Joe Biden Wins Presidential Election, Ushering In A New Era For CRE
The former vice president defeated President Donald Trump in a closer-than-expected race that dragged on more than three days after the polls closed. The historic election will make Sen. Kamala Harris the first woman to serve as vice president.
"I am honored and humbled by the trust the American people have placed in me and in Vice President-elect Harris," Biden said in a statement Saturday morning. "With the campaign over, it's time to put the anger and the harsh rhetoric behind us and come together as a nation. It's time for America to unite. And to heal."
Biden claimed Wisconsin, Michigan and Pennsylvania to garner the necessary 270 electoral votes to win the White House. Trump's campaign has filed lawsuits across multiple states in an effort to swing the outcome and requested a recount in Wisconsin, but it is unclear if any will be successful. Trump has no plans to concede the race, CNN reports.
The transition from a Trump administration to a Biden administration will mean a significant shift in U.S. policy on a host of issues, including many that directly impact commercial real estate.
The most immediate crisis Biden will face is the coronavirus pandemic, as new COVID-19 cases have reached record highs in the U.S. over the last week. Biden has repeatedly criticized Trump’s handling of the pandemic, and he has called for expanding the availability of testing, ramping up production of personal protective equipment, providing more national guidance on business reopenings and mandating universal mask-wearing.
Many sectors of the commercial real estate industry have been devastated by the coronavirus, from hospitality to retail to downtown office and apartment markets, and some industry leaders who supported Biden said they believe he will take the health crisis more seriously.
The Biden administration could also move quickly to pass a long-awaited stimulus bill if Trump doesn’t sign one during the coming lame-duck session. Proposals from the Democratic Party have featured more total spending and more money for state and local governments, measures that could create more economic stability in the nation’s biggest real estate markets.
The fate of the Senate was uncertain as of Wednesday night, with Republicans slightly favored to retain a narrow majority, which would complicate Biden's ability to pass a stimulus bill and other key pieces of his agenda. Market analysts said a divided government is ideal for the investment community.
Biden has proposed several economic policies that have been largely unpopular with the commercial real estate industry. Some commercial real estate leaders said before the election a Biden presidency and a Republican Senate would be the ideal outcome because it would likely prevent significant changes to the tax code.
The former vice president has called for a rollback of major elements of the 2017 Tax Cuts and Jobs Act, including a hike in the corporate tax rate from 21% to 28%.
He has called for ending the 1031 exchange program, used by real estate investors to defer taxes on property sales. He proposed eliminating the lower tax rate for carried interest, a move that would affect partnerships that own commercial real estate, and he has called for an increase in taxes on inherited real estate.
Many of the commercial real estate leaders who supported Trump in the election cited Biden’s proposed tax hikes as a top concern. But some who supported Biden said business leaders could accept the tax increases if the money is spent in a transparent way that helps cities recover from the crisis.
The nation’s largest commercial real estate markets could benefit from one tax change supported by Democrats. The Democratic-controlled House of Representatives in December voted to eliminate a cap on state and local tax deductions that was included in the 2017 tax law.
The 2017 SALT tax increase disproportionately hurt high-tax states where many of the nation’s largest cities are located, and experts have cited it as a potential cause for people fleeing big cities. Lowering this tax burden could help big cities such as New York and San Francisco bring back residents who have left during the pandemic.
The opportunity zone program, also enacted as part of the 2017 tax law, is likely to remain intact under a Biden administration. The tax incentive program retains bipartisan support despite some criticism for not living up to its goal of helping underserved communities, but the new administration could change elements of the program.
A Biden administration would likely increase requirements for reporting data on the impacts of OZ investments, a measure supported by both parties, but some Democratic leaders have pushed for greater changes. Sen. Ron Wyden, the top Democrat on the Senate Committee on Finance, proposed stripping the OZ designation from affluent census tracts and prohibiting investments in luxury rental properties.
Biden’s $2 trillion sustainable infrastructure and clean energy plan could have massive implications for commercial real estate if enacted. He has promised to create a national set of building standards to make properties more energy-efficient, as buildings currently account for over 50% of the carbon emissions in the average city.
This plan would mean retrofitting 4 million buildings across the country. While building owners may view the regulations as onerous, the initiative could spur a wave of new renovation projects that could create thousands of real estate-related jobs.
It is unclear how many of his proposals the president-elect will be able to enact.
While Trump had some high-profile commercial real estate executives in his corner, Biden received more financial support from the industry at large.
As of Oct. 23, Biden’s campaign received $34M in contributions from individuals in the real estate industry, while Trump’s campaign received $23M, according to the Center for Responsive Politics. That gap widened significantly after Sept. 8, when Biden maintained a $17M to $16M edge in real estate industry donations.
Trump, who spent his career in real estate before running for president, maintained ownership of his businesses throughout his presidency. This led to a series of investigations and lawsuits over conflicts of interest, particularly at his D.C. hotel five blocks from the White House.
The president will face challenges with his businesses after leaving office, as he reportedly owes $421M in real estate loans that are coming due over the next four years. Deutsche Bank, one of Trump's lenders, is looking to sell its Trump Organization loans and end its relationship with the president after the election, Reuters reported Tuesday.
While Trump's tax cuts largely benefited commercial real estate, his trade policies created volatility for the industry. The president last year raised tariffs on China, increasing the cost of importing construction materials and retail goods.