00:00So some people say that this law is really positive for commercial real estate because of what it does contain.
00:05And we talk about some of those macro things like permanent extension of tax cuts, which definitely helps drive demand or the bonus appreciation for manufacturing facilities, which is in line with the White House's goal to reshore manufacturing.
00:17But talk about the specific things that you as someone in the industry is really looking at as a as a tailwind.
00:24Yeah, thank you. So again, for commercial real estate fared pretty well within this bill.
00:27And there's a lot of provisions in there that, if used appropriately, should spur economic growth for some much needed multifamily housing.
00:35We do have a housing shortage here. And so looking at this and sort of just level setting where we are, deals still have to make sense and they have to math out.
00:42And so with market rate real estate, deals aren't making sense. And the math doesn't work right now.
00:47The rents are still flat or minorly up and insurance rates are up.
00:51Interest rates are up and construction costs are up.
00:54So other types of programming needs to happen to out there to spur economic growth.
00:58And one of those areas that did fare well is low income housing or affordable housing.
01:03Now, with that, the federal and the state governments always have to work together.
01:07And so these provisions were put in by the federal government, which are to enhance and helpfully give more low income housing developers the accessibility to get these credits.
01:16The state actually is the one that affords the credits and awards them.
01:20And so we work together with a lot of our affordable housing clients to get them those credits, make sure the math works out to spur that economic development, because that's the way that's going to solve the four to five million.
01:30I think it is of housing shortage that low income should be about one to two point million of housings that come on the market in the next 10 or so years.
01:38But some of those provisions are really important, and that should spur some growth with the affordable housing market rate, again, still has to math out.
01:47I like that phrase, math out.
01:48So it sounds like the states have a lot of say, a lot of control here.
01:52Do they have the talent to execute on that?
01:54That's a hard question to answer, especially in today's political environment.
01:58But it's really making sure that you're educating and you're working with a team who does understand the state and does understand what they're looking for when you're presenting your package, whether it's for qualified opportunity zones or even for low income housing and even market rate.
02:11Really working together with the states and the local governments to make sure that they get rid of that nimbyism fear that everybody talks about and really creating, not to give New York, but the city of yes and making sure that there is some spur and giving the developers those credits and incentives they need.
02:29Developers want to make money.
02:30Yeah.
02:30Do you call New York the city of yes?
02:32Well, that's the new city of yes is the economic development.
02:34Because I was about to say a lot of real estate developers will say it's just the opposite.
02:37No, so that was a program called the city of yes.
02:40We do have something on it.
02:41I do remember that.
02:42I am curious, though.
02:42I mean, outside of New York City, there has been, and particularly when you talk about the need for more housing and more building of housing, you've seen a lot of cities embrace whether it's opportunity zones or things similar to that.
02:54I'm thinking like Cleveland.
02:55I'm thinking Gary, Indiana, a lot of places in the Midwest as well.
02:58As you start to see some of those cities sort of buy for these types of programs, do you expect to see a little bit more of a broadening of where real estate investors and builders are looking?
03:09Yeah, right now the Sun Belt is probably the hottest area because that's where people, where the jobs are and where people want to work and it's the most affordable.
03:15When you look at the cities and you look to see why were some of those cities able to spur economic growth, you're looking at the local governments who are able to work with the federal provisions and incentivize and enhance those and make it for the developers who want to be there and build.
03:30And that's really why the success of those cities turned around is because of those local governments working within the creation of what the federal government created, those provisions.
03:40Is there any worry, though, right now, given, I guess, how should we put this, somewhat of a contentious relationship between the federal government and certain local municipalities that we won't have as much cooperation in certain cities and states on these issues that would actually lead to the benefits coming out of this bill?
03:58I mean, that's a great question.
04:00I mean, that's a great question. And there always is. There's always needs to be balancing and bipartisan.
04:03So qualified opportunity zones is a perfect example of bipartisan support.
04:07Everybody wants underdeveloped communities to be able to develop.
04:10And so qualified opportunity zones where the governors designate those zones and they can do so every 10 years, that is something that's always that's had bipartisan support in the first round.
04:20And now they've made it permanent into the tax code for starting in 2027.
04:24So that's an example of people working together for that creation.
04:28Some people say that the law is positive for commercial real estate in that it doesn't include certain things, certain negative things.
04:34It leaves certain things out, like no new cap on deferred gains.
04:38Talk a little bit about the exclusion of certain things that might have harmed the industry.
04:42Right. So 1031 is still for for commercial real estate, which is nice in which what that does is it brings capital back into the economy.
04:49So it brings people back in who are willing to trade unloved or properties that need more capital back in.
04:54So allowing 1031 to be able to stay within the tax code has been very beneficial.
04:59Bonus depreciation, another thing, being able to expense.
05:02And again, that's for anything created after January 20th, 2025 is the date.
05:07I'm pretty sure. But again, it's getting money back into the economy and getting money back into there to create value.
05:13And all those were capital market for on purpose.
05:17They want to make sure that people are spending and creating those developed communities where people are going to want to live and they're going to want to work.
05:24And so those provisions were very intentional as to why they were important and why they were able to stay in the code and have the sun setting be permanent.
05:32Give us a timeline in which you see things playing out here, because, you know, the law just passed.
05:38And it's going to take some time, as we mentioned, for the companies, the developers themselves, to get in touch with the states and work through everything.
05:45Are we talking about a six month or one year kind of time frame?
05:48So any new construction that could even go into the ground won't even be online until 2030 when you think about it.
05:53By the time it gets through zoning and it gets through construction and goes online.
05:58So it's a long time frame to be able to say that we're going to make a dent, even if we do make a dent, in the housing shortage here.
06:05So this is a very, very long term commitment to the developers.
06:08And that's why it's really so important that people are working together, because it's not something that we can just put up a new building overnight.
06:14A lot of the projects are really acquisitions.
06:17So they're taking and trading older properties, putting money back into it.
06:21So when people are worried about the class A properties, those class A properties actually have trickle down effects.
06:26So if you're taking an existing building and you're making that class A amenities, the next ones are going to be able to serve the B, the C, the D.
06:33So any capital infusion you have in commercial real estate is always good.
06:36It's always going to be for the betterment of a community.
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