Big Beautiful Bill

Real Estate Observer

This newsletter will provide frameworks & analysis you can use to confidently invest your capital in private market real estate. It is written from the perspective of someone who reviews many deals in search of one that fits my personal or my investor community’s preferences.

Written by: Clay Stanley

Recent Articles Written by Clay 📰

The Big Beautiful Bill

The last few weeks my inbox has been inundated with emails from sponsors regarding how great the ‘Big Beautiful Bill” is. This is marketing at its finest. Interestingly, they end the email with something like “investing as a passive investor just got a whole lot sweeter”

Look, I have no problem with marketing. I market myself within this newsletter by sharing how I think about deals, risk, investing, etc. What I dislike is when groups only focus on the positives of something rather than giving the full picture, especially on something as complex as the reconciliation bill that was just signed into law. I won’t pretend to understand the nuance and implications of the majority of the bill and I believe very few people truly have the insight or time necessary to put together a full analysis of this bill.

Here is a breakdown on some of the advantages and disadvantages for multifamily real estate investors.

Advantages:

Some of the positives I see relate to tax benefits and affordable housing which will increase capital deployment into real estate. This might increase liquidity which the market could use right now. Is that the best for long term market health? Time will tell!

Permanence of Key Tax Deductions: The OBBBA makes several key tax provisions permanent, providing long-term certainty for investors. This includes the 20% Qualified Business Income (QBI) deduction for pass-through entities and the mortgage interest deduction cap.
Enhanced Depreciation: The bill permanently reinstates 100% bonus depreciation for qualifying property. This will drive capital flows and increase the tax efficiency of owning real estate.
Expanded Low-Income Housing Tax Credit (LIHTC): For investors focused on affordable housing, the OBBBA makes the LIHTC more attractive.
Reformed Opportunity Zones (OZs): The bill revamps the Opportunity Zone program. The continued ability to defer capital gains by investing in OZs provides a powerful tool for investors seeking to redeploy capital and reduce their tax liability.

Disadvantages:

Economic Strain on Tenants - Deep Medicaid, SNAP, and other social welfare cuts are projected to reduce disposable income for millions. With working- and lower-income tenants feeling the impact, rent collections and stability may suffer—leading to higher delinquencies and turnover rates. Will Class C deals suffer due to this?
Higher Tenant Burden - More defaults, more property turnover, increased need for assistance programs.
Market & Credit Headwinds- This is the one that worries me most.
- The law is expected to increased the United States deficit materially over the next decade. This is an extremely complex issue, but the bond market seems to be punishing us with higher rates due to increased deficit spending, increased inflation outlook due to tariffs, increased uncertainty around the Fed’s political independence, a declining dollar, etc. This bill seems to poke the bear of the bond market. Honestly, I had to find a way to fit that statement in there as I quite literally had to poke a bear away from my dinner table over July 4th. Thought y’all might have a laugh at this.

POV: My mother and fiancé watching, videoing, and laughing from afar. We were eating dinner at a restaurant in the mountains of Tennessee when a bear paid us a visit. The bear was unharmed.

LPs: Higher rates will likely lead to continue destruction in valuations, lower transaction volume, and the inability to refinance without bringing cash to the table. People have been wishing & hoping for lower rates since they increased in 2022, myself included. At the end of the day, hope is not a strategy. Understand what happens to your prospective deals if rates rise from where they are today.

Questions I Would Ask in Today’s Environment:

Is your debt fixed or floating? Is there a rate cap and how long is it for?
Can your deal withstand a rise in the exit cap rate? How does the return hold up?
If you get to the end of your initial loan term, will you be able to refinance without bringing cash to the table?
Will you be able to refinance without bringing cash if you miss your NOI projections by ~10%?

Important News 📢

Visual of the Week

These charts represent total multifamily maturities over the next 18 months, and the volume of these maturities that will have trouble refinancing at a cash neutral position. You can find a more in depth analysis on this here.

There is a huge wave of commercial real estate loans - about $120 billion worth - that are coming due in the next year and a half. These are loans that are struggling because they can't cover their debt payments well.

Many of the owners who had loans originated in 2021 & 2022 are going to have trouble refinancing into a higher interest rate environment. Especially if they haven’t been able to increase NOI substantially.

This creates opportunities for investors who are looking to buy properties at a potential a discount. Even in markets that are doing well overall, you might find good deals because these property owners are basically stuck and need to sell. That being said, the market is clouded with uncertainty, resulting in extremely low transaction volumes. You can read more about that here: The Attitude Cycle Part 1 "The Peak"