This weekend, four days after the presidential election was held, several media outlets called the state of Pennsylvania for former Vice President Joe Biden. He had won its electoral votes and along with them, the presidency. President Donald Trump has not conceded and has promised to use legal action to contest the votes in several battleground states. It is debatable, however, how successful these efforts will be. Meanwhile, the nation still waits to see which party will take the Senate, with two runoff races in Georgia scheduled for January 2021.
And so the political contours of the next four years starts to take shape for the commercial real estate industry. Much will depend on the fate of the Senate, of course, but there are some areas that the industry can already guess will see change.
Assuming the Senate stays in Republican hands, Biden will not be able to pass any sweeping tax measures that would affect the industry, such as the elimination of the 1031 exchange. But he has made clear that he plans to issue a flurry of executive orders to roll back measures put in place by his predecessor and re-establish rules that had been in place in the Obama Administration. This will begin on day one, he has vowed. Biden is likely to focus on bigger issues first such as reversing the US withdrawal from the World Health Organization and repealing the travel ban from Muslim countries. But with the executive agencies back in Democratic control, there are a myriad of regulations expected to eventually come that will affect housing and finance.
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Biden can also be counted on to push for another stimulus bill. Senate leader Mitch McConnell has acknowledged the need for another rescue package, which he has said he hopes will be done before the end of the year. Presumably Trump would sign such a measure but if not it will have to be kicked to after the inauguration. Again, assuming the Senate stays in Republican hands, this stimulus will be less than what the House of Representatives has wanted but McConnell has indicated some willingness to give on certain sticking points, such as funding for states and cities.
But the overwhelming focus for the Biden Administration will be to corral the coronavirus. Biden will assume the presidency with Covid-19 at surging levels. This past Friday some 126,480 new coronavirus cases were added, according to the Johns Hopkins Coronavirus Resource Center—the third day in a row for a US daily record. Ahead lies more cold weather, driving people indoors where the novel virus can flourish, and college students returning home for the holidays where gatherings will lead to more spread.
Biden will almost certainly call for a national mask mandate—which should not affect CRE other than for building owners to oversee compliance. Beyond that, he is already putting together a task force of experts and it is unclear what they might recommend. Biden has said on the campaign trail that he does not want to shut the economy down, but it is within the realm of possibility that he might try to persuade local governments in hot spots to temporarily close areas to prevent further spread. The latter move, of course, will have an affect on local real estate just as it did in the Spring when much of the nation closed down.
It is also unclear whether the Centers for Disease Control and Prevention will extend its moratorium on evictions once it ends in December 2020. One hint is that Biden has promised to let the CDC and top scientists take the lead on combating the virus. With the coronavirus continuing to surge, the CDC may well extend the measure.
In the bigger picture, a national-led effort to push back against the virus will hopefully drive down infections enough until a vaccine becomes available. This can only help CRE as it is clear that the economy will not fully recover until the coronavirus is vanquished.
It is a general rule that CRE performance depends more on macroeconomic and asset class fundamentals than which political party is in charge of the White House and Congress. A report from Newmark Group, for example, has found that over the past 40 years, annualized total returns averaged 9% under Democratic presidents and 8.2% under Republican presidents.
"The outside events that are not directly controlled by American public policy, tend to have a much greater impact on the commercial real estate market than the specifics that come out of Washington," Sandy Paul, senior managing director of national market research at Newmark Knight Frank's Washington DC office, told GlobeSt.com in an earlier interview.
What's different this election cycle is that an outside event—namely Covid-19—is the dominant trend now shaping how CRE performs and the policies put in place by the Biden Administration could go far in determining the final outcome.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
