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2C — September 28 - October 11, 2018 — Fall Preview — M id A tlantic
Real Estate Journal
he U.S. real estate sec- tor has enjoyed a long post-recession recov- Trade policy threatens to shorten current real estate cycle Rising construction material prices present headwinds for real estate developers T A udit & T ax C onsultants developers during that time added 138 million square feet of new office space; 84 mil-
ery with am- ple capital, cheap debt and strong fundamen- tals. Since the end of t he Gr e a t R e c e s s i o n nearly a de-
lion more is expected by the end of 2019. R e c e n t U.S. trade p o l i c i e s , h o w e v e r , have placed i nc reas i ng
Troy Merkel
Laura Dietzel
cade ago, these factors have driven a surge in construc- tion. Homebuilders have doubled housing starts to 1.2 million since 2012, while
uncertainty on the cost of materials. A newly enacted 25 percent tariff on steel will curb the development of office, retail, industrial and
multifamily building (steel generally accounts for 14 per- cent of building costs). Mean- while, a 21 percent tariff on Canadian lumber enacted in 2017 adds additional pric- ing pressure to homebuild- ers (lumber accounts for 5 percent of the average sale price of a new single-family home and 9 percent of total construction costs, exclud- ing labor.) The lumber tariff, along with a reduction in lumber supply because of rail slowdowns, tree disease and forest fires, has led to a 36 percent increase in lumber costs since last summer. Increased material costs due to tariffs, along with la- bor shortages and permitting challenges, present signifi- cant headwinds. The lack of new development will con- tinue to increase the values of existing real estate assets and limit the ability of de- velopers to meet demand, in particular, in the multifamily and housing markets, which continue to be undersupplied. About RSM US RSM’s purpose is to deliver the power of being understood to our clients, colleagues and communities through world- class audit, tax and consult- ing services focused onmiddle market businesses. The cli- ents we serve are the engine of global commerce and eco- nomic growth, and we are focused on developing leading professionals and services to meet their evolving needs in today’s ever-changing busi- ness environment. Troy Merkel is partner, Real Estate|Financial Ser- vices and a real estate cli- ent server at RSMUS LLP. Laura Dietzel is senior manager and a real estate client server at RSM.
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