\nRene Bello<\/p>\n
Permission granted by BLDG Ventures<\/p>\n
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\u201cWe knew that we need to get ahead of that, and then we just had a very clear and honest conversation with our contractors and our suppliers about how can we effectively get on their books well in advance rather than waiting six to nine months down the pipeline and then having to absorb the full run on these tariffs,\u201d Bello said.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nBello isn\u2019t the only executive buying more than he currently needs before he needs it. Cameron Gunter, co-CEO of PEG, a Provo, Utah-based owner, operator and developer of multifamily, hospitality and build-to-rent properties, has two multifamily projects currently in development, with one in Tucson, Arizona, slated to open later this year.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cWe bought a bunch of our cabinets out of China,\u201d Gunter told Multifamily Dive. \u201cSo we took our first shipment as we started to see this issue on tariffs. We haven’t installed it, but it’s all stored on property.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nWith Trump\u2019s May 90-day pause on Chinese tariffs to allow for time to negotiate with different countries, Gunter expects to get his second shipment before the levies kick in. \u201cWe’ll be able to get those here in the next 90 days,\u201d he said in May.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nSeek other sources<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\nBello isn\u2019t just ordering ahead to try to beat tariffs. He\u2019s putting his projects through a value-engineering process to avoid countries with the highest tariffs.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cWe’re not buying things from the Asian markets,\u201d Bello said. \u201cWe should see a higher pricing and tariff on those materials coming from those parts of the globe.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nBut so far, the cost increases haven\u2019t hit all products in the same way.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cWe’re seeing, on average, between 3% and 5% increases for trades like glazing, electrical [and] raw materials,\u201d Bello said. \u201cWith fixtures and lighting, you’ll definitely see an increase between 10% and 20%. We’re also seeing lead times extended.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nBello is also opening the door to American-made products, like paints and bath fixtures. In May, he was on a call with an architect deciding between two options for toilets \u2014 German-made Toto and American Standard made in the U.S. The choice was easy, even if it wasn\u2019t what he wanted.\u00a0\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cAs much as I’d love to put in a beautiful Toto bath fixture, we said, \u2018Look, American Standard is American made,\u2019\u201d Bello said. \u201cWe know that there won’t be any tariffs implemented on those American-made fixtures. So we’ll go in that direction.\u201d\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nPEG also builds hotels, which require it to purchase furniture, fixtures and equipment. With many of those products, the firm is sourcing from new countries. \u201cWe shifted from China to Vietnam or Taiwan,\u201d Gunter said.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nBut Gunter said there are limits, specifically related to costs, to buying what is produced in America. \u201cWe’re finding some ways around it,\u201d Gunter said. \u201cI don’t think the answer is sourcing stuff out of the U.S., unless rents really climb or AI takes [manufacturing] jobs because it’s just tough [to make the numbers work].\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nWork with contractors<\/span><\/span><\/strong><\/span><\/span><\/span><\/h3>\nWith about 4,500 units in annual starts, Tysons Corner, Virginia-based owner, manager and developer Middleburg Communities can lock in purchasing agreements with suppliers and vendors. So far, CEO Chris Finlay, who has seen tariffs push up costs roughly 3%, said his subcontractors are basically eating the costs of the increases as construction starts have fallen.<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\u201cWork is just more scarce now,\u201d Finlay told Multifamily Dive. \u201cIf you’re a subcontractor, you’re trying to win the business. Taking some tariff risk to win the deal is what I think a lot of people are doing.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\nFor PEG\u2019s Gunter, the goal is to share the burden of price hikes. \u201cI can create contingencies where they have it as part of their [guaranteed maximum price] and we use that contingency to cover any tariffs based on the general contractor piece,\u201d he said. \u201cIf it goes over that, there’s a responsibility. If it comes under that, there’s a shared savings clause.\u201d<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n\n\n
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\nCameron Gunter<\/p>\n
Permission granted by PEG<\/p>\n
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Still, Gunter said there are some questions about whether general contractors are willing to take those risks going forward, even if work is more scarce. However, even if subs are reluctant to eat the additional tariffs, general savings in labor prices may help developers offset the additional burden of tariffs.\u00a0<\/span><\/span><\/span><\/span><\/span><\/span><\/p>\n