Photo of Revathi Greenwood Greenwood says that tax reform “may have a modest impact on real GDP growth.”

NEW YORK CITY—Its impact on GDP growth is likely to be modest, but the pending tax-reform package that’s likely to come up for vote next week puts commercial real estate in the winner’s circle, says Cushman & Wakefield in a new report. Some sectors stand to gain more than others as specific provisions of the package take effect. The apartment sector, for instance, is expected to benefit from the planned repeal of the state and local tax deduction as homeownership becomes less appealing.

Furthermore, some of the anticipated benefits for CRE will depend on whether the House or Senate language makes it into the final, reconciled bill. Cushman & Wakefield sees the provisions for pass-through structures, which hold 61% of direct investments in US CRE, aligning more closely with the Senate’s version. In other words, expect to see a 23% deduction limited to 50% of W-2 income, rather than the House bill’s 25% rate on passive income using a 70/30 formula.

“Put simply, the Senate proposal leaves partnership and S corporation investors in real estate out in the cold,” although REITs and publicly traded partnerships are eligible for the full deduction without regard to the 50% wage limitation, according to Cushman & Wakefield’s report. If the Senate language prevails, the firm predicts a shift over time to REITs, along with conversions to corporate structures.

The House and Senate versions also differ in their timeline for the 20% corporate tax rate to take effect (2018 in the House version, 2019 in the Senate version) and treatment of the corporate alternative minimum tax (eliminated by the House, retained by the Senate). Regardless, though, Cushman & Wakefield anticipates a net impact of three to nine basis points on annual GDP growth over the next decade.

Although some proponents have claimed that the tax cuts will lift real, annual GDP growth closer to 3% from the approximately 2% we’ve seen during the current expansion, most of their analyses don’t consider the likely effects of tax reform on a higher-than-expected trajectory for interest rates or the impact of higher levels of debt that deficit-financed tax cuts will entail, according to Cushman & Wakefield.

“While tax reform may have a modest impact on real GDP growth, overall, commercial real estate is a winner, though some subsectors fare better than others,” says Revathi Greenwood, head of Americas research at Cushman & Wakefield. “Negotiations between the House and Senate will have a significant impact on pass-through entities’ passive investments, more so under the House version, which provides substantial benefits for investors.

“Multifamily looks to be a winner—at the expense of single-family residential—especially in states and municipalities with high state and local taxes,” she adds. “The retail and industrial sectors should see modest benefits, while the office sector will see minimal impact.”