A Consequential Week – Nov. 11, 2024
A colleague commented shortly after the Federal Reserve’s latest rate-reduction announcement that there haven’t been many weeks with as many political and regulatory implications for commercial real estate as the one we just saw. He’s right, and we’ve gathered insights from some industry experts to help unpack it all.
In addition to the Fed continuing the process it began with September’s 50-basis-point reduction in the federal funds rate, the week also saw voters in California reject the third attempt to overturn the state’s Costa-Hawkins law governing rent regulation. (The coalition behind the ballot initiative has vowed to try again.) On a national—and indeed international—scale, the U.S. elected its next President, one with a vastly different set of priorities than either his opponent or his predecessor in the White House.
It bears noting that Donald Trump’s predecessor, Joe Biden, was also his successor following the election of 2020. There hasn’t been a President elected to two non-consecutive terms in more than 130 years. Until now, Grover Cleveland was the only chief executive with that distinction. (Well, he is still the only President from New Jersey.)
Ryan Severino, chief economist and head of research at BGO, noted that the Fed’s latest rate cut occurs amid a generally positive outlook for the domestic economy. “Inflation continues to decelerate, the economy continues to expand at a healthy pace, the labor market remains tight and productivity growth continues its strong run,” he wrote.
“With consumers feeling a bit more upbeat and public markets reaching record highs, the combination of strong economic fundamentals and declining interest rates could create an ideal backdrop for CRE investments over the medium term,” he continued. “Certainly, risks remain, but thus far they seem surmountable by the economy’s momentum.”
At TruAmerica Multifamily, president and CEO Bob Hart said, “More rate cuts, the re-election of Donald Trump and reduced rent regulation are three important factors to consider as we navigate the post-November election period. As we begin looking ahead to 2025 and beyond, we should expect to have a pro-business and pro-real estate economic environment as we usher in a new Presidential era under Donald J. Trump and a Republican-led Senate and House as well.
Hart said the election results represented “a clear repudiation of over-regulation.” As a case in point, he cited the “resounding defeat” of Proposition 33 in California, in which “proponents attempted to repeal the pro-new supply Costa-Hawkins law for the third time.”
On Election Day nationwide, Hart continued, “most voters overwhelmingly supported free market forces laying the groundwork for lower taxes, less regulation, a more robust economy, increased job growth, increased domestic oil production and more orderly immigration policies.
“By cutting the federal funds rate by 25 bps on Thursday, the Fed is sending a confident message that inflation is getting under control, and we are setting the table for growing companies to make new capital commitments for goods, new equipment and expansion.”
For real estate and multifamily in particular, Hart said, “a less harsh regulatory climate coupled with reduction of predatory [Justice Department] initiatives (e.g., litigating against the use of revenue management software), coupled with the recently announced 25 bps reduction in the federal funds rate will soon put some downward pressure on longer term rates ( <4% 10-year treasury). This trend will bode well for more robust US housing demand and particularly multifamily expansion.”
Hart anticipates multifamily tailwinds “with the supply wave cresting and the gap between supply and demand continuing to close. Data suggests that the U.S. will need to absorb approximately 550,000 units in the current pipeline by the end of 3Q2025, leaving less than 210,000 units in the development pipeline through 2027—which is roughly half of 2022 levels. We expect multifamily demand to increase as national vacancy rates come down and rental rates start to gradually rise again and keep pace with inflation.
“The bottom line: less regulation, more pro-business policies, tax reduction and rate cuts all bode well for a healthy multifamily and the U.S. economy overall.”
For Ruth Colp-Haber, president and CEO of Wharton Property Advisors in Trump’s hometown of New York City, the impact of the election on the office sector is “actually somewhat surprising. One would ordinarily think that the election of an office mogul would be good for the business. However, if implemented, the signature Trump policies of tariffs, tax cuts and mass deportation could pose a challenge to our industry.
“On the other hand, this could be offset by thoughtful back-to-the office policies,” she continued. “While Mr. Trump is known for other issues that are more controversial, he would do considerable good for the economy by looking at creative policies that would encourage a return to the office.”