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PERE LA: Dissecting Trump’s impact on real estate

Industry executives are scrutinizing the new administration’s policies in key areas like border taxes and government-sponsored enterprises.

Although the potential impact of President Donald Trump’s policy changes on the real estate industry remains unclear, various executives are zeroing in on several proposed changes of particular importance to them.

One panelist at PERE’s Global Investor Forum in Los Angeles last week said his firm is closely tracking the trade implications from proposed border tax adjustments and any reform relating to government-sponsored enterprises such as Fannie Mae and Freddie Mac.

The border tax adjustment is significant particularly for the retail industry, which has been suffering from declining sales and store closures by anchor tenants. In a sector that is already facing downward pressure, the introduction of what effectively amounts to a tariff on large retailers would further exacerbate the situation, the panelist said.

“So what does that say for a real estate investor?” the panelist asked. “That means your ability to raise rents with your power center tenants is going to be much harder. This means that if you own B-quality malls, which have a lot of apparel companies, which are typically importing these products, you’re going to have a tougher time raising rents. We’re at a spot in the retail market where this border tax is going to create a lot of chaos at this point in time.”

GSE reform is another area of concern. Another speaker noted the GSEs have played critically important roles in financing multifamily assets, and cautioned against the elimination of such entities. “There’s a lot of value that’s added there, and so going forward, it’s important not to throw out the baby with the bathwater,” the speaker said.

That said, policy changes regarding GSEs are necessary, given that Fannie Mae and Freddie Mac have been in conservatorship since the global financial crisis. “Reform is important, and we need a sustainable end state to housing finance; that is, conservatorship cannot last forever. It should not last forever. It’s in a state of limbo. So we need a future state that’s more sustainable, vibrant and [where] we have legitimacy in its operations going forward.”

The other panelist added: “Under worst case scenario, if they did go away, there’s obviously an immediate impact to apartment values. But I think that negative impact would be greater for B-quality assets. So in that case, people may want to allocate to higher-quality assets in that scenario.”

Meanwhile, although the new administration has touted a massive infrastructure plan that is expected to generate many new jobs, one panelist said that such spending may not necessarily benefit local real estate markets, depending on where the projects are taking place.

“If there’s a bridge to be put up in the middle of Kansas, and it creates jobs, and if jobs is the final end goal, that might get done before a project that makes more sense somewhere else, unfortunately,” the panelist said.

Instead, supporting the real estate finance market would be a quicker and more effective way of creating jobs, another speaker added. “If you really want to get the economy going, infrastructure, civil engineering, that whole process is much more regulated than it was 30 years ago, 40 years ago,” the speaker said. “It’s going to be a longer lead time. If you want to get the economy going, I think loosening lending standards to get people access to homes to drive the homebuilding industry – that’s the quickest way to create jobs versus infrastructure spending.”

The panel, “Regulatory change on the horizon,” featured speakers Tom Kim, senior vice president at the Mortgage Bankers Association; Petra Durnin, Southern California director of research and analytics at CBRE; and David de La Rosa, senior vice president at Green Street Advisors and was moderated by Jim Costello, senior vice president at Real Capital Analytics.