Like the rest of our country, the team here at RealtyMogul anxiously awaited the results of the 2020 election. While the final electoral voting process is not complete, the media has called Biden as our President-elect and Kamala Harris as our Vice President-Elect. So, what does this mean for commercial real estate?
The long and short answer is – it depends. We see two forks in the road depending on who wins the special run-off elections for control of the Senate in Georgia. If the Democrats win both seats in the run-off elections being held January 5th, control for the Senate would be tied between the Democrats and Republicans. When the Senate is tied, any tie breakers are resolved by the Vice President, in this case Kamala Harris, which effectively means that the Senate would be democratically controlled.
Let’s play out both predictions.
If the Senate remains controlled by Republicans after the run-off elections in Georgia, we do not expect too much to change. It is unlikely with a split House/Senate that we would see major changes to commercial real estate, or taxes for that matter. We would expect capital gains tax, opportunity zone policies and 1031 exchange policies to remain relatively unchanged.
If the Senate flips and is effectively controlled by the Democrats, as described above, we would expect there could be changes to tax policy, opportunity zone and 1031 exchange policies, but they may take some time. While 2020 has shown us that anything is possible, it is unlikely Biden would push for increases in taxes during a pandemic. We think the Biden Administration would be more focused on controlling Covid, climate change, healthcare and immigration policy that increasing taxes or modifying tax havens for real estate investors, at least initially. While we think these changes are unlikely in 2021, they are on the table for 2022 and beyond under a Democratically controlled Senate.
While we think there is a likely divergence regarding tax policy depending on who controls the Senate come 2021, ultimately we think demand for commercial real estate will stay strong, particularly multifamily, and pricing will continue to hold up, largely driven by the Fed’s interest rate policy. The Fed is likely to wait until we see economic growth for a few quarters before shifting from their low rate policy and cheap debt reduces financing costs for commercial real estate owners and operators.
All else being equal and with two successful Covid vaccines at the forefront of the news cycle this week, we continue to believe in a long-term real estate investing strategy.
Interested in learning more about our views? Watch the recording for our recent livestream, “What A Biden Presidency Means for Real Estate” with our CEO, Jilliene Helman and Director of Acquisitions, Ken Bodenstein.