Midterm Elections: Two Years Later, More Change is in the Air–Or Not

When the 111th Congress met in January 2009, the Democrats had it all--the House of Representatives and the Senate, not to mention the Executive Office. But when the 112th Congress meets in January 2011, it's going to look a little bit different.

November 3, 2010
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user morrissey

When the 111th Congress met in January 2009, the Democrats had it all–the House of Representatives and the Senate, not to mention the Executive Office. But when the 112th Congress meets in January 2011, it’s going to look a little bit different. The Mid-term elections have brought a shift in power, with Republicans taking control of the House with, albeit not yet completely official, 239 seats, leaving the Democrats with 185 and Independents with 11.

Politicians, pundits, bloggers, talking heads and the like will spend the next few months pontificating and speculating ad nauseum about how the country will be impacted once a new hand is pounding the gavel as Speaker of the House. As the election results pertain to the commercial real estate industry, the real experts have a grip on what is to be.

“With regard to legislation, will the new congress put together or pass anything that would have a negative impact on commercial real estate? I’d say no,” Dan Fasulo, managing director with global commercial real estate research and consulting firm Real Capital Analytics,” told CPE. “The current administration has been very unwilling to support commercial real estate anymore than they have by keeping interest rates super low. Legislatively, I don’t think anything is going to come through that will devastate the commercial real estate industry.”

But that’s just the general point of view. There are some brewing issues at hand that concern commercial real estate, multifamily housing financing, in particular. Yes, government sponsored enterprises Fannie Mae and Freddie Mac. “The restructuring of these two illiquid companies is not going to happen over the next two years,” he said. “Democrats are against it and Republicans are too pragmatic about it. These are two prolific sources of capital for the commercial real estate industry and at this point in the economic cycle, restructuring them would have a disastrous effect.”

As for the business sector in general, it has nothing to worry about, Fasulo added. “For the most part, balance sheets have been repaired; many companies are sitting on millions of cash. The House will definitely pass the bill extending the Bush tax cuts–there will be way too much pressure on the more moderate Democrats not to go for it. But if President Obama starts vetoing, all bets are off.”

Essentially, Fasulo concluded, the change in leadership in the House will not result in upheaval or a major boon in the commercial real estate industry. All will be copasetic. “It is a net positive for the economy and commercial real estate,” he said. “That’s my macro stance on things and that is what I’ve been hearing out in the industry.”

Other industry experts agree that the ascent of the Republicans in the House does not represent an impending turning point in commercial real estate.

“The way it will matter to commercial real estate is pretty mundane,” Dr. Richard K. Green, Director of the USC Lusk Center for Real Estate, told CPE. “We will almost certainly have some sort of tax bill in the next year, and how it treats depreciation and capital gains will matter to real estate. I suspect that the strong GOP showing means capital gains will retain its preference, but I really have no forecast about depreciation rules.”

Green’s colleague, Robert Bridges, Assistant Professor of Clinical Finance and Business Economics at USC Marshall School of Business, is equally sanguine about the impact, or lack thereof, that the elections will have on the industry. “The things that affect the industry lie in interest rates and the economy; those are things that are not going to be affected by a single election.”