At Scarlett Harper, we specialize in South Florida Commercial Properties, providing unique insights into emerging market trends. As policy shifts continue to shape the investment landscape, staying ahead of legislative developments is essential to maximizing opportunity and managing risk. One of the most significant developments on the horizon is the Senate’s proposed One Big Beautiful Bill, which could reshape commercial real estate more deeply than any measure since the 2017 Tax Cuts and Jobs Act. Investors are already recalibrating acquisition models and exit strategies in anticipation.
Among the bill’s most impactful elements are the provisions that reinforce core CRE tax advantages. The legislation restores full expensing and one hundred percent bonus depreciation, allowing owners to deduct eligible capital investments immediately rather than over decades. It also makes the twenty percent Qualified Business Income deduction permanent while widening the phase in range, preserving a powerful shield for the pass through entities that dominate the industry. Just as important, lawmakers left Section 1031 like kind exchanges, carried interest treatment, and capital gains brackets untouched, giving sponsors predictable exit math and limiting tax drag on internal rates of return.
Affordable housing and Opportunity Zone incentives are also positioned to expand long-term investor strategy. The bill permanently increases allocations of the nine percent Low Income Housing Tax Credit and lowers the bond financing threshold for four percent credits from fifty to twenty five percent, enabling more projects to reach feasibility with less tax exempt debt. Opportunity Zones, previously scheduled to sunset in 2026, would become a permanent part of the code under revised tract criteria and expanded state authority, expanding the universe for long hold, tax advantaged investment strategies.
Cross-border capital markets, a critical component of liquidity in CRE, are also affected. The late removal of Section 899, a retaliatory withholding regime directed at investors from protectionist countries, eliminates a potential drag on sovereign wealth funds, insurance companies, and university endowments that have been active buyers in Sun Belt and gateway cities. Proposals aimed at foreign controlled entities were scaled back as well, reducing the risk that international capital will retreat from United States real estate allocations.
Despite these favorable tax reforms, rising interest rates still cloud the outlook for asset pricing. Permanent tax relief widens the federal deficit, forcing the Treasury to issue more long dated securities while the Federal Reserve remains focused on containing inflation. Greater supply of government bonds is likely to push the yield on the ten year note higher, driving up the cost of term debt and construction loans. Lenders are unlikely to compress spreads, meaning borrowers face a combination of higher risk free rates and cautious underwriting.
Higher financing costs are likely to weigh more heavily on valuations than the revenue uplift associated with the bill. As capitalization rates adjust, the gap between buyer expectations and seller aspirations may widen, prolonging negotiation periods and encouraging caution among would-be sellers. Rate sensitive property types such as single tenant retail or data centers may feel the effects first, while affordable housing and repositioning opportunities linked to tax incentives could see relative strength.
These same incentives may create attractive, targeted plays for well-positioned investors. Developers with shovel ready affordable housing projects now benefit from lower financing thresholds and richer tax credit allocations, allowing them to move forward while more conventional projects stall. Opportunity Zone funds gain flexibility and permanence, allowing a longer runway for transformative redevelopments. Owner operators pursuing heavy capital improvements can benefit from accelerated depreciation and stepped up basis treatments, partially offsetting higher interest burdens.
Although reconciliation with the House may adjust some provisions or effective dates, the Senate version signals a definitive policy shift. CRE investors face a more favorable tax environment, but must navigate a structurally higher cost of capital. Those who integrate both realities into their planning, pursue lower leverage, and adjust hold periods stand to benefit most from the reset in valuations.
The One Big Beautiful Bill represents more than just tax relief. It signals a renewed commitment to incentivizing long-term investment, housing development, and cross-border capital flow. At the same time, it introduces a new reality where fiscal expansion coexists with tighter financial conditions. For commercial real estate professionals, the next cycle will favor those who match precision tax strategy with disciplined capital planning and move decisively as the market reprices.