President-Elect Trump's Potential Impact On The West Coast
There are more questions than answers as to what a Trump presidency will actually look like, but here are some expectations on the West Coast.
Beacon Economics economist and founding partner Christopher Thornberg tells Bisnow the firm’s range of error around its economic forecast has “grown exponentially.”
Chris says it’s unclear what Trump will do as he's talked about a lot of things, “but he gives very little actual detail,” Chris says.
So there is a massive gray area, Chris says. He says there is always some uncertainty, “but never like this.”
Chris was among the authors of a recent Beacon Economics forecast that analyzed how Trump’s policies could be enough to push the country into a recession. While tax cuts create a good short-term impact and growth, it will increase the federal deficit and widen the trade deficit, the report forecasts.
The report also said trade disruption would impact the supply chain and increase consumer prices. Deportation of undocumented residents would also impact supply chains and consumer spending.
Chris says he has faith in the bureaucracy the Founding Fathers set up, which he describes as “frustratingly slow for a reason to prevent the kind of major changes that Trump is proposing.”
Bellwether Enterprise SVP John Ghio, above with SRM Development principal - real estate Ryan Leong, said during a recent Bisnow event in Oakland, the effects have already been felt, at least in the bond market. He said long-term 10-year Treasury bonds had moved from 1.84% to about 2.11% within 48 hours after the election. He said long-term bonds move when markets sense inflation. The stock market took off, and “yields ran with it as people were selling off bonds.”
“I’ve never seen the Treasury jump like that in my observation,” John said.
Colliers International SVP in Los Angeles Kitty Wallace, above with her family during a trip to Australia, says she was concerned about Trump’s impact.
“Nobody, obviously, knew what was going to happen,” Kitty tells us. “I believe the majority of the population didn’t believe what occurred was going to happen, so when I watched the futures market drop by five points, and they put in some stop-gaps for the market to cease dropping, I expected (Wednesday) morning the market to be a bit tumultuous.”
After Trump won and gave his speech, “the futures market continued to improve” and Wednesday morning the market opened “just better than even,” she says.
Kitty tells us “there was, obviously, surprise, but the surprise was short-lived, and we all hope that continues forthwith.”
She says if Trump can deliver what he promises and create 25 million jobs, it will be good for all industries.
“The affordability rate in our apartment buildings will improve, and our industry across the gamut from office, retail and industrial will be far better off,” Kitty says.
Transwestern SVP and senior director of commercial real estate in Silicon Valley Ed Mendence tells us Trump will be able to reduce the corporate tax rate, which is 38.9% (the highest in the world among industrial nations). Ed says this will help bring back some of the $2.5 trillion to $3 trillion of American capital from overseas.
“If you have any portion of that $3 trillion corporate capital returning/repatriating back to the US, it bodes well for business expansion and job growth, for investment in plant and equipment, real estate demand, sales pricing and rental rates,” Ed says.
Ed says he fully expects the GDP to increase far more than the anemic ±1% to 1.5% annual growth rate seen over most of the past eight years, and likely reach or surpass 3% annual GDP growth during Trump's presidency.
Transwestern EVP in San Francisco Rob Bagguley (above) tells us we’ve already seen a reaction in the marketplace, which took a dive and is now stabilizing. He says there will be both a negative and positive impact on the Bay Area.
“Things are never really quite as good as you think they are going to be,” he says, “and they are never as bad as you think they are going to be.”
He says the corporate business tax will impact startup companies by creating additional opportunities, and Rob hopes larger companies will reinvest additional capital into business.
One of Rob’s biggest concerns relates to Trump’s trade policy and how the president-elect campaigned on using tariffs to increase the cost of goods from China and other countries imported into the US. He says this may affect Silicon Valley, which has strong international connections. Rob says other countries could also retaliate and put tariffs on American goods.
Additionally, strict immigration policies could affect Silicon Valley, which has benefited from the H1B1 program. The region has attracted additional talent from abroad to fill any gaps in the tech industry, Rob says.
“One of the great things about the US is our ability to attract people from the whole world,” Rob says.
Rob doesn’t expect foreign investment into the US to slow down and “real estate investment in the US will continue to be appealing whether from a sovereign wealth fund, or China, or Asia Pacific or Middle East or high-net-worth individuals globally. The US is always going to be a safe haven.”
He adds the Bay Area is riding the crest of the wave in foreign investment, and prices in both Southern California and Northern California are still at peak numbers.
Orton Development principal Nick Orton (above) said at an Oakland Bisnow event he believes Trump’s rise signals an irrationality in the marketplace. He added the trade policies Trump campaigned on could have a huge negative impact on the global economy.
SRM Development principal real estate Ryan Leong said while it may be too early to tell, volatility has been up for a while and it will likely continue until we know what the new policies are going to do, but “nobody really knows at this point.”
“Volatility is not good for business and for us to make decisions,” Ryan said.
He said this uncertain environment creates enough doubt for developers to question whether to move a project forward.