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RE execs: US election is no cause for panic

Donald Trump’s surprise victory is, at least in the short term, a ‘non-event’ for the private equity real estate industry as investors and fund managers monitor markets without racing to act.

Real estate magnate-turned-presidential candidate Donald Trump’s unorthodox and unanticipated election win on Wednesday has led private equity real estate insiders to use one word in every conversation with PERE: uncertainty.

That sense of anxiousness, however, reflected general worry, as investors remained relatively confident about the future of real estate. Public markets roiled in the hours after voting closed Tuesday and some global currencies were in flux, but the quick correction of the US stock market in Wednesday trading quelled some immediate concerns.

“This is not the bloodbath that people expected,” Ron Dickerman, the founder of New York-based private equity real estate firm Madison International Realty, told PERE. “Nobody really knows what the Trump presidency will look like. I think we will witness one of the biggest pivots [of any campaign] … My prediction is that Donald Trump will be much more business-oriented than people think.”

One chief investment officer for a US public pension noted that real estate is one of the most illiquid asset classes, and therefore shows less volatility in reaction to a political event than other asset classes like public equities.

“I would be frankly surprised if this derailed any deals… I think this is largely a non-event,” Heidi Learner, chief economist at New York-based real estate advisory firm Savills Studley, told PERE. “The uncertainty is on the policy side. I don’t see this altering two of three fundamentals – what happens to rent and vacancies. What remains uncertain is what happens to financing.”

Short term, multiple executives said the largest impact of this uncertainty will likely be in global capital flows to the US. Dickerman highlighted Middle Eastern and Chinese investors as those most likely to pause investments until Trump, who will be sworn in on January 20, provides more clarity around his specific policy goals.

Stanley Iezman, the chief executive of Glendale, California-based private equity real estate firm American Realty Advisors, noted that Trump offered fewer details on policy while campaigning than his opponent, Democratic presidential nominee Hillary Clinton, leaving much uncertainty around his plans for Wall Street, foreign policy and other areas of consequence for real estate.

“We’re really going to be looking at the rhetoric coming out of the White House,” Iezman said. “In my view, Mr. Trump is a remarkable salesman and showman. The question is, does he really believe what he says or was that rhetoric to get elected?”

Trump was clear that he planned to decrease taxes, which could increase spending and therefore boost the real estate market, Iezman said. The president-elect was also seeking to tighten the country’s immigration plan, which could hurt both real estate near the Mexican border and the cost of construction, which had been kept low by cheap foreign labor. Iezman also noted that Trump’s anti-regulation rhetoric could be a boon for real estate managers if financial regulations are loosened.

Going forward, David Rifkind, a managing director at Los Angeles-based real estate investment bank George Smith Partners, recommended that the real estate industry monitor three factors: short-term sentiment, interest rates and the new administration’s fiscal policy.

“Real estate is more informed by fundamentals than it is by politics,” Rifkind said. “We expect there to be a healthy transactional environment in the near term. We’re not seeing anyone making any kind of rash, defensive decisions.”

This 'business as usual' sentiment was echoed by those monitoring fund activity. Ross Prindle, the global real estate practice leader at financial advisory firm Duff & Phelps, said: “In the short term, we do not expect a significant impact on underlying values of investments made by private equity real estate funds. This is because value is impacted by credit markets, overall economic conditions, supply/demand and specific attributes of a property. Political uncertainty, while potentially providing volatility in the public markets, would not be expected to have an immediate impact on more long-term investments such as those made by private equity real estate funds.”

Outside of the US, there was a mix of views on a Trump victory. Nicholas Loup, the former chief executive of the Asia business of London-based property firm Grosvenor, predicted: “What people will get will be vastly different to anything he's talked about in the run-up to the election, possibly a lot less alarming. If he sticks to his current script, there will probably be a global recession given the things he'll do to trade. But I'm doubtful that will happen.”

Anthony Biddulph, chief executive officer of London-based capital advisory firm, Capra Global Partners, meanwhile echoed views that capital inflows to the US may be adversely impacted. He said: “The sentiment we're hearing expressed is that European institutional investors in several cases will be reducing or eliminating allocations to US investments.”