One Big Beautiful Bill
Status: Approved July 2025
An analysis of the policy changes in the Big Beautiful Bill that will affect the commercial real estate market in New York City and other markets across the U.S.
Capital Investment & Depreciation Incentives
What Happened: This is a two-pronged enhancement of depreciation benefits. First, the bill reverses the scheduled phase-down of bonus depreciation from the 2017 Tax Cuts and Jobs Act (TCJA). Instead of falling to 40% in 2025 and being eliminated thereafter, the rate for 100% first-year bonus depreciation was reinstated and made permanent for qualifying assets (like equipment, land improvements, and property components with a life of 20 years or less) acquired and placed in service after January 19, 2025. Second, the law introduced a powerful, new, and separate elective 100% depreciation allowance specifically for "Qualified Production Property" (QPP). This allows a developer or owner-user to immediately write off the entire cost of a newly constructed factory, refinery, or production facility in the United States.
Asset Classes Impacted
  • Development (Industrial/Manufacturing): The primary target of the QPP provision, creating an unprecedented incentive for new domestic manufacturing facilities.
  • Industrial (Existing Assets): A major beneficiary of bonus depreciation, as cost segregation can unlock immediate write-offs for components like loading docks, racking, and electrical systems
  • Retail (New & Existing): Highly relevant for the asset class’s constant need for capital-intensive tenant improvements (TIs) and property renovations to attract and retain tenants.
  • Multifamily (Value-Add & Preservation): Boosts returns for renovations by allowing immediate expensing of items like new appliances, flooring, and fixtures identified through cost segregation.
  • Office (Repositioning & Leasing): Provides a critical tool to help offset the high cost of modernizing older buildings and funding the large TI packages required to compete for tenants.
Geographic Impact of Depreciation Incentives
In New York City: The QPP and bonus depreciation incentives will be most impactful in the city's industrial zones. Look for a surge in development and redevelopment activity in the Bronx (especially the South Bronx), Queens (in logistics-heavy areas around JFK Airport like Maspeth and College Point), and Brooklyn (in industrial precincts like Sunset Park and East New York).
Outside New York City: The QPP provision will drive a boom in manufacturing and logistics corridors across the country, particularly along major interstates in the Midwest (OH, IN, MI) and the Southeast (GA, SC, AL) where land and labor are more available. Bonus depreciation will benefit all markets but will be especially useful in fast-growing Sun Belt cities where significant new construction and renovation is ongoing.
Market Outlook/Impact
This change significantly increases the value of cost segregation studies, making them a critical consideration at the time of acquisition. Accelerating capital expenditures into the post-January 2025 window can meaningfully improve project IRRs, particularly for assets with large improvement budgets. The policy is expected to drive substantial activity in industrial development.
Affordable Housing Production Incentives
What Happened: The bill delivered a landmark, permanent expansion of the Low-Income Housing Tax Credit (LIHTC) program, the nation's primary engine for creating affordable rental housing. The legislation enacted two critical changes: it permanently increased the annual 9% LIHTC state allocation ceilings by 12.5%, giving states more competitive credits to award. More consequentially, it permanently reduced the "50% test" to a "25% test." This means a project now only needs to be financed with 25% tax-exempt private activity bonds to automatically receive the non-competitive 4% LIHTCs, vastly expanding the pool of developments that can access these credits.
Asset Classes Impacted
  • Development (Affordable Housing): The direct and intended beneficiary. This makes building new affordable housing significantly more feasible and scalable nationwide.
  • Multifamily (Market-Rate): Indirectly impacted, as the surge in new, high-quality affordable supply may create some rent competition at the lower end of the market-rate spectrum.
Geographic Impact
In New York City: This will fuel a development boom for affordable housing, but not in Core Manhattan. The impact will be concentrated in areas with available land and strong community need, such as the Bronx, Northern Manhattan (East Harlem, Washington Heights), Central and East Brooklyn, and parts of Queens like Jamaica.
Outside New York City: The impact will be immense in two main areas: high-growth Sun Belt cities (e.g., Phoenix, Austin, Atlanta) facing severe affordability crises due to population influx, and postindustrial Rust Belt cities (e.g., Cleveland, Detroit) where there is a need to replace aging housing stock.
Market Outlook/Impact:
This represents a seismic shift for developers focused on affordable housing. It is expected to create a surge in demand for development sites that can accommodate these projects, along with increased activity around structuring complex bond and tax credit deals.
Repeal of Green Energy & Efficiency Incentives
What Happened: In a stark policy reversal, the bill terminated or severely curtailed key federal incentives for green building that were enacted in the 2022 Inflation Reduction Act (IRA). Specifically, it repeals the Section 179D energy-efficient commercial building deduction for any project that begins construction after June 30, 2026. It also rescinds all unobligated funding for the Green and Resilient Retrofit Program (GRRP), a multi-billion dollar HUD program that provided grants and loans for energy efficiency and climate resilience upgrades in multifamily housing.
Asset Classes Impacted
  • Office (Older Stock): The most heavily and negatively impacted asset class, as owners lose a key subsidy to help pay for upgrades mandated by local laws.
  • Multifamily (Preservation of Older Stock): Owners of older affordable and market-rate properties lose access to GRRP funds, making it more expensive to finance retrofits that lower utility costs for them and their tenants.
  • Development (All Classes): While new construction can be designed for efficiency, the loss of incentives like 179D removes a financial tool that helped offset the cost of higher-quality, more sustainable building systems.
Geographic Impact & Market Outlook
In New York City: The pain from this repeal will be felt most acutely in Core Manhattan (Midtown, Midtown South, Financial District), which has the city's highest concentration of aging Class B and C office towers now facing the full, unsubsidized cost of complying with Local Law 97. Older multifamily buildings in all five boroughs are also negatively impacted.
Outside New York City: The impact will be concentrated in other states and municipalities that have their own building performance standards, such as California, Washington state, and Boston. Owners in these "blue" jurisdictions are now at a significant financial disadvantage compared to owners in regions with no such local mandates.
Market Outlook/Impact
This will accelerate the "brown discount" phenomenon, where older, less efficient buildings become functionally obsolete and trade at a significant discount. It poses substantial risk for owners of aging portfolios, while creating a clear opportunity for well-capitalized value-add investors to acquire and reposition these assets through targeted upgrades.
Permanent Pro-Investor Tax Framework
What Happened: The bill provided long-term certainty by making several foundational provisions from the 2017 TCJA permanent. The 20% Qualified Business Income (QBI) deduction under Section 199A, a cornerstone for pass-through entities (LLCs, partnerships), was made permanent, preventing a massive tax hike. The law also permanently relaxed the limitation on business interest deductions under Section 163(j), reverting to the more generous EBITDA-based calculation instead of the restrictive EBIT standard. Finally, the crucial Section 1031 "like-kind" exchange, which allows for the deferral of capital gains on property sales, was preserved for real property.
Asset Classes Impacted
  • All Asset Classes (as pass-through entities): The permanent QBI deduction solidifies the tax efficiency of the most common ownership structures in real estate.
  • All Asset Classes (using leverage): The relaxed interest deduction limit is a major tailwind for any leveraged property, making debt more tax-efficient.
  • All Asset Classes (for transactions): The preservation of Section 1031 is the bedrock of transactional velocity, allowing for tax-efficient portfolio repositioning.
Geographic Impact
In New York City: This provides critical stability across all five boroughs. The preservation of the 1031 exchange is essential for the high-velocity transaction market in Core Manhattan and Core Brooklyn, while the QBI deduction is a fundamental benefit for the countless small to mid-size property owners throughout Queens, the Bronx, Outer Brooklyn, and Staten Island.
Outside New York City: This provides a stable investment framework for all U.S. markets, from primary coastal hubs to smaller secondary and tertiary markets. The certainty allows for more confident long-term capital planning for investors everywhere.
Market Outlook/Impact
This establishes a new foundation for commercial real estate financial modeling. The long-term certainty eliminates the legislative overhang that previously created uncertainty in the market. It reinforces the pass-through entity as a highly tax-efficient structure and preserves the attractiveness of leverage. The continuation of 1031 exchanges supports portfolio repositioning and is expected to sustain transaction volume.
FY2026 HUD Budget
What Happened: The U.S. Senate Committee on Appropriations approved its fiscal year (FY) 2026 spending bill for the Department of Housing and Urban Development (HUD), representing a stark contrast to the House's proposal. The bill provides HUD with $73.3 billion, over $5.5 billion more than the House bill and a $3.3 billion increase from the FY25 enacted level. The Senate's proposal rejects the deep cuts and controversial policy changes from the House, instead providing level funding or modest increases to most programs.
Key provisions include restoring the HOME Investment Partnerships Program to $1.25 billion, reversing the House's proposed elimination. The bill increases Project-Based Rental Assistance (PBRA) by $514 million to $17.4 billion and Tenant-Based Rental Assistance (TBRA) by $1.8 billion to $33.97 billion. However, the TBRA increase is considered insufficient to renew all existing vouchers. Funding for Homelessness Assistance Grants is increased by $479 million. In a significant negative development, the bill provides no funding solution for the Emergency Housing Voucher (EHV) program, which faces an urgent funding cliff threatening the stability of 59,000 households.
The Trump administration and the House released budget proposals earlier with deep cuts earlier this year. The U.S. Senate Committee on Appropriations approved its own, more generous spending bill on July 24, 2025. With the two bills over $5.5 billion apart, the House and Senate must now negotiate a final, compromise bill to be passed and signed into law before the October 1, 2025, deadline to avert a government shutdown.
Asset Classes Impacted
  • Existing Affordable (Public Housing & PBRA): The bill provides critical stability by fully funding the renewal of Project-Based Rental Assistance contracts serving about 1.2 million households and allocating $7.334 billion to the Public Housing Fund.
  • New Development (Affordable Housing): This asset class is directly impacted by the elimination of all funding for the HOME Investment Partnerships Program, which will create a significant financing gap for new construction projects.
  • Supportive Housing (Elderly & Disabled): This sector receives targeted increases, with funding for Housing for the elderly rising by $18.6 million and Housing for Persons with Disabilities by $5.1 million, ensuring full renewal of housing contracts for these vulnerable populations.
Geographic Impact
In New York City: This provides critical stability for the city's vast existing affordable housing stock. The continued funding for the Public Housing Fund and renewal of Project-Based Rental Assistance contracts are essential for properties across all five boroughs. However, the elimination of HOME program funds removes a crucial tool used to finance new affordable development from the South Bronx to outer Brooklyn.
Outside New York City: This provides a stable operational framework for existing affordable housing in all U.S. markets. However, the bill halts a key source of development capital by providing no funds for the HOME program, impacting new construction in both high-growth Sun Belt cities and underserved rural communities.
Market Outlook/Impact
This bill signals a fundamental shift in federal housing policy toward preservation over new development. Long-term certainty for rental assistance renewals provides a stable foundation for financial modeling of existing affordable housing assets. In contrast, the elimination of HOME funding delivers a systemic shock to the development pipeline. The proposed 26% cut to HUD staffing introduces significant operational risk, with the potential to delay federally involved transactions and regulatory oversight.