U.S. President Trump signed the new Tax Cuts and Jobs Bill on December 22, 2017 (the “Tax Bill”), effectively putting the final seal of approval on some of the most substantive tax law changes seen in the U.S. over the last 30 years. We believe the general view is that the new provisions may yield a net positive impact on commercial real estate, but that the impacts will differ by market and sector. The tax changes that could potentially have the greatest impact on the commercial real estate sector include:
While it is impossible to know specifically the full extent of the impact of the tax reforms on the commercial real estate industry, set out below are certain potential macro and real estate considerations garnered from various internal and third party sources.2
Broad Macroeconomic Impacts
Regional Macroeconomic Impacts
Commercial Real Estate Sector Impacts
INVESTMENT AND CAPITAL MARKETS
Overall, we believe tax reform is likely to be a seen as a net positive for the commercial real estate sector and more capital could flow into real estate as the asset class on-a-whole is expected to become more tax-efficient relative to other asset classes, particularly with the maintenance of 1031 exchanges, the ability to elect out of the regime imposing a cap on leverage, and favorable rates for income from pass-through entities. The impacts will differ by sector and market with the high income tax states suffering, while the no/low income tax states should benefit. The apartment sector should benefit at the expense of for-sale housing, and the retail, industrial and office sectors are also likely to benefit, to varying degrees.