‘Strap In’: Developers, Contractors Brace For Tariff, Deportation Impacts

All of the players involved in commercial development and construction are dusting off their 2018 playbooks to control costs as they face the prospect of higher tariffs on construction materials and promised mass deportations under a second Trump administration. 

Both actions could have a dramatic impact on construction costs in the U.S., with labor harder to come by and materials prices rising as they did during President-elect Donald Trump's first trade war with China, developers and contractors said at Bisnow's Atlanta Construction and Development Summit on Tuesday.

“I think it’s going to suck for a second,” said Melissa Banko, the founder of interior design firm Banko Design. “But I think that’s why we’ve got to get ahead of it.”

Banko said developers and general contractors will need to be proactive in preparing for spiking material costs as they did under the first Trump administration. Banko Design has already purchased furniture ahead of time in the expectation that prices will rise, she said.  

“When one thing goes up, you've got to find the cost savings somewhere else,” Banko said. “I think we all need to breathe a second. It’s going to be OK. We’re going to navigate around [tariffs], and it’s going to be just fine.”

Trump’s tariff plan calls for a 10% universal tariff and a 60% tariff on Chinese goods. It’s a move some experts previously told Bisnow could drive up the costs of construction materials. China is a significant source of building materials as well as electrical equipment and switchgear, and 54% of the world’s crude steel is made in China.

Construction costs, while having stabilized in recent months, have remained elevated since the pandemic in part due to the logistical crisis caused by the coronavirus. A new trade war under the Trump administration, along with the possibility of him using the military to deport millions of undocumented immigrants, could be a double whammy on costs for developers. 

More than a quarter of the U.S. construction labor force is made up of immigrant workers, according to the National Association of Home Builders. Roughly 27% of immigrants in the country are undocumented or under temporary status that Trump could revoke, according to Pew Research.

Gibraltar Capital Partners Managing Principal Keith Mack said general contractors are going to have to rely more on technology to make up for the loss of manpower that could result from Trump’s deportation plans.  

“I would say strap in, because we don’t know the extent of it,” Mack said, adding that developers also need to plan for labor-shortage-induced increased freight costs.

Erick Garcia Salas, owner of the civil engineering firm Contineo Group, dismissed concerns that Trump's deportation policy would have a significant impact on labor costs since labor constraints have been an ongoing issue for the industry for years.

Instead, he and other panelists say the bigger problem is the industry's aging workforce is not being replaced by young talent. It needs to be better at convincing younger people to consider a career in construction.

“There’s always been deportation going on, so it doesn’t matter who is in office. I think we can get ahead of it,” Garcia-Salas said. “You want to make it sexy and make it seem like a real career that you can excel at.”

The prospect of worsening labor availability in construction could see developers shifting to redevelop or revitalize 1980s and 1990s commercial real estate assets instead of more extensive ground-up developments, Atlanta Property Group co-founder Jonathan Rodbell said. McCarthy Building Cos. Project Director Kyle Orr said it could drive more developers to use prefabricated construction methods to control costs.

“If we can take a piece of the building and move the construction of that part or a piece into a warehouse that takes less time or people ... that optimizes our process,” Orr said.

Multiple panelists at the W Downtown Atlanta Tuesday morning said the decisive election caused some relief in the debt and capital markets. Banks are reemerging in the CRE lending scene over the past 90 days, said Lance Patterson, founder and CEO of Patterson Real Estate Advisory Group.

And Katherine Mosley, a partner with the multifamily developer TriBridge Residential, said she expects new development activity as people can better predict how things will run under a Trump administration.

“We certainly had some partners who said, ‘Well, let’s just wait to the fall and get through this election. Let’s see what happens and then we can move forward,’” she said. “So I think just knowing the decision’s final, it just takes a little bit of that uncertainty out of the environment.”