President Biden ran for office with some pretty lofty promises in regards to prison and judicial reform, including closing all private prisons. After winning the presidential election in November, 2020 prison real estate investment trusts' (REITs) share prices have tumbled and are yet to recover, leaving investors to wonder what the future of prison REITs will look like under the new administration.
The power to close isn't exactly in Biden's hands
President Biden does have the power to move over 14,000 prisoners currently held in private prisons nationwide, but he can't shut them down completely. Private prisons and detention centers like the ones used to detain an estimated 500,000 people in 2019 by U.S. Immigration and Customs Enforcement (ICE) are able to operate independently according to the contract and lease terms with tenants.
Considering most lease terms with tenants like ICE, the U.S, Marshals Service, and the Federal Bureau of Prisons are long-term leases with lengths as much as 10 years or more, and most do not own their own prison facilities, private prisons are unlikely to disappear anytime soon.
Biden's plan can reduce for-profit prisons but not eliminate them completely
Biden's plan hopes to reduce the number of incarcerated people by implementing a $20 billion grant that would promote policing, sentencing, and bail reform while urging federal agencies to end the use of private prisons. By focusing on the root problems of why people end up in jail to begin with, the number of people sentenced to prison would potentially reduce dramatically, putting tremendous pressure on for-profit prisons. Ultimately, it's not up to Biden alone, as a plan of this size and scale would need congressional approval from both the house and senate.
The Millionacres bottom line
It's likely Biden and his administration will proceed with grant proposals that address these concerns, among others in prison and judicial reform, which likely will affect the bottom line for prison REITs long term. I expect share prices for the prison REITs to stay deflated over the next few months until further guidance is provided on Biden's exact proposal and plan for the grant.