Bidenomics & Trumpenomics: RE Edition

Bidenomics: National Rent Control (& Friends)

Joe Biden is coming for your rent hikes. POTUS, in the fight of his political life, dropped a bomb on RE last week from NATO, alluding to some sort of nationwide rent cap at 5%. This led to Qs of scope and constitutionality - i.e. does the govt. even have the right to do this? 🦅

Now we have more: the administration is proposing that landlords who increase rents more than 5% annually can no longer enjoy accelerated depreciation (which lets owners claim more depreciation in the early years after buying a property – i.e. chopping 🪓 taxable value faster).

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Bidenomics (cont.)

Key caveats:

• Applies only to landlords w/ 50+ units (WH is estimating 20M units impacted, though how you accurately determine this in a world of LLCs is beyond me)

• Proposal needs Congressional approval

• Doesn’t apply to new construction/big rehabs (WH doesn’t want to be seen doing anything that might dissuade adding supply)

• Only lasts 2Y (new supply would presumably compress rents by then)

It’s all pretty avant-garde at this point. Here’s a senior WH admin official trying to explain it to reporters - has “community-adjusted EBITDA” vibes.

Industry trade groups are predictably miffed.NMHC said the proposal “will not create a single new unit while raising costs on the very residents it purports to help,” while the NAA said that "there is no debate. Rent caps hurt renters and communities.”

This federal drama comes as states have gone to the mattresses in their own rent control fights: New York🗽 landlords have repeatedly had their hopes dashed in their challenges to the more pro-tenant rent laws; meanwhile, in Florida🌴 , the state’s Live Local act curtails local govts.’ abilities to enact rent control. In November, California voters will decide whether a statewide ban on local govts. applying rent control to new construction should be lifted.

We’ve previously explored how the Biden admin. has made RE a bit of a piñata this campaign season, muscling into everything from agent commissions to title insurance to, of course, the RealPage criminal investigation. This new rent cap proposal falls into the same “consumer protection” bucket. “Landlord” is a four-letter word among enough voters that you can expect different avatars of this stuff to keep manifesting. A change that got less attention but is far more consequential for CRE in the near term is the FHFA’s new mandate that starting in Feb. ‘25, landlords who avail of agency financing (Fannie/Freddie) will have to adopt a number of pro-tenant measures, such as a 30-day notice on rent hikes and lease terminations and a 5-day grace period on late rents. This applies only to new originations/refis, but since over half of ‘23 apartment debt originations were Fannie/Freddie, it has legs. 🦵

(More: Enjoyed this thread of threads on rent control from my favorite NYC RE threadboi, @goodguyguaranty - this is what the best of Twitter feels like, a cocktail of historical context and non-vanilla personal reflections)

Trumpenomics: Jamie, Jay & Red Tape

Meanwhile, Trump sat down w/ Businessweek at Mar-a-Lago late last month for a wide-ranging interview that just dropped, and the GOP nominee was his trademark free-wheeling self. Some key CRE nuggets:

• J-Pow as Fed chair: “I would let him serve it [his term] out, especially if I thought he was doing the right thing.” DJT doesn’t want any rate cuts prior to the election, though Wall St widely expects one.

• Jamie as Treasury Secretary: “He is somebody that I would consider”

• On affordable housing supply: Brought up red tape (environmental, zoning, permits) as a key culprit for high housing costs, and said he’d slash it.

There were also glimpses of Trump the Noo Yawk real estate guy: When talking about illegal immigration, he brought up the damage to the unions:

A guy could be loyal to a union, because I had unions in New York. Got along with them good. I dealt with the Teamsters, I got along with them good.

Close your eyes, and you could picture the retro conversations w/ Tony Pro types.

SASBs Lose Their Rizz

It happens to the best of us. Austin Powers. Daniel Ricciardo. And now it’s SASBs that have lost their mojo: What was once considered the safest corner of the CMBS market has seen a spike in troubled loans - per CREFC data cited by WSJ, the rate of SASB (single-asset, single-borrower) loans in or near default has almost tripled over 2Y, to 8.7% in 2024. Mind you, many of these deals scored AAA ratings – we broke down the debacle at Blackstone’s 1740 Broadway here and riffed about it on Bloomberg’s Odd Lots here. The ratings agencies simply couldn’t fathom that property prices could sink below the value of the debt.

We’ve already seen defaults on mall and office SASB deals in Chicago, LA, NYC and SF. Deutsche Bank’s Ed Reardon told WSJ he predicts losses on at least 10 other deals. Some struggling properties have seen prices of their lower-rated bonds fall south of 20 ¢/$. Lenders can either eat the losses right away by selling the bonds, or stack up more reserves to hold on to the now-riskier instruments.

“That’s my fear—that the large banks are going to say ‘You know what? We’re out,’” Barclays CMBS head Lea Overby told the publication. “If that happens…the new issue pipeline will get shut off.”

About half of SASB bonds – there are about $260B in total – are set to mature by the end of ‘28, according to the Philadelphia Fed. Falling prices have attracted the bottom feeders 🦦, among them Beach Point, Ellington Management, TPG Angelo Gordon, TCW and Waterfall Asset Management. TCW’s CMBS holdings, for e.g., have jumped 12% this year to $8.2B, w/ its co-head of global securitized product Liza Crawford telling WSJ that “we are eyes wide open about the risk.” 👀

Quickies

• 🎥 A primer on where things stand w/ Arbor Realty Trust

• Zeckendorf/Atlas/Baupost JV lands whopping $1B financing package for Manhattan luxury project from Cale Street Partners🇬🇧 and Farallon Capital Management. (Promise to write more on this soon - super interesting)

• OpenAI’sSam Altman sues builder over $27M “lemon” mansion 🍋

• Starwood has already raised nearly $4B for its distressed RE fund

• Miami developer kills himself amid investigation into alleged threats against wife

• Blackstonecompletes expansion to 1M+ sf at 345 Park

• How one building tells the tale of SF’s tech scene

• JPM/Hines JV in contract to buy 250 Park from AEW for $300M+

Unquotable Quotes