President Joe Biden’s $ 2.3 trillion infrastructure plan has been one of the largest investments in the United States for some time. The large-scale plan commits to revitalizing existing domestic infrastructure and building new ones.
It calls for investment in infrastructure, including $ 621 billion in transportation, $ 100 billion to build cleaner electricity and $ 213 billion to build and renovate homes and commercial buildings, among many other proposals.
While there will be a debate on how the money from the proposed plan will be spent and what legislation will be passed, experts say there is optimism in the real estate industry.
âWe’re going to see the real estate community, from the investor side and the developer side to the occupier side, embrace this part of Biden’s plan,â said John Robbins, managing director and head of North America real estate at Turner and Townsend. At New York. .
While this bill is under consideration, here is how it can impact different real estate markets and what opportunities these large-scale initiatives can create for individual real estate investors:
- Commercial real estate.
- Residential real estate.
- Environmentally friendly real estate.
Commercial real estate
Building in certain areas usually helps attract individual investors who want to gain exposure to real estate as there will be organic growth in those areas, says Daniel Lebensohn, founder and co-CEO of the real estate investment company based in New York and Florida BH3 Management.
Developers and investors will be looking at where major projects will take place. Jeff Bartel, chairman and CEO of Hamptons Group, a Miami-based alternative investment and advisory firm, calls these “signal projects” to developers and investors that these are communities that are going to become more attractive to live and work in. . When that happens, Bartel says, it will lead to more real estate investment.
âWhen you have communities that have been identified for these big projects, it’s a signal to real estate investors that these are communities that are going to be attractive for people to work, live or visit,â says Bartel.
An attractive community for doing business attracts investors to these communities.
Look at the geographic areas where they will inject that money because those areas are going to be revitalized and, as a by-product, there will 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 implied by Biden’s tax proposals.
With the potential elimination of the 1031 exchange rules and the tax treatment of deferred interest, as well as a potential increase in capital gains, Michael Fay, director and general manager of Avison Young in Miami, says real estate investors can have doubts about why and where to invest. A 1031 exchange allows a real estate investor to defer paying taxes on investment gains when you sell investment property, if you reinvest that proceeds in similar property.
âYou cannot deploy a certain amount of capital spending across the country without having the right tax laws to take advantage of these situations, and the ones proposed are very problematic,â he says.
Investors risk capital when participating in real estate investments, Fay says. Changes to new policy proposals, particularly those that affect tax treatment, may impact the participation of commercial real estate investors and equity entities in these transactions.
Developers, banks and other groups that finance or invest in these transactions should benefit from tax advantages to offset the major risks they take. Otherwise, they might participate less or not at all, adds Fay.
Residential real estate
Part of Biden’s plan is to pass the Neighborhood Homes Investment Act (NHIA), which offers $ 20 billion in tax credits to developers and investors over five years to build or rehabilitate approximately 500,000 owner-occupied homes .
Affordable housing is an attractive location for residential real estate investment for the retail investor. Someone looking to invest in affordable housing âshould always be able to find occupants, which makes it a relatively safe investment,â says Lebensohn.
Building affordable housing across the United States is on the plan’s priority list. The Biden plan invests billions in creating new or improved homes for U.S. homeowners and renters.
Lebensohn encourages real estate investors to seek out areas where they believe there will be job creation as a result of the plan.
Companies involved in the production of raw materials for the modernization and development of roads, bridges, trains and other infrastructure are also expected to perform well, experts say.
Investors can benefit from federal grants and tax incentives, he adds, but if you also take the time to locate the geography under development, “your investment will be supplemented by the infrastructure games underway,” explains Lebensohn.
Environmentally friendly real estate
The Biden plan aims to provide tax credits that, in theory, would incentivize the construction of a stable electronic transmission system as well as the production of clean energy.
President Biden’s infrastructure plan targets climate and clean energy investments aimed at making infrastructure, including bridges, airports and public transportation, more resilient and providing clean energy to power buildings , communities and businesses.
The implementation of the plan would require the mobilization of companies specializing in the construction of the proposed facilities.
Companies that will benefit in particular are âgreen businesses,â says Bartel, with expertise in clean energy goals, from utilities to energy efficiency-focused businesses.
Accelerating the use of clean energy will allow real estate investors to get involved in energy efficient investments and sustainable development initiatives, a central theme of the infrastructure plan.
âRenovating millions of buildings with new efficient LED lighting, efficient electrical appliances and switching from fossil fuels to clean, renewable electric power presents a multitude of opportunities across the United States for the real estate investor,â said Robbins.
The shift from commercial buildings from fossil fuels to electric power requires a transformation when it comes to the real estate segment, âsaid Robbins.
One of the initiatives that will be at the forefront of climate change is the establishment of sustainable electricity infrastructure and the way electricity is produced.
Companies involved in building such environmentally friendly infrastructure could be poised to benefit from the shift from fossil-fueled power plants to more environmentally friendly ones like wind and solar.
âYou will see the two existing, long-standing companies make the rapid switch to renewable technologies, products and services as well as new emerging companies over the next several years,â said Robbins.
You might want to keep an eye out for companies that aim to reduce their carbon footprint or companies that focus on energy efficient services.
By addressing the need to advance energy efficient technologies, upgrading existing commercial buildings with environmentally friendly developments offers the real estate investor the opportunity to get involved in next generation investments.