Rinkov on Trump: A Time of Cautious Optimism

Rinkov: “Infrastructure is probably the least sexy conversation in the topic of catalysts for economic growth, but without it you risk how robust your growth can be.”

LOS ANGELES—To some, the first weeks of the Trump presidency have been pretty bumpy. To others, well, you have to break eggs if you want an omelet. Say what you will about the man (and there seems no dearth of will to do so), people in business—especially in the commercial real estate business—are generally stoked about a leader of the free world who also gets concepts such as cap rates and 1031s.

Still, other than opening salvos, we haven’t seen much of the meat promised during the campaign served up to Congress, where compromise and negotiation of a political sort are the tools of the trade. GlobeSt.com sat down with Jeffrey Rinkov, CEO and chairman of the board of Lee & Associates, to get his take on how it’s going.

GlobeSt.com:What’s the overall tone of your colleagues in the industry two months into the Trump presidency?

Jeff Rinkov: The overall tone is one of optimism. The tenor of this administration speaks to business people.  There’s some optimism around the fact that the president has a real estate background. Within that context, the conversation around deregulation is important.  The conversation around tax reform is important and, again, speaks to real estate people.

Coastal real estate markets are very strong. So I’m not sure if on the East or West coasts people would give a lot of credence to the impact of the president on real estate markets—yet. But places in the middle of the country, where you’re talking about deregulation related to energy exploration and the impact that that will have on job creation, those issues speak to a lot of optimism.

On a more general note, I think people both in and outside the real estate industry are also very happy right now just to move beyond the distracting, polarizing election. 

GlobeSt.com: Let’s look at some specific issues. The reworked—or reworking—of the Obama healthcare program is sure to have an impact on medical office.  What do you expect?

Rinkov: I’m concerned the debate will cause the same sort of distraction the election did.  It’s an important issue, and we can’t lose sight of the fact that there are things imbedded in the healthcare initiative that have a direct impact on the cost of occupancy by office, industrial and retail tenants as well as owners and developers.  Some of what’s being proposed will benefit business people in general and create opportunity.

As it relates specifically to medical office, healthcare isn’t the issue that will drive what I see as a really bright future for medical office. We have an aging population that will live longer and demand medical services in a completely different way for a number of additional years, and that will help grow the medical office product. In that time, you’ll see medical office absorb some former retail space, maybe an old Walmart or Macy’s. You’ll see malls house medical office facilities featuring surgery centers, MRIs and other kinds of testing facilities. Over the next 25 years, medical office is going to see tremendous growth. Healthcare will be a part of that as it relates to costs and the delivery of medical care, but the aging population will drive it.

GlobeSt.com: Then, of course, there’s the sweeping issue of infrastructure, which will have a more indirect but even wider-spread impact on commercial real estate as a whole. On one hand, it’s very expensive, but on the other hand it’s much needed. What are your thoughts?

Rinkov: Infrastructure is probably the least sexy conversation in the topic of catalysts for economic growth, but without it you risk how robust your growth can be. Making sure our bridges, roads, damns and electrical grids are all safe, secure and modernized is key to that. But it also creates the further proposition of how the rest of the world judges our global leadership, the stability of our economy and our development of new technologies.

It’s incredibly important, after years and years of not doing it, to pay attention to our infrastructure. It’s the underpinning of further growth in our industry, and it will continue to make the US appealing to investors around the world. The one thing that investment wants is stability. It wants to make sure that the systems that support their investment opportunities are safe, stable and modern.

GlobeSt.com: We’re still unclear on the direction tax reform will take. What are you hoping for and how does that align with what you expect?

Rinkov: Right now we have large corporations that leave their profits outside the country, and that’s a missed opportunity to repatriate billions of dollars. My hope is that tax reform will make the US corporate tax code competitive with other tax codes for multinational corporations around the world. If we can be competitive and provide a vehicle for companies to repatriate profits, that will be a huge win.

GlobeSt.com: And as taxes relate to 1031s?

Rinkov: This isn’t a unique view, but real estate professionals use that as a vehicle to create a number of varied and broad-based transactions. I’m hopeful the abandonment 1031 isn’t part of any change to the tax code. It would be damaging to real estate values in general and dramatically change the pace of transactions.

GlobeSt.com: We started with an overall tone question. Let’s end with an overall tone question.  What’s your outlook?

Rinkov: I’m very optimistic.  I continue to see really bright spots in the economy, even when I look at what the Fed is doing. While I don’t look forward to rate hikes, the Fed is showing that the economy can absorb a move away from crisis-level rates. And the stock and bond markets show that they agree.

Then you add in the potential for a modernized tax code, the infrastructure initiatives and the opportunity we’re seeing in terms of low vacancy rates, really high employment numbers and potential wage growth. Those are all very positive signs.