The Republicans swept this election from local races, to state houses and governors to all of Washington. Senators Chuck Schumer and Elizabeth Warren may think they can block many of the reforms that Trump has in mind, but the Republicans will simply use the same nuclear option as the Democrats did to get judges approved and Obamacare. They warned Harry Reid not to do it, but as usual, Harry did the stupid thing, and now the Republicans will do what they promised him, they will use the same tactics. Obamacare will get replaced, and just because Trump said he would keep pre-existing and child to 26 years old rules, does not mean the rest of the law will not be obliterated. Supreme Court nominees will be fought by the left wing no matter who is nominated. Elizabeth Warren foolishly thinks she can demand Trump change his mind or that she can fight him to the death. She loses every time. We will have a conservative, business-friendly, strict constructionist judge. Sessions will be confirmed no matter what the left and press do to try to slander him. He actually has a very good record.
Most importantly, Dodd-Frank will get materially amended, and no matter what the Schumer/Warren group say, it will happen if only through a reconciliation vote. Democrats seem to not understand they got creamed and it was their policies that people voted against. This set of changes will be very good for CRE as the banks will cease to be government controlled utilities, and will go back to making loans. It will not be anything like the wild days of 2006-07, but not severely constrained as it now is. Democrats and especially Warren and her cohort will be apopleptic as will the press who have no understanding of anything to do with banking. Expect the press to go into hyper overdrive as these things are rammed through. The good news about Trump is I expect he will blast ahead regardless of what the press says. Dodd Frank needs to be amended and it will be.
Defense spending will ramp up immensely. The national security team they are assembling is extraordinary and tough as can be. They are not afraid to do what is needed to defeat ISIS and resolve things in Afghanistan favorably. Expect a surge of US troops there. They will be adding 200,000 men to the army, more to the other branches, buying a lot of planes, ships and other equipment. Tens of billions more will be spent. For CRE this is all good. Defense contractors will need more factories and then housing near factories and bases will ramp up quickly. There is going to be a lot of demand for all types of CRE related to military installations.
The EPA gets throttled, the AG office will cease harassment for every little perceived affront to a minority, and Labor will be reversed in its approach. The SEC and Treasury will be much more business friendly and realistic. Minimum wage legislation is dead for many years. Cops will be supported and be recognized as the heroes they are. There will possibly be major development opportunities in ghetto areas as it is likely Trump will name the CEO of BET to head up a new program to bring development to these areas. There will be never before opportunities in these areas for CRE. There will be a bipartisan infrastructure program and it will be massive. How it is structured is unclear, but the private sector will play a leading role so contractors can look forward to billions of new contracts over the next four years.
Tax reform and obliterating regulations that crush business will again make earning good returns possible once more.
The downside of all this there will need to be higher rates than would have ever happened under Hilary. Do not be surprised if the ten year hits 3% or more next year. When modeling exits from deals, make sure you assume a borrowing rate for your buyer at 6% or more. Cap rates will also rise accordingly. In industries like hotels assume lending will again pick up for new development and supply to exceed demand. Multi will continue to over build as it already is. Industrial may become the place to be. There swill be bigger budget deficits for awhile until revenues catch up with spending and until the economy ramps up sufficiently to generate the tax revenue needed for all of this. That will take time. By 2018, just as the mid term elections are in play and the Democrats have a lot of seats up for election, the economy may be rolling along well and there is a chance Republicans will get to a filibuster proof majority.
In addition, the Democrats are going to elect a radical black Muslim and follower of Farrakhan to be chair of the DNC. He has a long history of anti-Semitism, anti-white rhetoric, and radical policy ideas. He is the puppet of Warren and the Democrats are committing political suicide with hi, and Warren. They seem to think Hilary was not radical enough and they will appeal to the pro Trump voters by going far left. They missed the whole point of what happened. With Republicans in control of the Senate for probably four and maybe six years, the Supreme Court is going to be conservative and pro business for possibly the next 25-30 years.
Even though I think Trump is a terrible sleezy guy based on many things I know about him from friends a former partner who ran a major bank group here in New York, he has brought a revolution to the US, and it will have major ripples in Europe. Le Pen may now have a chance to win in France even though all the pundits who got this election wrong say she has no chance. If that happens the EU falls apart. If Trump and the Republicans can ram through their platform, then the US will do very well. Capital flows here for investment in CRE. Asian investment will also flow here as the economy ramps up.
All in all, for CRE the next few years may be very good unless inflation ramps up too much and rates shoot up too fast and too high. Hang on, the ride is about to get very interesting and maybe exciting.
Joel Ross is Principal at Citadel Realty Advisors. The views expressed here are the author's own.
The Republicans swept this election from local races, to state houses and governors to all of Washington. Senators Chuck Schumer and Elizabeth Warren may think they can block many of the reforms that Trump has in mind, but the Republicans will simply use the same nuclear option as the Democrats did to get judges approved and Obamacare. They warned Harry Reid not to do it, but as usual, Harry did the stupid thing, and now the Republicans will do what they promised him, they will use the same tactics. Obamacare will get replaced, and just because Trump said he would keep pre-existing and child to 26 years old rules, does not mean the rest of the law will not be obliterated. Supreme Court nominees will be fought by the left wing no matter who is nominated. Elizabeth Warren foolishly thinks she can demand Trump change his mind or that she can fight him to the death. She loses every time. We will have a conservative, business-friendly, strict constructionist judge. Sessions will be confirmed no matter what the left and press do to try to slander him. He actually has a very good record.
Most importantly, Dodd-Frank will get materially amended, and no matter what the Schumer/Warren group say, it will happen if only through a reconciliation vote. Democrats seem to not understand they got creamed and it was their policies that people voted against. This set of changes will be very good for CRE as the banks will cease to be government controlled utilities, and will go back to making loans. It will not be anything like the wild days of 2006-07, but not severely constrained as it now is. Democrats and especially Warren and her cohort will be apopleptic as will the press who have no understanding of anything to do with banking. Expect the press to go into hyper overdrive as these things are rammed through. The good news about Trump is I expect he will blast ahead regardless of what the press says. Dodd Frank needs to be amended and it will be.
Defense spending will ramp up immensely. The national security team they are assembling is extraordinary and tough as can be. They are not afraid to do what is needed to defeat ISIS and resolve things in Afghanistan favorably. Expect a surge of US troops there. They will be adding 200,000 men to the army, more to the other branches, buying a lot of planes, ships and other equipment. Tens of billions more will be spent. For CRE this is all good. Defense contractors will need more factories and then housing near factories and bases will ramp up quickly. There is going to be a lot of demand for all types of CRE related to military installations.
The EPA gets throttled, the AG office will cease harassment for every little perceived affront to a minority, and Labor will be reversed in its approach. The SEC and Treasury will be much more business friendly and realistic. Minimum wage legislation is dead for many years. Cops will be supported and be recognized as the heroes they are. There will possibly be major development opportunities in ghetto areas as it is likely Trump will name the CEO of BET to head up a new program to bring development to these areas. There will be never before opportunities in these areas for CRE. There will be a bipartisan infrastructure program and it will be massive. How it is structured is unclear, but the private sector will play a leading role so contractors can look forward to billions of new contracts over the next four years.
Tax reform and obliterating regulations that crush business will again make earning good returns possible once more.
The downside of all this there will need to be higher rates than would have ever happened under Hilary. Do not be surprised if the ten year hits 3% or more next year. When modeling exits from deals, make sure you assume a borrowing rate for your buyer at 6% or more. Cap rates will also rise accordingly. In industries like hotels assume lending will again pick up for new development and supply to exceed demand. Multi will continue to over build as it already is. Industrial may become the place to be. There swill be bigger budget deficits for awhile until revenues catch up with spending and until the economy ramps up sufficiently to generate the tax revenue needed for all of this. That will take time. By 2018, just as the mid term elections are in play and the Democrats have a lot of seats up for election, the economy may be rolling along well and there is a chance Republicans will get to a filibuster proof majority.
In addition, the Democrats are going to elect a radical black Muslim and follower of Farrakhan to be chair of the DNC. He has a long history of anti-Semitism, anti-white rhetoric, and radical policy ideas. He is the puppet of Warren and the Democrats are committing political suicide with hi, and Warren. They seem to think Hilary was not radical enough and they will appeal to the pro Trump voters by going far left. They missed the whole point of what happened. With Republicans in control of the Senate for probably four and maybe six years, the Supreme Court is going to be conservative and pro business for possibly the next 25-30 years.
Even though I think Trump is a terrible sleezy guy based on many things I know about him from friends a former partner who ran a major bank group here in
All in all, for CRE the next few years may be very good unless inflation ramps up too much and rates shoot up too fast and too high. Hang on, the ride is about to get very interesting and maybe exciting.
Joel Ross is Principal at Citadel Realty Advisors. The views expressed here are the author's own.
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Joel Ross
Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.
