President Biden's First Year In Office For CRE: Infrastructure, But Not Much Else
As President Joe Biden marks one year in office, his administration has changed surprisingly little for commercial real estate, with one notable exception.
The passage of the Infrastructure Investment and Jobs Act in early November greenlighted $550B in spending that will greatly impact the country’s built environment in the long term. But some expected changes to key investment regulations never came to pass and the Build Back Better spending bill, which would have fed billions of dollars into affordable housing amid other social programs, sputtered before the finish line.
Still, the infrastructure bill became law, with enough dollars behind it to actually complete some long-needed projects.
“There were lofty goals initially, and through the legislative process there were a lot of concessions, but for certain key sectors, transportation specifically, [funding for] the key projects we expected to move forward was generally there,” said Gavin Middleton, chief operating officer at development and construction advisory firm Lehrer Cumming. “From what I know, there will be significant enough allocation to move those projects forward.”
With Democratic control of both houses of Congress and Biden in the White House, many in commercial real estate feared part of the progressive agenda he touted as president-elect would include the abolition of 1031 exchanges, also known as like-kind exchanges. The 1031 provision in the tax code exempts real estate transactions from capital gains taxes if the proceeds from a sale are reinvested in another real estate deal; if it had been banned, real estate transactions would have become much more expensive.
Even before Build Back Better failed to advance, 1031 exchanges had been written out of the bill, signaling the tax policy was no longer a focus. With that, a weight of dread lifted for commercial real estate investors, though on another tax break program, the clarity the industry had been seeking has failed to emerge. Opportunity zones, once the words on everyone’s lips, have seemingly fallen by the wayside for the Biden administration despite reform being a part of his campaign platform.
“I don’t think that the Biden administration has weighed in on it much,” said Martin Muoto, whose company SoLa Impact was praised in testimony to a House subcommittee by the Brookings Institution’s David Wessel for using the opportunity zone program the way it was envisioned. “We were hoping [something would happen]. But we haven’t seen any changes; we’re still anticipating and hoping.”
With an outsized portion of opportunity zone investments made so far not providing tangible benefits for underserved communities, calls for changes to the program or additional oversight have come from multiple corners, but without much more than congressional hearings to show for it. The specter of potential change still looms over the program, even as investors continue to make use of it.
“At the end of the year, several folks had a lot of questions about if certain [deadlines] would be extended, how tax changes would affect long-term capital gains, etc.,” Muoto said. “Uncertainty’s never a great thing, but we’re not overly disappointed; it’s just more of the same.”
Ultimately, the pandemic has continued to dominate life for both the general public and much of the real estate industry, as its impact on the global supply chain, job market and inflation has been, to some extent at least, out of Biden’s hands. Though his administration’s handling of public health policy has been the subject of intense debate, what ails the supply chain goes beyond U.S. borders.
“It would be unfair to lay the supply chain challenges our industry has encountered at the feet of the executive branch because it’s obviously been so impacted by the pandemic and chronic manufacturing challenges in different parts of the world,” Middleton said. “Whether it was factory shutdowns in Europe or well-documented container shortages, it would be very hard to suggest [the Biden administration] was responsible for that, and it has had a very limited ability to improve that.”
And as expenses relating to every part of global shipping have increased, whether for consumer goods or construction and manufacturing materials, the resulting inflation has thrown a wrench in Federal Reserve Chair Jerome Powell’s monetary policy for guiding growth out of the pandemic. Though initially a Trump appointee, Powell was renominated by Biden late last year, and his plans to hike federal interest rates and trim the Fed’s balance sheet carry an air of inevitability.
For his part, Muoto recognizes that consumer inflation disproportionately harms the low-income households that live in his affordable housing properties, even if low interest rates make financing his projects easier.
“Candidly, we hope interest rates for affordable housing continue to stay low, though we probably can’t have our cake and eat it, too,” Muoto said.