Real Estate…Life or Death

4th Quarter 2020

Market Watch
by Joe A. Hollingsworth, Jr.

Generally, I do not care about a party’s platform, because party platforms are thrown away the moment the President gets elected. But, this time, it is unique. This time, Biden is not disclosing what his policies are; because, as a 48-year politician, he has never had stable policy positions. Plus, the Bernie and AOC wing of the party were allowed to help draft the party platform positions. Progressives control the only key Biden has to victory, so he is dependent on them. Even if Biden just passed 2/3 of these (and other) party positions, he would become more progressive than FDR; and, when you couple that with a vow to break the Senate Filibuster rule, a Biden Senate and House would have no checks or balances.

How does this platform affect real estate, construction, manufacturing, distribution, real estate lending institutions, developers, and related and dependent industries?
• Like Kind Exchanges, which are the pillar of real estate, will be eliminated;
• The capital gains rate would basically be doubled to 39.6%;
• Right to work laws would be repealed, and labor law would be rewritten to favor the unions nationally;
• The Federal Reserve ends up with a new mandate to address racial injustice; and,
• The “Green New Deal” would dramatically increase every industry’s energy and regulatory cost.

Being in real estate for 54 years (yes, I am that old…but I started early, LOL), this would be the most radical change in my lifetime for real estate along with all the above-mentioned related industries. Every existing real estate deal would practically be frozen, and virtually every real estate trade would become far more difficult to justify. The result will be that, if I must pay this much capital gains tax, I will “simply just sit on it”. A great part of America’s “creative destruction” that empowers efficiency and regeneration of ideas and concepts would be greatly diminished. While new startups over the last 20 years are ½ of what they were in the 50s and 60s, per capita, I believe the above rule changes would further devastate startups; because, it raises risk and lowers potential reward. This will produce greater income inequality that they will once again want to tax and redistribute.

Unfortunately, real estate is not the only part of the economy that would be affected by this platform. Virtually every part of the economy is! However, I am trying to point out what is likely to happen to real estate as we know it.

Vote like your economic life depends on it, because it does!

“Joe Hollingsworth participated as one of our first equity investors. In addition, Joe Hollingsworth has served as a board member and leading advisor for strategic planning and direction.” — Scott Kelley, President and CEO, Service Center Metals