By Byron Carlock, PwC US Real Estate Leader –
As we recently closed the first quarter of 2017 we are reminded how we started the year. A beginning that consisted of our team at PwC, together with top United States policymakers and industry leaders, descending upon Washington, D.C. for the 2017 Real Estate Roundtable State of the Industry Meeting, a meeting that was focused on discussing issues of compelling interest to commercial real estate. While each year’s event is unique, this year was particularly so as it occurred just days after Donald J. Trump was inaugurated as the 45th President of the United States and Republicans gained a Congressional majority. We heard from House Majority Leader Rep. Kevin McCarthy (R-CA), House Ways and Means Committee Chairman Rep. Kevin Brady (R-TX), and Senate Minority Leader Chuck Schumer (D-NY) among others.
The tone of the meeting rested on a bed of uncertainty attributable, in part, to policy agenda issues that are expected to be the focus of the new Administration and Congress. However, tremendous optimism made its way into the dialogue as these policy issues – which included tax reform, regulatory reform, and infrastructure spending – are vital for economic growth and can enhance our economy’s sustainable trajectory. It is a balance between remaining cognizant of this uncertainty and remaining optimistic that serves as our north star and helps us to remain excited about the opportunities present in our industry.
Indeed, today operating fundamentals are sound, supply is constrained in most sectors, interest rates remain at historically low levels despite their recent march higher, capital is readily available from diversified sources, and the United States is a favored haven for foreign capital. These conditions are contributing to a reasonably sound and extended real estate cycle that would only serve to extend further and strengthen as policy issues are evaluated and addressed. After all, what would occur if lending constraints are appropriately eased and credit is expanded through regulatory reform, direct federal infrastructure spending to revamp our nation’s airports, bridges, roads and seaports does become $1 trillion over 10-years as announced by Senator Schumer, and the Foreign Investment in Real Property Tax Act, or FIRPTA, is repealed as alluded to by Rep. Brady?
So, as we move forward from here, I’m optimistic that today’s uncertainties can coexist in a reasonably sound real estate cycle and that the opportunities for this cycle to extend further and strengthen remain promising. It is a result of this optimism amidst uncertainty that my team and I are encouraging industry market participants to reimagine the possible through engaging with others, considering what the potential impact of these policy changes will be through scenario planning, what their responses will be and the timing thereof, and how they potentially change corporate strategies and talent management. We are beginning to see many undertake such efforts today by, for example, exploring the market opportunity for new infrastructure-focused private equity funds and how private capital can continue to be a solution for our nation’s infrastructure challenges, modelling the impact of current tax reform proposals on their businesses (an effort we are currently undertaking together with the Real Estate Roundtable in respect of the overall industry) and simply engaging in a dialogue with others. By proactively taking action today any risks associated with the present uncertainty can be managed and focused placed on remaining optimistic of what’s to come.
My team and I intend to remain at the forefront of these issues, for which further details can be found here, and keep you updated on the latest developments as they transpire, and as outstanding questions are vetted and addressed. In the meantime, keep reimagining the possible.