Presidential elections have a profound influence on financial markets and the economy. They often trigger significant shifts in economic policies and regulatory frameworks, thereby influencing various sectors, including commercial real estate investment.
Analyzing the potential impact of either a Kamala Harris presidency or a Donald Trump presidency on the commercial real estate mortgage market requires consideration of a range of factors, including economic policies, regulatory changes and broader market dynamics. Both candidates bring different approaches and priorities to the industry, which could shape commercial real estate financing in distinct ways.
Donald Trump, the 45th president of the United States, had a first term characterized by a focus on deregulation, tax cuts and generally pro-business positions. Kamala Harris, the vice president for President Joe Biden, has been influential in shaping policies related to social justice, border security, climate change and economic equity.
This article is a focused analysis on the potential implications on the commercial real estate investment landscape of a Trump administration versus a Harris administration. This is a narrow perspective that allows for a close look at the positions of the two candidates on this aspect of the commercial real estate market. By examining their approaches to taxation, regulation, infrastructure and economic stimulus, one can better understand the potential implications for commercial real estate investors, developers and stakeholders.
Trump tax policy
A second Trump term would likely signify a continuation of the pro-business policies that characterized his first term in office. A long-time real estate developer, Trump’s influence on commercial real estate is multifaceted. His administration’s policies had a substantial impact on the sector, driven by tax reforms and deregulation efforts.
During the Trump administration the Tax Cuts and Jobs Act (TCJA) of 2017, which implemented sweeping changes to the tax code, including a reduction in the corporate tax rate from 35% to 21%, was passed. While economists remain uncertain as to the extent that the $1.7 trillion tax cut stimulated the overall economy, it provided a stimulus to corporate earnings and may have boosted investor confidence, leading to increased capital inflows to the commercial real estate market.
The legislation introduced changes to depreciation schedules, including immediate expensing of certain property improvements, which incentivized businesses to invest in upgrading their facilities, benefiting sectors such as retail and industrial real estate. The act also limited the like-kind exchange benefits to only real estate transactions and excluded other types of personal property. This may have led to changes in investment strategies, potentially impacting property liquidity and investment flows.
Trump has promised to continue cutting the corporate tax rate in a second term, further bolstering the attractiveness of commercial real estate investments. Continued support for favorable tax treatment of capital gains and pass-through entities could incentivize additional capital allocation towards commercial real estate assets, particularly among high-net-worth individuals and institutional investors. He has also called for expanding his opportunity zones policy, which allowed developers to defer capital gains taxes if they invested in one of more than 8,700 areas around the country designated as distressed.
Deregulation
Throughout his presidency, Trump pursued an agenda of deregulation aimed at reducing bureaucratic hurdles for businesses. According to the Brookings Center on Regulation and Markets, the Trump administration was relatively successful in changing the regulatory rules it targeted.
In the commercial real estate sector, regulatory rollbacks and streamlined permitting processes have facilitated faster project approvals and reduced development costs for commercial property developers. The rollback of environmental regulations, including those related to wetlands and air quality, reduced compliance costs for developers. This could lead to increased development in previously restricted areas, affecting land values and development patterns.
While Trump’s deregulation efforts were focused on federal rather than local zoning laws, there was an indirect effect. Reduced federal oversight could empower local governments to pursue more developer-friendly policies, impacting land use and property development. However, recently developers have had to deal with many local permit issues concerning environmental issues.
A second term for Trump would likely see a continuation of deregulatory efforts, which may further streamline the development and investment process in commercial properties. However, critics argue that reduced regulatory oversight may also lead to environmental risks, inadequate consumer protections and potential market imbalances, which could pose long-term challenges for sustainable growth in the commercial real estate sector.
Infrastructure Spending
Infrastructure investment has been a recurring theme in Trump’s policy agenda, although comprehensive infrastructure legislation never materialized during his first term. The administration encouraged public-private partnerships (PPPs) aimed at leveraging private investment in infrastructure.
This could enhance the value of properties near new infrastructure projects and stimulate commercial real estate activity. Accelerated depreciation on infrastructure investments. This, at times, encouraged more investment in infrastructure, indirectly benefiting commercial real estate. Some observers have criticized the Trump administration for not prioritizing infrastructure spending. They have described Trump’s first term as a missed opportunity.
Harris tax policy
In contrast to Trump’s agenda, Harris’s election would signal a shift toward progressive policies focused on tax reform, infrastructure investments, environmental sustainability and economic equity. As of late August, Harris has offered limited details to her agenda, but she is expected to adhere closely to the Biden administration’s policies, which she helped to create.
The Harris campaign has promoted rolling back the corporate tax cuts enacted under Trump’s administration, including raising the corporate tax rate from 21% to 28%. Additionally, Harris has promised to not raise taxes on individuals with incomes under $400,000. That has led to conjecture that Harris would favor targeted tax increases for individuals making more than $400,000. Such policies could reduce after-tax profits for corporations and high-income investors, potentially affecting their appetite for commercial real estate investment.
Harris’s tax proposals also include incentives for renewable energy investments, affordable housing development and infrastructure projects. Tax credits and incentives aimed at promoting energy efficiency and sustainability could create new opportunities for real estate investors, particularly in the renewable energy and green building sectors.
Real estate policies
Harris has announced plans to help spur the construction of 3 million new housing units by 2029. She would aim to offer $25,000 in tax credits to help first-time homebuyers pay for the downpayment on a starter home.
The Harris campaign is also planning tax credits for companies building affordable homes. On the other side, Harris wants to eliminate tax breaks for large companies, such as Blackstone, as a way of discouraging them from buying up available apartment units and homes in the country.
Environmental sustainability
Environmental sustainability and climate change mitigation are central priorities for the Harris administration. Regulatory measures aimed at reducing carbon emissions, promoting renewable energy, controlling methane and other emissions and addressing climate risks could create new job and influence investment decisions in commercial real estate.
Properties that meet higher environmental standards, such as LEED certification or net-zero energy buildings, could gain a competitive edge in the market and attract environmentally conscious tenants. On the other hand, properties that fail to meet these standards may face challenges in terms of marketability and financing, as lenders and investors increasingly factor environmental considerations into their risk assessments.
Infrastructure Investment
Infrastructure spending was a cornerstone of the Biden-Harris administration’s economic agenda, with proposals to invest trillions of dollars in about 40,000 different projects that will update transportation, help in the production of clean energy, supply high-speed internet and other infrastructure needs. Increased infrastructure investment could stimulate demand for commercial properties, particularly in sectors such as logistics, warehousing and transportation-related real estate.
Moreover, infrastructure projects could create jobs and support economic growth, indirectly benefiting the commercial real estate market. However, the extent to which these projects materialize and their specific impact on the commercial market will depend on a range of factors, including the allocation of funds, project timelines and regulatory approvals.
The Biden-Harris administration also pushed through the CHIPS Act, which gives incentives to chip companies and supply chain partners to build manufacturing facilities in the U.S. While this law has helped develop more technology manufacturing in the U.S., it is unclear what the impact will be on real estate investing.
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The implications of a Trump administration as opposed to a Harris administration on the commercial real estate investment world are multifaceted and nuanced. A Trump election could lead to lower taxes in some sectors and deregulation which, in turn, might drive a surge in new developments. However, such changes might come with environmental trade-offs. On the other hand, Harris’s progressive agenda prioritizes environmental stewardship, social equity and infrastructure investment, which could expand parts of the commercial real estate landscape.
“The implications of a Trump administration as opposed to a Harris administration on the commercial real estate investment world are multifaceted and nuanced.”
A Harris win also may favor sustainable developments and green building practices. However, Harris’s proposed tax changes, environmental and regulatory measures may introduce new challenges and uncertainties for commercial stakeholders, particularly in terms of financing options and investment incentives.
The extent to which these policy proposals are implemented and their actual effects on commercial real estate will depend on numerous factors, including congressional dynamics, economic conditions and unforeseen events, such as another pandemic or a war. Investors, lenders and other stakeholders in the commercial real estate investment world will need to closely monitor developments and adapt their strategies accordingly to navigate the evolving landscape under the next presidential administration. The two candidates offer very different approaches to commercial real estate development. Harris is emphasizing programs that will improve residential development and community infrastructure. Trump tends to focus on implementing policies more directed at bigger businesses in the commercial sector. The question is which approach will best benefit the overall commercial real estate segment?
