How Government Policy Could Impact CRE in 2022

A slim Congressional majority has made it “very difficult to find the political will for another massive tax reform and spending bill,” according to Ryan McCormick, senior vice president and counsel of the Real Estate Roundtable.

McCormick told CBRE’s Spencer Levy in a recent podcast that nearly all of the proposals that were on the table early last year “have largely fallen off,” and says the Build Back Better Act is “really kind of hanging by a thread.”

“On the tax front, we really started last year with a tremendous amount of potential change on the table, potential risk for real estate, a lot of potential changes to taxation of capital investment, capital formation, capital gains, long-term depreciation schedules, small pass-through businesses and just rates generally. And a lot was put on the table by the new President and his initial budget – things like repealing or limiting like kind exchanges, raising estate taxes, eliminating the step up in basis of assets at death and other changes,” he told Levy.

“And as this process kind of unfolded, we continued to kind of make headway in raising the concerns that these would have on not just real estate in particular, but local communities, local governments, property tax revenue at the state and local level and the jobs that flow from those industries and those services that are provided.”

But now, “it’s really kind of going back to the drawing board” based on concerns and opposition raised by Sen. Joe Manchin.

“At this point, you know, it’s really going to require a new set of negotiations at the absolute principle level of the President and Senator Manchin, maybe Senator Schumer. And that’s going to determine the outcome here,” McCormick said. “But, you know, every senator is a president right now in the U.S. Senate. You got to work with everyone to find where that common ground is. There’s a lot of different ways and directions things could take at this point.”

McCormick says the most likely scenario involves “whittling back” the $1.75 trillion Build Back Better, predicting “there’s a decent chance that we’ll get something more along the lines of a $1, $1.5 trillion legislation.”

Tax issues will also be back on the table, McCormick said, as Sen. Manchin appears flexible on raising rates for upper income taxpayers, ending carrier interest, and changing corporate rates and individual capital gains rates.

 “In many respects, we’re kind of back where we started in 2021, which is a number of issues that are back at the negotiating table that could have a big impact on real estate,” McCormick told Levy. “And we’re just going to kind of continue plugging away to demonstrate what purpose these provisions serve and how they would affect the overall economy.”

Despite that, the Real Estate Roundtable’s quarterly sentiment index was recently pegged at 73, he said, which “reflects continued optimism about market conditions generally.” (Anything more than 50 is deemed positive, according to McCormick.)

The Real Estate Roundtable represents more than 3 million people working in the industry nationwide and who hold assets collectively valued at more than $3 trillion.

McCormick is also “very bullish” on opportunity zones, which he said started out as a bipartisan concept but became much more polarized.

“The rules were written during the Trump administration. We now have a Democratically controlled Congress,” he said. “It’s become a bit more divisive and less consensus around that.” But despite that, he thinks the tide will turn on opportunity zones, which have been successful nationwide on the whole.

“At this point, the programs mobilized about $75 billion in capital for opportunity funds. We don’t know exactly how much of that has been deployed, but that’s a significant amount of funds,” he said. “These are projects that are in every Congressional district in the country. They’re having a positive jobs impact.”