Policies Matter

policies matter

So we have an inauguration coming in a few days…and just when you thought you were figuring it out. With every administration change, comes a new set of policies and within these…. a whole new set of challenges and opportunities.

Policy changes can have a big impact on real estate Values .These are some of the things we see for the immediate future that may create the need for some internal strategy review:

  • A stimulus role out that will prop up the economy for about 6…possible up to 9 months after funds begin to hit destination
    • It would be reasonable to anticipate a spending pull back when those distributed funds run out
  • Copious money printing, and other factors, will lead to at least some minor inflation
  • Taxes across the board, including and or especially capital gains tax, are going to increase
    • Those making under 400k a year not having taxes raised is simply not true
  • Energy prices across the board are going to increase
  • Material costs will continue an upward curve
  • Onerous regulation will again creep in
  • Unemployment will settle in at about 8-9 %. The actual number will be higher but subverted with a manipulation of the Work Force Participation Rate, as is conventionally the case
  • We believe the discount rate and by extension, interest rates, will rise by at least 20% by this time next year
  • The vaccines will help for about a year…then platform polices if enacted by incoming administration will compromise the benefits from the ability to go back to work
  • Immigration policies of the incoming administration will drastically increase employment competition in the lower end sectors and create increased expense and debt through entitlement afforded to immigrants…documented and undocumented.
    • There is credible evidence that the undocumented community is more than double the 11 million number being used for the last decade
  • Starting in or before February of this year there will be a return to a position of global policies that are less monetarily favorable to the US

There are other forces to consider and or anticipate regarding asset Future Value:

  • The office sector is going through a permanent “evolution”. All or most have realized or will …that they simply don’t need any or the amount of office space previously committed to
  • We all know brick and mortar retail has been devastated. Use conversion to mixed use anchored by residential has begun and will accelerate
  • The residential sector builders are going to continue at current levels…and … Use Conversion from office and retail to residential will/are going to dramatically increase…a small supply tsunami.….not favorable to Values
  • The industrial sector, the real estate darling for the last 5-6 years, is currently being fueled by fulfillment/distribution/warehouse needs. To fill those needs conversions to industrial use and the building of many industrial sites, some million SF mega sites, has been at break neck speed.
    • We will never see a return to a “conventional” brick and mortar retail environment so online will retain or increase market share…. but spending is going to go down and disposable income is going to be “saved” ….both reducing  online shopping and demand for supply of distribution assets. This supply/demand shift will put Value pressure on industrial assets.

Don’t want to sound apocalyptic but it is very difficult not to acknowledge these forces, what they have done in the past and or what the probable outcome will be.

But, you ask…. where is that “opportunity” part you mentioned in the intro? We might only commit to a short term prognosis:

  • Conversions to residential in every form  will become or is now the most secure short term path to very favorable returns
  • Aforementioned challenges will create an increase in the “distressed” market place creating good to very good buying opportunities…different degrees for different sectors
  • Any activity associated with federally funded RE will be a bright spot. There will be no shortage of the need to spend
  • It is extremely likely that Opportunity Zone type legislation will increase as will funding/funds for what might be considered “minority” areas and run businesses
  • The Health, Tech and Food Services sectors will enjoy continued support and growth

Hope this has provided some elements of interest…
or at the very least…
a reason or two for a nice glass (bottle) of Cabernet.