It looks like the Blue Wave that analysts predicted never arrived.
With the high likelihood of a divided government potentially taking the Democrats’ $2 to $3 billion stimulus package off the table, REIT share prices initially reacted negatively, according to BMO Capital Markets. That stimulus package could have boosted struggling local and state governments, which would have benefited New York, California and other blue states.
BMO predicts that a split government is likely to reduce this by $500 billion or more, which would impact consumers, businesses and local budgets.
However, mixed government control also made it less likely that former Vice President Biden’s tax plan, which included the elimination of 1031 exchanges, would become reality, according to BMO Capital Markets.
Some of the biggest winners yesterday were apartment REITs with a foothold in California, including Essex Property Trust, Equity Residential, AvalonBay Communities, Camden, UDR, and Douglas Emmett. Proposition 21, which would have allowed local government to establish rent control on buildings older than 15 years old, was defeated. The state could still produce other measures to enact rent control, according to BMO.
Commercial REITs in California benefited from the defeat of Proposition 15, which would have increased real estate prices based on current market values rather than purchase prices. BMO says this could have created a barrier to raising rents. Douglas Emmett, Kilroy Realty Corp., Boston Properties, Hudson Pacific Properties, Alexandria Real Estate Equities, Public Storage, Prologis, First Industrial Realty Trust and Healthpeak Properties will be the beneficiaries of the defeat of this proposition. In Kilroy’s Q3 2020, CFO Tyler H. Rose said the company made a $0.07 per share investment in defeating Proposition 21.
“We are pleased with the outcome of both Props,” Ric Campo, Chairman and CEO of Camden told GlobeSt.com. “I would hope that the people have again spoken on the bad public policy of rent control and the fact that it actually hurts rental housing availability.
The Californian’s Responsible Housing Group, headed by former Essex Co-Chief Investment Officer John Eudy, played a role in defeating Prop 21, according to Essex CEO Michael Schall, on the company’s Q3 2020 earnings call.
In EQR’s Q3 2020 earnings call in late October, CFO Bob Garechana credited EQR EVP Barry Altshuler, who also serves as President of the California Apartment Association, as playing a pivotal role in defeating the measure. “Prop 21 doesn’t create a single new unit of affordable housing,” Garechana said on the earnings call. “It doesn’t put anyone who’s homeless into a home. All it does is discourage investment in our markets in housing. So I think what we feel as we’ve made a good case.”
This is the second defeat in the last two elections hopefully the supporters of rent control will move on to other more pressing issues.
Office REITs in California could also be buoyed by the passage of Proposition 22, which classifies app-based drivers as contractors and will benefit tech companies.