July 11, 2025 • 30 mins
The One Big Beautiful Bill is now law, and its impact on housing could be massive.
The Low-Income Housing Tax Credit received its biggest reform in 25 years, including halving the requirements of how much of its funding must come from municipal bonds.
LIHTC and the Opportunity Zones program were both made permanent, and major adjustments to OZs — including a wave of new zones to come and a new focus on rural areas — could supercharge housing development.
It’s not just a welcome step from the U.S. government, Camden President and Chief Financial Officer Alex Jessett said on this week’s episode — new tax treatment and a deregulation push are absolutely critical to get housing supply up and start to chip away at the nation’s affordable housing crisis.
Register on Bisnow.com to join next Friday's conversation live, or check back here for the conversation after it airs.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Mark Bonner (00:11):
Okay. Welcome to First Draft Live. It's Friday,
June 11. I'm your host, MarkMark Bonner, business owner and
chief, and I'm coming to youlive from New York. We're
thrilled to have so many of youtuning in from across The U.
S. And abroad. And we're comingto you just days after President
Trump signed a sweeping newhousing and tax law bill, the
(00:31):
biggest change in decades forreal estate. It's nearly 900
pages of a tax and spendingpackage with ripple effects set
to hit everything from ground updevelopment in the Sun Belt to
to institutional capital stacksin New York, Chicago and Los
Angeles. It's called the One BigBeautiful Bill, because of
course it is.
And it's already sendingdevelopers back to the
(00:53):
spreadsheets. On today'sepisode: Is This the Future of
American Housing? The bill makesOpportunity Zones permanent,
slashes the bond financingthreshold for affordable
housing, and locks in a host oftax breaks aimed at
supercharging development. Butit also strips
$1,000,000,000,000 fromMedicaid, kills green retrofit
(01:15):
incentives for landlords, andpulls the poll on energy credits
that were helping to keephousing more affordable and
sustainable. So is this alifeline for developers, a new
housing blueprint for America,or a high risk bet that could
reshape supply and renterstability in ways we do not yet
fully understand.
(01:35):
Joining us today to unpack itall is Alex Jessett, President
and CFO of Camden PropertyTrust. Alex has helped steer
Camden through more than$25,000,000,000 in real estate
transactions over the past twodecades, overseeing everything
from construction and capitalmarkets to asset management,
sustainability and risk. He isone of the most respected
(01:56):
financial and operational mindsin the multifamily REIT space.
Alex, welcome to the show. Iknow you're calling in from
Houston.
Alex Jessett (02:03):
Glad to be here, and happy Friday to everybody.
Mark Bonner (02:08):
Happy Friday indeed. So let's jump on in.
This is the most sweepingcommercial real estate tax bill
in decades. From bonusdepreciation in LITEC, OZ
reform, REIT flexibility andmore, Alex, what's the single
biggest change in this bill fromyour perspective, both from a
Camden perspective and also fromthe housing sector more broadly?
Alex Jessett (02:31):
So first of all, let me say that I'm encouraged
by certain provisions of the OneBig Beautiful Beautiful Bill,
which really should help solvethe significant nationwide
housing shortage we have. Thereality is that by and large new
market rate starts are justuneconomical today with our
(02:51):
current rental rates, highconstruction costs, and high
interest rates. They just aren'tgenerating a high enough yield
to make it profitable fordevelopers or for the equity
providers. So, in order to solvethe housing shortage problem,
government at both the federaland the local levels need to be
doing everything they can toencourage developers to develop.
(03:15):
And the only way to effectivelyencourage developers to develop
is to help make the developmentmath work.
I It really is economics 101 andunfortunately, the development
math isn't working today andthat's why I believe that many
of the provisions of the one bigbeautiful bill really should
help spur new developmentparticularly at the low or
(03:39):
affordable income levels. So theone that I look at is the
expansion of LITECH and itreally is a big deal. My sources
are telling me that the LITECHexpansion should add about
1,200,000 affordable units overthe next ten years. Now think
about it today, we have ashortage of about four to
(04:01):
5,000,000 units. So adding1,200,000 alone from the LITEQ
expansion is a big deal.
Now, unfortunately, it'smeaningful, but it doesn't solve
the whole problem. What wereally need to do is we need to
get local government on board tohelp solve some of the
regulatory pressures, which arealso adding to development
(04:23):
costs. You know, it'sinteresting, we believe that
about 40% of the cost ofbuilding a new multifamily
development is associated withregulatory compliance. And
that's just too much. It'sperpetuating the housing
shortage that we have in thiscountry, which as I told you is
really detrimental.
(04:44):
So I think LITEQ is a big deal,but I do also want to point out
that the other provisions of thebill such as making permanent
certain tax cuts is also reallyimportant because what I'll tell
you is that real estateinvestors hate uncertainty. And
if they don't know what the taximplications are going to be,
(05:04):
that's going to lead them to notwant to invest dollars. So
putting a lot of those tax cutsand making them permanent is a
big deal. And if we weren'tgoing to do that, it would
continue to exacerbate thedevelopment problem we have,
which of course exacerbates thesupply problem.
Mark Bonner (05:21):
Right. And look, there's a difference between
solve and on the road tosolving. I mean, a certain
perspective, and the data doesnot lie, We needed this solution
to the housing crisis years ago.And even with one big, beautiful
bill talking about the unitsthat you're that are going to
come online in the next tenyears, that's not enough. We
that won't be enough to catchup.
(05:42):
And then you mentioned localpolitics. This bill doesn't
directly address that, Alex.However, this is a bipartisan
issue. Neither both theDemocrats and the Republicans
will agree that the housingsupply is one of the things that
must be done in this country.But between political noise,
insurance pricing, andconstruction volatilities,
(06:04):
developers are still hesitant,even despite what has happened
in the last seven days.
Has the national Build MoreHousing drumbeat meaningfully
shifted Camden's posture here?Are you ramping up, or is this
just the beginning of morelegislation that is going to be
needed at any level to seriouslyaddress this crisis?
Alex Jessett (06:23):
So here's what I will tell you is developers,
including Camden, will developif it is profitable. And as I
mentioned earlier, developmentis just not profitable today.
Construction costs are too high.Interest rates are too high. If
you think about rental rates,they're not high enough to make
the math work.
(06:44):
And so we have to have solutionsthat make deals more economical.
The easiest thing that we coulddo, and to your point, is at the
local level, is we can havelocal governments dial back on
some of the regulatory pressurethat they're putting in place.
That is what's addingtremendously to the construction
(07:05):
cost. 40% addition toconstruction cost is huge. If
you got rid of all of that, I'mnot saying you could, but if you
got rid of all of that, Ipromise you that the supply
spigot would open up and wewould have far more supply in
this country.
But that has to happen from thelocal government level. Now, I
(07:25):
do believe, and I've certainlyheard rumblings, I'm sure you
have as well, from the federalgovernment that if the federal
government is going to do all ofthese things to encourage new
housing that they are going totry to encourage local
municipalities to also do theirpart, whatever that means. And
so I think you're going to startto see some additional pressure
(07:46):
from the federal government. AndI think where you're really
going to see it, and youmentioned it really briefly, is
on opportunity zones. If youthink about opportunity zones,
and we can talk about thislater, but opportunity zones is
a federal tax benefit.
And if the federal government isgoing to give a federal tax
benefit to something that is forthe betterment of the local
(08:09):
community, then it makes sensethat there should be some
encouragement from the federalgovernment for the local
government to do what they needto do to help really push
forward what the ultimate goalis for opportunity zones.
Mark Bonner (08:24):
Well, you said it. I mean, I think the word of the
year is uncertainty. We said itagain and again and again, and I
think we said it so much thatwe've forgotten what this means.
But let me try. Tariffs, housingcuts, tax reform, interest
rates, global politics, supplychain issues, the list goes on.
(08:46):
Investors are dealing withwhiplash. Commercial real estate
is dealing with whiplash,uncertainty. The political
environment itself may be agating factor in capital
deployment despite what happenedwith one big beautiful bill and
however that is executed overthe next few years. How much is
policy unpredictabilityimpacting Camden's strategic
(09:09):
planning right now? Areinvestors asking more questions
about this political risk, Alex?
And how do you explain it?
Alex Jessett (09:14):
Yeah, so what I will tell you is right
uncertainty is I think I sawthat uncertainty was the most
commonly used word on earningscalls in the first quarter. But
let's put uncertainty aside fora second and let's talk about
multifamily. Here's what we knowin multifamily. We know that
supply is dropping off thecliff. We know that absent any
(09:38):
type of local or globalrecession demand for multi
family housing remains reallystrong.
So, with all of those thingssaid, if it wasn't for the issue
that construction costs are toohigh, interest rates are too
high, and rental rates, althoughlots of folks would argue that
(10:00):
they are too high, I'm goingtell you they're really not for
for the math that goes intomaking a development decision.
Developers and everybody thatfunds developers will be putting
lots of money in to newmultifamily development. The
problem is that we need one ofthose three or a combination of
those three factors to adjustthemselves. And so, if you think
(10:23):
about it, most people who trackthe multifamily world closely
recognize that 2026 and 2027 and2028 are probably going be very
strong years for the multifamily business entirely because
you have less supply, right? Theproblem is that we also need to
see these construction costscome down.
(10:44):
Now construction costs are goingto start coming down and they're
going to start coming downsimply because subcontractors
that are involved in the processwill start to shrink their
margins because they have lesswork. So that will happen. And
then you need interest rates tocome down and interest rates
theoretically will come downover a period of time. But until
(11:05):
those three factors play out,you're not going to see equity
providers running to merchantbuilders and multi family
developments and saying, here'smoney, let's go put it in and
let's go start building somereal estate. Now, my gut is is
that that probably will start tohappen in '26 when you start to
see increases in revenue butsomething that happens or starts
(11:27):
in '26 isn't delivered till02/1930.
Mark Bonner (11:31):
So look, there's been a lot of doom and gloom
headlines, right, the last fewmonths on all of this, right?
But it's all based in reality,it's the data. The data doesn't
lie, right? But when the bigbeautiful bill came to pass,
that was a gust of wind in a lotof people's sails, right?
Straight after that happened,Alex, did you see more equity or
(11:52):
lender interest on your endcome, or is capital still
cautious?
Is there actually moreenthusiasm backed up with action
here? I guess is what I'masking.
Alex Jessett (12:00):
Yeah, and so I'd break it into two components.
First, let's talk about lenders.Lenders have a very robust
appetite for multi familydevelopment and multi family
acquisition. They absolutely do.The banks are trying to expand
their positions.
It is good business on thelending side. So, let's talk
about the equity side. Theequity side is very bullish on
(12:26):
acquisitions and so there's alot of equity that's out there
looking for acquisitions. Now,of course, acquisitions doesn't
help solve the housing shortagewhich needs to help solve the
housing shortage is newdevelopment. The challenge that
we have today and I'm not goingto go back through all the
things we just talked about butyou can buy almost across the
(12:47):
country acquisitions at adiscount to replacement cost.
If you can buy an acquisition ata discount to replacement cost,
then that inherently means thereis no profit in a new
development. If there is noprofit in a new development,
then an equity provider is farmore likely to put their money
into an acquisition than a newdevelopment. It really is that
(13:11):
simple. If you think about theway the development business
works particular in themultifamily, is almost
everything that's built in thiscountry is built by a merchant
builder. That is somebody whodevelops to sell.
They're effectively amanufacturer. And that
manufacturer is hired by anequity provider to build a
product and to then sell thatproduct at a profit. If deals
(13:35):
are trading at a discount toreplacement cost, then
inherently there is no profit.And if that's the case, then
equity providers are not thatencouraged that they want to go
out and hire somebody to build aproduct that there may not be
any profit. So, that is why, asI said earlier, we have to
change a lot of the fundamentalsand a lot of it is around the
(13:56):
cost structure associated withdevelopment.
If we can do that, then all of asudden the cost is less, that
will encourage more equity tocome into the game, put equity
into developments, that willhelp solve the four to 5,000,000
units that we have as a shortageacross the country. That is what
we need to see.
Mark Bonner (14:19):
Okay, if you're just tuning in, we're unpacking
the biggest tax shift to hit U.S. Housing in a generation and
what it means for multifamilydevelopment, affordability and
investor strategy. We're herewith Alex Jessett, President and
CFO of Camden Property Trust.Alex, let's go to a question
from the audience.
Can you explain qualifiedproduction property deductions
(14:40):
as you understand it? Wouldn'tthis be a solution to offset the
cost of development?
Alex Jessett (14:46):
So I'm not going to get into the full details of
the taxes, but here's what Iwill tell you. Tax cannot drive
a development decision. Those ofus who were around in the
eighties saw what happened whentaxes became the tail that
(15:09):
wagged the dog and then all of asudden, the tax bill changed and
you ended up with all of thisreal estate that did not make
economic sense absent the taximplications. And so that's why
I say with all of the factorsthat we look at including
opportunity zones, anopportunity zone in of itself is
(15:32):
not the panacea. It is not thesolution.
It is part of a solution but thedeal has to make sense on its
own, right? When you take theseadditional tax advantages that
come your way, they can bolstera transaction but it has to work
on its own. So, no, I do notbelieve that in of itself it can
(15:54):
make all these deals work.
Mark Bonner (15:56):
And we got one more from the audience. This is a
good one. I can't wait to hearwhat you have to say here. What
is Camden's treasury rateprojection three years out?
Alex Jessett (16:06):
Whatever it is, is it's wrong. Here's what I'll
tell you. I watch treasury ratesvery closely and every quarter I
pull the estimates of all thebankers and what they believe
the ten year is going to begoing out one year, two years.
And I compare it every singlequarter. And I will tell you
that every single quarter theychange it and every single
(16:29):
quarter they're clearly wrong.
I do believe that interest rateswill come down. Now, how low
they will get? I don't know.What I do know and I feel very
confident about is the days offree money, which is what we
operated for when LIBOR waseffectively nothing and you
(16:50):
could borrow for a very smallamount over nothing, that day of
free money will never come backin my professional career. At
that point in time, you wereable to have this massive
increase in supply, which iseffectively what you actually
needed.
Had You this massive increase insupply because very very low
(17:11):
interest rates solved lots ofproblems. We're not going to get
there again. Now, does the tenyear settle at three and a half
at 3%? Perhaps But I will tellyou if I knew that with any
tremendous amount of certainty,would be on an island somewhere
sipping a margarita.
Mark Bonner (17:30):
Yeah, Alex, I'm with you on this. I mean, if
between now and the end of theyear, even going to q one next
year, even if we see a 100 or150 basis point reduction, okay,
it's still nowhere near where itwas when it was near zero. Why
do you think so many investorsand so many capital markets
players are so hesitant toaddress that reality? Like this
(17:51):
is the new normal, right? We'renot going back to the way it was
pre pandemic.
And it seems to me that it'sbeen awfully slow for so many
people to acknowledge thatreality.
Alex Jessett (18:04):
You know, most folks I talk to do acknowledge
that reality. Challenge that wehave currently when it comes to
interest rates is the volatilityis far more than anybody wants
to see, right? I always say thateverybody in the real estate
world can operate effectively aslong as they know what the rules
(18:25):
of the game are. And part of therules of the game is what are
interest rates, right? And whenyou look at interest rates that
were you know barely over fournot too long ago and today
they're four four, right?
You look at that and you maysay, oh okay, that's 35, 40
basis point increase. That's a10% increase in interest rates.
(18:45):
And it's a 10% increase ininterest rates that happen very
quickly. And if you look at thevolatility of the 10, in my
professional career, thirtyyears of doing this, I've never
seen this level of volatility.That's what's got to really
stop.
And I think as soon as we allsay, we get to a point and
whatever that is, right? If itis four four or if it's three
(19:07):
five, whatever that is, once weknow that we're going to operate
within this band, I think you'regoing to see a lot more people
start to put capital to work. Wejust have to get rid of this
volatility.
Mark Bonner (19:20):
Okay, let's get back to big beautiful bill. So
LITEC gets a big moment. Thebill expands LITEC dramatically,
lowers the bond test from 50% to25%, makes it permanent, and
aims to unlock 1,200,000 units,which you mentioned earlier.
Even if Camden doesn't use LITECdirectly, Alex, how do you see
this impacting housing supplyand the competitive landscape
(19:43):
you operate in? What's thereality here?
Alex Jessett (19:46):
Yeah, mean, so the reality once again is LITECH is
going to have a big impact,1,200,000. So let's say that
that solves 20% of the problem.The rest of the problem can be
solved with market rate housing.Market rate housing, think about
Class A traditional type realestate. The reason why that can
(20:08):
solve much of the problem,there's lots of studies out
there that show that whenever aClass A asset is developed and
put into the system, it actuallycreates affordable housing
because of the trickle downeffect.
Basically, what was an A becomesa B, what was a B becomes a C,
what was a C becomes affordable.So, that's how this works. And
(20:31):
so, what we need to see, as Isaid, is more things that can
also encourage market ratehousing. And the easiest
solution of that to me that canhappen today is it can is the
local municipalities reallystart to encourage multi family
housing. The interesting thingis is that you will always hear
(20:55):
local municipalities say, wewant more housing because they
recognize they need morehousing, but then you have to
fight the nimbyism, the not inmy backyard mentality or the
idea of, I don't want to tell myconstituents that I am
incentivizing somebody who isperceived to be a wealthy
(21:15):
developer.
The problem with that is, isthat developers do want to
build. It just has to makefinancial sense. And today,
deals don't make financialsense.
Mark Bonner (21:27):
Yeah, and to your point, I'll give you a stat
here, NMHC says 60% ofdevelopers are delaying projects
due to construction, but it'salso insurance, and it's demand
uncertainty. Yet, it seems likeCamden is still breaking ground.
I mean, what type of deals aremaking the most sense to you at
this moment?
Alex Jessett (21:46):
So, will tell you, actually don't have that much
demand uncertainty. I feel very,very confident that in
particular the Sunbelt marketswhere we are today, is where the
demand will be. You can look atmigratory patterns in The United
States over a thirty, forty yeartimeframe, and you will see it
as a direct funnel out of theNortheast, the Pacific
(22:08):
Northwest, and the Rust Beltdown to the Sunbelt markets. And
it's really easy to understandwhy. It's affordable and jobs
are plentiful.
And that is what people arelooking for. So I feel very good
about the demand side of theequation. Quite frankly, I feel
pretty good about the supplyside of the equation in terms of
(22:29):
competitive advantage becausethere's not enough supply,
right? Obviously for the good ofthe nation, we need more supply,
but for competitive advantage,we know that supply is falling
off the edge. That's what makesme feel pretty good about doing
some of our developments today.
Insurance is such a hot topic.Here's what I'm going tell you
about insurance. I've been incharge of insurance for two
(22:53):
decades. I have seen thecyclical nature of insurance
replay itself over and over andover again. Everybody has to
remember that insurance is aglobal market.
What happens when you see atsunami, when you see a
wildfire, when you see a war,recognize that the insurance
(23:13):
providers that are coveringthose losses all over the world
are the same insurance providersthat are providing insurance for
multifamily. And so, wheneverthey start to have significant
losses, which is what they hadabout four or five years ago,
they have to increase theirpremiums in order to not only be
(23:35):
profitable in the current year,but to build back their
reserves. And that's exactlywhat happened in 2022. And I
will tell you that Camden'sinsurance in 2022 was up 40%.
Huge number, right?
But in 2023, it was up 20%.Okay, so it's getting better.
Well, here's what I will tellyou is that every insurance
(23:57):
provider that I talked to at theend of twenty twenty two looked
at their 2022 financials andsaid, we're making a ton of
money. Their loss ratios werenowhere near the premiums they
were taking in. And so theysaid, we want more of this book
of business.
How do we get more this book ofbusiness? Well, the reality is,
(24:18):
is that insurance by and largeis a commodity. The way you get
more of that business is youlower premiums. So, our
insurance last year was down17%. I just renewed our
insurance for this year, May.
I renewed it down again. So,yes, there's a lot of noise
(24:40):
around insurance costs going up.I'll tell you they're actually
in the process now of comingback down. Now, do have to
remember though that the wayCamden insures ourselves is that
we have a blanket policycovering 60,000 units across the
country. That is very differentthan what a private person who
has to go out and put anindividual policy in Florida,
(25:02):
what they may see.
And I will tell you that ifyou're a private person trying
to put an individual policy on amulti family development in
Florida, you may see yourinsurance as high as your taxes.
For us, that's not what we'reseeing. Insurance is about 7% of
our total expenses. Taxes are36% of our total expenses. So
(25:24):
we're not seeing a ratioanywhere near that.
That is a competitive advantagefor somebody like Camden because
of the way we insure and becausewe can spread the risk.
Mark Bonner (25:34):
Certainly, it's true that the nature of
insurance is cyclical, but Ithink something that's not
cyclical and is defining themoment of the last half decade,
especially for a variety offactors, natural disasters,
etcetera. Carriers are walkingaway from entire metros. What do
you do about that?
Alex Jessett (25:55):
Well, if you look at the carriers that walking
away from the entire metros,what I will tell you is, and I
did a heat map, if you look tosee where are people moving and
where are the greater losses,they're almost 100% correlated.
So the reality is that peopleare moving and want to live in
(26:18):
the locations that actually dohave significant losses. Now, so
the question that you may askyourself is if you are a
homeowner and you can no longerget insurance and that's really
where you are seeing the issueswhere insurance providers are
saying I'm walking away is onthe is for the homeowners. Does
(26:38):
that perhaps give furtheradvantage to a multi family
provider? Perhaps.
But what it also does, and thisis back to the original point
that we're talking about, isthat may add in additional
demand for multi family furtherexacerbating the supply problem.
And this all circles back aroundto we have to solve the supply
(27:01):
problem that we have in thiscountry. And in order for that
to happen, we've got to get andthat's what we come back to one
big beautiful bill. We have tohave the federal government
support, which is what it lookslike we have today. And then we
need to get the local governmentsupport, which is what we have
in certain municipalities.
We need to see it across thecountry.
Mark Bonner (27:21):
Got it. Alex, we're running a little short on time,
but I do want to get toOpportunity Zones before we go.
OZs are now permanent. Tightereligibility rules and new
reporting mandates, but themajor benefits don't activate
until 2027. Now we're in thequote unquote dead zone.
Do you expect Camden to touchthe OZ program, or is the
delayed timeline a barrier foryou?
Alex Jessett (27:44):
So opportunity zones are primarily a tax issue,
correct? And because Camden isstructured as a REIT, we don't
actually get that significant ofa benefit from an opportunity
zone. So let's sort of put usaside. I do believe that long
term capital will go intoopportunity zones. Yes, there is
(28:06):
a period between '26 and '27.
Listen, we'll get past that.Deals take a while to underwrite
regardless. So I think ifsomebody's looking at a deal
today, it wouldn't start untiltwenty eight, twenty nine,
thirty. So I don't think it'sgoing to have that much of an
impact, but I think opportunityzones are a big deal. I think it
is a very creative way toencourage development in
(28:31):
underrepresented communities.
This is what we need to be doingas a society. So, I'm really a
huge fan of it and I'm a big fanof the fact that we're making
this permanent. I think thiscould really help the areas
where we need to see help, wherethe affordability problem is
most acute.
Mark Bonner (28:50):
Okay, and we're going to end here. What's your
advice to institutional capitalentering the multi space, multi
family space right now? Buy,build, wait?
Alex Jessett (29:00):
My advice for institutional capital is that
you should invest in multifamily REITs that are focused in
the Sunbelt and particularlythose that are in the Sunbelt
that start with a C for Camden.That's my advice.
Mark Bonner (29:16):
Okay, one fun thing really quickly. Alex, I know
you're a huge Texas Longhornsfan, seasons coming up in the
next couple of months.Predictions for the year, is
Arch Manning gonna be a Heismancandidate or are you guys gonna
go win the title?
Alex Jessett (29:27):
I think Arch is a Heisman candidate. I think we
shall see. We had to get pastOhio State and Georgia. Those
are two very, very strong teams.Hopefully we can do it and I'm
looking forward to seeing whatArch can do.
Mark Bonner (29:42):
Okay, that's all the time we have today. Alex,
thank you so much for beinghere. We'll be back with another
episode of First Draft Live nextweek, so don't miss out. You can
sign up now on our event page.You can also find today's
episode and all of our pastconversations on your favorite
podcast app, and also atbizmail.com.
This is First Draft Live. Have agreat weekend, everyone.
Okay. Welcome to First Draft Live. It's Friday,
June 11. I'm your host, MarkMark Bonner, business owner and
chief, and I'm coming to youlive from New York. We're
thrilled to have so many of youtuning in from across The U.
S. And abroad. And we're comingto you just days after President
Trump signed a sweeping newhousing and tax law bill, the
(00:31):
biggest change in decades forreal estate. It's nearly 900
pages of a tax and spendingpackage with ripple effects set
to hit everything from ground updevelopment in the Sun Belt to
to institutional capital stacksin New York, Chicago and Los
Angeles. It's called the One BigBeautiful Bill, because of
course it is.
And it's already sendingdevelopers back to the
(00:53):
spreadsheets. On today'sepisode: Is This the Future of
American Housing? The bill makesOpportunity Zones permanent,
slashes the bond financingthreshold for affordable
housing, and locks in a host oftax breaks aimed at
supercharging development. Butit also strips
$1,000,000,000,000 fromMedicaid, kills green retrofit
(01:15):
incentives for landlords, andpulls the poll on energy credits
that were helping to keephousing more affordable and
sustainable. So is this alifeline for developers, a new
housing blueprint for America,or a high risk bet that could
reshape supply and renterstability in ways we do not yet
fully understand.
(01:35):
Joining us today to unpack itall is Alex Jessett, President
and CFO of Camden PropertyTrust. Alex has helped steer
Camden through more than$25,000,000,000 in real estate
transactions over the past twodecades, overseeing everything
from construction and capitalmarkets to asset management,
sustainability and risk. He isone of the most respected
(01:56):
financial and operational mindsin the multifamily REIT space.
Alex, welcome to the show. Iknow you're calling in from
Houston.
Alex Jessett (02:03):
Glad to be here, and happy Friday to everybody.
Mark Bonner (02:08):
Happy Friday indeed. So let's jump on in.
This is the most sweepingcommercial real estate tax bill
in decades. From bonusdepreciation in LITEC, OZ
reform, REIT flexibility andmore, Alex, what's the single
biggest change in this bill fromyour perspective, both from a
Camden perspective and also fromthe housing sector more broadly?
Alex Jessett (02:31):
So first of all, let me say that I'm encouraged
by certain provisions of the OneBig Beautiful Beautiful Bill,
which really should help solvethe significant nationwide
housing shortage we have. Thereality is that by and large new
market rate starts are justuneconomical today with our
(02:51):
current rental rates, highconstruction costs, and high
interest rates. They just aren'tgenerating a high enough yield
to make it profitable fordevelopers or for the equity
providers. So, in order to solvethe housing shortage problem,
government at both the federaland the local levels need to be
doing everything they can toencourage developers to develop.
(03:15):
And the only way to effectivelyencourage developers to develop
is to help make the developmentmath work.
I It really is economics 101 andunfortunately, the development
math isn't working today andthat's why I believe that many
of the provisions of the one bigbeautiful bill really should
help spur new developmentparticularly at the low or
(03:39):
affordable income levels. So theone that I look at is the
expansion of LITECH and itreally is a big deal. My sources
are telling me that the LITECHexpansion should add about
1,200,000 affordable units overthe next ten years. Now think
about it today, we have ashortage of about four to
(04:01):
5,000,000 units. So adding1,200,000 alone from the LITEQ
expansion is a big deal.
Now, unfortunately, it'smeaningful, but it doesn't solve
the whole problem. What wereally need to do is we need to
get local government on board tohelp solve some of the
regulatory pressures, which arealso adding to development
(04:23):
costs. You know, it'sinteresting, we believe that
about 40% of the cost ofbuilding a new multifamily
development is associated withregulatory compliance. And
that's just too much. It'sperpetuating the housing
shortage that we have in thiscountry, which as I told you is
really detrimental.
(04:44):
So I think LITEQ is a big deal,but I do also want to point out
that the other provisions of thebill such as making permanent
certain tax cuts is also reallyimportant because what I'll tell
you is that real estateinvestors hate uncertainty. And
if they don't know what the taximplications are going to be,
(05:04):
that's going to lead them to notwant to invest dollars. So
putting a lot of those tax cutsand making them permanent is a
big deal. And if we weren'tgoing to do that, it would
continue to exacerbate thedevelopment problem we have,
which of course exacerbates thesupply problem.
Mark Bonner (05:21):
Right. And look, there's a difference between
solve and on the road tosolving. I mean, a certain
perspective, and the data doesnot lie, We needed this solution
to the housing crisis years ago.And even with one big, beautiful
bill talking about the unitsthat you're that are going to
come online in the next tenyears, that's not enough. We
that won't be enough to catchup.
(05:42):
And then you mentioned localpolitics. This bill doesn't
directly address that, Alex.However, this is a bipartisan
issue. Neither both theDemocrats and the Republicans
will agree that the housingsupply is one of the things that
must be done in this country.But between political noise,
insurance pricing, andconstruction volatilities,
(06:04):
developers are still hesitant,even despite what has happened
in the last seven days.
Has the national Build MoreHousing drumbeat meaningfully
shifted Camden's posture here?Are you ramping up, or is this
just the beginning of morelegislation that is going to be
needed at any level to seriouslyaddress this crisis?
Alex Jessett (06:23):
So here's what I will tell you is developers,
including Camden, will developif it is profitable. And as I
mentioned earlier, developmentis just not profitable today.
Construction costs are too high.Interest rates are too high. If
you think about rental rates,they're not high enough to make
the math work.
(06:44):
And so we have to have solutionsthat make deals more economical.
The easiest thing that we coulddo, and to your point, is at the
local level, is we can havelocal governments dial back on
some of the regulatory pressurethat they're putting in place.
That is what's addingtremendously to the construction
(07:05):
cost. 40% addition toconstruction cost is huge. If
you got rid of all of that, I'mnot saying you could, but if you
got rid of all of that, Ipromise you that the supply
spigot would open up and wewould have far more supply in
this country.
But that has to happen from thelocal government level. Now, I
(07:25):
do believe, and I've certainlyheard rumblings, I'm sure you
have as well, from the federalgovernment that if the federal
government is going to do all ofthese things to encourage new
housing that they are going totry to encourage local
municipalities to also do theirpart, whatever that means. And
so I think you're going to startto see some additional pressure
(07:46):
from the federal government. AndI think where you're really
going to see it, and youmentioned it really briefly, is
on opportunity zones. If youthink about opportunity zones,
and we can talk about thislater, but opportunity zones is
a federal tax benefit.
And if the federal government isgoing to give a federal tax
benefit to something that is forthe betterment of the local
(08:09):
community, then it makes sensethat there should be some
encouragement from the federalgovernment for the local
government to do what they needto do to help really push
forward what the ultimate goalis for opportunity zones.
Mark Bonner (08:24):
Well, you said it. I mean, I think the word of the
year is uncertainty. We said itagain and again and again, and I
think we said it so much thatwe've forgotten what this means.
But let me try. Tariffs, housingcuts, tax reform, interest
rates, global politics, supplychain issues, the list goes on.
(08:46):
Investors are dealing withwhiplash. Commercial real estate
is dealing with whiplash,uncertainty. The political
environment itself may be agating factor in capital
deployment despite what happenedwith one big beautiful bill and
however that is executed overthe next few years. How much is
policy unpredictabilityimpacting Camden's strategic
(09:09):
planning right now? Areinvestors asking more questions
about this political risk, Alex?
And how do you explain it?
Alex Jessett (09:14):
Yeah, so what I will tell you is right
uncertainty is I think I sawthat uncertainty was the most
commonly used word on earningscalls in the first quarter. But
let's put uncertainty aside fora second and let's talk about
multifamily. Here's what we knowin multifamily. We know that
supply is dropping off thecliff. We know that absent any
(09:38):
type of local or globalrecession demand for multi
family housing remains reallystrong.
So, with all of those thingssaid, if it wasn't for the issue
that construction costs are toohigh, interest rates are too
high, and rental rates, althoughlots of folks would argue that
(10:00):
they are too high, I'm goingtell you they're really not for
for the math that goes intomaking a development decision.
Developers and everybody thatfunds developers will be putting
lots of money in to newmultifamily development. The
problem is that we need one ofthose three or a combination of
those three factors to adjustthemselves. And so, if you think
(10:23):
about it, most people who trackthe multifamily world closely
recognize that 2026 and 2027 and2028 are probably going be very
strong years for the multifamily business entirely because
you have less supply, right? Theproblem is that we also need to
see these construction costscome down.
(10:44):
Now construction costs are goingto start coming down and they're
going to start coming downsimply because subcontractors
that are involved in the processwill start to shrink their
margins because they have lesswork. So that will happen. And
then you need interest rates tocome down and interest rates
theoretically will come downover a period of time. But until
(11:05):
those three factors play out,you're not going to see equity
providers running to merchantbuilders and multi family
developments and saying, here'smoney, let's go put it in and
let's go start building somereal estate. Now, my gut is is
that that probably will start tohappen in '26 when you start to
see increases in revenue butsomething that happens or starts
(11:27):
in '26 isn't delivered till02/1930.
Mark Bonner (11:31):
So look, there's been a lot of doom and gloom
headlines, right, the last fewmonths on all of this, right?
But it's all based in reality,it's the data. The data doesn't
lie, right? But when the bigbeautiful bill came to pass,
that was a gust of wind in a lotof people's sails, right?
Straight after that happened,Alex, did you see more equity or
(11:52):
lender interest on your endcome, or is capital still
cautious?
Is there actually moreenthusiasm backed up with action
here? I guess is what I'masking.
Alex Jessett (12:00):
Yeah, and so I'd break it into two components.
First, let's talk about lenders.Lenders have a very robust
appetite for multi familydevelopment and multi family
acquisition. They absolutely do.The banks are trying to expand
their positions.
It is good business on thelending side. So, let's talk
about the equity side. Theequity side is very bullish on
(12:26):
acquisitions and so there's alot of equity that's out there
looking for acquisitions. Now,of course, acquisitions doesn't
help solve the housing shortagewhich needs to help solve the
housing shortage is newdevelopment. The challenge that
we have today and I'm not goingto go back through all the
things we just talked about butyou can buy almost across the
(12:47):
country acquisitions at adiscount to replacement cost.
If you can buy an acquisition ata discount to replacement cost,
then that inherently means thereis no profit in a new
development. If there is noprofit in a new development,
then an equity provider is farmore likely to put their money
into an acquisition than a newdevelopment. It really is that
(13:11):
simple. If you think about theway the development business
works particular in themultifamily, is almost
everything that's built in thiscountry is built by a merchant
builder. That is somebody whodevelops to sell.
They're effectively amanufacturer. And that
manufacturer is hired by anequity provider to build a
product and to then sell thatproduct at a profit. If deals
(13:35):
are trading at a discount toreplacement cost, then
inherently there is no profit.And if that's the case, then
equity providers are not thatencouraged that they want to go
out and hire somebody to build aproduct that there may not be
any profit. So, that is why, asI said earlier, we have to
change a lot of the fundamentalsand a lot of it is around the
(13:56):
cost structure associated withdevelopment.
If we can do that, then all of asudden the cost is less, that
will encourage more equity tocome into the game, put equity
into developments, that willhelp solve the four to 5,000,000
units that we have as a shortageacross the country. That is what
we need to see.
Mark Bonner (14:19):
Okay, if you're just tuning in, we're unpacking
the biggest tax shift to hit U.S. Housing in a generation and
what it means for multifamilydevelopment, affordability and
investor strategy. We're herewith Alex Jessett, President and
CFO of Camden Property Trust.Alex, let's go to a question
from the audience.
Can you explain qualifiedproduction property deductions
(14:40):
as you understand it? Wouldn'tthis be a solution to offset the
cost of development?
Alex Jessett (14:46):
So I'm not going to get into the full details of
the taxes, but here's what Iwill tell you. Tax cannot drive
a development decision. Those ofus who were around in the
eighties saw what happened whentaxes became the tail that
(15:09):
wagged the dog and then all of asudden, the tax bill changed and
you ended up with all of thisreal estate that did not make
economic sense absent the taximplications. And so that's why
I say with all of the factorsthat we look at including
opportunity zones, anopportunity zone in of itself is
(15:32):
not the panacea. It is not thesolution.
It is part of a solution but thedeal has to make sense on its
own, right? When you take theseadditional tax advantages that
come your way, they can bolstera transaction but it has to work
on its own. So, no, I do notbelieve that in of itself it can
(15:54):
make all these deals work.
Mark Bonner (15:56):
And we got one more from the audience. This is a
good one. I can't wait to hearwhat you have to say here. What
is Camden's treasury rateprojection three years out?
Alex Jessett (16:06):
Whatever it is, is it's wrong. Here's what I'll
tell you. I watch treasury ratesvery closely and every quarter I
pull the estimates of all thebankers and what they believe
the ten year is going to begoing out one year, two years.
And I compare it every singlequarter. And I will tell you
that every single quarter theychange it and every single
(16:29):
quarter they're clearly wrong.
I do believe that interest rateswill come down. Now, how low
they will get? I don't know.What I do know and I feel very
confident about is the days offree money, which is what we
operated for when LIBOR waseffectively nothing and you
(16:50):
could borrow for a very smallamount over nothing, that day of
free money will never come backin my professional career. At
that point in time, you wereable to have this massive
increase in supply, which iseffectively what you actually
needed.
Had You this massive increase insupply because very very low
(17:11):
interest rates solved lots ofproblems. We're not going to get
there again. Now, does the tenyear settle at three and a half
at 3%? Perhaps But I will tellyou if I knew that with any
tremendous amount of certainty,would be on an island somewhere
sipping a margarita.
Mark Bonner (17:30):
Yeah, Alex, I'm with you on this. I mean, if
between now and the end of theyear, even going to q one next
year, even if we see a 100 or150 basis point reduction, okay,
it's still nowhere near where itwas when it was near zero. Why
do you think so many investorsand so many capital markets
players are so hesitant toaddress that reality? Like this
(17:51):
is the new normal, right? We'renot going back to the way it was
pre pandemic.
And it seems to me that it'sbeen awfully slow for so many
people to acknowledge thatreality.
Alex Jessett (18:04):
You know, most folks I talk to do acknowledge
that reality. Challenge that wehave currently when it comes to
interest rates is the volatilityis far more than anybody wants
to see, right? I always say thateverybody in the real estate
world can operate effectively aslong as they know what the rules
(18:25):
of the game are. And part of therules of the game is what are
interest rates, right? And whenyou look at interest rates that
were you know barely over fournot too long ago and today
they're four four, right?
You look at that and you maysay, oh okay, that's 35, 40
basis point increase. That's a10% increase in interest rates.
(18:45):
And it's a 10% increase ininterest rates that happen very
quickly. And if you look at thevolatility of the 10, in my
professional career, thirtyyears of doing this, I've never
seen this level of volatility.That's what's got to really
stop.
And I think as soon as we allsay, we get to a point and
whatever that is, right? If itis four four or if it's three
(19:07):
five, whatever that is, once weknow that we're going to operate
within this band, I think you'regoing to see a lot more people
start to put capital to work. Wejust have to get rid of this
volatility.
Mark Bonner (19:20):
Okay, let's get back to big beautiful bill. So
LITEC gets a big moment. Thebill expands LITEC dramatically,
lowers the bond test from 50% to25%, makes it permanent, and
aims to unlock 1,200,000 units,which you mentioned earlier.
Even if Camden doesn't use LITECdirectly, Alex, how do you see
this impacting housing supplyand the competitive landscape
(19:43):
you operate in? What's thereality here?
Alex Jessett (19:46):
Yeah, mean, so the reality once again is LITECH is
going to have a big impact,1,200,000. So let's say that
that solves 20% of the problem.The rest of the problem can be
solved with market rate housing.Market rate housing, think about
Class A traditional type realestate. The reason why that can
(20:08):
solve much of the problem,there's lots of studies out
there that show that whenever aClass A asset is developed and
put into the system, it actuallycreates affordable housing
because of the trickle downeffect.
Basically, what was an A becomesa B, what was a B becomes a C,
what was a C becomes affordable.So, that's how this works. And
(20:31):
so, what we need to see, as Isaid, is more things that can
also encourage market ratehousing. And the easiest
solution of that to me that canhappen today is it can is the
local municipalities reallystart to encourage multi family
housing. The interesting thingis is that you will always hear
(20:55):
local municipalities say, wewant more housing because they
recognize they need morehousing, but then you have to
fight the nimbyism, the not inmy backyard mentality or the
idea of, I don't want to tell myconstituents that I am
incentivizing somebody who isperceived to be a wealthy
(21:15):
developer.
The problem with that is, isthat developers do want to
build. It just has to makefinancial sense. And today,
deals don't make financialsense.
Mark Bonner (21:27):
Yeah, and to your point, I'll give you a stat
here, NMHC says 60% ofdevelopers are delaying projects
due to construction, but it'salso insurance, and it's demand
uncertainty. Yet, it seems likeCamden is still breaking ground.
I mean, what type of deals aremaking the most sense to you at
this moment?
Alex Jessett (21:46):
So, will tell you, actually don't have that much
demand uncertainty. I feel very,very confident that in
particular the Sunbelt marketswhere we are today, is where the
demand will be. You can look atmigratory patterns in The United
States over a thirty, forty yeartimeframe, and you will see it
as a direct funnel out of theNortheast, the Pacific
(22:08):
Northwest, and the Rust Beltdown to the Sunbelt markets. And
it's really easy to understandwhy. It's affordable and jobs
are plentiful.
And that is what people arelooking for. So I feel very good
about the demand side of theequation. Quite frankly, I feel
pretty good about the supplyside of the equation in terms of
(22:29):
competitive advantage becausethere's not enough supply,
right? Obviously for the good ofthe nation, we need more supply,
but for competitive advantage,we know that supply is falling
off the edge. That's what makesme feel pretty good about doing
some of our developments today.
Insurance is such a hot topic.Here's what I'm going tell you
about insurance. I've been incharge of insurance for two
(22:53):
decades. I have seen thecyclical nature of insurance
replay itself over and over andover again. Everybody has to
remember that insurance is aglobal market.
What happens when you see atsunami, when you see a
wildfire, when you see a war,recognize that the insurance
(23:13):
providers that are coveringthose losses all over the world
are the same insurance providersthat are providing insurance for
multifamily. And so, wheneverthey start to have significant
losses, which is what they hadabout four or five years ago,
they have to increase theirpremiums in order to not only be
(23:35):
profitable in the current year,but to build back their
reserves. And that's exactlywhat happened in 2022. And I
will tell you that Camden'sinsurance in 2022 was up 40%.
Huge number, right?
But in 2023, it was up 20%.Okay, so it's getting better.
Well, here's what I will tellyou is that every insurance
(23:57):
provider that I talked to at theend of twenty twenty two looked
at their 2022 financials andsaid, we're making a ton of
money. Their loss ratios werenowhere near the premiums they
were taking in. And so theysaid, we want more of this book
of business.
How do we get more this book ofbusiness? Well, the reality is,
(24:18):
is that insurance by and largeis a commodity. The way you get
more of that business is youlower premiums. So, our
insurance last year was down17%. I just renewed our
insurance for this year, May.
I renewed it down again. So,yes, there's a lot of noise
(24:40):
around insurance costs going up.I'll tell you they're actually
in the process now of comingback down. Now, do have to
remember though that the wayCamden insures ourselves is that
we have a blanket policycovering 60,000 units across the
country. That is very differentthan what a private person who
has to go out and put anindividual policy in Florida,
(25:02):
what they may see.
And I will tell you that ifyou're a private person trying
to put an individual policy on amulti family development in
Florida, you may see yourinsurance as high as your taxes.
For us, that's not what we'reseeing. Insurance is about 7% of
our total expenses. Taxes are36% of our total expenses. So
(25:24):
we're not seeing a ratioanywhere near that.
That is a competitive advantagefor somebody like Camden because
of the way we insure and becausewe can spread the risk.
Mark Bonner (25:34):
Certainly, it's true that the nature of
insurance is cyclical, but Ithink something that's not
cyclical and is defining themoment of the last half decade,
especially for a variety offactors, natural disasters,
etcetera. Carriers are walkingaway from entire metros. What do
you do about that?
Alex Jessett (25:55):
Well, if you look at the carriers that walking
away from the entire metros,what I will tell you is, and I
did a heat map, if you look tosee where are people moving and
where are the greater losses,they're almost 100% correlated.
So the reality is that peopleare moving and want to live in
(26:18):
the locations that actually dohave significant losses. Now, so
the question that you may askyourself is if you are a
homeowner and you can no longerget insurance and that's really
where you are seeing the issueswhere insurance providers are
saying I'm walking away is onthe is for the homeowners. Does
(26:38):
that perhaps give furtheradvantage to a multi family
provider? Perhaps.
But what it also does, and thisis back to the original point
that we're talking about, isthat may add in additional
demand for multi family furtherexacerbating the supply problem.
And this all circles back aroundto we have to solve the supply
(27:01):
problem that we have in thiscountry. And in order for that
to happen, we've got to get andthat's what we come back to one
big beautiful bill. We have tohave the federal government
support, which is what it lookslike we have today. And then we
need to get the local governmentsupport, which is what we have
in certain municipalities.
We need to see it across thecountry.
Mark Bonner (27:21):
Got it. Alex, we're running a little short on time,
but I do want to get toOpportunity Zones before we go.
OZs are now permanent. Tightereligibility rules and new
reporting mandates, but themajor benefits don't activate
until 2027. Now we're in thequote unquote dead zone.
Do you expect Camden to touchthe OZ program, or is the
delayed timeline a barrier foryou?
Alex Jessett (27:44):
So opportunity zones are primarily a tax issue,
correct? And because Camden isstructured as a REIT, we don't
actually get that significant ofa benefit from an opportunity
zone. So let's sort of put usaside. I do believe that long
term capital will go intoopportunity zones. Yes, there is
(28:06):
a period between '26 and '27.
Listen, we'll get past that.Deals take a while to underwrite
regardless. So I think ifsomebody's looking at a deal
today, it wouldn't start untiltwenty eight, twenty nine,
thirty. So I don't think it'sgoing to have that much of an
impact, but I think opportunityzones are a big deal. I think it
is a very creative way toencourage development in
(28:31):
underrepresented communities.
This is what we need to be doingas a society. So, I'm really a
huge fan of it and I'm a big fanof the fact that we're making
this permanent. I think thiscould really help the areas
where we need to see help, wherethe affordability problem is
most acute.
Mark Bonner (28:50):
Okay, and we're going to end here. What's your
advice to institutional capitalentering the multi space, multi
family space right now? Buy,build, wait?
Alex Jessett (29:00):
My advice for institutional capital is that
you should invest in multifamily REITs that are focused in
the Sunbelt and particularlythose that are in the Sunbelt
that start with a C for Camden.That's my advice.
Mark Bonner (29:16):
Okay, one fun thing really quickly. Alex, I know
you're a huge Texas Longhornsfan, seasons coming up in the
next couple of months.Predictions for the year, is
Arch Manning gonna be a Heismancandidate or are you guys gonna
go win the title?
Alex Jessett (29:27):
I think Arch is a Heisman candidate. I think we
shall see. We had to get pastOhio State and Georgia. Those
are two very, very strong teams.Hopefully we can do it and I'm
looking forward to seeing whatArch can do.
Mark Bonner (29:42):
Okay, that's all the time we have today. Alex,
thank you so much for beinghere. We'll be back with another
episode of First Draft Live nextweek, so don't miss out. You can
sign up now on our event page.You can also find today's
episode and all of our pastconversations on your favorite
podcast app, and also atbizmail.com.
This is First Draft Live. Have agreat weekend, everyone.
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