With the midterm elections now done, the industry has a bit more
clarity on conditions in our nation’s capital: Democrats have
retaken the House of Representatives while the Republicans have
expanded their hold on the Senate. We have, in short, a divided
government in Washington, DC, with all its benefits and drawbacks.
The bottom line is that a Democratic House and a Republican
Senate probably means little major legislation will occur.
It should be noted that real estate has had a successful run in
Congress, especially in the past couple of years. The Tax Cuts and
Jobs Act of 2017 is a case in point; among other things, it preserved
the deduction for business interest, like kind exchanges and low
income housing tax credits. It also established the new pass-thru
tax regime as well as the new Opportunity Zone program.
That said, the industry was hoping more would be accomplished
on the Hill that will likely not happen now, namely continued dereg-
ulation. Further loosening of Dodd Frank, environmental laws and
tax cleanup issues had all been on the table before the election.
The House will probably become the center of anti-Trump
activity–a sort of testing lab for the next campaign–which will mean
major legislation is likely to be proposed that has little chance of
going anywhere. One possibility: an attempt at GSE reform in the
House Financial Services Committee. However, the groundwork
for action on this issue has not yet been laid.
There is one piece of must-pass legislation for the CRE industry
that will require bipartisan support, though—the Terrorism Risk
Insurance Act, which is set to expire at the end of 2020. This law
impacts most business properties and is a key to transactions and
refinancing. Without a doubt, it has to be extended.—Erika Morphy
What a Divided Government Means for CRE
UP Front A comprehensive look at what’s trending in the world of commercial real estate
Even at the “Balance and Flexibility: Capital Markets Update”
panel at the recent RealShare New York 2018 conference, last mile
distribution centers were the talk of the town. This was compounded with the conference falling on the date that New York
Governor Andrew Cuomo and New York City Mayor Bill de Blasio
jointly announced Amazon selected Long Island City, Queens as a
new corporate headquarters.
William Silverman, managing director and group head at
Hodges Ward Elliott, said that investors initially had three kinds of
responses to multistory industrial properties. There were some who
said multistory would never happen. Others said it would happen,
but they wanted to wait and see others invest in the asset class before
making a move. Finally, there were those who said, “Game on.”
“We watched the market and those who said, ‘Game on’ ruled the
day,” said Silverman. “Several months later, when we were marketing
a different site, everyone had shifted a category over.” The “That will
never happen” group began to say, “I believe it’s starting to happen,”
with all groups increasing in enthusiasm for the asset class.
Silverman described how every three or four years, there
comes what is known as a new “cool kid” in real estate. He says
now, industrial, distribution and last-mile warehouses in New York
City have become that thing.
Gary Bechtel, president of Money360; Michael Coen, in asset
management at Procida Funding; and John Harrington, founding
partner at HKS Real Estate Advisors, also spoke on the panel.
Michael Galligan, president, real estate finance at CIT moderated
the discussion at the Yale Club in Midtown Manhattan.
“We go to a lot of cities around the country and industrial is the
new multifamily,” said Bechtel, referring to such markets as Seattle,
Dallas, the Carolinas and New York. As for the capital’s massive
interest in the sector, he said, “It’s nuts what’s happening.”
The boxes stacked on most of the front porches around the coun-
try are driving this phenomenon, said Silverman. “It’s about how to
get more of that stuff moved to you faster.” He pointed to two rami-
fications to consider with this phenomenon: What will happen to
industrial spaces in the city? What will happen to the infrastructure
that’s needed to support these distribution centers? Being ahead of
the game requires anticipating where capital will flow.
But what about retail, which is feeding the frenetic industrial market?
“The not so darling class is retail,” said Galligan. “I wonder if it’s
oversold?” he asked. He opined that there are some good retail
assets and solid opportunities in the heartland. He added there are
equity investors getting great returns, although it’s making less
sense for debt investors.
Panelists said investors were cautious with retail. Silverman
referred to core investors who believe in a piece of real estate but
just cannot commit to a retail deal now.
Harrington pointed out retail is getting more specialized, offering more experiential services, a different kind of retail that’s not
addressed with e-Commerce. Coen agreed that people need to get
out and interact with one another. Retail still provides that vehicle.
Will the next investment trend be in commercial real estate that
brings people off their computers, away from delivered packages
and out of their apartments?
“What will that something look like, and how is it monetized?”
asked Silverman. “We’ll see a more dramatic separation of the
wheat from the chaff than we’ve ever seen before.”—Betsy Kim
Industrial Is the “Cool Kid” on the Block
LOCAL SPOTLIGHT: REALSHARE NEW YORK
RealShare New York’s Capital Markets Update