Texas Senate Loss Tests Red State Economy

Commercial real estate returns in red states have historically outperformed those in blue states, a trend driven by specific business policies. This economic advantage faces its first major political test after Democrats swept several traditionally conservative areas in the midterm elections held on Tuesday.

Mitch Flax, founder and chief investment officer of Net Equity Capital, led the research after noticing that investors in blue states often avoid local markets. Flax recalled a conversation with a large family office based in Chicago that had relocated to California. That investor said they generally avoided real estate in blue states, a sentiment that prompted a detailed look at how political affiliation correlates with investment performance.

The study analyzed nearly 24,000 commercial real estate transactions. Researchers estimated returns using a proxy and categorized states based on their voting patterns in the 2024 presidential election. The data revealed a clear performance gap. Flax attributes this gap to state-level policies that influence where companies relocate, where jobs are created, and where capital flows.

Texas serves as a primary example of this trend. The state has become a major destination for businesses leaving high-cost coastal hubs. Flax described Texas as moving toward a Singapore-style tax haven for companies. He said, "We've all seen the movie ‘Crazy Rich Asians’, get ready for Crazy Rich Texans, because that movie is coming."

Tuesday’s results complicate this outlook. James Talarico defeated Ken Paxton to win a U.S. Senate seat in Texas. Paxton had the backing of President Donald Trump. In the gubernatorial race, Democrat Gina Hinojosa defeated Republican Greg Abbott. These wins raise questions about whether the state-level tax and business policies that fueled recent growth will remain in place.

Data from CBRE shows the scale of corporate movement. Between 2018 and 2025, 725 companies relocated their headquarters. The Dallas-Fort Worth metroplex led the nation with 111 relocations, followed by Austin with 88 and Houston with 31. The San Francisco Bay Area lost a net 163 corporate headquarters during that same period. Companies cited high taxes, labor regulations, and rising living costs as primary reasons for leaving.

Flax argues that population shifts and corporate relocations are symptoms of a deeper economic divide, not the root cause. He believes underlying business policies drive investment decisions. "Most of the large asset managers out there are underwriting population in this migration flow. But the reality is that's a symptom," Flax stated. "Migration is the symptom, but it's a cascade, right? So policy draws people and companies and then every kind of commercial real estate follows. Apartments follow migration, retail follows rooftops, office follows jobs, warehouse follows logistics."