Commercial Real Estate Outlook Under A Donald Trump Presidency | Investors Round Table
In this episode, we'll examine the potential shifts for commercial real estate under a new Donald Trump administration. We'll address key tax policies, market pressures, and how political shifts could shape financing, regulations, and investment opportunities. Logan, Matt, and I will offer insights on navigating an environment potentially shaped by deregulation and capital incentives, yet also facing unprecedented vacancy rates and high delinquencies.
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Key Takeaways:
Tariffs could significantly impact commercial real estate by increasing construction costs, reducing consumer spending, and putting pressure on commercial real estate values.
Deregulation could benefit commercial real estate by reducing barriers for businesses, inspiring business confidence, and potentially streamlining processes like permitting and zoning.
Immigration policies under Trump could exacerbate labor shortages in the construction industry if there are mass deportations or tightened immigration.
In a high inflation environment, affordable and flexible spaces like contractor garages and micro-spaces may be viable options for tenants.
The impact of Trump's policies on commercial real estate will depend on the specifics and how they are implemented, as well as the broader economic context.
Owning hard assets like real estate may be a good hedge against inflation, but the overall investment strategy should consider the nuances of the economic and policy changes.
About Your Host:
Tyler Cauble, Founder & President of The Cauble Group, is a commercial real estate broker and investor based in East Nashville. He’s the best selling author of Open for Business: The Insider’s Guide to Leasing Commercial Real Estate and has focused his career on serving commercial real estate investors.
Episode Transcript:
Are you looking to take the next step toward investing in commercial real estate? But don't know where to go? Series central offers a comprehensive education and coaching platform designed to help you get started. Our online courses cover a wide range of topics, from the fundamentals to advanced strategies, ensuring you have the knowledge and skills needed to thrive in this competitive industry. As a member, you'll gain access to our exclusive online community and monthly group coaching calls, providing you with valuable networking opportunities and personalized guidance from experienced professionals, whether you're a beginner or looking to take your career to the next level, cre Central has the resources you need visit www.crecentral.com to learn more. It is Wednesday, November 6, the day after the election. Donald Trump has won a second presidency, and in this episode of the investors roundtable, we're going to be diving into what that could mean for commercial real estate. We know that Donald Trump has a background in commercial real estate. We know that he is generally pro commercial real estate, but I have some questions about some of the policies that he's putting in place, and I think we'll have a good discussion today. This has got to be as apolitical as it possibly can be. This is obviously not a political talk show. We don't care I don't care who you voted for. I'm sure you guys don't care who I voted for. So we're gonna be diving into, you know, a few of the things that I wanna talk about, deregulation, tariffs, immigration, I think these are all things that are gonna be major impacts on the commercial real estate industry. So with that being said, Logan, Matt, thanks for joining me today, and I'm going to start off on the deregulation side of things. Let's talk about tax policy. Let's talk about economic incentives when it comes to commercial real estate investment and development. His past policies have included tax cuts. It's also included deregulation that has boosted commercial property values. I think there are pros and cons to deregulation, right? Pros and cons to tax cuts. Honestly? What types of deregulation Are you seeing? Logan, that are likely to benefit commercial real estate under Trump? Oh, I don't think we can hear you. I
You guys hear me now? Yeah, there we go. Sorry about that, guys. You know, my approach to this is going to be a little bit not different, Tyler, but I do want to just mention one thing that like a framework, that I think is the overarching theme of this, which is, and I know we're going to get into this, but I can't start this discussion without talking about the tariffs and how that's going to impact commercial real estate, because I think this is going to lay the groundwork for potentially the other conversations around deregulation, but I think that prolonged tariffs could significantly impact commercial real estate, especially with the recent increase in the 10 year treasury yield, and respected analysts predicting it could reach 5% by years in and if tariffs drive up prices and inflation, the Fed's going to have a really hard time finding it. You know to make sense to lower rates in the near term, and what that's going to do is going to leave commercial real estate values under pressure, but also all the folks that we're hoping to get extended and blended and extended and extend and pretend, that's going to have a big impact on that. So I think that as a result, bank regulators may crack down on extend and pretend practices forcing banks to sell troubled loans and stronger banks may, you know, might to sell early, but what, while struggling ones could face failures or acquisitions, and I think that so when people say elections don't have consequences, they they do. And I think that's a big component, just to think about from a framework standpoint, that's just one thing that he has mentioned that isn't necessarily real estate specific, but has trickle down effects, right? And I think that's really important for us to to understand, because many people are, we're very excited, myself included, all right, Federal Reserve starting to cut rates. And I mean, what have we seen? I mean, we have seen a very sticky, you know, economy. In regards to labor, sure, last week's job report was a little bit different, but we had massive, you know, natural disasters. We had strikes all going on. And so I think it's going to be really interesting to see what they say this week. In regards to the Federal Reserve That being said, you said you wanted to talk about deregulation, right? And I mean, Trump's previous administration focused on, you know, tax reforms, which included the 2017, tax cuts and Jobs Act that created opportunity zones and that obviously encouraged real estate investment in underserved areas. By offering tax incentives. So I think that that's one thing that I think people might be interested to see, if that maybe comes back some sort of re inter integration of the opportunity zones, but the regulatory environment and business confidence. I mean, they've, they've prioritized deregulation, right? I mean, with an emphasis on reducing barriers for businesses. And so I think a similar approach, because both administrations were staying apolitical here, both administrations were definitely focused on affordable or attainable housing initiatives. And so I think a similar approach could streamline the permitting processes, things that we have to deal with, environmental regulations. I mean, you know, I own shopping centers, and we have dry cleaners in them, and that can just really kill a lot of opportunities for other businesses to kind of go in there right zoning restrictions, potentially accelerating development and reducing those costs. So I think just a general stance of deregulation is going to inspire business confidence. Why does that matter? We talk about capex in real estate, but capex really means, what are the businesses willing to go spend on capex? What is their thought process in regards to the future for hiring, and what they're going to do on the manufacturing side, and what the money that they're going to have to do that? So if we can get deregulation on that, which we're going to have to do, in my opinion, if we integrate these tariffs on China and Mexico, because we're going to see a glut of onshoring. We've already seen that trend, but that's going to just continue to exacerbate so I think having the ideas and the frameworks of what they have mentioned in their policies, and thinking through what the trickle effects are on commercial real estate is a great place to start.
Yeah. I mean, the hope is, like, the deregulation, out of the three of those, to me, is the one thing that could be positive. The hope is that it gets done the right way. Yeah, right. I think that there's, there is a reason that regulation exists, right? It's typically to protect the consumer, to protect somebody. So again, you just hope it's done the right way. I'd love to see some deregulation around doing affordable housing, like if they are deregulating the market to specifically incentivize affordable housing, great. Let's cut that red tape. Let's get it rolling, because everybody's going to benefit from having a more affordable housing market, uh,
tariff side in Kansas City alone, the then, this is not federal government, but the local government, about 12 months ago, put these restrictions on new home builders that they had to include these energy efficient and green initiatives in their homes. Permits went to zero in Kansas City, Missouri. It added 30 to $40,000 to the expenses of building an affordable house in Kansas City, Missouri, and building went to zero. Do you know where it went? Lee's Summit. It went to Kansas and went to north of the river in different jurisdictions. Like that is a component of maybe a good idea, but then creating more regulation, which just disincentivized the whole market, and then we actually created a whole lot less attainable and affordable housing for people. That's
right. I mean that the unfortunate part about politics is that people get elected into office that don't generally have experience in every single aspect of life, that they then have to pass policy on right like, it seems, it sounds to me like right off the bat, like, oh, there was probably good intention behind that. But if you don't think through what the consequences, what the downstream is of doing that, yeah, obviously people are just going to go to the path of least resistance and build elsewhere. Guys, the question of the day, what policy shifts under a Trump presidency would most impact your commercial real estate investment strategies, talking, talking on the tariffs. That is the one. I mean, well, there's many things the tariffs conversation blows my mind. I can't believe we're having a tariffs conversation like there's been a lot of stuff coming up in the past week about how tariffs or past couple weeks about how tariffs created the Great Depression. I don't believe that. I do believe that the tariffs genuinely, really contributed to the severity of the Great Depression. I think there's a lot of reasons that were going that that happened. There are so many misconceptions around tariffs right now that you know China is going to pay for it, or Mexico is going to pay for it. I mean, just like Mexico paid Woods was going to pay for the wall too, I guess. But tariffs, just on construction alone, the increase in costs, will that be good for people that own buildings already, absolutely, because it's going to become so cost prohibitive to build anything that there's going to be a shortage of building supply. However, it's going to be horrific for new construction, affordable housing, for new construction, shopping centers, for new anything new construction, you're going to pay more. So, I mean, Matt, let's jump over to you, man. I mean, when it comes to deregulation and tariffs, I mean, what are your thoughts? Thoughts on those like, where do you think we're headed with that?
Well, I think so. I guess my preface would be, you know, every, every time we have these election there's these bold predictions and these really strong reactions based on what people say they're going to do and and long term consequences of that, and then, you know, trying to stop extrapolate what that impact is with other unknowns that are going to occur. So, you know, I guess one thing I would say to everyone, maybe, is slow down with the overreaction on some of these things, because pretty much every election cycle, we inevitably get a lot of this wrong right, and so we're doing the best we can with to figure out what is in the future, you know, even on this call right here, but we don't really know. So, for example, on the tariff thing, I don't disagree with anything that's being said, but I do think that we might be getting a little ahead of ourselves with with, you know, the extreme miss of the reaction to tariffs number one, it's entirely possible that the what is actually done on the tariff side of things is dramatically less significant than what's been talked about. Um, so that's one thing, right? So there's been a lot of talk about tariffs by Trump, but we'll see whether there's really an extreme use of tariffs in his presidency that may or may not occur, I think there's a reasonable chance that tariffs become something that's more of a bargaining chip than an actual policy that's put in place. And on top of that, there's, you know, the other thing I'd say about tariffs, and I'm not even remotely an expert on tariffs at all, but I mean, there's different ways to do tariffs, obviously, right? Are we doing tariffs against one country? Are we doing them across the board? Are we narrowly, narrowly tailoring them? Are we making them for a very short period of time or a long term? You know, at the end of the day, basically, tariffs are, can obviously be inflationary, but to the degree that they're inflationary, is going to be very dependent on exactly how they're put in place, right? And then on top of that, you know, deregulation, it's going to talk about these things together, for example, because deregulation could be highly deflationary depending on that, how that occurs. If there's really significant deregulation, we could see significant deflationary pressures occur. And that's on top of the fact that, you know, who knows what happens with our market market, things can occur that also results in deflationary pressures. So ultimately, I mean, my personal opinion is I'm kind of waiting to see whether there is any difference, you know, and what's going to happen with the market based on who the president is, I'm not so sure that there is a difference, because Trump was elected versus Harris, necessarily. I think we really got to wait and see how these policies play out and what is actually, what actually happens, right? Because we can talk about the the deregulation, but until we actually understand what the plan is and what deregulation is occurring when it's kind of hard to make decisions based on that right in the future, similarly, with the plant the tariffs, right? If we start seeing significant tariffs starting to get put down in the short amount of time, then we, you know, I think it's better to react to them, if that makes sense, just my point of view on this, right now, yeah. I mean, I
think that's, I think that's prudent advice. I mean, it's, you know, many politicians have run on a platform saying they're going to do one thing, and they never come close to touching that, right? I think, I think it's important to have the conversations around it, though, because I personally feel tariffs would be dangerous. It's a dangerous game. There's a reason that that's not a global economic strategy for the majority of developed countries anymore, because global trade has benefited everybody. And I don't know. I mean, it's, you're right. We'll have to wait and see what, what could, what could possibly come out of that. Let's dive into the immigration policy side of things, right? And we don't necessarily have to get into, you know, building the wall or any of that kind of stuff. But look, according to immigration forum.org 30% of our construction workforce is our immigrants, right? And, and Trump has talked quite a bit about, you know, these mass deportations, about, really, you know, I guess upgrading the border policy. I don't know really, how you would, how you would further describe that, again, kind of like Matt was saying, Guys, we're not, we're not experts here on politics or economics, right? We're some commercial real estate investors that are, that are having a conversation around this. I mean, to me, I mean, look, labor has already got up significantly, and it's tough to find good labor. It seems to me like an immigration policy like that is probably going to have a pretty negative impact on construction again, right? So, construction. Could get hit by tariffs. It could get hit by labor shortages. I mean, Logan, what are your thoughts on on the labor shortage side of things? I mean is, is it possible that we're going to continue to see an even worse labor shortage moving forward under these policies? Well,
I wish I would have gotten to talk more about tariffs, because I had all kinds of things about short term, medium term and long term. So maybe if we have time, we'll get back. Yeah, no, let's,
let's come back to that. I
think that's an important conversation, which is really important, I think, and I have the trickle down effects into a lot of different components, because I'm studying this now, because it does have a direct impact to my clients, who are developers, and they are going to be thinking about this. So anyways, in regards to immigration, I guess the question I would pose is, is our current policy helping or hurting us, or how is it performing? I Some of my best friends are immigrants, and they came here, you know, the right way. They've got their green card, and that whole process alone needs deregulation. In my opinion, the priest at my church is from India, and the things that he has had to go through to be here to serve people making like $0 you know, living here is just crazy, the amount of stories that he's had to go through to just stay here, right? So I think that's my stance, is, let's think about our current policy and how that is hurting or helping us. If we have a current policy right now, and we have this labor shortage, but we do have an immigration policy that may be more welcoming than what Trump is doing, how do we actually integrate these individuals the right way into our society so that they can create prosperity for themselves and for their families. That is what I'm trying to understand. And by no means am I a an expert on this, but the United States of America, I still believe to be the greatest country in the world. So as long as we have the programs, the initiatives to help people say, here is a way to become a skilled trades worker, an apprentice, a you know, expert in electrical and mechanicals, in plumbing, in roofing, in building. I mean, and guys, I employ a lot of people that have immigrated into the country, that work diligently on all of our commercial real estate properties, and they are in high demand. So if I guess the question that I have to our policy our policy makers, to our government is, if we have these individuals here, how can we help them integrate and actually become skilled laborers, workers, find good jobs, get the education that they need or they deserve, except how about this? Accept the education that they already have. I have stories of doctors coming to the United States who are now working at gas stations. I'm talking about surgeons, physicians, medical professionals in other countries that are legitimately now working at gas stations for 725, an hour in Missouri like that, does not seem right to me. That does not seem very productive. That person can go and do something along the lines of a little more productive than that. So I think that's where my stance is. I have people in New York City telling me that hotels are absolutely full right now, and they're in their full because people are housing. These people are being housed in hotels. That seems a little odd to me. I'm not sure really what the what the reasoning is behind that, but I know the hotel industry and New York City is booming right now because our federal government was, you know, is funding $440 a night for 1400 rooms in New York City. That doesn't seem it's the same. It's the same to me. Is the same question about when ERAP and safer funds were all out there and people were paid more to stay at home than they were to work, and when those funds ran out and they had to start paying rent and get back to the workforce, they didn't come back. Now that has happened, but that took time, right? So how are we incentivizing these individuals, these awesome people, that are coming into our country and giving them the resources? That's what I want to see, and that's where I think we should focus our efforts on.
Yeah, I agree. And to be clear about what's going on in New York, those are migrants that have been seeking asylum, so there are political reasons for them doing that, and you know, the federal government has stepped in to help with that. Matt, I mean, what are your thoughts, man, I mean, you know, from from a legal perspective, like, I mean, obviously you're not an immigration attorney, but I know you just bring an interesting view on that. I mean, what's it look like if we start these mass deportations? Like, how does that start to impact what we're trying to do on a daily basis as commercial real estate professionals?
Yeah, I mean, and I'm looking at this more from a business side than a legal side, really, to be honest with you, I haven't really thought through the legal implications of mass deportation. Question, I guess I'll say this to me, I like to think about things and layers of like likelihood, like probabilities, right? So without a doubt, I think there's a couple things we can say for sure about a Trump presidency versus a Harris presidency. I think not for sure, but with pretty good confidence. We can be pretty confident that taxes are either going to stay relatively close to the same or head in a downward direction compared to a Harris presidency, I think, and on the immigration side, I think we can say with fairly good confidence that immigration is going to tighten right the amount of immigrants coming in is probably going to decrease. It has been decreasing. They will probably make efforts to secure the border right, and there may be deportations either to a small degree or a large degree. I think that's a little bit more of an unknown than the other things I've been mentioning and and I say that to point out the fact that I think there's a big difference between a mass deportation of 15 million immigrants and, for example, a policy that goes in place and tries to find immigrants who are criminals over the next 12 months and a few 100,000 immigrants are deported. You see what I'm saying? I think there's a very big difference in impact depending on the how extreme that policy is. And I don't really think we have a lot of details on that. There's been a lot of talk, and there's been people, you know, crazy people, maybe even like Steve Bannon, going out there and say, you know, take all the immigrants and to deport them immediately. And, you know, it's sometimes, at least from my perspective, it's hard to know what Trump is going to do on a policy level based on the red or key uses. So to me, I don't know what is going to happen next year when it comes to immigration. I think that without a doubt, if we're going to decrease the amount of immigrants coming in, we're decreasing the workforce, at least compared to what it would have been under the other administration. And that's probably inflationary, right? So I think I'm mainly waiting to see, like, how strong of an immigration policy is actually going to be enacted. Like, what are we actually going to see? Numbers wise, I think we can expect, expect some inflationary forces from that. So I'm, I'm going to be looking at, you know, tariffs, deregulation, immigration, and seeing how strongly those policies are actually enacted and and how aggressively they're enacted, and trying to put all that together, to try to make an assessment of what does this really do? Because if we do if we see a lot of deregulation, and they in a limited enforcement on immigration policy, then I think that could be more deflationary. Whereas, if we see a very strong immigration, aggressive immigration policy by the Trump administration, and not really that much deregulation going on, then that could be more of a deflationary and the other thing we're not really, we haven't talked about, but it's always part of the question is, I think there's maybe a little bit of a more of a wild card, or a long shot, but is there going to be anything any impact to the deficit, the national debt, the spending? I think most predictors are saying that under either administration, it's probably not going to be much of a difference, that we're not going to make a huge dent in the national debt, or in the, you know, in the way that our government spending, and I think that's probably where the odds are, but I'll be looking to see just in case. I mean, fingers crossed. I'm always optimistic and hopeful that somebody is going to finally start to do some things to balance our budget and start to be a little bit more, you know, tight on how we're spending, and maybe we'll get lucky on that. You know, maybe Elon Musk will will have some influence, and I doubt we'll see a Twitter type of no cut on the government. But maybe we'll get lucky and start to see some things like that happening. That'll be, that'll be positive for us. We'll see,
yeah, I mean, you know, reading on NPR. I mean, their analysis of of Trump's economic and like, I'm sure somebody's going to jump in and start yelling at me for talking about NPR, but come on. I mean, their their outlook of of Harris versus Trump, I think hers was close to three or three, three and a half trillion dollars added to the deficit. And I think his was more than twice that. It was like seven and a half trillion that would be added to the deficit. He added a hefty amount his first go round, which really caused a lot of the inflation. Now you can make the argument, well, it was COVID. So, you know, there's that, but you know, we won't get into that. I want to talk. This is funny. We've got like 70 people watching us, right? Nobody is talking in the comments like, I get it. I'm sure everybody's kind of afraid. They're like, somebody's gonna flame me for something. When I texted the guys about having this conversation this morning, obviously, right after the election, I was like, I wonder. Somebody's gonna back out and be like, No, I don't want to have that conversation. I mean, it's tough. It's tough to have these conversations like, even if it's apolitical, we're not talking about the candidates necessarily. We're just talking about who got elected and what their economic policies are. It's tough to have these conversations without somebody saying something. But hey, would love to have you guys in on the conversation. If you want to jump in and say something, let's hear it. Logan, let's, let's dive back more into tariffs and and look, I know we've got like, five more minutes left. You guys have more time than that, so we could dive into this properly. Cool. I'm flexible. All right, let's do it. Logan, okay, what did you you wanted to talk more about tariffs?
Yeah. So thinking about this from a short term, medium term and long term perspective, I think this is how maybe prolonged tariffs can impact commercial real estate, right? I mean, look, in the short term, consumer spending is in that is the largest portion of our economy is the consumer All right? So number one, tariffs can increase prices for imported consumer goods. For example, I was talking to a real estate developer who was actually in a international, global development forum, and he is sourcing his kitchens and his baths from China right now, delivered to the United States. Beautiful Class A properties, brand new, 2300 bucks for his kitchens. So that is that is going to have an impact not only on the consumer from a rental price standpoint and affordability, but also it's going to reduce discretionary spending, and so that can slow demand for retail spaces as consumers pull back, right? That's impacting tenants ability to sustain or or expand their footprints. We've already talked about the construction material cost, so I won't, I won't really get into that, but how about let me, yeah, go ahead.
Let me add to that real quick too. Because, I mean, there's a lot of misconceptions around how tariffs work. You know, I mentioned earlier, like, people think that China and Mexico are going to be paying these tariffs. I mean, let's, let's clarify that just because we put a tariff on China doesn't mean that China is paying that tariff. It means who, whatever American company is importing a good from China will be paying that tax. So if I'm importing, you know, my entire like, my tile from China, and it's $2,000 a unit for that tile, and there's a 20% tax, I'm not paying $2,400 just to get that same tile here, right? I am paying that as the import of those goods.
Let me push back on that a little bit, and you guys, you know, tell me if I'm off base here, sure. Um, that it theoretically, that's true. But, you know, let's say we've got tile from China, and we're we're putting 20% on it, right? Well, if we can find tile from India that's 5% more expensive, then the actual penalty to the American company is more like 5% right? That's right. Is that accurate? So, so I think there's a there's a lot of nuances here where, kind of, like what I was saying earlier, how we do the tariffs, and how strategic we are about them, and how aggressive they are can have a huge difference in what we're looking at, as far as the impact on American businesses. So I just want to point that out, because if there's some real solids, you know, thought that goes into this, and it's narrowly tailored, then we might see something more like a 20% tariff on China that has a 5% impact on the American business, if that
makes sense. Yeah. I mean, I think, I think that's absolutely fair. I think the where it gets complicated is our entire supply chain is built around China, not India, right? Yeah. And so now you know, how many years is it going to take somebody to go build a tile factory in India that can then hit the quality control necessary for me as a developer to justify spending the money that I've got to spend to ship that all the way over here, and take that risk that's going to show up all right, like I'm going through that right now. I'm having to order furniture from China for my hotel. I've got to spend $850,000 on a furniture package, and hope and pray that it shows up the exact same way that everything that I have seen has been because it's going to take three months for them to manufacture it and then ship it over here, and if it doesn't get like, you know, I mean, so like, those are, those are real problems. But you're absolutely right. There are alternatives you can make. It's just Can you can you find them? Are they going to be as good? You know? What are the other issues that we're going to run into with that. Logan, I'm going to hand it back
to you, yep, yep. The other the other part on the short term, I'd say, is export driven industries, so counter tariffs from other countries can also impact the United States export industry. So you don't think there's going to be any retaliation on this, I imagine there probably will be so that can reduce the demand for logistics and warehousing space in especially big export heavy regions, particularly those relying on agricultural or manufacturing exports. So that's not even one component that we've talked about is the other side of the tariffs and the counter tariffs that may happen from these. Because these these impacts, right? So short term, I think it definitely can impact consumer spending, the construction material costs and those export driven industries. In the medium term, this is one that I'm following really closely, which is commercial real estate pricing adjustments. I mean, sustain higher costs for construction materials that can increase property prices, particularly for new developments. And you know, frankly, where we're at from a multi family starts standpoint is at very, very low, low measures, right? So developers are going to have to pass these costs on. And you know, I mean increase costs, you know, they may also reduce construction starts, like I just mentioned, limiting that supply and potentially driving up rents in markets where demand remains steady, right? So that's number one, I think on the medium term. Number two is the industrial real estate demand, right? I mean, demand for domestic production and reshoring is has been increasing as businesses are trying to reduce their trade risk, you know, control their supply chains. And that's been, if that's been benefiting industrial warehousing sectors. Well, I mean, tariffs may therefore strengthen certain logistic markets, right, especially if supply chains continue to shift domestically. So that could be a medium term impact for the industrial side if we continue to see these, these onshoring now, I think that's going to be, there's going to be some shock in regards to, you know, the prices that people have to pay for things guys, I can legitimately say, and this was, I heard this from David Green the other day at a conference. He said, I've legitimately had the thought process of, do I do my laundry, or do I get on Amazon and buy more T shirts that can be delivered here in the next three day, three hours, right? Like, that's think about that it might be cheaper and easier for you, for someone to buy new T shirts than actually just going and putting it in the laundry and doing their laundry. That that's, that's not going to happen, right? Like, that's something that we've been, we've been conditioned to, and so I think that's definitely something to keep in mind. And then, on the medium term, the last thing I'll say about about the medium term is just retail sector pressure, I think, with continued tariffs that can reduce consumer purchasing power, and so retailers might look to downsize or close stores in weaker performing markets. And we've already seen a lot of closures in regards to the retail sector, and a lot of these bigger companies saying, hey, that footprints not what I'm going for anymore. I'm going to be moving to a smaller footprint or a stronger location. And so I think that can impact, impact the retail side of things, on the occupancy and the rent levels
too. That's really interesting. I want to dive into that some more. One couple of thoughts that I had on that. And then, Matt, I'm sorry to interrupt you. No, a big talking point on the right is always trickle down economics. And when you were talking Logan, something that came to mind is trickle down inflation, because that is exactly what these tariffs would be. Because if it cost me more to put lumber in my building when I build it, I'm passing that cost on to the tenant. And typically you would say, well, in a free market that tenants gonna choose not to pay to be there? Well, the problem is, if everybody now has to pay 20% more for lumber, everybody now has to charge 20 or whatever that percent increase is in their rents, which gets really brutal, Matt, I'm gonna pass it over to you, and then I'm gonna answer some questions that we've got.
Yeah, I think, you know, I think this stuff is fairly convoluted, and it's easy to jump in the if, if A, then B, sort of scenario. And there's a lot of things that go into this. I mean, like, for example, part of what you guys are just and I agree mostly with what you're saying, especially as far as the fears that need to be associated with tariffs, I think they're, at best, a dangerous tool, right? So I don't disagree. But you know, for example, one of the assumptions I think is underlying this discussion about China, for example, is there sort of an underlying assumption that we're going to be able to sustain these low price products coming from China in the next decade? Anyways, I think I don't know that that's an assumption that you can really take for granted. Frankly. I mean, I think it's very possible that this really, really cheap labor and cheap products from China may have a have a limited timeline regardless. So I just use that as an example. There's a lot of complicated factors at play, and I think you know, to play devil's advocate. I think the reasoning right or wrong. I think the reasoning is more to do with global interactions and and global power versus local inflationary pressures and and so I don't there's a lot of things at play that it's really hard to predict what will happen under which circumstance. And for me, the other thing I would say, I think there's a really good chance I don't know this to be true. If we see a lot of if we see a lot of tariffs, it could be very dangerous and end up with a lot of negative consequences, like what you guys are talking about. But I also think there's a pretty decent chance that. So we don't see a ton of aggressive tariffs, that they're used more as a global negotiation tool than they're used as an actual economic policy. I think there's a reasonable chance of that. And if that happens, I think we're talking about something very different, where maybe we, you know, maybe we're able to have the both the best of both worlds, right, where we don't have to see what the consequences of aggressive tariffs are, but we get better relationships, global trade relationships, for example. So just some things going on there that the other thing I wanted to bring up real quick is energy, because we haven't talked about energy, and I think that's hugely important this conversation, because there's so many of these different factors. Some of them could be inflationary. Some of them could be deflationary. And really, I think one of the running themes of this conversation is, what's going to happen to inflation, costs of goods, what's going to happen to the interest rate like so what's the price of money and what's the price of of goods and services is mostly what we're talking about throughout this conversation, I think. And so energy, for example, is a little bit all these different things could impact this. If we are, you know, getting cheaper oil, for example, which kind of connects to the deregulation, right? That can really have a huge impact on costs and inflation. So it's really hard to know. We got to see how these things play out because they all interact in such a complicated way, it'll be interesting. Yeah.
I mean, the problem, I agree, like, cheaper oil would be great. The thing that I am, I'm genuinely afraid of, is how Trump is going to handle Russia, and that's where we could get cheap oil is coming from Russia, at which point we then start funding their war machine. That's a tangent. Let's not go down that road and
just for the record, just for the record. I'm not, you know, I'm not purporting any of these, you know, policies. I've just, you know, I'm trying to see what are the options and what are, you know, what are the outcomes of the various options? So, you know, I don't, I don't know, game theory, yeah, yeah, this, that's all it is for me. So, yeah, that's what I
love about these kinds of conversation. Like, it's all game theory. Like, I mean, we don't know. Like, if we all had crystal balls, you know, I'd be the Oracle of East Nashville, right? Like, we have no idea. It's just interesting to think through. Like, what could be? What could be, I might catch on. How come
one thing that I think we can all agree on is the fiscal situation that we find ourselves in, regardless, as a country, the only way any administration gets through that and makes it through is through the hidden tax and that is through inflation. That's the only way is, I mean, we are at levels that we have never seen before. And I know Japan is much farther from a GDP to debt standpoint than we are, but we're not Japan. We're much larger economy. And so I think that from an investor standpoint, because I see all the questions about, How do we actually talk about, you know, what? How does this actually impact real estate? Is, that's one thing you have to be thinking about, is the inflationary impacts, and why real estate as a hard asset is about the best way to hedge against inflation. If you can go get debt now given to you from a lender, it will be inflated away, and your cost is going to come down substantially because of that. And I think either administration has no plan to be able to address that anytime soon.
That's right, yeah. I
definitely agree with
that. Yeah, yeah. And that's part of what I want to dive into after we get to some of these comments, is like the commercial real estate assets or that will benefit what tenants will be negatively impacted, right? Because, I mean, I think generally, yes, the inflation will be good, but it depends on the type of inflation, because you could have, you know, certain retailers start to go out. It's like, okay, well, let's have a conversation around that. Let's see the real estate Boulevard is saying, whether we see it as good or bad, mass deportations can cause economic instability in communities heavily reliant on immigrant workers. It can impact the real estate market. Yeah. I mean, if you've got a community that is disproportionately immigrant, having mass deportations would entirely destabilize a community like that. COVID. I was just trying to, yeah, go ahead. I
was just going to say similarly, you know, big cuts have a similar impact, right? I mean, if you're cutting government programs there, you know, maybe you think that's good long term for the country, but short term that can have a real troublesome impact.
That's right, yeah. I mean, the funding is there for a reason. Colton was saying, I was just trying to find out how to develop commercial real estate, and found this. This is a very interesting conversation for you to jump in on. Colton is now a good time to develop. Fire round. What are your thoughts? Developing today? Developing 2025 What are your thoughts? Logan,
first, yeah, I would say, look, I think right now what you should be doing is finding land in the path of progress, figuring out how to change the use get your development ready, and then go. All to the developers that want to take the risk at that's mine. I'll just leave it at that, Matt,
my short answer is, No, it's not a good time, because development is always comes with its own risk, and right now you're dealing with an extra layer of unknowns in the next 12 months, where it's very hard to predict where things are going to be 12 months from now. So look, if you find amazing deal on land, like Logan said, and you hold on to it, great. But for me personally, I want to stay away from development in the short
term. Yeah, I think Logan hit the nail on the head. I'm not, I'm not developing anything today, and I don't think it's necessarily the greatest thing to be doing. Let's see real estate. Bullfort is saying, as someone from Puerto Rico, the issue of tariffs could potentially be alleviated if the US removed the Jones Act in Puerto Rico. Puerto Rico is geographically well positioned for import and export. I'm not familiar with the Jones Act. Are either of y'all? No, yeah. Again, not not political experts, not economic experts. I'm not sure. Real Estate jump in if you can and let us know what the Jones Act does. Would love to talk about that some more. And then brogan's question kind of goes into what I want to lead into with you, Logan and Matt, which is, would you say now is a good time to buy multifamily or residential, since the belief is building costs are going to increase, what type of assets do you guys think are going to potentially benefit in the midterm, right? So in the next two to four years, and what do we think could potentially struggle? And why?
Logan, yeah,
yeah. So, I mean, I'm a, I am a believer in the 18 year economic cycle, and what we're going through right now are micro cycles inside of a larger cycle that we need to have our perspective on. And so I have been tracking that and overlaying that with the Green Street property price index and the anecdotal data that I see in my own markets. Okay? So I have my own proprietary algorithm in my head that says, in my opinion, prices will continue to rise. And so if your plan is a short term plan, to be able to go add value, and your cost basis is at a good level, being able to do that relatively quickly and efficiently and be able to sell into a market when interest rates may come down, but you forced appreciated that project, I think you're going to be okay over the next two years after that. I have no outlook in regards to what's going to happen, but I think, generally speaking, prices go up for the next two years. So if you find an incredible deal that you feel comfortable with, put debt on it, that you can ride out the next five years, fixed you, I think you'll be in a good position. That'd be my take.
Matt, what are your thoughts?
Yeah, pretty much agree. I mean, I'm looking for, you know, I only want to buy right now below replacement cost, probably well below replacement cost. I want to buy a good asset, below replacement cash cost that I can cash flow on and have no fear of having to sell it within a pretty good long or or having to restructure the debt in the short term, yeah, as many hard set hard assets as possible, as my point of view, yeah,
yeah. I mean, exactly. I mean, look, if you bought real estate in 2021 and you just rode the wave, you did fine, right, as long as you had good debt on it before the interest rates started rising up. Guys, I know we're 13 minutes past the time. If y'all got a job, feel free to get to it. I'm gonna keep this thing rolling, since we've got some questions going on in here. So if you guys could stay love it, let's see real estate. Boulevard is saying, if the numbers are right, it can be the right time to buy real estate. I think that they're going to answer shortly, yeah. I mean, I would agree with that. I think buying real estate is very different from developing today. There are specific markets where I think developing real estate is better than buying but, but I think today, considering where the economy is, considering where we could be headed, we don't know. I mean, that's, that's the biggest thing. Like, we're not going to know until, like, look, Trump has told us he's going to be a dictator on day one. I want to see what happens on day one. But before I start making some major economic decisions for myself, right? Let's see, actually, I did want to ask you guys, if you all have time, I want to talk more about the like commercial real estate debt and Trump's approach to financing. I mean, you know, we've been talking about for for years, the this looming debt wall in commercial real estate, higher delinquency rates. I don't think they're nearly as high as everybody you know thought they were going to be, but they could be pretty bad. I mean, if you think about it, if everybody has a five year term on their bank note, we're coming up on that fifth year for 2020, in 2025, and, of course, tightening credit conditions. Man, I mean, I've got students in the Syria accelerator. They're calling me saying, hey, you know, how many banks do I need? Like, do I need to go talk to these guys are telling me, even though I've been working with them for years, they're not going to give me any money. So, so Logan, I mean, I want to talk to you about Trump's potential policies that could, could lead to commercial real estate. Like debt restructuring or management strategies and how a Trump presidency might affect the debt world.
Yeah. I mean, I'm thinking, if his policies make lending more accessible, it could alleviate some of the current debt pressures that we have by opening up refinancing options and or, you know, potentially creating more productivity. The one thing we haven't mentioned at all here is the rise in productivity, and the other component that really has a big impact with the economic cycle, which is new technology. We are sitting on the beginning stages of artificial intelligence, and we have no idea how that is going to impact the changes in maybe de globalization, meaning, you know, tariffs and things like that. And so I think that if that is, if that continues to to create productivity, that's the easiest way out of any of the debt issues that we've had. But I also think that, you know, there's a lot of there's a lot of loan maturities coming due, but we are starting to see, you know what the oak tree management Blackstone's largest arm of their businesses are now, it's lending, and they are not regulated the same way as banks are regulated. And so I think more and more of these properties, these owners are and guess what? They're the lender that is okay taking the asset. Let's not forget about that the largest, one of the largest lenders in the in the country, and the largest landowner or building owner in the world, I believe, is okay taking those assets in right? So I think that's, that's the the big kind of canary in the coal mine for me is to see what all of these other private type of lenders do to the debt markets, because everything that we see, typically, that's reported is coming from banks and that, because they have to report all these things to certain government agencies. So that's what we're seeing. But we're not seeing the five guys that I know that just finance 15 different homes to either be built or flipped, because they're just doing it out of their checking account. And they're, you know, they're doing hard money loans. Take that times 1 billion, and you have Blackstone, okay? And that's one of the organizations. So I think that, I think that that's the part that, like, you know, maybe one administration would want to have more regulation in that. I don't think Trump's gonna care one bit about regulating the private debt markets, and I actually think that might create some more flexibility in managing these debt obligations.
I agree Matt on the on the startup investor side, right? If you're getting started in real estate today, how does this economic environment, how does the financing environment, how could Trump policies impact you? Like, is it a good time to be getting started as a new real estate or new commercial real estate investor?
I mean, I think it's always a good time. I think you have to change your strategy depending on, you know, it's like the who moved your cheese book or Who Moved My Cheese book, but, you know, it's a I've read that in 20 years, but, you know, but the reality of it is, it's always a good time to be in real estate. Sometimes it's good time to be a seller, sometimes it's good time to be a buyer, sometimes it's a good time to be a lender, right? But it's always a good time. I think what is happening in the debt markets is going to be very influential, potentially, right? And if you look at Cap rates, especially over the last 40 years or so, they're really correlated to debt. You know, the cap rates in the prices of these assets are largely connected to the availability of capital, right? And so, you know, I think deregulation of debt could be very influential on the prices of these assets and the money coming back into them. So we'll have to see. I mean, I think that could be a big difference maker. I know that there's, I've heard a lot of conversations with clients and partners about how these banks have been really tightening up the last year or two, and that's really impacting a lot of decision making, a lot of decisions to sell at lower prices, a lot of decisions to sit on the sidelines, to not buy assets that otherwise would have been purchased. And so if we see differences in what capital is available in debt, we could see a huge impact on real estate.
I agree it's it's definitely a toss up right now, right? There's no telling which way it's going to go. I mean, because, like, Trump's rhetoric is significantly more extreme than it was in 2016 but it's at the same time, it makes you wonder, like, okay, but yeah, what's he What's he actually going to focus on? What's he going to do? The guy golfed more than any president in American history, right? So it's like, I don't know which side of this coin we're going to get. We got a question from Tanner. Are contractor garages viable? You know what? Tenants are preferred for garages? The. Are concerned that mom and pops or local startups may struggle to pay rent in a high inflation environment, I would agree with you. I mean, that's basically flex space, right? I mean, if we're in an in a high inflation environment and wages aren't increasing, tenants are going to be looking, what's the best bang for my buck, what's the cheapest all in thing. That's why I love flex space today, already. Logan, I want to toss it over to you. What are your thoughts on that? Like, is there, you know, you know, I've been a fan of micro spaces for years now. They're great, they're more affordable, they're easier to lease up. Do you think that we're going to start to see even more of that moving forward?
So as long as zoning allows for it. You know, I was in Bentonville, Arkansas last weekend driving up and down the main streets, and then you've got flex garages to the right, you've got a restaurant across the street, you've got an assisted living facility, and then a single family home all in one area. Right now, that might not look great from the standpoint of just driving down the street, but what it does is it instigates tax revenue for that jurisdiction, and it's allowing for people to build things very cheaply in the locations that they have. I'm meeting with one of the largest landowners in Kansas City tomorrow to talk, expect just specifically about contractor garages that he wants to start building. Here's what I love about it. It's cheap to build. You have flexibility to be able to change the use or the the layouts of those buildings very quickly. And if I'm talking about, you know, 2500 to 5000 square feet on in Flex, you know, where you have a retail center up front, just a little bit of retail, and you have warehouse in the back. How many people doing HVAC, doing plumbing, having construction companies need a satellite site, right? I mean, instead of having to drive all the way to the home office when they serve, you know, a community that's 45 minutes away, I think it's a gold mine. I think it's awesome. So as long as your access as well, you're close to good highways, and you can get from point A to point B correctly. I think we're going to continue to see this trend continue, and they're going to lease up like hotcakes, in my opinion,
Matt, what are your thoughts on flex space and and micro spaces, and honestly, like just the affordability to get a new business off the ground? Well,
that's what I was gonna say. You know, this is not really my space, as much as you guys, you know, with the with the flex space and all that. But it makes sense to me, and part of my philosophy has been a particularly last several years is finding ways to create affordable space for people. You know, I think that's recession proof and just a safe strategy, right? If you have a prop, if you have a project, and the numbers work in the cash flow, and you can add value by being able to provide a an affordable product that is in high demand, that's that's usually a good plan. Yeah.
Justin is saying, Do you think Trump will reduce the red tape that will help to reduce unnecessary jurisdictional review processes for development and entitlements from federal level all the way down to local? My initial thought is, no, I don't see how he could impact it on a local level. But guys, let's toss it out there. What are your thoughts? Matt, yeah,
yeah. Well, I actually had some interest. I was thinking about this today, and I had some interesting thoughts about this exact topic, actually, because, you know, we're in Nashville, and, yeah, I get people reach out. I don't mean hell. Well, I had somebody reach out to me yesterday, and it's the same. I've heard this 100 times over the years or more. It's like, oh, this, the local city is trying to get me to pay for this and pay for that, and pay for their infrastructure and all this stuff, you know, and it's been a problem all over the place on a local level. And is, is Trump likely to do anything on a national, federal level that's going to come down to the local regulation? Probably not, probably. I mean, maybe, but I seem that seems pretty unlikely to me. But one thing that is interesting to me that could happen in theory is states, state legislatures could start to follow some of the deregulation that happens on the federal level. So for example, if we really do start to, you know, and I'm, I'm being optimistic here, but you know, if, if the federal government does start to deregulate in in a smart way, you know, and start to remove some red tape and deregulations that are not really serving us, it could stand to reason that some of the states are going to follow suit and start to pass things on a state level that are deregulatory, that help us provide more affordable housing, for example, right? And you know, that's not unheard of at all, like, for example, in Tennessee, the state stepped in when, when the city of Nashville tried to get overly regulatory in connection with Airbnbs, for example, the state stepped in. They passed their own statute that overrode some of what the local city was trying to do, right? So I don't know. We'll see that that could have some impacts on the state level, if the states start to get involved in in passing laws on a state level that kind of force the local um. Government's hands. Yeah, I
mean, yeah, go ahead. Logan, yeah, I
love seeing the viewership continue to rise here as we're going, we're
just, I'm just gonna keep this thing going. Might as well. So
let's take it from this perspective. Did opportunity zones impact you guys locally in Nashville? Absolutely. Yeah. Okay, so let me give you an example. Samara Road, New York City developer, came into Kansas City because of the opportunity zone, took a the most blighted area just west of our downtown, and is taking 26 acres and doing a $527 million mixed use development, creating 1200 residential units, 168,000 square feet of office space and 100,000 square feet of retail space that absolutely had an impact on the local level. Here's where the local levels got involved. They had to start understanding opportunity zones, and they stepped out of the way to say, take this project we're gonna do you wanna let you guys do whatever you need to do to make sure this area is is taken care of and redeveloped. So I think that in bigger projects that have huge impact on cities, on states like that, absolutely it will have an impact. Here's another impact, right? And this is more on the local level, but this was on the ballot for us here in Missouri, which was, hey, do we want to allow sports betting in Missouri? Okay? Well, that sports betting initiative got passed. Some of that money supposed to be funneled back into schools, which is going to help salaries for teachers. Is, does any of that happen? I have no idea. That's what they say, right? I don't know. But like that is another local level type of thing that's having a big, big impact and trickle down effects. But I think that you know if, if Trump, or any administration, were to say, Yep, the chips act, do you know got, do you guys know why? Like, you know Panasonic is in De Soto, Kansas, and they built a $7 billion battery plant over there. It's because Kansas said, Hey, we've got all this money from sports betting and all these different star bonds that we have on the Missouri or the Kansas level, and we'll incentivize you guys to come in and build a $7 billion plant, to build batteries and bring 15,000 20,000 jobs. So I think it does have, he has some ability, if he can get sort of, you know, opportunity zones, or, you know, financing, I don't think he did this. I don't remember who this, the chips act, right? That spurred some big manufacturing here locally. So those things then trickle down to the state level. The states have to play ball if they want to get those funds into their jurisdictions, which then goes down ultimately to real estate.
Yeah, it's, it's really interesting to think about. I mean, you just look at the economic impact of, I mean, look, if the federal government, all of a sudden, tomorrow said, Hey, weed is legalized across the country, the amount of weed dispensaries that would suddenly be financeable would be insane, right? I mean, they're all for sale. They're 1011, 12% cap rates, because you have to pay cash for them. There's always the risk that something's gonna happen with that tenant. But, I mean, that could be a really interesting direct impact shift life is saying, Hey, Tyler, Will you post this full video to your YouTube channel later. I joined late absolutely shift. This will be it will forever live under the live video sections on my YouTube channel. It'll also go out as a podcast at some point too, guys, I want to jump into a few articles that are actually speculating as well on what the Yeah, we'll catch you later. Well, we appreciate you jumping in. Matt, you got some time to dive into these with me? Yeah,
I got a little bit more time. Yeah, cool, man.
Let's, let's dive into this. I want to read these articles and and take a look at what some other people are thinking about, what a Trump presidency could mean for commercial real estate. Let me see if I can get you back at it in here. There we go. All right, so this first one is from commercial search.com what to watch for in the Trump presidency, some of what the Siri capital markets and investments can expect from the new administration. So here they are on taxes. For starters, Trump aims to cut the corporate tax rate from 21 to 20% wants to lift a cap on local and state tax deductions. Let's see, we have to make the case the current value, the current rules are good for real estate in the economy, and with the Trump administration, we may not have as steep of a hill to climb. So it looks like they're kind of making the argument. They don't really say that. They just kind of state what Trump was going to do, what Harris was going to do. That's kind of funny. Like, thanks for the value there. It seems to me like they're basically saying taxes are going to be fine, right? We've got another article here. I mean, what are your thoughts? I mean, here's one from Reuters. They're like, the opening, opening statement is commercial real estate is especially vulnerable, vulnerable to higher tax. Is because it's high, fixed costs make it less able to offset them, which is true, right? I mean, Matt, if your taxes go up tomorrow, but your lease is locked in for five years, how does that look?
Well, yeah. And then also, you know, we're not even talking about 1030 ones and bonus depreciation and all those things, right? So I feel like, you know, short term, I have some concerns about commercial real estate, particularly, for example, downtown office. I'm still not convinced we're out of the woods on some of that stuff yet. But other than short term, I think a lot of investors are gonna rest easy on certain aspects, like knowing that you're you probably won't have tax increases if you enter into a new project that may be completed in three years. That's going to that's going to encourage you to do that project right. Similarly, knowing that you can access bonus depreciation in a few years if you make a move or do a 1031 that's favorable. I think all of these things to some extent provide flexibility and encourage investors to be in the game. It's my point of view. Yeah,
yeah. So David McCarthy is the Managing Director and Head of Legislative Affairs of the commercial real estate finance and council. He says, given that the nature of real estate is not super liquid. Anything that raises costs now would come at the worst possible time. I think that's a really interesting perspective on it, because, yeah, commercial real estate is not liquid. Like back in 2020 there was so much speculation. Office space is dead, but not really, right? Because commercial real estate, if the majority of your tenants are on a three to five year cycle with their leases. It doesn't matter what happens today, we're not really going to see that fallout for 12345, years, right? And fortunately, office got a little more stabilized. Dude. If tenants were able to leave their leases back in 2020, the office world would be dead.
Oh, man. Well, hey, you know, think about this too. You know, we talk about cap rates, and we talk about how cap rates are largely a reflection of the expected risks on that given asset, right? But it's also, it's also a reflection of the expected risk in a given market too, right? So, I mean, if we're seeing advantages in pretty comp, high confidence that taxes are going to stay low for the next four years, high confidence that we're going to have the tools of 1031, exchange and opportunity zones and bonus depreciation, to me, that creates an environment of lower risk for the investor, right? All of these tools are now things that you can have some level, or at least a higher level of confidence that you're going to have asked the ability to use. And then, in addition to that, you've got some upside there where maybe there's going to be some new laws passed that provide additional measures, you know, benefits, right? So all of those things, to me, help in the long run, or even maybe in the next few years really provide some positive outlook for investors, from my point of view, and decreased risk, which hopefully for me having, you know, I've got an apartment building where we've seen a cap rate go up, value go down, I'm hopeful that maybe this could have a positive impact on on some valuations over the next few years. Yeah, that'd
be nice to see, wouldn't it? Justin is saying that guys keep it rolling. Yeah, hey, look, we're happy. I'm happy to keep this rolling for as long as, as long as you guys keep jumping into the chat with questions. So yeah, jump in if you're joining us. Late Question of the day, what policy shifts under a Trump presidency would most impact your commercial real estate investment strategies jump in the live chat. Let me know. Let us know your questions. We want to hear about it this. This next article is from Knight frank.com they're diving. I thought, I just thought this was interesting, considering the the the market, the investment market, this morning, stock futures rose as did treasury yields. Dollar hit its highest level against major currencies in a year, the price of Bitcoin hit a new record. Investors clearly believe that Trump policies will be inflationary, as we were talking about earlier. Commercial real estate is a great hedge against inflation. If that is what you are worried about, that could mean prices or sales or whatever in the commercial real estate industry start to escalate pretty rapidly, especially as we head in toward the end of this year. What are your thoughts on that? Matt,
yeah, I hear this over and over again, and maybe it's right, you know. And you talked about the I think you said that Harris was projected to have 4 trillion in spending, and Trump projected it like seven and a half trillion.
Yeah, it was like three and a half versus seven and a half. Give or take Yeah, yeah, give
or take it. And so I've heard that narrative, but, I mean, you got to remember, a lot of that is largely based off of projections of policies that we don't actually know how they're going to play out. I've never had confidence. Regardless of who was elected president, I felt like the assumption had to be that there, the spending was going to remain somewhat out of hand, and that the debt crisis was not going to improve. And really, for me personally, my underlying theory is that we're going to have to see inflation happen because the government is in so much debt that they really have no options, like, the only way for them to deal with, the only way for them to deal with this massive debt. I mean, I think we're at like, you know, keep in mind, like, go back to, like, 2000 2000 2008 I think the the debt was, like, at 45% of GDP. I might be completely wrong on this, but, and now we're at like, a, you know, with Medicaid, Medicare and everything that we're projecting to have to spend money on, on top of the current debt. I mean, we're way underwater, expected to be way underwater, right? And so I just don't see a way out of debt, um, other than massive cuts, which are unlikely or continued inflation. So I think the reality of it is, is we're in an environment where the clear probabilities are that owning hard assets is the play, right? And I think that's regardless of the presidential policies. And I think that's the most important point that's really unrelated to these presidential policies. Now if we see some things that are passed that are that provide extra incentives for real estate. That's even better, but I want to own more real estate regardless. Yeah,
I I mean, I think owning real estate is always a good thing, right? A high inflationary environment is going to be terrible for you in your day to day life. It'll be good for you as a hard asset investor, that's, that's, that's for certain. You know, it's, it's interesting to see what's going on in the Bitcoin market. I mean, we were talking about that kind of before we went live here. I'm not a Bitcoin guy. I jumped out of that a couple years ago, and I don't regret doing that, because my money needs to be in real estate. That's just what I understand. But it's interesting, right? I mean to me, like that signifies confidence in certain aspects of the economy, but it could mean that there is a lot of uncertainty ahead, at least. That's how people feel, right? We don't, we don't know, but that's, that's how people are feeling. Isabella saying, If office space did take hypothetically, what is a good alternative use for that space? Matt, what are your thoughts you owned a couple office buildings?
I don't know. I mean, there's, there's always, everybody's talking about converting office to residential. The reality of it is, is without just having that perfect building that's easily convertible, or without having really impressive incentives. It's not it's easier said than done. You know, it's oftentimes not very cost effective to try to take a commercial office building and convert it into residential. It's just usually a big undertaking that is oftentimes cost prohibitive. It's doable. It's doable. I yeah, I just think, if I think it's very location dependent. And I think, you know, class a downtown office is a very different world than Class B, C, suburban office, I think those are two different almost, almost like different asset classes right now. I don't know what you can do if you're if prices keep falling in downtown, Class A office, I don't know, I don't really know that there is a great solution to be honest.
Yeah, I mean, if you want to start getting on the really affordable side, you convert them into, like, hostile, like apartments, right? Because at least then you don't have to relocate plumbing throughout, but you're going to have, you know, you'll have your own bedroom, living room, but then you'll have to have a shared kitchen, you'll have to have shared bathroom. That's the only way to make it economically feasible. I'm saying feasible. I'm not even going to say viable, because I don't know if that would still work. I don't know if you could rent them for enough to make it worth the risk. We haven't really seen product like that before, especially in Nashville, but that's the only way to make it economically feasible, because it's so cost prohibitive to go in there and retrofit that entire building, you might as well just blow the building down and rebuild it as something different, right? I have seen single story or two story office buildings converted into flex space. I think that's a pretty interesting use. But honestly, like, office buildings kind of suck in terms of, like, adaptive reuse. There's just not much else you could do with it. Like I'm looking at my office building right here, the amount of money I've had to spend to put plumbing in some people's spaces, like I would never want to go and do that into every single space and convert these into apartments. It just doesn't make any sense. Doesn't make any sense at all. So, yeah, I don't know. Isabel, it's tough. I mean, we've had, I had Roberto Gutierrez on the show. He's a contractor here in. Asheville. We talked about, you know, what it looks like to actually dive into these assets and convert office buildings into apartments, and they've done some of that, but it is extremely expensive. You basically have to get the building for the cost of the dirt. It's really, really kind of bad. Matt, I've got one more article here I want to dive into this is one from biz now, released today. I mean, all of these are coming out today, right? Cre readies for realignment as Trump surges back to the White House. We'll skip down a couple of paragraphs here. Many in the commercial real estate community said Trump's economic and climate policies will benefit the property market, which is in the early stages of a rebound, specifically on the climate. We're really talking about deregulation, right? But there is also concern that some of Trump's other proposals, including a 20% tariff on all imports, could hobble the Federal Reserve's fight against inflation. A Trump win could have immediate impacts on Fed policy. Let's see. There's been speculation that if Trump is elected, that based on his tariffs, immigration position and tax cuts, that those would potentially be inflationary pressures that the market clearly doesn't have with the current administration. You've heard people say that the Fed may be reticent to cut rates again this year. I mean, Matt, the Fed is obviously supposed to be impartial when it comes to, you know, Republican, Democrat, left, right doesn't matter the Fed. Is the Fed? What? What do you think's going on at the Fed today? Because, you know, we're supposed to have a rate cut this week. Do you think we'll still have a right? Yeah, tomorrow, tomorrow? Yeah. I think we'll still have, I
think, I think they're going to stick to the plan, you know, I think they don't want to appear like they're they're changing their game plan based on what's happened, you know, that's been their MO right? They don't want to appear as if they're being affected by the politics in the moment. So I think they're presumably going to stick to the plan, the 25 basis point cut, and then, you know, December, who knows? But I would imagine it's either 25 or nothing, most likely, unless something dramatic happens, those are probably the two most likely outcomes. I think what'll be sort of interesting is, you know, the last rate cut, we saw interest rates go up after the rate cut, which was interesting, historically, not that surprising, but a lot of people were caught off guard by that, because a lot of people were thinking, Oh, if we're seeing rate cuts, we're going to see interest rate drops. But a lot of those interest rate drops were already priced in, because the, because the, you know, rate cuts, were already telegraphed. So I think the Fed's just going to stick to their plan tomorrow. I don't know what they're going to do in the same do in December, and then I think what they do in 2025 is going to be largely dependent on what the inflation numbers and the job numbers look like. I think that they will, if the job numbers start to look worse and worse and worse, going into 25 they will continue to be more aggressive on the rate cuts. If there are inflation concerns that start rearing its head back up, then they're probably going to pull back on the rate cuts. So who knows? Though, I think a lot of it is connected to jobs. Most likely, yeah,
I think you're right, because if Americans don't have the money to spend, we're in a worse position anyway, Matt, thanks for hanging out with me for 45 minutes longer than we typically do this. All the conversation warranted, and I think I'm glad we were able to really dive into it and cover it from as many different angles as we did. Any any final thoughts, just on on commercial real estate, moving forward over the next four
years. Yeah, you know what I think my advice to the people listening would be, you know, it's fun to talk about this and theorize and try to figure out the different implications of things, but be careful not to get paralyzed right by all the things that are going on and all the analysis, because at the end of the day, there are going to be opportunities. There are opportunities in your market right now, or in a market close to you, there are going to be opportunities in 2025 come up with a business plan and come up with goals for next year and execute. Take Max, massive action. Find a way to get ownership and equity in business or hard assets in the next year and all these other things they can fuel your trajectory and your plan. But at the end of the day, don't get paralyzed by all these things happening, happening or or get overly caught up in the politics. Buy some real estate.
Great advice. There's a deal in every market, no matter what type of market it is. Matt, thank you so much, guys. If you enjoyed this conversation, like us. Subscribe on YouTube. If you're listening on the podcast, leave me a review. I want to know how well we're doing. We will see y'all in the next one. Are you looking to take the next step toward investing in? Commercial real estate, but don't know where to go. Siri central offers a comprehensive education and coaching platform designed to help you get started. Our online courses cover a wide range of topics, from the fundamentals to advanced strategies, ensuring you have the knowledge and skills needed to thrive in this competitive industry. As a member, you'll gain access to our exclusive online community and monthly group coaching calls, providing you with valuable networking opportunities and personalized guidance from experienced professionals, whether you're a beginner or looking to take your career to the next level, cre Central has the resources you need. Visit www.crecentral.com to learn more you.
In this episode, we'll examine the potential shifts for commercial real estate under a new Donald Trump administration.