In light of the major announcement by President Biden to bow out of the November election, we are postponing the posting of our final thoughts on the Wealth Cycle, which we have focused on over the last couple of months.
The quote “elections have consequences” was first credited to former President Obama. It rings true no matter what side of the political spectrum you fall on, and it will certainly be the case this November given the hyperbolic nature of the national political scene. In just 8 short days, one of the candidates for president missed being assassinated by literally an inch. A few days later he accepted his party’s nomination, while his opponent quit the race under extreme pressure from his own party. Unprecedented doesn’t begin to describe what is going on. The partisan rhetoric is sure to reach new heights going forward, as one campaign exploits the chaos in the other that is in full view. We may not even know who the other candidate is for another month or more. So, hold on to your hats, folks.
We have written about the Election Effect on this blog before and we decided that this would be a good time to revisit the topic. What do we mean by the Election Effect? Essentially, it is the change in decision making posture attributable to uncertainty over the outcome of an election.
In our post about the Psychology of Decision Making we talked about a decision making continuum that ranges from Offense to Neutral to Defense. Each of us faces a constantly changing level of uncertainty in our daily business lives whether an election is looming or not. If we are feeling good about prospects for growth, we go on offense by hiring more people, taking more space, pursuing growth opportunities or making new acquisitions. If we are less certain about the future, we tend to more cautious and adopt a more neutral approach to taking on additional risk by delaying decisions and doing more research and analysis before making up our minds. If we see significant threats to our business growth in the near term, we tend to take a defensive approach and pull back on spending, expansion or allocation of capital because of higher perceived risk. We may even pull our chips off the table altogether.
For many of those we speak with every day, the Election Effect is very real indeed. We hear clients and potential prospects express concern over making a real estate decision with the election just around the corner. Tenants and buyers tell us they will wait until after November 5th to consider a new lease or potential acquisition, as many of them believe the outcome of the election, one way or the other, may cause an abrupt change in market direction. Many property owners are concerned over the same thing and have been contemplating dispositions as a defensive move. However, they are running out of time and most will be forced to simply brace for the unknown impact of the election.
So far, lease rates and sales prices have held near the market peak of 2022 and the industrial sector is still the economic bright spot in the commercial property sector. But, transaction velocity has slowed, properties for sale or lease are sitting empty for longer, lease concessions are on the rise and persistent high mortgage rates are significant impediment to investor and owner-user buyers. Essentially, market players are off the throttle and covering the brake, uncertain about the November results. Their neutral stance is quite understandable given the circumstances.
So, should we all just take a break and wait for November to deliver the results before we decide on a path forward? The answer to that may be yes and no. While you might be clear on not committing yourself to an acquisition, disposition or lease of an industrial property before the election, this is the perfect time to get informed, study options and make a plan of action that reflects the challenges and opportunities created by the eventual election result. In doing so, you will position yourself to make a more informed decision (whatever that is) when the time comes.
Our post from last week regarding changes to the estate tax exemption threshold makes this point more clear. Unless the House, Senate and President are from the Republican Party after the November election, it is almost certain that the threshold will be cut in half as of January 1, 2026 due to the sun-setting of provisions of the Tax Cuts & Jobs Act of 2017. This will result in millions of dollars in additional estate tax liability for those with a net worth above the threshold. The math is inescapable. Click here to read last week’s post. Thus, if you fall into that category it would be wise to evaluate your assets and the options available to you to move them out of your estate before the threshold changes in 2026.
We think most would agree that the more information you have before making big decisions, the better results you are likely to achieve. Rather than coasting along with your foot covering the brake for the next 4 months, why not use that time to put together a game plan for how you will respond to the election result. It could be that your current strategy is right on the money or it could be that that same strategy could cost you a pile of your hard-earned wealth. Helping you through that process is one of the things we do best. Just give us a call.
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