While 1031 exchanges are a potential problem with the Biden administration and a Democratic Senate and House of Representatives, some potential policies could make net lease investors happy over the next couple of years.
Randy Blankstein, president of The Boulder Group, is optimistic about the Opportunity Zone program.
“Opportunity Zones will probably expand in the Biden administration,” Blankstein says. “The areas of net lease that focus on lower-income areas will expand under a Biden administration. So perhaps people will be targeting those areas, especially properties in Opportunity Zones.”
Matt Berres, executive managing director of Net Lease Capital Markets at Newmark. also sees some potential positives for the sector from a Biden administration. “Opportunities may arise in sectors like education and medical-retail as the new administration increases education and healthcare spending,” he says. “For instance, with expanded healthcare coverage, there could be increased demand for easily accessible medical space, including urgent cares, clinics located inside grocery and drugstores.”
Some tax law changes could drive growth in new areas, continuing the migration to places like Florida, Texas and Las Vegas. “High-tax markets could face headwinds as a result of increased corporate taxes, which could accelerate the trend of corporations leaving some major gateway markets and moving to more business-friendly areas,” Berres says. “The office and industrial sectors could be both the largest beneficiaries and hardest hit, depending on an asset’s location.
The biggest Biden contribution to net lease, and really the country as a whole, would be a successful, timely rollout of Paycheck Protection Program (PPP) Loans and COVID-19 vaccinations.
“We are anticipating that the next round of PPP will give businesses 2.5 months of payroll and get them through the spring,” says Camille Renshaw, CEO and Co-Founder of B+E. “Assuming the vaccine is truly available to everyone who wants it by June, many of our tenants will begin to sprint over the summer as we all pour into in-person venues and spend money.”
Renshaw and most of her clients are unconcerned about changes in 1031 exchange law due to the slim Democrats’ majority. “Congressmen will have difficulty getting much done over the next two years unless the Democratic Party is completely aligned on an issue,” she says. “And conservative and centrist Democrats support the current 1031 exchange law.”
Others echo those thoughts. Jonathan Hipp, principal, U.S. Capital Markets and head of U.S. Net Lease Group at Avison Young says multiple administrations have talked about doing away with 1031 exchanges. “It’s not like this is the first time it has ever been brought up,” Hipp says. “The fact of the matter is Biden’s administration has got a lot on its plate with the pandemic. I don’t think they’re going to eliminate it. There could be some modifications to it, but I don’t think they’re going to wipe it out.”