Many owners site the election as a reason to sit back and wait to see how thy should position their Commercial Real Estate Portfolio. While we can not know how the policies each candidate proposed will be implemented, we can gain a head start by taking a look at what they propose today and understand the implications.

As your commercial real estate advisor, I am deeply invested in your success as a property owner and investor; I understand that the outcome of the upcoming presidential election carries significant implications for you.

Donald Trump’s and Kamala Harris’s contrasting economic policies could shape the commercial real estate (CRE) landscape in markedly different ways. This summary aims to provide a comparative analysis of their policies and practical guidance on navigating potential changes.

Note that this outline is based purely on policies, not politics or a candidate. The objective of sharing this is to provide both context and clarity based purely on the proposed economic plans from each party.

The upcoming election presents a crossroads for commercial real estate owners and investors. Trump’s policies may offer tax advantages and a deregulated environment but come with risks of increased construction costs and potential economic slowdowns. Harris’s policies might introduce higher taxes but could stimulate demand through small business growth and housing initiatives.

Summary of Economic Policies and their Impacts:

• Both candidates propose extending portions of the Tax Cut and Job Act, but with different approaches
• Harris focuses on increasing taxes on high-income earners and corporations, while Trump emphasizes tax cuts
• Both candidates propose increased spending on housing and healthcare
• Both candidates policies could create increased stimulation of Commercial Real Estate. Trump’s policies may lead to more immediate stimulation of commercial real estate investment due to lower corporate taxes while . Harris’s policies may create long-term demand for commercial spaces through investments in domestic manufacturing and research

Tax Policy

Donald Trump’s Tax Policies

• Extension of Tax Cuts: Trump proposes to extend the 2017 Tax Cuts and Jobs Act, which reduced corporate tax rates and provided tax benefits to investors. This extension could continue to enhance after-tax returns for CRE investors.
• Further Corporate Tax Reductions: He suggests additional tax cuts, particularly for U.S. manufacturers, which could potentially lower operating costs for businesses occupying commercial spaces.

Kamala Harris’s Tax Policies

• Increase in Corporate Tax Rate: Harris plans to raise the corporate tax rate from 21% to 28%, which could decrease after-tax profits for corporations investing in commercial real estate.
• Higher Capital Gains Taxes: She proposes increasing the capital gains tax rate for individuals earning over $1 million annually, potentially reducing after-tax returns for high- net-worth CRE investors.
• Tax on Unrealized Gains: Harris supports a 25% tax on unrealized capital gains for individuals with significant wealth, which could discourage large-scale investments in CRE.

Impact on CRE

Trump: Lower taxes could boost profitability for CRE investors and stimulate investment in new developments.

Harris: Higher taxes might reduce after-tax returns, making CRE investments less attractive compared to other assets with more favorable tax treatment.

Other Key Policy Areas

Housing Initiatives

Harris’s Focus on Housing Affordability: Plans to lower housing costs could indirectly affect CRE by altering market dynamics, especially in the multifamily sector.

• Potential Impact: Increased homeownership may reduce demand for
  rental properties, affecting occupancy rates and rental income.

Trump’s Deregulation Efforts: Aims to reduce regulations that could streamline development processes for CRE projects.

Small Business Support

Harris’s Support for Small Businesses: Proposes expanded access to capital and resources for small businesses.

• Potential Impact: Could increase demand for commercial spaces like
  retail outlets and office buildings, benefiting CRE owners.

Trump’s Tax Incentives: Tax cuts for businesses may enhance profitability, enabling expansion and increased occupancy of commercial properties.

Trade and Tariffs

Trump’s Tariff Policies: Imposing tariffs on imports, especially from China, could raise construction costs due to higher prices for materials.

• Potential Impact: Increased development costs might slow down new CRE projects and affect profitability.

Spending and Regulations

Trump’s Reduction of Government Spending: Efforts to cut spending could lead to reduced government contracts in certain CRE sectors.

Deregulation: Both candidates have differing views on regulation, with Trump favoring deregulation, which could potentially lower operating costs for CRE businesses.

Potential Economic Impacts on CRE Economic Growth and Inflation

Trump: Some analyses suggest his policies might lead to slower economic growth and increased inflation.

• Impact on CRE: Slower growth could reduce demand for commercial spaces; inflation could increase operating and construction costs.

Harris: Higher taxes might dampen investment but could be offset by economic growth from small business support.

• Impact on CRE: Increased economic activity could boost demand for
  commercial properties despite higher taxes.

Job Growth

Trump: Tax cuts aim to stimulate job creation, potentially increasing demand for commercial spaces.

Harris: Support for small businesses could also drive job growth, leading to higher occupancy rates in commercial properties.

Guidance for CRE Owners and Investors

1. Evaluate Your Portfolio: Assess how sensitive your investments are to changes in tax policy. High-net-worth investors might consider strategies to mitigate potential tax increases under Harris’s plans.

2. Monitor Construction Costs: Be aware of how tariff policies might affect material costs. Under Trump’s policies, consider locking in prices or sourcing alternatives to manage potential cost increases.

3. Stay Informed on Regulatory Changes: Deregulation could open up new development opportunities. Keep abreast of changes that might streamline permitting and construction processes.

4. Engage with Small Businesses: Under Harris’s policies, increased support for small businesses could create new tenants. Building relationships now could position you to benefit from this potential demand surge.

5. Diversify Investments: To hedge against uncertainties, consider balancing your portfolio with assets less affected by potential tax increases or economic slowdowns.

6. Plan for Economic Shifts: Prepare for potential fluctuations in economic growth and inflation. This might include adjusting lease terms, reconsidering rental rates, or exploring fixed-rate financing options.

Conclusion

The upcoming election presents a crossroads for commercial real estate owners and investors. Trump’s policies may offer tax advantages and a deregulated environment but come with risks of increased construction costs and potential economic slowdowns. Harris’s policies might introduce higher taxes but could stimulate demand through small business growth and housing initiatives.

Action Steps:

Stay Informed: Keep up to date with policy developments as the election approaches and beyond.

Consult Professionals: Work with tax advisors and financial planners to understand how policy changes could specifically impact your investments.

Be Proactive: Adjust your investment strategies to prepare for potential outcomes, ensuring flexibility to navigate whichever policy landscape emerges.

Leverage Market Experts: Let me help you develop strategies for your current and future commercial real estate holdings that align with your investment goals, maximize potential opportunities, and minimize the challenges that may come with a newly elected administration.

By carefully analyzing the potential impacts and preparing accordingly, you can position yourself to safeguard your investments and capitalize on new opportunities in the evolving commercial real estate market.

Sincerely

Susan H. Goldstein
Senior Commercial Real Estate Advisor
Michael Saunders & Company Commercial Division

Sources
https://www.investopedia.com/kamala-harris-economic-plan-8700945 https://kamalaharris.com/issues/

https://www.foxbusiness.com/politics/trump-says-harris-economic-plans-would-put-us-1929-style-depression

https://www.bbc.com/news/articles/cwy343z53l1o

https://www.crfb.org/papers/fiscal-impact-harris-and-trump-campaign-plans

https://www.npr.org/2024/10/06/nx-s1-5142408/trump-harris-fiscal-federal-budget-national-debt

https://www.cbsnews.com/news/kamala-harris-donald-trump-debt-deficit/

https://www.americancentury.com/insights/election/harris-vs-trump-policy-comparison/

https://www.washingtonpost.com/politics/interactive/2024/trump-harris-economic-policy/

https://www.axios.com/2024/09/24/harris-trump-economic-policies-voters-economists