Major steps announced Friday by President Donald Trump to roll back Dodd-Frank regulations and unveil a “massive” tax reform package next week are clearly manna from heaven for CRE investors and lenders, with nearly two-thirds of the executives surveyed by national law firm Akerman LLP believing Trump’s pro-business policies will have a positive impact on the real estate industry this year.
Yet, as the same survey reveals, it’s complicated. Akerman’s 2017 U.S. Real Estate Sector Report, which captured the sentiments of 200 leading real estate executives in interviews before and after the 2016 presidential election, “reflects a mixture of hopefulness and anxiety for real estate prospects in 2017,” the report states.
About 53% percent of respondents were more optimistic about the 2017 CRE outlook for the U.S. commercial real estate market, compared to 38% last year. However, 85% are concerned about either the effects of unintended consequences of Trump policy changes, uncertainty about the economy, or potential impacts from rising interest rates.
Before the election, 27% of respondents asked to rank the most significant factors affecting the real estate sector cited “uncertainty in economic conditions” while 24% mentioned “federal gridlock and uncertainty of government policy.” Another 14% cited uncertainty over interest rates.
Those factors far outranked market-specific concerns, with just 12% citing rising acquisition pricing or declining capitalization rates and 9% concerned institutional credit availability.
Asked about their main reason for lack of confidence in the U.S. real estate market, 35% of respondents cited continued government gridlock and policy uncertainly, with 31% and 20% citing uncertainty about economic conditions and interest rates, respectively.
The report’s authors put it another way: 67% of Akerman survey respondents “were significantly concerned, at its broadest circumference, about uncertainties generated by the intersection of federal government-level policy making or the lack thereof, and the effect of these actions/inactions upon the economy.”
“Late January brought into the executive branch of U.S. government a pro-business, pro-growth, tax-averse real estate developer,” the report states. “And yet discerning what comes next has been difficult.”
“The first 100 days of the Trump administration have presented a cautionary picture of the business world, which tends to crave, among all things, a predictable hand at the tiller.”
President Trump on Friday moved to present an action plan advancing tax reform and financial industry deregulation, the CRE industry’s two top legislative priorities. The White House could release a formal tax reform package as early as Wednesday, and the president signed an executive order and memos empowering Treasury Secretary Steven Mnuchin to assess steps needed to simplify the tax code and to repeal onerous provisions of the Dodd-Frank regulations, legislation adopted in the wake of the financial crisis.
With a Republican president and GOP-controlled Congress, federal gridlock may no longer be the problem it once was — or, the outgoing problems of one administration may be exchanged for new, incoming uncertainties, Akerman said.
“We’re all thinking it’s probably going to be favorable for real estate,” said Richard Bezold, chair of Akerman’s Real Estate Practice Group, regarding business conditions this year under the Trump administration.
That said, the business community is waiting to see what changes will actually come, and forecasting what a new president will do for the economy is like “trying to predict the unpredictable,” Bezold acknowledged. On balance, however, industry executives are increasingly bullish about the state of the CRE market and the Trump effect as 2017 unfolds.
“There are headwinds, but as we move into a deregulated environment, we expect less-restrained capital to pursue opportunities actively and aggressively,” Bezold added.