Real estate bigwigs lose faith in Trump’s economic reforms

“I feel like the likelihood of anything major happening gets smaller and smaller”: Blackstone's Frank Cohen

May.May 19, 2017 08:30 AM
Blake Hutcheson, Richard Saltzman and Glenn Rufrano

From TRD New YorkOver the past few weeks the United States has arguably seen more political turmoil than at any point since the 1970s. Should real estate investors be worried?

Blake Hutcheson, head of the Toronto-based pension-backed investment giant Oxford Properties Group, suggests no. “We had the worst mayor on the planet with a drug addict, a guy named Rob Ford,” Hutcheson said, referring to Toronto’s late, former mayor who was caught on video smoking crack. “The politics was noisy, but real estate stood through the cycle.”

Oxford partnered with Related Companies on the Hudson Yards megadevelopment, and Hutcheson said he is bullish and “risk on” on New York.

He spoke at a forum hosted by law firm DLA Piper’s global real estate group Tuesday, where two panels tried to get to the bottom of whether, and how, political uncertainty in Europe and the U.S. is impacting real estate.

Chaim Katzman, head of shopping center owner Gazit-Globe, on the other hand warned against minimizing the importance of politics. “I’m not so sure if you bought on Crimea you’re very happy right now,” he said. Real estate depends on government and the rule of law, he argued. “If it goes away, so does your investment.”

One of the bigger political question marks in the U.S. right now is whether federal tax reform will happen, and what form it might take.

Frank Cohen, head of Blackstone’s core-plus real estate business, doesn’t expect far-reaching reform. “I feel like the likelihood of anything major happening gets smaller and smaller and we’re actually moving closer and back toward the low-growth and low-rate environment that we started in before the election,” he said.

Cohen’s comments contrasted sharply with the early days after the election, when his boss Jonathan Gray claimed the “economic narrative has changed,” predicting tax cuts, deregulation and more fiscal spending.

Richard Saltzman, CEO of Colony NorthStar, argued that uncertainty over federal policy contributed to a “deceleration of transaction activity” in commercial real estate markets.

“I think that there’s a big debate within the powers that be in Washington about whether you want to do something that’s big and holistic, versus whether you want to do something that’s kind of more low hanging fruit,” he said. “To the extent that we’re in an environment where there’s quagmire in D.C. I think you’re likely to see more of the latter.”

The founder of Colony Capital, which merged with NorthStar in January, is Thomas Barrack, a close friend and supporter of Trump’s.

Glenn Rufrano, head of single-tenant commercial REIT Vereit, criticized Trump’s proposed border-adjustment tax, which would create a higher levy on imports in part to pay for a border wall and make U.S. products more competitive. He argued the tax could have a “destructive impact” on the economy and advantage some firms at the expense of others. “I just don’t know why anybody should do it and risk the economy” to pay for a wall, he said. “I’m lost on that one and I don’t see how it gets done.”

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