President Joe Biden’s $2.3 trillion infrastructure plan is one of the largest investments in the U.S. we have seen in a while. The sweeping plan commits to revitalizing existing and building out new domestic infrastructures.
It calls for an investment in infrastructures including $621 billion in transportation, $100 billion to build cleaner electricity, and $213 billion to build and retrofit homes and commercial buildings, among many other proposals.
While there will be a debate on how the money of the proposed plan will be spent and which legislation will pass, experts say there is optimism in the real estate industry.
“We are going to see the real estate community from the investor and developer side to the occupier side embracing this portion of Biden’s plan,” says John Robbins, managing director and head of real estate in North America at Turner and Townsend in New York City.
As this bill is under consideration, here’s how it may impact different real estate markets and what opportunities these wide-reaching initiatives may create for individual real estate investors:
— Commercial real estate.
— Residential real estate.
— Environmentally conscious real estate.
Commercial Real Estate
Construction in certain areas usually helps attract individual investors who want exposure to real estate because there’s going to be organic growth in those areas, says Daniel Lebensohn, founder and co-CEO of New York and Florida-based real estate investment firm BH3 Management.
Developers and investors will be looking at where major projects will be taking place. Jeff Bartel, chairman and managing director at Hamptons Group, an alternative investment and advisory firm headquartered in Miami, calls these “signal projects” to developers and investors that these are communities that are going to become more attractive to live and work. When that happens, Bartel says, it will result in more real estate investments.
“When you have communities that have been identified for these large projects, that is a signal to investors in real estate that these are communities that are going to be attractive for people to work, live or visit,” Bartel explains.
An attractive community to do business draws in investors to those communities.
Look into geographies where they will be infusing this money because these areas are going to be revitalized, and as a byproduct, there’s going to be growth in the value of commercial and residential real estate, Lebensohn says.
It’s important to keep in mind how the Biden administration plans to treat taxes because investing in real estate comes with tax benefits, which may be implicated by Biden’s tax proposals.
With the potential elimination of the 1031 exchange rules and carried interest tax treatment, along with a potential increase in capital gains, Michael Fay, principal and managing director at Avison Young in Miami, says real estate investors may have second thoughts on why and where to invest. A 1031 exchange allows real estate investor to postpone paying taxes on investment gains when you sell an investment property, if you reinvest those proceeds in a similar property.
“You can’t roll out a certain amount of capital spending across the country without having the correct tax laws to benefit those situations, and the ones proposed are very problematic,” he says.
Investors risk capital when participating in real estate investments, Fay says. New policy proposal changes, particularly those that impact the tax treatment, can impact commercial real estate investors and equity entities’ participation in these deals.
Developers, banks and other groups that finance or put equity in these deals need to have tax benefits to offset major risks they take. Otherwise, they may participate less or not at all, Fay adds.
Residential Real Estate
Part of Biden’s plan seeks to pass the Neighborhood Homes Investment Act (NHIA), which offers $20 billion of tax credits to developers and investors over five years to build or rehabilitate about 500,000 owner-occupied homes.
This initiative can lead to opportunities in affordable housing and other residential real estate investing opportunities.
Affordable housing is an interesting place for residential real estate investing for the retail investor. Someone looking to invest in affordable housing “should always be able to find occupants, making it a relatively safe investment,” Lebensohn says.
Creating affordable living across the U.S. is part of the plan’s list of priorities. The Biden plan invests billions in creating new or upgraded homes for American homeowners and renters.
Lebensohn encourages real estate investors to look in areas where they believe there will be job creation as a result of the plan.
Bartel says large home-building real estate stocks like Lennar Corporation (ticker: LEN) and D.R. Horton ( DHI) will be eyeing workforce housing projects. Likewise, real estate investment trusts involved in this area may also do well.
Companies involved in producing raw materials for the retrofitting and development of roads, bridges, trains and other infrastructures should also perform well, experts say.
Investors can get the benefits of federal grants and tax incentives, he adds, but if you also take the time to locate the geography being developed, “your investment will be complemented by the infrastructure plays taking place,” Lebensohn says.
Environmentally Conscious Real Estate
The Biden plan intends to provide tax credits that, in theory, would incentivize the building of a stable electronic transmission system as well as clean energy generation.
President Biden’s infrastructure plan targets climate and clean energy investments aimed at making infrastructures, including bridges, airports and transit, more resilient as well as delivering clean energy to power buildings, communities and businesses.
The realization of the plan would require the mobilization of companies that specialize in the construction of the proposed developments.
Companies that will benefit in particular are “green companies,” Bartel says, with clean energy goals expertise from utilities to companies focused on energy efficiency.
Accelerating the use of clean energy will allow real estate investors to get involved in energy-efficient investments and sustainability initiatives, an overarching theme of the infrastructure plan.
“Retrofitting millions of buildings with new efficient LED lighting, efficient electric appliances and switching over from fossil fuels to clean renewable electric energy present a wealth of opportunity across the United States for the real estate investor,” Robbins says.
Moving commercial buildings from things like fossil fuels to electric energy calls for a transformation as it relates to the real estate segment,” Robbins says.
One of the initiatives that will be at the forefront of climate change is establishing sustainable electrical infrastructure and how electricity is produced.
Companies involved in the building of these environmentally sustainable infrastructures could be poised to benefit from the shift from fossil-based power plants to more environmentally friendly power plants like wind and solar.
“You will see both existing companies that have been around for a long time making the quick shift to renewable technologies, products and services along with the new emerging companies over the next several years,” Robbins says.
You may want to keep an eye out for companies that aim to reduce their carbon footprint or companies that focus on energy-efficient services.
In addressing the need to advance energy-efficient technologies, upgrading existing commercial buildings with environmentally friendly developments offers the real estate investor to get involved in next-generation investments.
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How Biden’s Infrastructure Plan Will Impact Real Estate Investors originally appeared on usnews.com