How will Biden’s infrastructure bill impact commercial real estate?

biden's infrastructure bill
biden's infrastructure bill

What is Biden’s infrastructure bill?

On 15th November 2021, president Joe Biden signed one of the largest infrastructure bills America has ever seen. The Bipartisan Infrastructure Investment and Jobs Act (IIJA) is set to target those long-pending public infrastructure projects in motion. With a value of $1.2 trillion, Biden’s infrastructure bill of 2021 is one of the largest investments in the physical infrastructure of the US. 

The $1.2 trillion infrastructure package has mainly two key components. First, a total budget of $650 billion of previous mandatory funding is being reauthorized under the current law. It is the capital summation from various trust funds set aside for pre-existing programs. 

The second component is set for building new infrastructure with a funding of $550 billion. It includes better transport, access to clean water, high-speed internet, dealing with the climate crisis, better power infrastructure, and others. 

The Congressional Budget Office reported that funding the plan will add $256 billion to the deficit over the next decade. However, GOP and Democrats claim that the bill would get its funding from economic growth and unused COVID relief funds.

Breakup list of the infrastructure investment 

Impact of Biden’s infrastructure bill on commercial real estate 

Infrastructure is such an important concern in the real estate industry. Hence, industry trade groups supported the bill even before it was passed. Further, CREFC accepts the infrastructure due to its various investment plans to maintain liquidity in commercial and multifamily real estate. And, diversified infrastructure investment is bound to create opportunities in the commercial real estate market.

Some of the key factors which will have an impact on commercial real estate are:

1. Development of roads, bridges and major projects and water systems

There are approximately 173,000 miles of roads and national highways and  45,000 bridges in America which are in poor condition. So, the legislation will invest in the reconstruction of all these old roads and bridges. Also, it will also help build new ones for those in extremely poor conditions, both in urban and rural areas. 

Even today some of the schools and other rural areas are still getting drinking water supply through lead service lines. Therefore, the bill will replace all lead lines with new lines and provide clean drinking water throughout the country. 

The legislation will also provide funds for the renovation of industrial sites in disadvantageous locations. This will lead to renovations and construction of commercial buildings of all kinds.

2. Better access to public transportation

According to the White House, it is the largest federal investment in the history of Public transportation. The infrastructure bill will provide better and faster transit access to residents in suburbs via bus, and passenger rails. Thus, the bill proposes to repair a total of 24000 buses, 5000 rail cars, and 200 stations.

Furthermore, this legislation will be valuable for investors searching for locations where transport-related developments are necessary. Moreover, investing in infrastructures like railroads creates job opportunities and in return revives an old neighborhood.

3. Clean energy and power infrastructure

A study by the Department of Energy shows that power outages cost the US economy nearly $70 billion every year. Hence, it is about time the energy grid needs to upgrade. This is supposedly the largest investment in clean energy transmission ever. 

This transition to clean energy can lead to rental properties retrofitting their buildings with energy-efficient improvements. As a result, owners can save on energy use and reduce expenses. 

As more and more automobile companies are trying to go carbon neutral, the demand for electric vehicles is increasing. And, to meet these demands EV charging stations are required to be developed throughout the country. 

According to the legislation, governing states and localities will receive incentives to build around 500,000 EV charging stations by 2030.

Electric transmission lines, Battery farms, and EV charging stations can be classified as real estate investment trusts(REITs) asset classes. Therefore, such a huge infrastructure investment proves to be a good opportunity for these REIT assets to generate some solid returns.

4. High-speed internet services

The Internet is a necessity in today’s world. But, a lot of rural areas including tribal land in America still do not have access to broadband internet. Hence, Biden’s infrastructure bill aims to provide broadband for all American people. This kind of asset class can also be classified as an infrastructure REIT. 

In light of recent events, remote working has become a new normal. By improving broadband services new investment opportunities will open up in commercial real estate and multifamily real estate.

5. Climate change 

Climate change poses the biggest threat to commercial real estate properties across various regions in the US. Coastal regions, areas affected by floods and wildfires are driving away potential real estate investors from investing. Biden’s infrastructure bill will protect properties and lives in distressed areas from future climate changes by tackling climate change mitigation.

The infrastructure bill 2021: Investors’ point of view

As we can see, the bill’s main objective is to build and redevelop a better infrastructure. The bill does not directly speak about commercial real estate investments. However, its second-order impact will be beneficial for both residential and commercial real estate. 

The development of roads, bridges, and transport systems will call for new investment opportunities in locations previously inaccessible to the market. Furthermore, it will also help create a better neighborhood. Therefore, it will increase the value of the properties of that location. Logistics and supply chain will be faster and more effective thereby increasing e-commerce traffic. 

The legislation will be providing better amenities like better internet services and clean water. As a result, this will help commercial rental properties like multifamily apartments, office buildings function better and smoother. 

According to Hugh Kelly of Fordham Real Estate University, commercial real estate investors should be supportive of the bill. Its massive spending amount is more than enough to meet the needs of the industry. 

The Lilypads Bottomline

Building a better infrastructure and community acts in favor of commercial real estate investors. Investment in infrastructure development is bound to be beneficial for the real estate industry. 

Such a large investment might, later on, lead to a higher capital gain tax rate and withdrawal of the 1031 exchange. If so then this can disappoint investors as tax deferrals play a huge role in investments. But apart from that, the bill will provide diversified opportunities for commercial real estate investing in the coming years.