Why CRE lenders want to see infrastructure investments
Many players in the commercial real estate industry are wondering if 2021 could finally be the year that the U.S. Congress funds a comprehensive, bipartisan infrastructure plan. Bold proposals before the US Congress would modernize roads, bridges, ports and more, and likely serve as a powerful economic stimulus. The CRE community can have many reasons to support these goals.
Infrastructure spending as a revitalization tool
Smart investments to improve roads, ports, utilities and other vital infrastructure have the potential to unlock tremendous value for the global economy, as well as for commercial real estate. Research from the Institute for Economic Policy indicates that an investment of $ 18 billion per year in infrastructure would create an increase of $ 29 billion in GDP in the first year and 216,000 net new jobs.
Investing in infrastructure has already proven itself as an effective source of jobs and economic stimulus, since the creation of the Works Progress Administration during the Great Depression of 1929. More recently, the American Recovery and Reinvestment Act ( ARRA) of 2009 included infrastructure spending to pull the country out of the dramatic 2008 recession. Today, most economists agree that ARRA has reduced unemployment and boosted economic recovery for years. .
The jobs created by infrastructure spending have a multiplier effect and are a powerful tool to revive a struggling economy. For example, the American Society of Civil Engineer’s 2021 Infrastructure Report Card found that every dollar invested in waterway infrastructure generates $ 2-3 in economic activity in the United States over time.
Improved public transport increases access to metropolitan areas, helping to attract new residents. For example, after northern Virginia began to expand its metro, property values along the tracks rose rapidly. The real estate boom that followed gave birth to new condos, apartments, office buildings and mixed-use projects. The multiplier dynamics of infrastructure investment are expected to increase the value of all sectors of commercial and residential real estate.
The CRE-infrastructure link
From the perspective of the CRE lender, infrastructure improvements have the potential to increase the demand for a commercial facility. In the industrial market, for example, connectivity is the key to any property’s success.
Our Commercial Loans team recently closed a loan for a facility at a major port of entry in the Southeast, one of the busiest US ports. In assessing the property’s long-term potential, we saw great value in recent port modernization efforts, including modernizing the rail lines and deepening the port to accommodate large container ships coming from the Canal de Newly enlarged Panama.
This southern port is now equipped to facilitate a constant flow of trade, creating a strong and continuous demand for storage and transfer facilities as goods are unloaded from ships and transported to domestic markets by rail or truck.
Studies show that real estate developers and investors recognize its influence. Occupants in industrial, commercial, office and residential sectors need access to modern and reliable roads, bridges, electricity and water to thrive, just like CRE developers.
A study by EY and the Urban Land Institute (ULI) found that infrastructure, including transport, utilities and telecommunications, is the most important factor influencing real estate investment and development decisions in cities around the world. While many factors contribute to property values, easier access to a building tends to stimulate the economic activity associated with the building.
Office buildings near public transportation, for example, have historically commanded rents nearly 80% higher than those further away, according to a JLL study. And, in the industrial sector, quick access to highways, rail, seaports or airports is fundamental to creating a successful property.
Where U.S. infrastructure investments would have the most impact
Many types of infrastructure upgrades would be beneficial across the United States, including improvements to highways and community roads. With the boom in e-commerce in response to pandemic conditions, increasing connectivity around seaports and distribution centers can remove barriers in the supply chain. Large ports like Savannah and New Jersey would benefit from better access to rail, highways and airports for product distribution.
With the renewed focus on manufacturing in the United States and the offshoring of manufacturing facilities, it is also important to invest in export infrastructure. Modernizing locks and dams along the Mississippi River, for example, would help move goods from the Midwest to ports for shipment overseas.
Great hopes for action
While no one can predict what Congress will support, the conditions are promising. A comprehensive infrastructure plan meeting both urgent needs and improving the functionality of infrastructure across the country would be a huge victory for CRE. As the need for improved infrastructure and job creation converge, it is a compelling case for a significant investment in the nation’s public assets. This is a reason for optimism for the CRE industry.
This article also appears in the April 2021 issue of the Illinois Real Estate Journal