Commercial Real Estate Finance Debate: Effect of Trump Presidency

Financial markets are still digesting the recent presidential victory by Donald Trump. Trump, the new president elect, is seen by some as pro-business and pro-CREF (Commercial Real Estate Finance). Others are concerned about his bold statements during the elections and the potential of him creating volatility during his presidency.

*According to David Stevens (Mortgage Bankers Association President) in an 11/11/16 Commercial Mortgage Alert article, “…he understands this business and things that are capital intensive”.

The following are the piercing topics that commercial real estate finance professionals are debating:

1. Is Trump in favor of deregulation? Throughout his campaign, Trump regularly denounced the level of regulatory oversight that the current Democratic administration has imposed on the lending industry. He has been in favor of deregulation, but the questions surrounding the topic seem to ask if he can be effective. Many in the CMBS world are questioning if he can be effective repealing the risk related Dodd Frank rules that commence 12/24/2016. According to the Commercial Mortgage Alert on 11/11/2016 “…sources said that they don’t expect to see any big regulatory change right away”.
2. Are interest rates going to go up? The 10-year treasury (the benchmark index for most long term fixed rate loans) went from 1.85% to 2.23% in the five days following the election. Will it continue to go up at such a rapid pace? Many experts expect it to stabilize soon. The current yield has been seen as attractive to many foreign investors relative to yields for other debt backed by major stable nations. Only time will tell what is going to happen to interest rates in the U.S.
3. Will Trump be a positive or negative to the U.S. economy? This likely will not be determined for 1-2 years. The speculations of this question really depend on which side of the political spectrum that you sit on.
4. How will Trump’s presidency effect tax policy? Trump has been a proponent of lowering taxes on the wealthiest income earners in the country, lowering corporate taxes, and keeping deductions for interest and depreciation in place for real estate owners. It is expected that this support will continue. One can only speculate how and when this will change tax laws in the future.
5. Is Trump pro-real estate? The answer to this question is a resounding YES. The question really is how will his presidency affect the real estate market during and after his presidential term?

Dan Friedeberg
President
danf@slatt.com