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The Real Deal Los Angeles

Steel prices climb nationwide as real estate industry braces for tariffs

Suppliers have also increased bid prices on rebar and metal studs, according to CBRE
March 21, 2018 02:09PM

Donald Trump (Credit: Wikimedia Commons, Pixabay, PxHere)

President Trump’s controversial tariffs on steel and aluminum imports haven’t taken effect yet but they are already having an impact on commercial real estate across the country.

Steel prices have climbed around 10 percent nationwide as the construction industry prepares for Friday’s change, according to the National Real Estate Investor.

Trump announced the 25 percent tax on foreign steel and 10 percent tax on aluminum earlier this month, citing national security as a primary reason. Canada and Mexico will initially be the only countries exempt from the tariffs, although other countries may work on “alternative ways” to address the threat, Reuters reported.

Some firms are underwriting projects with a “steel tariff contingency,” for potential cost increases, according to Paul Rohrer, a real estate partner at the Los Angeles law firm Loeb & Loeb. His firm is underwriting a bond on a $300 million office project in the city.

“The problem is that nobody at this point is really able to underwrite the value of this uncertainty, which causes a distortion in the market and could cause deal flow to slow down until folks figure out what to do,” he told National Real Estate Investor.

In South Florida, tariffs were not expected to have a significant impact on the local construction industry because in order to withstand hurricane-force winds, local developers said, structures are primarily built with concrete and domestic rebar.

But CBRE found that some steel suppliers have increased bid prices on rebar by up to 8 percent and metal studs up to 5 percent in anticipation of the tariffs. CBRE predicted that the overall impact on commercial activity nationwide would be negligible, however, and that labor shortages are a bigger issue.

States that account for a higher percentage of the nation’s construction projects will, not surprisingly, bear the brunt of the impact.

Firms in four states —New York, California, Florida, and Texas — are expected to pay nearly a third of the $9 billion the tariffs are expected to raise each year.

The taxes could further raise costs on suburban homebuilding, too, which is already expensive because of wildfires north of the border and the president’s 20 percent tax on Canadian lumber, which he signed last year.  [NREI]Dennis Lynch