After the presidential election was decided, tax and real estate experts discussed the likely changes that the new administration will make. The experts based their views on Donald J. Trump’s policies during his first administration and promises during the campaign.
During the campaign, the majority of respondents to a survey stated that they preferred Trump’s real estate policy proposals compared to Vice President Kamala Harris. institutional investors, managers, and advisors surveyed by PERE magazine res. Nine out of ten respondents predicted a Trump administration would be “friendlier to private real estate rather than one run by Vice President Kamala Harris.” Their preference for Trump was due to the possibility of higher capital gains taxes under Harris and possible limits on tools such as the 1031 exchange, a tax-deferral mechanism for property owners.
Overall, industry executives expect the Trump administration to be more business-friendly. Expected policy changes would include tax cuts and a pro-business regulatory environment. Commercial real estate is especially susceptible to higher taxes as high fixed costs make it difficult to offset the taxes, according to industry trade groups.
CRE leaders and other executives were concerned about Harris’s proposal during her campaign to hike the capital gains rate to 28% for households earning more than $1 million annually. That is a significant increase from current rates, which range up to 20%. Higher capital gains tax rates may discourage investors from putting properties up for sale, thus decreasing transactions.
The commercial real estate industry also hopes that the new administration will retain crucial tax breaks enacted as part of 2017’s Tax Cuts and Jobs Act (TCJA) in President-Elect Trump’s first term which will expire next year. That act also introduced Qualified Opportunity Zones (QOZs). The IRS explains that QOZs describe an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as QOZs if nominated for that designation by a state, the District of Columbia, or a U.S. territory. In addition, the Treasury Secretary must certify it.
Caliber launched a new Qualified Opportunity Zone Fund Merger Program in 2024 called the Qualified Opportunity Zone Fund Roll-Up (“QOF Roll-Up”). The QOF Roll-Up completed its first merger with a third-party fund, resulting in a $14 million increase in managed capital in Caliber’s existing QOF, the Caliber Tax Advantaged Opportunity Zone Fund, LP (CTAF I); total managed capital in Caliber’s two QOFs exceeds $225 million.
The commercial real estate sector has begun to improve in the past few months due to the two recent Federal Reserve interest rate cuts. Higher rates have negatively impacted the industry in the past two years. However, CRE continues to face many challenges, such as close to $1 trillion in debt maturing next year, office sector delinquencies on commercial mortgage-backed securities that may rise to 11%, and record-high office vacancies in urban centers, according to ratings agencies.
Office Sector
Industry leaders are also concerned about finding a solution for office building vacancies across the U.S. In 2024’s third quarter, the overall vacancy rate held steady for a second consecutive quarter at 19% following nine quarters of increases. The prime office vacancy rate declined by 20 basis points quarter-over-quarter to 15.5%, according to CBRE. Office construction has retreated 63% since the pandemic, according to Cushman and Wakefield. Harris supported transforming vacant office towers into housing. However, this proposal may only be feasible for 10%-15% of the U.S.’s office stock, according to economist Stijn Van Nieuwerburgh, a professor of real estate at New York’s Columbia Business School.
CBRE reported the majority of real estate property conversions in 2024 were office-to-residential—71 million sq. ft., or 1.7%, of U.S. office inventory, was planned for or already undergoing conversion. That trend is helping to increase the supply of housing, boosting downtown vibrancy and easing office vacancy rates. So far in 2024, 73 buildings have been converted, and 30 are scheduled for delivery by year-end, the most since CBRE began tracking conversion projects in 2016.
In a Reuters report, attorney David A. Nasatir, Chairman of law firm Obermayer Rebmann Maxwell & Hippel LLP stated that turning office buildings into housing is “the number one, two and three issue right now because it affects the entire real estate market.”
Trump, however, has not officially endorsed converting offices into housing.
Optimism for CRE
In October, the NAIOP CRE Sentiment Index, which measures industry expectations over the next 12 months, climbed to 56, a significant gain since the previous survey in the spring. Key findings include that greater optimism about market conditions is leading developers and building owners to project that their own “deal volume will grow over the next year.” Most respondents indicated they will be most active in industrial or multifamily real estate during the next 12 months.
- CRE lending has also recovered due to lower interest rates, according to the Real Estate Roundtable. Total commercial and multifamily originations rose by 59% in the third quarter compared to a year earlier, according to the Mortgage Bankers Association. Several property types, including healthcare, retail, multifamily, and industrial, showed improvement, though office lending remained relatively weak, according to GlobeSt.
- Office leasing has seen a slight improvement in the past year. A few major brokers, including JLL and CBRE, reported robust growth in office leasing revenue for the third quarter. For example, JLL, the world’s second-largest brokerage, said a 34% jump in office leasing revenue was powered by a 45% increase in the number of leases spanning 100,000 square feet or more, according to Karen Brennan, the company’s chief financial officer, stated on a recent earnings call.
- Larger lease sizes and a rising return-to-office trend have been key contributors, with the average number of in-office days required per week by employers up 50% in the third quarter compared to last year, according to CoStar.
Areas of Concern
Some experts have predicted that interest rates could climb due to higher inflation and increased borrowing in the Trump administration for several reasons. President Trump’s policy proposals, such as lower taxes, an increased protectionist trade policy, and drastic changes in immigration policies, are viewed as inflationary by many experts. Cushman and Wakefield explained that the proposed restrictive immigration measures could negatively impact labor force growth and, in turn, affect industries such as construction by raising labor costs.
Trump has stated that he wants to increase tariffs on goods from Europe to 10% and 60% on items from China. Trump should have no problems passing his policies due to a Republican majority in the House of Representatives and the Senate.
Specific Tax Proposals
A number of experts have predicted that in 2025, the president and Congress will focus on tax policy, including examining provisions of the TCJA due to expire. FTI Consulting’s Real Estate Solutions practice compiled a list of proposed tax policies that will be closely monitored by the commercial real estate industry, including developers, investors, and asset managers.
Bonus Depreciation—The Tax Foundation stated that President-Elect Trump wants to permanently restore the 100% bonus depreciation provisions of the TCJA for tax years beginning Jan. 1, 2026, which began phasing out for tax years beginning in 2023.
Qualified Opportunity Zones (QOZs)—Trump’s first administration created QOZs to encourage private investment in economically distressed areas by offering tax incentives to investors. The second Trump Administration may extend the program and provide additional benefits. If the QOZ program is extended, it may be essential to give multifamily investors additional entrée to tax-advantaged projects. In turn, it could create more affordable apartments in high demand throughout the county.
199A Pass-Through Deductions—Another priority will be making the Section 199A pass-through deduction and noncorporate loss limitations permanent, due to expire at the end of the 2025 tax year.
Interest Deductibility—The Tax Foundation also wrote that Trump would work to restore the Earnings Before Interest, Tax, Depreciation and Amortization (“EBITDA”)-based interest expense limitation.
Corporate Tax Rate—During the campaign, Trump told business leaders that if elected he would lower the corporate tax rate from 21% to 20% and reinstate a Domestic Production Activity Deduction to achieve an effective 15% corporate tax rate for domestic manufacturing.
IRA Tax Credits—President Trump will also work to repeal major areas of the Inflation Reduction Act, specifically benefits such as sustainable energy tax credits.
Tariffs—Finally, President Trump has tied a desire to create universal and protectionist tariffs to finance various income, payroll and estate tax cuts and retaliate against foreign adversaries.
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About Caliber (CaliberCos Inc.) (NASDAQ: CWD)
With more than $2.9 billion of managed assets, including estimated costs to complete assets under development, Caliber’s 15-year track record of managing and developing real estate is built on a singular goal: make money in all market conditions. Our growth is fueled by our performance and our competitive advantage: we invest in projects, strategies, and geographies that global real estate institutions do not. Integral to our competitive advantage is our in-house shared services group, which offers Caliber greater control over our real estate and visibility to future investment opportunities. There are multiple ways to participate in Caliber’s success: invest in Nasdaq-listed CaliberCos Inc. and/or invest directly in our Private Funds.
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