With the Presidential election right around the corner on November 8, it appears that investors have already identified their candidate – and it isn’t in favor of Donald Trump. Apparently Wall Street has a record of predicting future presidents, according to an S&P Global Market Intelligence analyst. The trend has shown that since the early 1940’s, the presiding president or party was re-elected 82% of the time when the S&P 500 rose between July 31 and October 31 – according to this theory, the market has chosen Hillary Clinton since the S&P 500 has risen more than 4% since July 5.
What does the outcome of the presidential election mean for the commercial real estate industry?
Analysts are still trying to determine the impact of Trump’s Tax Plan proposal that calls for the allowance of an immediate tax write-off, otherwise known as full expensing, for investments in equipment and buildings – current law requires depreciation. Initial concerns were that Trump’s plan would allow the improper use of pass-through entities – many businesses engaged in the commercial real estate industry are organized as such – to avoid paying higher ordinary income tax rates on wages and salaries by reclassifying income. The Wall Street Journal reported that the proposal could result in a potentially unintended, substantial benefit to highly leveraged real estate firms. House Republicans have adopted full expensing in their tax reform blueprint, but included elimination of business interest deductibility in order to avoid, according to tax analysts, negative income rates.
If Hillary Clinton was elected the president the international market would remain status-quo, according to Jay Rollins, Managing Principal at JCR Capital, but the middle market – individual owners of real estate – would be inclined to sell due to fear of changing capital gain laws. Despite the uncertainty that will be apparent in the near term, the long-term impact on the U.S. economy’s performance will not be hampered due to its attractive location for global investors.
Summary
Overall, there remains substantial uncertainty with the presidential candidacy and policy proposals and, in general, the real estate and stock markets do not take kindly to uncertainty. Leading up to the election and potentially shortly thereafter, risk-averse behavior may dampen any upside in a market or accelerate a downside. That being said, commercial real estate investors will speculate on the outcome, based on individual party preferences, and adjust their portfolios accordingly but they should take into account the Fed’s inclination to raise rates post-election.
About Meissner Jacquét
Meissner Jacquét Commercial Real Estate Services provides confidence, stability, and relevant solutions to owners of commercial space. Contact Allison MacDonald or Brent Williams to learn how Meissner Jacquét’s talented team of real estate professionals aligns with our clients in strategic business decisions concerning their commercial assets.
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| Allison MacDonald [email protected] 858.373.1354 |
Brent Williams [email protected] 858.373.1113 |
Sources:
BISNOW
NAIOP Commercial Real Estate Development Association