Infrastructure Investments Boosting Commercial Real Estate

In 2021, the American Society of Civil Engineers (ASCE) — after evaluating the United States’ infrastructure — assigned it a C- rating (an improvement over the D rating the U.S. had earned for the previous 20 years). The country’s infrastructure, however, has a serious investment gap which requires about $2.6 trillion over the next 10 years to close. 

A 2021, ASCE study estimated that failing, outdated infrastructure could cumulatively cost American households $3,300 annually, the loss of $10 trillion GDP, and result in the decline of more than $23 trillion in business productivity over the next 20 years.

On November 15, 2021, President Biden signed into law the bipartisan Infrastructure Investment and Jobs Act (IIJA). This $1.2 trillion infrastructure package reauthorizes $650 billion of prior mandatory funding and provides an additional $550 billion in funding for future infrastructure investments which include:

  • Airports, ports and waterways
  • Broadband
  • Environmental remediation
  • Environmental resiliency
  • Passenger rail
  • Power infrastructure and grid automation
  • Transportation funding
  • Roads and bridges
  • Water infrastructure

To improve the overall infrastructure grade and avoid severe economic consequences including falling business productivity, plummeting GDP, and lost jobs, Congress and the states need to invest about $206 billion annually.

But what does the IIJA mean for real estate?

Most Industry Experts Give Thumbs Up

Many experts agree that these investments in broadband, climate resilience, energy, transportation, and water — which are critical to the success of the communities in which they’re located. After all, whenever you invest in roads or transportation infrastructure, it’s an investment in real estate. Communities run more smoothly when residents and visitors have safer, more efficient ways to get to where they live, work, shop, and play. 

A joint press release issued by the National Apartment Association (NAA) and National Multifamily Housing Council (NMHC) stated that infrastructure “has long been a priority” for the nation’s apartment industry. Doug Bibby, president of NMHC, said, “NMHC has long held that the link between housing and infrastructure is undeniable and that the upkeep, modernization, and development of the public services that underpin housing communities is of top importance to our industry.”

NAA president and CEO, Bob Pinnegar, said, “Infrastructure and housing are intrinsically linked, and this unprecedented investment in our nation will help lift communities and industries throughout the nation. By building back our nation’s critical services, the apartment industry can operate more efficiently, and we can help ensure that Americans have easier access to the types of housing in the place they want to live. We look forward to building off its success as we work to address housing affordability and other central issues.”

Second-order Impacts Benefit Real Estate

Property values across all asset types will benefit from improvements in telecommunications, transportation, and utilities. By allocating hundreds of billions of dollars to improve bridges, ports, and roads, the supply chain will become quicker and more effective. Ecommerce traffic will increase, driving with it the need for more industrial real estate. 

The law dedicates $65 billion to improving and expanding broadband internet access. With it will come a substantial increase in the number of internet users — and a greater demand for data centers. An enhanced power grid will give data center developers more flexibility on the location of new projects.

Public Housing and Affordable Housing Investments

With $213 billion proposed for use to build, renovate, and retrofit two million housing units and homes, the housing market will also benefit from the IIJA. Grant programs will help offset the costs of upgrades.

Also included is another $40 billion for improvements in public housing to be used for increasing energy efficiency, which will shrink operating costs, and mitigating safety hazards. This plan also incentivizes the removal of zoning restrictions that have slowed development. 

If passed, another act — the bipartisan Neighborhood Homes Investment Act (NHIA) — will offer an additional $20 billion in tax credits to investors and developers building or renovating an additional 500,000 owner-occupied homes. The tax credit applies to single family homes with four or fewer residential units, condominiums, and homes/apartments owned by cooperative housing corporations.

Look for “Signal Projects”

Coined by Jeff Bartel, chairman and managing director at Hamptons Group in Miami, signal projects have a positive, ripple effect on surrounding communities. Capital improvements like road and bridge repair, renovated airports, and updated railroads directly impact commercial and industrial property values nationwide.

By improving transportation to and from industrial and commercial properties, demand for businesses desiring to be more easily accessible to employees and customers increases. To avoid extra (or higher) costs, businesses will look for property that facilitates freight transport, too. And when development of new commercial sites increases and attracts new tenants, available jobs and demand for personnel rise as well, increasing the need for multifamily investments and developments. 

When neighborhoods become more desirable because of their proximity to employment, recreational and entertainment areas — and there’s access to improved transportation infrastructure — more potential residents will pay a higher premium to reside there. 

Championing Environmentally Conscious Real Estate

New tax credits awarded to incentivize clean energy generation — and building a stable electronic transmission syst5teem — target the delivery of clean energy used for powering businesses and communities.

Because this initiative relies on companies specializing in designing and constructing green developments, there’s an opportunity for real estate investors to become more involved with sustainability initiatives and energy-efficient investments.

For example, millions of commercial buildings require retrofitting with more efficient LED lighting, electronic appliances, and even HVAC systems. Many commercial buildings will need to transition from fossil fuel to electric energy — a massive undertaking but one required to evolve these buildings into more environmentally friendly structures. The time is right for real estate investors have an opportunity to become involved with sustainability initiatives and next generation investments.

Are you a commercial real estate investor or looking for a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United: an organization of CRE professionals from 81 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more. 

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