The Trump Effect on Real Estate

With Trump's surprise win in November, I find myself searching for what this means to "my world"...the world of commercial real estate. No matter your political leaning, we all would like to know how Trump's inauguration will affect the real estate markets and our pocket books.

I think the bottom line is... a real estate developer, with a strong belief in less regulation, and the repatriation of potentially $3 trillion from overseas will be a boom to the commercial real estate market. Many of those folks with money overseas will be looking to put the money to work in the US market place...and what better place than a robust US commercial real estate market.

Additionally, we are likely to see a reduced capital gain tax. Under Obama, long term capital gains tax has ballooned to 23.8%. It's likely, with Trump's real estate background, we will see a reduction closer to the 15% tax rate which was approved under the Bush administration. This one reduction has the ability to really increase real estate transaction volumes.

My expectation is that the repatriated money and lower capital gains tax rates, will further drive demand for all classes of commercial real estate. Many have thought that the low capitalization rates of the last few years can't be sustained. I would tend to agree, especially considering that interest rates will inevitable move up. However, the increased demand for CRE, especially Class A properties, will tend to keep capitalization rates low, as many investors will have few other options that produce better returns. While the FED is expected to move up interest rates slowly and did in December, it appears we will have a widening of the gap between those rates and the capitalization rates of investment properties.

Overall, Trump is considered pro-business and pro real estate. That, combined with a similarly aligned Congress, should produce a commercial real estate market like we've never had.

www.BrianPattonCommercial.com Brian Patton, CCIM 770.634.4848