A Time for Gratitude

After another wild year, we look back on it realizing that we still have a lot to be grateful for. First and foremost, we thank you for the confidence you’ve shown in us to assist you with your commercial real estate needs. Thanks to you, our team has enjoyed another successful year, one that exceeded even our own expectations. So, as we head into this holiday season, we hope that 2021 ends on a high note for you, your family and friends.

We are also grateful for how 2021 turned out from a commercial real estate perspective. If you’ve been following this blog through the year, you know that we have been very concerned about the Build Back Better legislation that is now in the hands of the US Senate. When first proposed by the White House back in April, it raised the specter of several major changes to the tax code that would have specifically impacted commercial real estate in a profoundly negative way. It called for capital gains to be taxed as ordinary income, which would have effectively doubled the tax on real estate dispositions. It also contained a provision to limit 1031 exchanges to just the first $500,000 in gain, which would have brought transaction activity to a screeching halt. And, it targeted the elimination of the step-up rule, a widely used estate planning tool that has been around for decades.

Fortunately, the House of Representatives version of the legislation was passed along to the Senate sans any of these provisions. To say that we are grateful for that is an understatement. But, as the saying goes: “it ain’t over til it’s over”, but there is no apparent reason to believe at this point that any of those draconian tax hikes will be in the final legislation. If there is a vote at all in the Senate, the legislation won’t be in sync with the House version and negotiations on that could take us into next year. We shall see.

The way we see it, even if a scaled-down version of the bill does pass, it will not be a shock to our industry. So, we are optimistic that current market dynamics will be in play as we head into the new year. That’s both good and bad, depending on what side of a transaction you are on. Landlords and would-be sellers will stay in the driver’s seat while tenants and buyers will continue their struggles to find suitable properties in a supply-constrained environment. Lease rates and sales prices will continue to move higher unless the recent spike in inflation persists and forces the Fed to hit the brakes via higher interest rates.

That brings us to another reason to be grateful. We are not overbuilt. So, if the Fed does have to make a big move and mortgage rates rise as a result, we will have low vacancy to fall back on in terms of price support. In the past, we have headed into correction territory with too much inventory, which has exacerbated price declines. Not so this time around. The industrial vacancy rate could triple and still be at 6%. That would serve to support the industrial market in a mild correction should one occur. Plus, the industrial sector is thriving now, as it has throughout the pandemic, thanks mainly to e-commerce, a sector that continues to expand exponentially. That would likely pick up the slack in the event of an economic shock that could result from a shift in monetary policy. You can count on us to keep you informed going forward. 

Again, thanks to all of you for the opportunity to serve. Please give us a call if there’s anything we can do to help.

Happy Holidays.