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It has been a difficult 18 months or so for the commercial real estate investor set.
At the beginning of last year, the talk of the town was the wall of debt that needed to be refinanced in a higher interest rate environment. Default risk was on everyone’s radar, and while it never really materialized, uncertainty prevailed.
Then, they get a shot in the arm in the autumn when the Fed began to lower rates – people started to look to 2025 with a bit more optimism, as lower rates were also seen as a tailwind for fundraising.
And now they get whacked with the tariffs. While tariffs have impacted every part of the alternative investment industry – just look at how hedge funds have done so far this year – their downstream effects can ripple into sectors like commercial real estate in a multitude of ways.
Rising Construction Costs
The most immediate and tangible impact of tariffs tends to be on construction inputs—particularly steel, aluminum, and lumber. Tariffs announced on Canada, the EU and – gulp – China (145% at one point, before a 90 day pause announced on May 12) could cause the cost to develop new multifamily properties to rise sharply. Higher material costs mean developers may delay or cancel projects, or they may pass increased expenses on to buyers or renters where possible.
For funds investing in ground-up developments, this inflation in hard costs can compress expected returns. Pro formas built on pre-tariff assumptions may become outdated, forcing a re-evaluation of exit timelines, refinancing strategies, or even the fund’s overall portfolio weighting toward development projects.
Delays and Supply Chain Disruption
Tariffs often come hand-in-hand with broader trade tensions, which can disrupt supply chains. For multifamily developers, delays in receiving materials can mean project slowdowns, which not only increase holding costs but also delay revenue generation. In a competitive rental market, even a few months of delay can shift a project from a favorable leasing window into one where demand softens or competing inventory comes online.
Funds that invest in value-add strategies—where properties are acquired and renovated—may also feel this pinch. Tariff-driven shortages or cost hikes on fixtures, HVAC systems, appliances, or flooring materials can limit the scope of renovations or stretch out project timelines, reducing IRRs.
Inflationary Pressure and Interest Rates
Tariffs can have a secondary effect: inflation. As goods become more expensive, central banks may respond with tighter monetary policy. For real estate investors, higher interest rates can mean increased borrowing costs and pressure on cap rates, particularly in interest rate-sensitive sectors like multifamily. While the US Fed kept rates steady in its decision at the beginning of May,
This environment creates a double squeeze: debt becomes more expensive just as property values (based on discounted cash flow models) come under pressure. For funds with leverage, especially floating-rate debt, the cost of capital may rise materially over the life of the investment.
Looking Ahead
Not all funds are affected equally. Core funds focused on stabilized properties with long-term fixed-rate debt may be more insulated than opportunistic funds relying on development or repositioning plays. Geographical exposure also matters: projects in high-barrier, high-cost markets may already have baked in some resilience to price volatility.
Ultimately, tariffs underscore the importance of active risk management and scenario analysis in real estate investing. Unlike hedge funds that can quickly pivot from a long position, private asset managers can’t, so multifamily real estate investors could be forgiven for thinking ‘give us a break’.
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Gregory Poapst is a Managing Partner at Fundviews Capital. Connect with him on LinkedIn here.
Fundviews Capital is a full-service end-to-end Fund Management Platform. Our platform provides a complete end-to-end solution for asset managers or wealth managers to structure, launch, operate and grow their professional investment funds. You can launch a fund in a matter of weeks, not months, and with minimal capital outlay – not only reducing the risk of launching a fund but also maximizing your chance of success. Once launched, you will find that a dedicated team of professionals is just a phone call or email away at all times, handling all aspects of the back and middle office for your fund.