Developers face uncertainty with tariffs, interest rates

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Some real estate developers said they’re dealing with a chaotic situation planning future projects amid uncertainty with tariffs and high borrowing costs under the Trump administration. While some are hopeful that taxed imports will help boost domestic alternatives for construction materials, it’s likely project planners will see higher costs soon.

On Wednesday, President Donald Trump enacted 25% tariffs on all steel and aluminum imports, with separate tariffs for Canada, Mexico and China, the Associated Press reported. The European Union said it’s already sharpening “reciprocal” taxes worth around $28 billion, a sign of an escalating trade war between the U.S. and its closest partners.

Tariffs on building materials such as steel and lumber can have critical impact on construction costs, according to contractors.

In the real estate development industry, one developer said whipsawing commodity prices could hurt future projects. Another said tariffs could bring more investment to local alternatives, but there will be regulation challenges to overcome first.

Developers faced uncertainty in the first days of Trump’s presidency

Since Jan. 20, Trump had made tariff threats to countries such as Canada, Mexico and China and had reversed course several times throughout late winter. On Wednesday, the president enacted a 25% blanket tariff on aluminum and steel around the world. Over the months developers have watched announcements and changes ping-pong back and forth.

Tariffs on lumber and steel can have short-term effects before companies figure out how to work around high prices but not knowing when tariffs will be enacted or which products will be taxed are more problematic, said Brian Adamson, co-founder and managing principal of Milwaukee-based ICAP development. Adamson is also on the 2025 Board of Directors at NAIOP.

“The worst condition you can have in real estate development is uncertainty,” Adamson said in February. “If we know the economy is tanking or growing, we at least have some certainty either way. The creation of this uncertainty is what’s creating a lot of consternation and inability to get projects started. Not being able to lock in prices because of that uncertainty of where it’s going to flow,” he added.

An average real estate project can take 18-24 months from being an idea to opening, and not understanding what materials costs will be in the first 18 months can put a pause on future development, Adamson noted.

Stu Wangard, founder and executive chairman of Milwaukee-based Wangard Partners, described the uncertainty around materials pricing as “creating pure chaos going forward.” Wangard noted steel prices were especially unpredictable at the time, but some materials such as lumber were steadier as some sources came from northern Wisconsin.

“Thirty days ago (before Jan. 20), we could enter into a contract with a general contractor and material suppliers, and they could hold pricing for a reasonable period of time,” Wangard said. “If we want to build today, the pricing is good for a very short period of time and we have to fund the cost of hedges,” he added.

For those in the development and construction industry, the lack of stability in the marketplace has driven project planners to create more margins to manage risk, Wangard said. If someone wants to immediately enter a contract, they’re able to hedge and mitigate any potential losses. But the costs of hedges are rolled into the overall cost of development, he added.

“From a developer’s perspective, there have been fewer speculative industrial starts. There are fewer buildings in the pipeline for general industrial use,” Wangard said. “On the multifamily side, we have a tremendous shortage of housing throughout the entire state of Wisconsin. … Single family builders are feeling the same crunch. There’s a significant demand for product and it’s tough to make the numbers work,” he added.

Mark Irgens, CEO and manager of Milwaukee-based Irgens Partners, noted uncertainty put a pause on business and that it was early to tell.

“In President Trump’s first term, I always thought having him being a developer and owner of real estate positively impacted the industry because of his understanding of the risks and complexities of the business,” Irgens said. “Events resulting in a slowdown in development and economic activity are not consistent with his stated policy goals,” he added.

With tariffs in place, industries will likely apply for exemptions to offset costs, Adamson said. It will be a six-month process before development can get on stable footing, he added.

Tariffs paint a mixed picture for Wisconsin businesses

Tariffs’ effects on multifamily development are mixed because each material is defined on its own, said Terrence Wall, the president and CEO of Middleton-based T. Wall Enterprises. Apartment buildings four stories or less rely on lumber and aren’t hit as hard by high steel prices, but taller buildings are affected more, he added.

Wall noted that steel and lumber prices were affected under former President Joe Biden’s administration as well, with prices going up due to regulation and pandemic-era restrictions.

For tariffs to help boost U.S. productivity, the Trump administration must take some additional steps to boost the local capacity of lumber and steel, such as lifting restrictions on some federal forests for lumber harvesting, Wall said. On March 1, the president signed an executive order that he said would streamline federal policies to reduce reliance on imported timber.

“If tariffs are going to work, you must convince people they’re going to be in place long-term. If they think they’re going to be short-term, then domestic companies will just raise their prices,” Wall said. “If they’re long-term, then new investment will come in. New capital will come in and expand the supply, expand the manufacturing base of steel and lumber,” he added.

In Wisconsin, some businesses will benefit from tariffs and some won’t, said Kurt Bauer, president and CEO of Wisconsin Manufacturers and Commerce, citing an employer survey taken this winter.

“It depends on the business and the sector,” Bauer said. “But I would argue that indirectly, nearly all businesses will have at least some adverse effects from the tariffs. For example, Wisconsin gets much of its oil and gas from Alberta, Canada. The Trump tariffs impose a 10% import fee on that supply. Energy is the common ingredient in everything that is made, grown, processed and transported. When energy costs more, everything costs more,” he added.

Developers look forward to Trump’s deregulation and infrastructure investment

Adamson noted that Trump’s stance on lifting regulations, investing in infrastructure and reshoring technology has been positive for development.

“A couple of things that are positive from this administration are eliminating regulation that helps streamline some of our processes,” Adamson said. “Getting rid of some of the unelected official decision-making inside federal government is certainly something that helps. In addition to that, Trump is very pro-American infrastructure,” he added.

An influx of data center and chip manufacturing plant construction has also helped create opportunities for developers to play on the edges, Adamson noted.

“Those big data centers and chip manufacturers we’re seeing coming back bring a lot of real estate tax benefit to municipalities and great infrastructure to municipalities,” Adamson said. “That allows us developers to play around the edges. So, we can develop around those given the positive infrastructure we’ve received, and it gives municipalities the ability to help us with incentives if they have a large real estate taxpayer in one of those facilities,” he added.

Trump also wants to lower taxes for corporations and make previous tax cuts permanent, which is another bright spot for real estate, Adamson said. The president also floated ideas for getting rid of carried interest and cutting the capital gains tax, which could be hazardous for real estate incentives, he added.

Another burden on developers’ minds is the high cost of borrowing money due to interest rates. Some developers said they have had to rely on more outside equity to push projects forward. Others have raised their rents as the interest rates on loans remain high. On a national level, developers need foresight on interest rates to lock into a contract, Adamson noted.

“Trump has been very candid he wants to lower interest rates, he wants the Federal Reserve to lower interest rates,” Adamson said. “However, the economic underliers aren’t saying we should be lowering interest rates further than they are already. I don’t think any economists are saying rates are going down long-term at 4%. That fight goes back to the certainty of the market,” he added.

Local materials and technology can be used to moderate prices

The effects of high costs in construction are ultimately decided at the blueprint drawings, when architects pick out what materials to use and from where, Wangard said. Some mills in northern Wisconsin provide lumber mixed in with products from Canada and the Southeast. Innovations in construction technology also help boost productivity, he added.

“It all gets blended in,” Wangard said. “There are times in mid-rise construction where we look at wood frame over precast, for example. We’re looking at all the different delivery methods for building a building, and we’re trying to automate as much of the process as possible. The construction industry is still more traditional and it’s slower to change,” he added.

Wangard noted that new technologies, such as automation and implementation of artificial intelligence in manufacturing, will bring a slow rise to productivity. But that leg of the industry still relied on skilled people who need training and technology to operate the equipment, he added.

Bauer said that it will be difficult to find local alternatives for some precision parts, specialty steel and aluminum. Lumber might be easier as the U.S. has an abundant supply, but logging requires a lengthy permitting process slowed by legal challenges from environmental groups who oppose it, he added.

In the short-term, it will be hard for local steel suppliers to produce enough to offset costs raised by tariffs, Bauer noted. But the capacity is expected to ramp up.

“It will take significant investment and time delays to get domestic alternatives online,” Bauer said. “And by investment, I mean financial, probably intellectual property, machinery and equipment and talent. The point is, you can’t just snap your fingers and create a domestic manufacturer with the specialty skills to produce a complex product.”

“The cost of tariffs will have to be incorporated into the overall cost of production, just like any other cost is, like labor, research and development, energy, equipment and all other inputs,” Bauer said. “I think it is fair to say that everyone in the manufacturing process – manufacturers, suppliers, vendors and customers – will bear at least some of the added cost burden,” he added.

Wangard said his firm will look at different construction technology to deliver buildings that meet the needs of their customers and add value. Some of the best construction engineering and design schools are in Wisconsin and can adapt, he added.