November 13, 2024

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Investors, Partners, and Friends,

Donald Trump has won the 2024 presidential election and will return to the White House with both a Republican-led Senate and House. This outcome signals significant policy shifts that markets are already reacting to: stocks and bitcoin surging to record highs, with treasury yields rising. This mix of optimism and caution reflects investor anticipation of the impacts of Trump’s likely agenda on inflation, interest rates, and the greater economy.

In this memo, we unpack these developments, anticipate their potential impacts on real estate, and outline how Rockview is positioned to both capitalize on opportunities and manage the challenges that may lie ahead.

Initial Market Reactions

Following Donald Trump’s victory, financial markets have exhibited significant reactions:

1. Treasury Yields Rising Sharply: Investors are pricing in inflationary pressures from Trump’s expected tariffs, deportations, and tax cuts, driving up Treasury yields, especially on long-term bonds like the 10-year.
2. Stock Markets Hit Record Highs: Investors are shifting from bonds to equities, optimistic that Trump’s pro-growth policies—tax cuts, infrastructure spending, and deregulation—will stimulate the economy and boost corporate earnings.
3. Bitcoin Surging to New Levels: The cryptocurrency market has skyrocketed, with Bitcoin reaching an all-time high of over $90,000 (as of 11/13/24), as investors expect that the Trump administration will adopt a more favorable stance toward crypto, leading to increased adoption and investment in the sector.

How Real Estate Will Benefit Under the New Administration

Trump’s return suggests a resurgence of pro-business policies, echoing those from his first term and signaling a favorable environment for real estate investment.

1. Tax Incentives Enhancing After-Tax Cash Flow

• Bonus Depreciation (IRC Section 168(k)): Reinstating 100% bonus depreciation would enable investors to fully expense certain capital expenditures in the first year, substantially enhancing cash flow and attracting capital into real estate as investors seek to offset capital gains.
• Corporate Tax Cuts (IRC Section 11): Reductions in the corporate tax rate could stimulate business expansion, increasing demand for commercial spaces across office, industrial, and logistics sectors.
• Pass-Through Deduction (IRC Section 199A): Restoring the 20% deduction for qualified pass-through income would reduce effective tax rates on rental income, further enhancing the appeal of real estate.

1. Localized Growth via Opportunity Zones

• A return of the Opportunity Zones initiative would stimulate development in distressed areas by offering capital gains tax relief, catalyzing investment in underserved markets.

Together, we anticipate these policies will drive demand and investment in real estate, thereby increasing capital flows and valuations.

Challenges to Real Estate and How We’re Positioning Ourselves

While Trump’s policies offer growth opportunities, they also introduce inflationary pressures that could impact costs, labor, and project timelines. Here’s how Rockview is prepared to manage these challenges:

1. Tax Cuts Increasing Disposable Income and Inflation: The administration intends to extend the 2017 Tax Cuts and Jobs Act provisions, reduce corporate tax rates, and eliminate taxes on tips and Social Security benefits to stimulate economic growth.
   • Impact: While taxa cuts can boost consumer spending, they may also increase inflationary pressures, driving up prices and reducing the consumer’s ability to absorb rental increases.
   • Our Mitigant: In addition to underwriting conservative expense assumptions, we ensure that our renter’s total payment (proforma rents + other income) is realistic given nearby median household incomes.
2. Tariffs Raising Prices on Imports: President-elect Trump has proposed imposing large tariffs on imported goods from countries like China to encourage companies to manufacture goods in the U.S.
   • Impact: Tariffs on imported materials and products, especially from countries like China, would directly affect the real estate industry by raising development input and renovation costs.
   • Our Mitigant: Rockview’s direct relationships with manufacturers, including GE, LG, and Whirlpool, help us control our costs more effectively, enabling efficient and cost-effective sourcing.
3. Infrastructure Spending Raising Demand for Labor and Materials: The administration plans to invest heavily in infrastructure projects to stimulate the economy and create jobs.
   • Impact: Infrastructure projects require large volumes of labor and materials, increasing competition for these resources and potentially crowding out private developments.
   • Our Mitigant: As referenced above, Rockview’s direct relationships with top-tier vendors provide access to essential materials, helping to mitigate the crowding-out effect and maintain project timelines.
4. Deportations Creating Labor Shortages: The administration plans to implement stringent immigration controls, including mass deportations.
   • Impact on Real Estate: Strict immigration policies could reduce labor availability, especially in sectors reliant on immigrant workers like construction and property maintenance, pushing payroll costs higher.
   • Our Mitigant: Rockview’s relationships with property managers and contractors ensure a reliable labor supply, even in competitive markets, and allow us to stay informed on real-time payroll trends.

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At Rockview, we view these challenges as opportunities to differentiate ourselves. By leveraging our relationships, staying nimble, and managing risk with a focus on long-term returns, we’re not only prepared to weather this environment but to capitalize on its unique dynamics. The key is navigating these shifts with a clear-eyed view, balancing the inherent optimism of opportunity with the realism that prudent investing requires.

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Until next time,

Rockview Capital LLC