How Trump policies will reshape the real estate investment landscape

The real estate industry is entering a period of transition as President Trump’s policies reshape real estate, introducing significant changes to real estate financing, federal leasing and workplace policies.

These policy shifts are expected to reshape real estate investment strategies, property valuations and market dynamics, creating both challenges and opportunities for investors and developers.

These shifts also come amid existing challenges of rising interest rates and increased insurance premiums that have already begun to constrain some real estate deals.

Interest rates at their highest levels in years have fundamentally altered deal economics, and insurance premiums have created an additional barrier to deal flow. Rising premiums, driven by increased catastrophic weather events and broader risk reassessment in the real estate sector, are squeezing deal margins from another angle.

The combined effect of higher insurance costs and interest rates has materially reduced the amount of capital available for new investments, forcing many deals to be restructured or abandoned entirely. This capital constraint is particularly acute in development projects where both construction insurance and financing costs have escalated simultaneously.

But where will new administration policies come into play?

Proposed tax changes could shift investment strategies

The approaching sunset of key Tax Cuts and Jobs Act (TCJA) provisions is forcing a reassessment of real estate investment structures. Section 199A deduction is set to expire at the end of 2025, which currently allows owners of pass-through entities to deduct up to 20% of qualified business income, effectively increasing after-tax returns on real estate investment. Owners are weighing whether to maintain pass-through structures or convert to C corporations to preserve the 21% corporate tax rate.

Simultaneously, proposed changes to Section 163(j) limitations could alter how real estate deals are financed if they allow for more interest expense to be deductible. Restoring 100% bonus depreciation would allow real estate investors to retain more capital through reduced tax obligations, potentially offsetting some of the current market headwinds caused by higher interest rates.

The administration is also considering extending opportunity zone regulations, which could allow investors to defer capital gains for longer periods. This extension would effectively increase the pool of investment capital available for real estate development, particularly in designated improvement areas. The expanded timeline would give investors more flexibility in executing their development strategies while maintaining the program’s core benefits.

Federal space efficiency overhaul

One of the most immediate impacts of President Trump’s first days in office stems from the “Utilizing Space Efficiently and Improving Technologies Act,” which mandates substantial changes to federal real estate and occupancy standards. The law establishes a benchmark of 150 usable square feet per person and requires federal agencies to maintain at least 60% occupancy rates.

The new occupancy requirement shifts the federal real estate strategy. For financial institutions financing federal-tenanted properties, these changes require a careful reassessment of underwriting criteria and vacancy risk calculations.

The mandate for space reduction when agencies fail to meet occupancy targets will be significant for investors in federal-leased properties. Properties housing agencies that consistently fall below the 60% threshold face consolidation or disposal risks, potentially affecting their long-term investment value.

Properties with specialized facilities such as laboratories and public-facing spaces may fare better, as these are specifically exempted from the new requirements. There is increased interest in financing properties with mixed-use components that include these exempt spaces, as it’s becoming a key factor in risk assessment.

Return-to-office mandate impacts market outlook

A new executive order mandating federal employees’ return to in-person work could impact office space demand in major federal hubs. However, the interplay between return-to-office requirements and new space occupancy standards creates some uncertainty about net space demands.

Financial institutions are particularly focused on markets with high concentrations of federal tenants, such as Washington D.C., Northern Virginia and other regional government centers. The combination of return-to-office mandates and stricter occupancy requirements is prompting a reassessment of property valuations in these markets.

Energy credits and sustainability initiatives

The sector is also closely monitoring opportunities related to energy credits and sustainable building requirements. With the administration’s focus on reducing regulatory burdens, there is potential for streamlining green building requirements while maintaining access to valuable energy credits. But at this time, it isn’t likely that all incentives will be repealed.

Real estate leaders are continuing to optimize their approach to energy credits within the new regulatory framework. There’s significant potential to enhance returns through the strategic use of these incentives, particularly in properties requiring modifications to meet new federal space requirements.

Construction and compliance considerations

Recent policy changes significantly affect construction and renovation costs. Trump initiated steps to impose a 25% tariff on all goods imported from Canada and Mexico, effective February 1, 2025. These tariffs are broad, with no product or industry exemptions currently announced. The Trump administration has also signaled plans for a 10% tariff on Chinese goods, with the potential for increases. No timeline has been set for Chinese tariffs.

Markets with established international supply chains may face higher cost increases, while those with stronger domestic supplier networks could gain competitive advantages.

The proposed Revitalizing Downtowns and Main Streets Act would provide tax credits for office-to-residential conversions. Analysis suggests that the credit could make conversion projects more financially viable, potentially unlocking significant value in properties affected by federal consolidation efforts.

The lending community is already developing specialized financing products to support these conversion projects — the combination of tax credits and federal policy changes is creating unique opportunities in the adaptive reuse space. Bridge financing solutions could help property owners transition through the conversion process.

Beyond the impact of tariffs on material costs, contractors and developers must navigate new compliance requirements. The administration’s executive order on “Ending Illegal Discrimination and Restoring Merit-Based Opportunity” has eliminated certain contracting requirements, though careful attention to evolving compliance obligations is essential.

How the real estate sector can respond and adapt

Real estate investors and developers should focus on several key areas as these policies evolve:

• Evaluate investment structure options ahead of 2025 tax changes.
• Assess federal-tenant properties against new occupancy requirements.
• Analyze conversion opportunities under proposed tax credit programs.
• Monitor construction cost impacts from trade policies.
• Explore opportunity zone investment extensions.
• Optimize energy credits in development and renovation projects.

It will be important to pay careful attention to:

• Implementation timelines for federal property requirements.
• Tax structure implications for different investment vehicles.
• Construction cost trends affected by trade policy.
• Energy credit program evolution.
• Opportunity zone regulation changes.
• Increased insurance costs.

How Wipfli can help

Being successful following changes in a new administration requires deep expertise in both real estate and policy implementation. Our real estate advisory team can help you understand how these changes affect your specific properties and investment strategies. We provide targeted guidance on tax structure optimization, federal tenant strategies and development opportunities in this new environment.

To hear more of our perspective, visit our real estate page or contact us to learn more. For continuous updates on administration policies impacting the real estate sector, follow our policy updates page.