Beyond the Midterms:
Five Forces That Will Reshape REITs
Most Americans will be watching the election results on November 3rd.
For REIT investors, we believe the more important question is what happens next.
The real estate market doesn’t care so much about election-night speeches. It cares about the policies that follow. Who will pay for infrastructure? Where can capital can be deployed? How will healthcare be funded? What will financing costs look like?
The next Congress will influence legislation, federal spending, and regulatory oversight, but we believe some of the most consequential decisions for real estate may come from federal agencies, state regulators, and local governments, regardless of the election outcome.
In our view, five policy issues stand out.
1. Data Centers: Who Pays for the Power?
Artificial intelligence is driving extraordinary electricity demand. But who pays for the infrastructure needed to deliver that power is becoming a significant policy question.
In September, the House passed the Ratepayer Protection Act by a 417-3 vote.i Although the legislation failed to advance in the Senate, the overwhelming House support illustrates growing concern over electricity affordability.
Developers already fund substantial infrastructure dedicated to their projects. The emerging debate concerns how much responsibility they should bear for broader generation and transmission investments.
The amounts involved can be substantial. One major utility has estimated approximately $250 million in transmission network upgrades for every gigawatt of additional data-center demand.ii Meanwhile, leading data-center REITs are underwriting new development at double-digit stabilized yields.iii
Who ultimately bears these infrastructure costs-and whether they are recovered through rents, utility rates, or other arrangements-can materially affect development returns and shareholder value.
Operators with secured power, favorable utility agreements, and existing infrastructure may enjoy meaningful advantages over those facing uncertain costs or interconnection delays.
2. Housing: Protecting Existing Assets, Restricting Growth
Housing affordability has become a priority across the political spectrum.
The recently enacted 21st Century ROAD to Housing Act generally restricts large institutional investors from acquiring additional existing single-family homes beginning in January 2027.iv
Importantly, the legislation does not require institutional owners to sell existing portfolios. Build-to-rent development and certain other activities remain permissible, subject to conditions.
For single-family rental REITs, the principal concern is not forced liquidation, we believe itis a narrower runway for acquisition-driven growth.
The value of existing properties and the value of future growth opportunities are two different components of a REIT’s valuation.
A company can continue generating attractive cash flows from its current portfolio while facing limitations on how it reinvests capital.
3. Healthcare: Different Properties, Different Policy Risks
Healthcare real estate demonstrates why broad sector generalizations can mislead.
As Washington debates healthcare spending, skilled nursing facilities face direct exposure to Medicare and Medicaid reimbursement. Funding changes can influence operator margins, rent coverage, and property values.
Senior housing is a different business. Its economics are driven more by private-pay demand, demographics, occupancy recovery, and operating leverage.
Both serve an aging population, but their exposure to federal healthcare policy differs substantially.
Healthcare real estate should be evaluated property type by property type, not as a single political or demographic trade.
4. Tax Policy: The Economics of Reinvestment
Recent federal tax legislation restored 100% bonus depreciation for qualifying investments and modified business interest-deduction calculations.v
These provisions are designed to improve after-tax returns for eligible investments, although REITs operate under a distinct tax structure and benefits vary by asset type and ownership structure.
The next Congress could influence future amendments and related tax priorities. But the more interesting investment question may involve second-order effects.
Favorable tax treatment can encourage development and attract competing capital, potentially increasing future property supply.
A tax benefit that encourages development does not necessarily translate into higher long-term returns for every property owner.
5. Interest Rates: The Quiet Giant
We believe that elections do not directly determine interest rates. But fiscal policy, federal borrowing, inflation expectations, and Treasury yields influence real estate financing costs.
Post-election decisions could affect the cost-of-capital environment, with uneven consequences across REITs.
A company refinancing substantial debt over the next two years faces different risks than one with long-duration, fixed-rate financing. Similarly, developers dependent on external capital are more exposed to higher financing costs than companies funding growth internally.
Balance sheet quality, debt maturity profiles, and access to capital may matter as much as property fundamentals.
Looking Beyond November 3rd
We do not believe REIT portfolios should be constructed solely around predictions of electoral outcomes.
Instead, we focus on how policy changes can affect three things: existing cash flows, future investment opportunities, and the cost of capital.
In our view, markets often focus on the immediate implications of policy announcements while overlooking longer-term effects on capital allocation.
Restrictions on acquisitions may leave existing property income untouched but reduce future growth. Higher infrastructure costs may have little impact on operating data centers while reducing the profitability of new development. Healthcare reimbursement changes may affect one property type while leaving another relatively insulated.
At Easterly Ranger, we believe these distinctions are central to disciplined, company-level fundamental research.
The opportunity for active REIT investors is not predicting election outcomes. It is recognizing when policy changes may alter the economics or risks of future investment before those changes are fully reflected in valuations.
ii https://www.utilitydive.com/news/firstenergy-capex-transmission-doe-gas-plant-earnings/812548/
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