Why Trump could be good for US real estate finance

CREFC’s autumn conference saw the trade body’s leading figures from both sides of the Atlantic ponder the fallout from the presidential election.

All credit to CREFC Europe and its CEO Peter Cosmetatos for putting big issues centre-stage and having the foresight to invite his American opposite number to last week’s CREFC autumn conference to discuss the US election result.

“We’ll have a real estate guy in the White House, but not one that everyone in this room would want to lend money to”, he began to ripples of laughter, before continuing: “My first thought (on learning Trump had won) was that it is frightening for the world but perhaps good for the industry, even if that makes me personally feel a bit uncomfortable.”

Many in the US real estate financing world clearly would agree that the election of Republican Donald Trump as the 45th US president looks likely to be a good thing for their business. Some of them, ‘silent’ voters or not, will also have voted for him said CREFC’s new executive director in the USA, Lisa Pendergast, offering her insights along with deputy Mike Flood. One of her observations was that Trump supporters were drawn from a wider pool than disaffected skilled blue collar workers who’d seen jobs disappear overseas. “A lot were folks in our industry….Some lost jobs on Wall Street (after the GFC and ensuing regulatory changes),” she said.

Wall Street, she added, had got what it wanted, “total Republican involvement.” That applies to real estate too, with Republicans generally seen as friendlier to the industry’s concerns than Democrats. The triple alignment, of Trump’s election together with the Republican Party securing majorities in both chambers of Congress, sets the stage to change policy more quickly. “It’s seen as really good for our business – just look at the equity markets”, she said.

She was referring to the rise in all the four main US benchmark equity market indices which US commentators put down to expectations of fiscal stimulus, aggressive cuts in both corporate and personal income tax and lighter business regulation. For the US banks and financial companies leading the share price surges since the election, there’s the corollary benefit of interest rates finally returning to ‘normal’, that is, higher, levels – which among other things means more profits on lending. By this week, Goldman Sachs had risen 16 percent and JPMorgan 12 percent.

Banks also stand to be the biggest beneficiaries of Trump’s stated intentions with regard to lighter regulation, including repeal, or more likely reform of the Dodd-Frank Act (some of its changes have already been enacted), and scrapping the Volcker Rule that restricts banks trading for their own accounts.

The CREFC US pair’s feeling was that cutting back on corporate tax is positive for the industry and likely to happen, but that personal taxation is a much more difficult area. Pendergast’s sense regarding changes to regulation, was that there will be a softening of some of the legislation that has made trading impossible. However, she noted that CREFC represents a wide range of participants in the investing and financing of real estate, and with regard to Dodd-Frank, there are investors who don’t want the regulations overturned.

There could be a bigger US push on Basel capital standards, they thought, with the US concerned to see a level playing field by forcing European banks to use standard instead of internal rating models.

Another thing to watch out for is the effect of higher interest rates on fundamentals in the US real estate market. As Pendergast said, “If interest rates rise and cap rates rise you would hope rents will too, but you can’t be sure”.

And last, but not least, Flood pointed out that whatever benefits the industry hopes will accrue, they have to be pushed through in the next 1.5 years….Because in 2018, the entire House of Representatives and one third of the Senate comes up for election.