The Real Estate Roundtable’s Q1 2025 Sentiment Index, which measures commercial real estate executives’ confidence and expectations about the industry environment, suggests a cautious optimism, fading expectations for additional interest rate cuts, rising insurance costs and larger policy shifts. 

Roundtable View

• The Q1 Index reported an overall score of 68, reflecting a 5-point decline from the previous quarter, and the Future Index posted a score of 70 points—a decrease of 7 points from the previous quarter—indicating that optimism for the impact of potential rate cuts has subsided.
  
  
• Roundtable President and CEO Jeffrey DeBoer said, “The commercial real estate industry remains in a transitional period. Although interest rate adjustments have provided some relief, the reality is that capital markets remain constrained, and investors are being more selective. While there are signs of market stability, there is lingering uncertainty over tariffs, expiring tax cuts, and regulatory reforms that could slow investment and economic growth.”
  
  
• He added, “There must be a supportive public policy environment that understands and addresses the multifaceted challenges the industry faces. The Roundtable remains committed to working with policymakers and the administration to advocate and demonstrate the importance of maintaining policies that encourage capital formation, reward entrepreneurial risk-taking, and support jobs and communities.”

Topline Findings

•  The Q1 2025 Real Estate Roundtable Sentiment Index registered an overall score of 68, a decrease of 5 points from the previous quarter. The Current Index registered 65, a 4-point decrease compared to Q4 2024. The Future Index posted a score of 70 points, a decrease of 7 points from the previous quarter, indicating optimism for the impact of potential rate cuts has subsided. 
  
  
• Nevertheless, survey participants are cautiously optimistic that transaction activity and capital deployment will continue to normalize in 2025. Interest rates, insurance costs and the implications of the Trump administration are top of mind for many investors.
  
  
• Evolving market trends continue to shape the real estate landscape. A majority (70%) of Q1 survey participants expect general market conditions to show improvement one year from now. Additionally, 61% of respondents said conditions are better now compared to this time last year. Only 2% of Q1 participants expect general market conditions to be somewhat worse in a year. A substantial volume of industrial and multifamily assets came online in 2024, though activity is expected to slow in 2025. Return-to-office mandates thus far are not moving the needle on office assets, of which class B and C continue to struggle.
  
  
• A plurality of participants (45%) believe asset values have not meaningfully changed from where they were a year ago. However, respondents are overall optimistic, with most (56%) predicting that asset values will be higher one year from now. 
  
  
• The real estate capital markets have seen steady improvement. 47% of respondents believe the availability of equity capital is better than it was a year ago, while 62% said the availability of debt capital has improved from last year. Looking forward, virtually all respondents believe that capital availability will be the same or better in one year (99% and 98% for equity and debt capital, respectively).
  

Data for the Q1 survey was gathered by Chicago-based Ferguson Partners on The Roundtable’s behalf. Read the full Q1 report. 

After an all-night session of voting on amendments, the Senate passed a narrow budget resolution focused on border security, defense spending, and expanded energy production. 

Senate Passes Budget Resolution

• The Senate vote, 52-48, came two days after President Trump expressed his preference for the House strategy of moving forward with “one big beautiful bill” that would include all of his agenda, including an extension of the 2017 tax cuts. (Reuters, Feb. 21)
  
  
• After its passage, Senate Budget Committee Chairman Lindsey Graham (R-SC) said the Senate resolution would allow the Judiciary and Homeland Security Committees to spend up to $175 billion to implement the President’s border security agenda, increase defense spending by $150 billion, and facilitate energy independence through new on and offshore lease sales and ending the methane emissions fee. (Politico, Feb. 20)
  

Amendments Defeated

• Although the Senate budget resolution does not include an extension of the 2017 tax cuts, Senate Democrats used the open amendment process to challenge Republicans on tax policy, offering several amendments calling on Senators to reject tax cuts for millionaires and billionaires. These amendments were defeated on party-line votes. (AP, Feb. 21)
  
  
• Senator Mark Warner (D-VA) offered an amendment to create a point of order against any final budget reconciliation bill that does not decrease the cost of housing for American families. It was also defeated on a party-line vote. (WSJ, Feb. 21)
  
  
• Senators Tammy Baldwin (D-WI) and Sheldon Whitehouse (D-RI) filed, but did not offer, an amendment aimed at putting Senators on the record in favor or against recharacterizing carried interest as ordinary income.
  

House and Senate’s Competing Plans

• The House and Senate appear to be on a collision course.  Last week, the Senate Budget Committee passed, on a party-line vote, a much more ambitious budget resolution that includes $4.5 trillion in tax cuts and up to $2 trillion in spending reductions. (Reuters, Feb. 21)
  
  
• The House approach received a major lift on Wednesday when President Trump posted that the House resolution “implements my FULL American First Agenda … not just parts of it,” and that “[w]e need both Chambers to pass the House Budget to ‘kickstart’ the Reconciliation process.” (Barrons, Feb. 19)
  
  
• The House budget could be on the House floor as early as next week. Passage would allow the two chambers to resolve their differences in a conference committee, vote on the compromise budget, and then move to the next stage—committee action on actual legislation. (AP, Feb. 21)
  

Looking Ahead

RER will pay close attention to budget discussions coming from both chambers and their implications on crucial real estate policy issues. We will continue to advocate for pro-growth budget considerations in areas such as State and Local Tax (SALT) and carried interest. 

As congressional Republicans weigh their budget options and consider competing plans from both the House and Senate, their search for revenue offsets has included proposals to restrict the deduction for state and local taxes (SALT) on businesses and raise the tax rate on carried interest. 

Business SALT

• Prior to the markup of its budget resolution, the House Budget Committee floated a menu of potential revenue offsets for reconciliation legislation, including a proposal to “eliminate the business SALT deduction.” (New York Times, Jan. 28)
  
  

• Depending on how broadly the business SALT limitation is designed, it could include repealing the deductibility of state and local property taxes paid by commercial real estate owners.  Hill discussions on business SALT have intensified in recent weeks.  (Bloomberg, Feb. 18)
   
  

• “Eliminating the business deduction for property taxes would be the equivalent of raising business owners’ property tax bills by roughly 40 percent.  Employers would owe federal tax on money that they do not have.  It would lead to insolvencies and foreclosures. It would cause self-inflicted injury to the U.S. economy, including unnecessary job losses, higher rents for families and individuals, and other inflationary pressures.  It is a recipe for a recession,” said Jeffrey DeBoer, President and CEO of The Real Estate Roundtable.
  
  

• The idea of limiting business SALT has support from several outside organizations and, according to Politico, was initially floated by members of the House Freedom Caucus.  (Politico, Jan. 15)
  
  

• “Business taxes are fundamentally different from state and local individual income taxes.  State and local business taxes are an unavoidable expense, an inescapable cost of doing business,” noted DeBoer. “Property taxes alone are, on average, 40% of operating costs for real estate businesses.  In many cases, capping the deductibility of property taxes would require businesses to pay income tax when their actual income and cash flow is negative.”
  
  
• The Roundtable is working, alongside its real estate trade association partners, to raise awareness among policymakers of the risk and harm that a cap on business SALT poses for the industry and the broader economy.  
  

Carried Interest

• President Trump’s recent call on Congress to close the “carried interest tax deduction loophole” has put a national spotlight back on the issue of carried interest and its proper tax treatment.  (Financial Times, Feb. 6)  
  
  
• Trump’s expression of support for raising taxes on carried interest led Senators Tammy Baldwin (D-WI), Elizabeth Warren (D-MA), Bernie Sanders (I-VT) and others to reintroduce legislation, the Carried Interest Fairness Act. The bill would recharacterize all carried interest as ordinary income. (Politico, Feb. 18)
  
  
• Sen. Baldwin filed a nonbinding amendment on carried interest during the Senate budget resolution debate this week but did not offer it for a formal vote.  
  
  
• Carried interest emerged as a political issue in 2007, but remains largely misunderstood to this day. In real estate, carried interest is not compensation for services. General partners receive fees, taxed at ordinary rates, for routine services like leasing and property management. Carried interest is granted for the value the general partner adds, such as business acumen, experience, and relationships. It is also recognition for the risks the general partner takes.   
  
  
• In response to the new legislation, the Americans for Tax Reform—alongside a broad coalition of other taxpayer advocacy groups—penned a comment letter urging lawmakers to consider the negative ramifications of this policy.
  
  
• In the letter, the organizations argue that the proposal would discourage investment and reduce growth, urging Congress to oppose the bill. “The current tax treatment of carried interest is an intentional, pro-growth feature of the tax code for more than 100 years that incentivizes risk-taking and entrepreneurship, benefiting investors, public pension funds and retirees.” (Americans for Tax Reform, Feb. 19)
  
  
• The Tax Cuts and Jobs Act of 2017 extended the holding period required for carried interest income to qualify for long-term capital gains treatment from one year to three years.
  
  
• The false narrative surrounding the carried interest issue is that it targets only a handful of hedge fund billionaires and Wall Street executives. The carried interest legislation is far broader and would apply to real estate partnerships of all sizes.
  
  

• “Taxing carried interest at ordinary income rates would discourage the risk taking that drives job creation and economic growth. It would reduce economic mobility by increasing the tax burden on cash-poor entrepreneurs who want to retain an ownership interest in their business. It would have profound unintended consequences for housing affordability and main streets all across our country,” said DeBoer.
  
  

Looking Ahead

As tax negotiations develop, RER will continue to engage with congressional leaders on both sides of the aisle to inform policymakers about the real-world consequences of proposed changes to the deductibility of business SALT and tax treatment of carried interest.  

While the budget debate will move forward, it will likely be several weeks, if not months, before the tax-writing committees mark-up and vote on the actual details of their tax and revenue legislation.