The cost of construction has gone up since President Trump imposed tariffs on certain construction materials, including steel and aluminum. Meanwhile, a continuing skilled labor shortage in the construction industry has also added to the overall cost of building. Nevertheless, Cambridge Realty Capital President Jeffrey Davis remarks that “business is as strong as ever. Our confidence hasn’t wavered, nor has our clients’.”
Tariffs came into effect in May, and the Associated General Contractors of America (AGC) reports that those effects were felt immediately. According to the AGC, steel prices jumped approximately 12%, lumber and plywood went up by about 18%, and aluminum products rose by about 20%. The tariff applies to materials coming from China, Canada, Mexico, and the EU. Additional tariffs in the future are not out of the question.
On behalf of the Louisiana AGC, Chief Executive Officer Ken Naquin spoke of his own optimism, as well as that of the AGC, stating that projects are largely on track. This indicates that developers are finding a variety of ways to cope with the increased expenses, up to and including filtering down costs to property buyers/owners.
This has certainly been Cambridge’s experience, and Davis cites HUD 232 funding as one continuing viable means of controlling cost. “Not only does the HUD 232 loan offer highly competitive rates, those rates are fixed, making it possible to project interest costs over the lifetime of the loan,” Davis states. Besides fixed interest rates that average, between 3% and 4% the HUD 232 loan also offers 30-year terms and amortization, and the loan is non-recourse. In fact, Davis believes that it is the attractiveness of the HUD 232 loan that has kept business brisk at Cambridge in spite of the most recent issues faced by the construction industry.
Davis believes that the recent tariffs, as well as the hint of more tariffs in the near future, will make HUD loans of all types even more attractive to developers and builders. “It’s a very effective means of cost control and provides a small measure of security in an otherwise uncertain future.”
What may be even more uncertain in the construction market, whether senior living or otherwise, is the ongoing shortage of skilled laborers. “There are no easy answers to this question,” Davis admits, although, like increasing costs associated with construction materials, developers are also finding ways to cope with the labor shortage. “Ultimately, whatever their strategies may be, developers will pass those costs on down to the end consumer.” However, Davis has been in the business long enough to know that “this, too, shall pass. There are always cycles in the economy and in the marketplace.” For now, Davis urges senior living developers to contact Cambridge Realty Capital about the possibility of obtaining a HUD 232 loan, whether for new construction or for financing an existing property.