CRE Execs Hail Biden Victory, Split Congress, As Heavy Lift Awaits
As President-elect Joe Biden began to outline his agenda for his first day in the Oval Office over the weekend, the notoriously optimistic commercial real estate industry remained true to form, saying the election couldn’t have gone better last week.
“This is perhaps the best outcome, not only for the financial markets but for CRE,” Colliers International National Director of Research Steig Seaward said.
Biden, whose election hasn’t yet been certified, has proposed a host of policy changes that would directly affect commercial real estate, from eliminating 1031 exchanges to reforming opportunity zones to changing the real estate probate tax. Many are seen as unfriendly — or at least burdensome — to the multitrillion-dollar industry. But all of those policies require congressional approval.
Democrats would need to win both runoff races for Georgia Senate seats in January to force a 50-50 tie, making a Republican-controlled Senate the most likely outcome. With Senate Majority Leader Mitch McConnell holding onto the gavel, CRE leaders say their fears of an aggressive progressive agenda have been lifted, leaving more confidence that pro-business policies set in place by the Trump administration will remain.
“The good news is, when you have a divided government, that means that you have to compromise in order to get anything done,” Camden Property Trust CEO Ric Campo told Bisnow. “I think commercial real estate, and actually, the country overall, would be better off with a more compromising government, as opposed to one side versus the other side controlling all parts of the government.”
Compromise has not been the spirit of the current administration, with trade wars that have impacted construction material prices and immigration policies that have reduced the inflow of high- and low-skilled workers to the economy. President Donald Trump’s impromptu governing style left many investors without confidence to predict the environment they would be operating in over the long term.
“Economically speaking, I think [Biden winning] is a better environment,” Oxford Economics Chief U.S. Economist Gregory Daco said. “People underestimate the importance of policy certainty. You may have policies that you dislike or you think hurt your activities … But what matters oftentimes more for businesses and consumers is the ability to plan and the ability to know how things will be tomorrow. That has not been the case for the last three and a half years.”
Outside of his fiscal policies, Biden campaigned on a more comprehensive government approach to handling the coronavirus pandemic, as opposed to Trump’s approach of delegating responsibility to state and local governments. The U.S. set all-time case records last week, and the virus is spiking in nearly every state as the winter approaches. The U.S. has had nearly 240,000 virus deaths and more cases than every other country.
“Biden made his campaign around taking COVID more seriously, and the ability to contain the virus is going to be essential in jump-starting the economy and accelerating the commercial real estate market. So to the extent he is able to do that, that is a boost for our industry,” Newmark Senior Managing Director of National Research Sandy Paul said. “In order to fully reboard offices downtown, we have to get a handle on the virus.”
Beyond the medical and research initiatives the country needs to better control the pandemic, first on the agenda for the government is a stimulus package, which has been out of reach for months despite protracted negotiations.
While Biden is expected to look at passing a stimulus measure of his own next year, there is optimism that Congress will pass a relief bill during the lame-duck session that brings immediate aid to the economy.
“We all sleep on the fact that regardless of the outlook of the election, we have until Jan. 20 until any new administration takes over,” Mortgage Bankers Association Senior Vice President of Commercial and Multifamily Policy Mike Flood said. “This three-month period is important to investors. We saw something [Thursday] we haven't seen in a long time; we saw McConnell say we ought to get a stimulus deal done. For investors, especially those in commercial real estate, retail and hospitality, the next three months are critical because [it's] a good time to pull a stimulus bill together."
The higher likelihood for a stimulus is going to be tempered by a smaller package than if Democrats decisively took control of the White House and both chambers of Congress, experts believe.
“I do think that a stimulus bill will be smaller and possibly more targeted than some people were hoping,” JLL Chief Economist Ryan Severino said. “It would still be helpful to the economy, but maybe not as large as some people were thinking before this [election]. I think there’s an ability for the White House to do some things via executive orders, like with environmental policy or things like that, but I don’t think any of that will be too significant for CRE.”
There is broad hope for an injection of funding into different parts of the economy from any stimulus package, but it isn’t universal.
“There's going to be an overcorrection,” said Keith Mack, a director at Atlanta development firm Regent Partners. “I know three things: Americans will over-politicize a ham sandwich, the general public has a relatively short memory and we tend to overcorrect in response to a crisis.”
On a more granular level, people who work in the sectors hit hardest by the coronavirus — hospitality, retail and affordable housing — say Biden’s proposals and leadership could buoy their sectors.
"A Biden presidency is going to be positive for hospitality. I believe he understands the importance of travel to the economy,” said Recep Karaburun, a professor at New York University’s Tisch Center of Hospitality. “There are some things as president he might do regardless, such as giving better direction on handling the pandemic, such as through a mask mandate. How countries handle COVID impacts their hospitality. Travelers need a sense that a country is handling the pandemic before they'll want to visit."
Hotels aren’t forecast to make a full recovery until 2024 by some estimates, as hoteliers around the country struggle to pay off their debts. It’s unclear what relief, besides a more comprehensive pandemic strategy, they can expect under a Biden administration.
“The two sides are far apart, so I don't know how that's going to shape up now, even with Biden in," Ridgemont Hospitality President and Chief Operating Officer Dhruv Patel said. “I think it's going to be a very tough negotiation.”
Retail has also been challenged, but consumer spending has rebounded in the past few months as employment has somewhat recovered. Still, thousands of restaurants across the country have already closed, and the $120B bipartisan RESTAURANTS Act has sat on the shelf with the rest of stimulus negotiations since the spring.
“Retail is doing well, as long as the retail has done its job of integrating the internet as part of its business model. [Food and beverage] is going to start suffering more because they're going to lose their patios,” Weinberg said. “The [food and beverage] world is on its knees.”
There is also the matter of the looming eviction crisis and tens of billions of dollars of rent debt. While the Centers for Disease Control and Prevention’s guidelines around evictions — confusing as they may be — expire with the new year, the economic crisis’s impact on the ability of millions of Americans to pay rent won’t.
“In the days to come, we call on policymakers in both parties and on both ends of Pennsylvania Avenue to put aside partisanship and instead focus on delivering a comprehensive COVID relief package that helps apartment residents meet their housing obligations and keeps them safely housed as winter approaches, while doing away with counterproductive policies like the nationwide eviction moratorium — a ‘one-size-fits-all’ approach that will only lead to insurmountable household debt and which risks destabilizing the country’s housing sector,” National Multifamily Housing Council Vice President of Public Affairs and Communications Colin Dunn said in a statement.
Biden’s proposals around sustainability and bold infrastructure spending are ginning up optimism in the industry that has been waiting for years for a promised $1 trillion infrastructure package Trump never delivered.
“I’d really like to see — and I know this is a wish list kind of thing — but a comprehensive infrastructure package,” JLL’s Severino said. “We had a series of false dawns for infrastructure spending over the past four years, but we do need repair of existing infrastructure and addition of new infrastructure. For commercial real estate, if we had 21st century electrical systems, better internet connectivity, better rail connections, more updated air traffic control, improved highways — all of those things would help the economy in the short term and [the] long term, in terms of the jobs such improvements would create and how it would help the economy run more smoothly in the long term.”
Biden’s sustainability plan would see 4 million buildings retrofitted and bolder visions for green energy and fighting climate change, which have been either hailed as a huge step forward or panned as a potentially onerous regulatory overstep.
“That’s incredibly exciting, to see a presidential candidate have in their platform that they intend to help incentivize the construction of 1.5 million new sustainable homes and apartments, to retrofit 4 million buildings and 2 million home and existing apartments,” Sasaki Director of Sustainability and Resilience Tamar Warburg said. “This could be a boon for [the] construction industry, which means planning jobs, design jobs, construction jobs, renewable energy jobs, and that would be really welcome news for the economy for the country specifically.”
Whether Biden can actually execute his proposed sweeping changes is to be seen. Walker & Dunlop CEO Willy Walker said the combination of a Biden presidency with a Republican Senate would be a positive outcome for business, but the lack of a blue wave across the board and the close nature of the presidential race could hamper Biden’s ability to govern.
“Had it been a decisive victory for Biden, I think that we would have had a clear direction, somewhat of a mandate for the new president,” Walker said. “I think given how much of a nail-biter this presidential election has been going to down exceedingly thin margins, it means that we will have a President Biden without a clear mandate. I think from a market standpoint, that says more gridlock, and that’s fine. I think from an overall leadership of the country standpoint, I’ve got my question marks.”
The largest question mark facing the country and the economy is the course the coronavirus will take. It has already dealt a severe blow to the economy and put millions of Americans underwater financially, including many in the commercial real estate industry. Biden has a heavy lift in front of him.
“Our industry has been devastated and the government has let us down completely,” Maverick Hotels & Restaurants CEO Bob Habeeb said. “The fact that politics overcame other relief efforts and allowed rent to go unpaid and so many to lose their jobs is despicable, and as a country we should be ashamed.”