One of the themes that emerged in our latest EDR Insight quarterly survey of environmental professionals is that many of you are concerned about the impact that the Presidential election will have on deal making. So am I.
The Republican and Democratic conventions brought the issue front and center for everyone, including investors and lenders who make the market for environmental due diligence tick.
What does the November election mean to forecasts for the rest of 2012? Well, one key issue impacting investors is the fate of Bush tax cuts on net proceeds from property sales. Either these will be cut at the end of this year or they’ll be extended depending on who wins on Election Day. On this issue, there are two possible scenarios:
- You’ll see a lot of “wait and see” clients (both buyers and sellers) who are reluctant to close deals until they get a better sense of where we’re headed and more certainty about tax reform.
- Or, there could be a stronger-than-usual rush to close deals by Dec. 31st before any change in tax policy. Given transaction times, any impact of this scenario on the due diligence market will likely be felt in the October-November timeframe as clients rush to get investigations wrapped up in time for deals to close by the holidays.
To modify the key question being asked at both conventions: Is commercial real estate in better shape than it was four years ago? Regardless of where you are politically, it’s hard to imagine the market being in worse shape today than it was then. In 2008, it was still sliding into the 2009 low point. Yet, today the market is still very much in a funk, and recent growth has been unremarkable. Things aren’t necessarily bad, but they could be a lot better. Until mid-2012, commercial real estate activity — and Phase I ESA demand — was on an upward trajectory as market fundamentals improved and lenders got progressively more comfortable lending on properties again. Heading into the third quarter, however, the pace of improvement slowed noticeably. Demand for commercial space is still positive, but the growth forecast is less optimistic than it was back in January. Over the next few months, we could be in a market of suspended opportunities as investors remain wary of pulling the trigger on transactions pending the outcome of the election.
I’ll be down in Dallas the morning after the election with EDR’s Due Diligence at Dawn tour bus after a late night of watching the returns roll in, and I can’t wait to see who’s giving the victory speech. Whoever wins will drive the economic and employment policies that affect commercial real estate — and therefore property due diligence markets — for the next four years.
Real estate likes certainty and elections tend to work against that so I do expect to see a softer second half of the year. Sorry, folks.
I look forward to seeing some of you at our Dallas DDD the morning after.