How Biden’s Infrastructure Plan Will Impact Real Estate Investors
President Joe Biden’s $ 2.3 trillion infrastructure plan is one of the largest U.S. investments we’ve seen in a while. The comprehensive plan provides for the revitalization and expansion of existing and new domestic infrastructures.
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New buildings will be built in Los Angeles in 2018
It calls for infrastructure investments, including $ 621 billion in transportation, $ 100 billion in building clean electricity, and $ 213 billion in building and retrofitting homes and businesses, among other things.
While there will be a debate about how the proposed plan’s money will be spent and what laws will be passed, experts say the real estate industry is optimistic.
“We’ll see the real estate community, from investor and developer to user, embrace this part of Biden’s plan,” said John Robbins, general manager and head of North American real estate for Turner and Townsend in New York City.
As this bill is under review, here’s how it can affect various property markets and what opportunities these far-reaching initiatives can offer individual property investors:
- Commercial real estate.
- Residential real estate.
- Environmentally conscious real estate.
Commercial real estate
Building in specific areas usually helps attract individual investors looking to get involved in real estate, as organic growth will occur in those areas, says Daniel Lebensohn, founder and co-CEO of New York and Florida-based real estate investment firm BH3 Management.
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Developers and investors will examine where major projects will take place. Jeff Bartel, chairman and chief executive officer of Hamptons Group, a Miami-based alternative investment and advisory firm, calls these “signal projects” to developers and investors that these are communities that are becoming more attractive to live and work in. When that happens, says Bartel, it will lead to more real estate investments.
“When you have communities that have been identified for these major projects, it is a signal to real estate investors that these are communities that will be attractive for people to work, live or visit,” explains Bartel.
An attractive community to do business with attracts investors to these communities.
Look at the regions they will be putting that money into because those areas will be revitalized and, as a by-product, the value of commercial and residential real estate will go up, says Lebensohn.
It is important to consider how the Biden government intends to treat taxes, as investing in real estate comes with tax benefits that may be implied by Biden’s tax proposals.
Michael Fay, principal and managing director at Avison Young in Miami, says that given the potential waiver of the 1031 exchange rules and associated interest tax treatment, as well as a potential increase in capital gains, real estate investors may be considering why and where to invest. A 1031 exchange allows real estate investors to defer paying taxes on investment income when selling an investment property when you reinvest those proceeds in a similar property.
“You can’t make a certain amount of investments across the country without having the right tax laws to encourage these situations, and the proposed ones are very problematic,” he says.
Investors risk capital by participating in real estate investments, says Fay. New changes to the proposed directive, particularly those that have an impact on tax treatment, may affect the participation of commercial real estate investors and venture capitalists in these transactions.
Developers, banks, and other groups that fund these businesses or invest equity must have tax breaks to offset the huge risks they take. Otherwise, they might attend less or not at all, adds Fay.
Residential real estate
Part of Biden’s plan is to pass the Neighborhood Homes Investment Act (NHIA), which offers developers and investors $ 20 billion in tax credits over five years to build or renovate approximately 500,000 condos.
This initiative can lead to affordable housing and other residential investment opportunities.
Affordable housing is an interesting place for residential real estate investment for private investors. Someone who wants to invest in affordable housing “should always be able to find residents, which is a relatively safe investment,” says Lebensohn.
Creating affordable living in the US is part of the plan’s priority list. The Biden Plan invests billions in creating new or improved homes for American homeowners and renters.
Lebensohn encourages real estate investors to look in areas where they believe the plan will create jobs.
Bartel says major housing stocks like Lennar Corporation (ticker: LEN) and DR Horton (DHI) will be keeping an eye on workforce housing projects. Likewise, real estate investment trusts operating in this area can achieve good results.
Companies that manufacture raw materials for retrofitting and developing roads, bridges, trains and other infrastructure should also perform well, experts say.
Investors can take advantage of federal grants and tax incentives, but if you also take the time to localize the region under development, “your investment will be complemented by the infrastructure games that are taking place,” says Lebensohn.
Environmentally conscious real estate
The Biden Plan provides for tax credits that theoretically provide incentives for building a stable electronic transmission network as well as generating clean energy.
President Biden’s infrastructure plan aims to invest in climate and clean energy to make infrastructures such as bridges, airports and transit facilities more resilient and to provide buildings, communities and businesses with clean energy.
Implementation of the plan would require the mobilization of companies specializing in building the proposed developments.
Companies that will particularly benefit from this are “green companies,” says Bartel, who have expertise in clean energy goals, from utility companies to companies that focus on energy efficiency.
By accelerating the use of clean energy, property investors can participate in energy efficient investments and sustainability initiatives, an overarching theme of the infrastructure plan.
“Retrofitting millions of buildings with new, efficient LED lighting, efficient electrical appliances, and moving from fossil fuels to clean, renewable electrical energy offer many opportunities for real estate investors in the US,” said Robbins.
The shift in commercial buildings from fossil fuels to electrical energy requires a transformation in relation to the real estate segment, “says Robbins.
One of the initiatives that will be at the forefront of climate change is building sustainable electrical infrastructure and the way electricity is generated.
Companies involved in the construction of these environmentally friendly infrastructures could benefit from the switch from fossil-fuel power plants to more environmentally friendly power plants such as wind and sun.
“You will see that both of the existing companies that have been around for a long time, along with the new emerging companies, are rapidly moving to renewable technologies, products and services over the next few years,” says Robbins.
You might want to look out for companies looking to reduce their carbon footprint or companies that focus on energy efficient services.
The modernization of existing commercial buildings through environmentally friendly developments offers the real estate investor the opportunity to participate in next generation investments in order to advance the need for energy efficient technologies.
Copyright 2021 US News & World Report
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