What Congressional Gridlock Could Mean For CRE

For the next two years, the US will have a divided Congress, with Republicans hanging onto a slim majority in the House of Representatives while Democrats snagged similarly slim control of the Senate.

And “barring a major crisis, a divided Congress suggests there will be gridlock…basically, very little gets done,” says Marcus & Millichap’s John Chang.  So what does that mean for commercial real estate investors?

“Although federal government intervention can be very important in times of crisis and significant policy changes can reshape the economy, there are times when taking a breather can be a good thing,” Chang says. “And from a CRE standpoint, I’d suggest we are in one of those times. In fact, historically speaking, having a multiyear runway with few changes on the radar screen has favored commercial real estate.”

For example, when tax law changes were on the table in 2017, decision-making stalled. Potential changes can distract investors and stall dealmaking — and what’s more, the average return on CRE tends to be higher when Congress is divided.

Congress was split from 1981 to 1986 an annual CRE returns were 12.8%. Between 1987 and 2000, Congress was controlled by a single party and returns were just 6.8%. Congress divided again from 2001 to 2002, and returns inched up to 8.2%, while they ticked back down again between 2003 and 2010 to 7.8%, when a single party controlled the houses.  Those trends continued from 2015 to 2018 and hit 14.2% returns from 2021 to 2022.

“Of course, past performance does not guarantee future results,” Chang says. “But if you believe that the split Congress of the next two years will result in gridlock, then you pretty much have two years where the rule are unlikely to change. That means you can lock in your strategic commercial real estate playbook with the advantage of having a much clearer view.”

Source: GlobeSt.

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