**Tariffs and CRE Lending: Navigating Economic Uncertainty**
Continually shifting tariff strategies and ongoing trade tensions are contributing to the current environment of economic uncertainty, and commercial real estate (CRE) is feeling the effects. In a recent report released by Parkview Financial, titled *The Implication of Tariffs on CRE Lending*, analysts caution that although CRE typically adjusts more slowly to macroeconomic shifts, the direction of global trade relations suggests significant changes are on the horizon for real estate fundamentals.
Dhaval Parikh, Managing Director and Head of Capital Raising and Investor Relations at Parkview, emphasized in a conversation with Connect CRE that tariff-related uncertainty will directly impact construction costs, delay project delivery timelines, and complicate project underwriting.
**Is Stagflation on the Horizon?**
The Parkview report also raises the possibility of stagflation—where high inflation, increasing unemployment, and slowing economic growth converge. The Federal Reserve might consider cutting interest rates if trade tensions continue to erode U.S. economic and consumer confidence, potentially triggering job losses.
“While lower interest rates may be appealing in theory,” the report stated, “they won’t offer much relief if inflationary pressures rise simultaneously.” In such a scenario, the Federal Reserve could find itself constrained, caught between the opposing needs to stimulate economic growth and control inflation.
Parikh, a co-author of the report, explained that stagflation poses significant threats to the commercial real estate sector. “Slower economic growth could mean less demand for real estate, while interest rates would remain elevated to combat inflation,” he said. Moreover, as interest rates and cap rates are often linked, CRE assets could see reduced valuations.
Refinancing could also become more challenging in a stagflationary environment. “Property owners may have to inject additional equity to deleverage their capital stacks to account for slower rent growth, higher financing costs, and suppressed property valuations,” said Parikh.
**Potential Solutions and Strategies**
There are ways to mitigate some of these risks. Parikh advises developers to recalibrate underwriting expectations to reflect higher construction costs and longer development timelines. “This can provide a more realistic framework for project planning,” he noted.
On the investment front, certain geographic markets might present more balance between supply and demand. “With construction material costs rising and new supply likely to be constrained, we believe demand in some regions will exceed supply, enhancing their resilience to economic stagnation and temporary inflation caused by tariffs,” Parikh said.
Asset type also matters. Parikh noted that necessities like single-family and multifamily properties often prove more stable during economic swings. Properties that are already stabilized or undergoing modest renovations could be better positioned to absorb rising costs.
Looking ahead, Parikh pointed to a strategic lending opportunity in multifamily bridge financing. “We currently favor bridge loans on multifamily assets with a clear path to stabilization,” he remarked. “The ideal properties are located in markets demonstrating balanced supply-demand dynamics and strong long-term fundamentals.”
As the macroeconomic landscape continues to evolve, the commercial real estate sector will need to remain flexible, informed, and proactive in adapting to the uncertainties posed by global trade policies and their ripple effects.
