and hospitality industry.

"The likelihood [is there will be] additional stimulus, which will be appropriately targeted to the restaurant and hospitality [sectors], which was under-addressed in the first three stimulus packages,” he said. “With Trump out of the way, there would be another stimulus bill once Congress is reconvened. And I think it will be a more generous package with a Democratic House and Senate.”

Some commercial real estate leaders expressed hope that the new Congress and administration would chip away at the incessant uncertainty that has plagued national politics — and potential policies — for the past few years. That alone, despite whatever future policy changes, may be in store to impact the industry, will help the commercial real estate industry to adopt. 

"Whatever the outcome, CRE and business generally will adapt. They survived 14% interest rates, stagflation, wars, the Great Recession," Robert Fransen, the president of Atlanta-based developer and investor Coro Realty Advisors, wrote in an email to Bisnow.

"An increase in capital gains taxes, higher minimum wages and tougher environmental regulation will not be the end of days," he continued. "The economy does best when the rules are consistent. Business people can adjust to rules they like and rules they hate. They struggle when the rules change a lot. This is especially so for CRE. Whatever the rules, as long as they are relatively stable and relatively predictable, businesses will adjust."