By Adam Ruggiero, William Pattison and Sultane Cosaj
The prevailing expectations for real estate performance in 2018 are either to meet or exceed that of 2017. Thankfully, 2017 was a strong year for both debt and equity investors, so a repeat performance, which we believe is highly likely, would be welcomed by many. The Tax Cuts and Job Act should provide a boost to both wages and job growth, but due to a growing skill gap in the U.S. labor force employment growth may nonetheless slow. Lower personal tax rates for the majority of consumers should boost spending, providing a tailwind to both retail and industrial, and the elimination of a host of housing related deductions should increase the relative affordability of apartments. After tax incomes for many real estate investors will improve due to the addition of a 20% deduction on pass-through entities, though the effects of this change will vary significantly by asset and investor. Before tax income growth is likely to remain strong across property types, and while healthy, value gains are expected to slow as the long era of cap rate compression nears its end.
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