During the contentious election campaign that elected Donald Trump, a real estate mogul, President of the United States, he proposed a number of notable promises that caught the eye of both domestic and foreign investors in US real estate. In his pledge to “Make America Great Again,” Trump vowed to spend $1 trillion dollars updating and improving the aging U.S. infrastructure. Trump asserts repairs and maintenance to U.S. roadways, bridges, airports, etc. will jumpstart the U.S. economy, creating countless jobs and stimulating growth. His plan is not new. The U.S. has a history of using large-scale infrastructure expenditures as a means for economic growth. Programs instituted in the early 1930’s deserve some of the credit for launching the country from the Great Depression and into a period of sustained growth.
Infrastructure spending, coupled with the resulting job growth creation, is often a simple means of stimulating the economy. However, all major public projects come with a cost. In order to fund $1 trillion dollars’ worth of infrastructure expenditures, some form of tax must be levied on the citizenry of the country. The Republican-controlled U.S. Congress is expected to remain tax-averse and Trump has simultaneously vowed to cut taxes.
“If the President can successfully source adequate funding without increasing the tax burden, the $1 trillion dollar infrastructure pledge will be a campaign promise fulfilled and would mark the beginning of a boon for infrastructure-related industries,” noted Michael Welch, Lead of JLL’s Valuation & Advisory Services business in the United States.
The campaign pledges appear to be a strong selling point for cross-border investors. JLL predicts global investment volumes will edge toward $700 billion in 2017, up from $650 billion in 2016 and returning to levels last recorded in 2014 and 2015. The numbers will be buoyed by increased institutional allocations directed toward commercial real estate as well as new sources of capital emerging from places such as China, Taiwan and Malaysia. The U.S. reaped much of the benefits of global capital in 2016, with New York nearly doubling the activity of second place London and Los Angeles vaulting into third place, ahead of both Tokyo and Paris.
The story is expected to continue in 2017. Welch notes that in the last quarter, he’s anecdotally seen increased interest in U.S. assets from the Middle East, China, Japan, and London, despite the fact that the U.S. dollar continues to strengthen. “The rising dollar is still seen as a safe haven for their money, so foreign investors welcome the opportunity to invest in assets with a stronger dollar. In China specifically, they’re dealing with tax burdens and restrictions from their own government, so by comparison, investment into the U.S. seems relatively cheap,” said Welch.