First Draft Live Ep. 8: Inside CRE's Tariff Turning Point (with James Bohnaker)

Liberation Day Part 2 has come and gone, and the U.S. has more clarity on the global trade landscape.

Some of the levies will have CRE breathing easier, but some — including the 35% rate on Canada, a hugely important market for construction material imports — might be worse than the industry feared. Already, tariffs have driven construction costs up anywhere from 6% to 10%.

But at least some of the uncertainty has been chipped away. How will CRE react?
Cushman & Wakefield Senior Economist James Bohnaker said he expects deals to start moving forward again, though in a slow slog, not a rush. But with the U.S. is in an unprecedented macroeconomic environment, scenario planning by CRE investors is crucial.

Register on Bisnow.com to join next Friday's conversation live, or check back here for the conversation after it airs. 

Episode Transcript

Mark Bonner (00:09):
Okay. Welcome to First Draft Live. It's Friday,
August 1, and we're coming toyou live on what some are
already calling Liberation Daypart three. I'm your host, Mark
Bonner, BizNows editor in chief,coming to you live from New
York. Thanks for tuning in fromall across the country and
around the world.
Really appreciate your time.Overnight, maybe you saw this

(00:29):
news. The White House made astunning pivot just before his
self imposed deadline. PresidentDonald Trump signed an executive
order extending tariffnegotiations for seven more
days. That gives nearly 70countries one final shot to cut
a deal or face sweeping newimport taxes ranging from 15 to
41% starting next Thursday.

(00:50):
The move marks a definitivebreak from decades of free trade
consensus. The US is now in afull blown protectionist era.
The fallout, market shock, theDow is down more than 500 points
this morning. Global recaprecalibration and for commercial
real estate, some very realimplications. Steel and aluminum

(01:13):
tariffs are being locked at 50%.
That's keeping development costsroughly 10% higher. Copper
tariffs are also kicking in.Pharmaceuticals and
semiconductors, they're next inline. Canada is facing 35%.
Switzerland, 39%.
Brazil, 50. Even close allieslike South Korea had to scramble

(01:34):
the Inca last minute deal.Meanwhile, the European Union
managed to secure a deal earlierthis week, capping tariffs on
most goods at 15% instead of thethreatened 30. They were
originally in single digits.They are now no longer.
And while the Dow continues tohit record highs over the last
few months, today being theexception, beneath the surface,

(01:56):
this tariff regime is quietlyredrawing winners and losers.
Big tech and financials aregaining ground with investors,
while CRE everyday consumerslike you and me, energy, and
health care are getting theshort end of the trade stick. So
is CRE heading deeper intouncertainty with sourcing
bottlenecks, capitaldislocation, and inflation

(02:18):
threats lurking just off stage?Can US protectionism be priced
in or will volatility continueto reign? To help make a cent
help us make sense of it all,we're joined by someone who's
been tracking it from the frontline since day one.
James Bonacre, senior economistat Cushman and Wakefield, a
veteran of S and P Global, c rCBRE and Moody's. James, welcome

(02:44):
to the show. I know you'recalling us from Boston.

James Bohnaker (02:47):
Yeah. Glad to be here, Mark. Thanks for having
me.

Mark Bonner (02:49):
Look, man. You've picked one hell of a week to
show up on this show, so wereally appreciate you. Let's
just start right at thebeginning. What was supposed to
be a hardline deadline todaybecame something different. A
pivotal pivot, if you will.
Trump's executive order gavenearly 70 nations until August 7

(03:10):
to secure trade agreements. Iknow for a lot of players on the
ground across The United Statesand in Europe where we have so
many of our audience coming intoday, they may think, oh,
that's happening somewhere else.That's not affecting my world.
What do you think is mostconsequential for CRE right now
given the news of the lasttwenty four hours?

James Bohnaker (03:27):
Well, I think it's a continuation of what
we've become accustomed to inthis administration in Trump's
second term, right, which isjust unpredictability on a
policy front, primarily as itrelates to trade and tariffs.
And the initial shock obviouslyrocked markets back on April 2.

(03:48):
And we've just had a constantstream of changes to policy and
not knowing what's coming next.So I think that's really the
biggest thing right now. Westill don't have a lot of
clarity as far as policy goes.
And I think at the end of theday, while some of these trade
negotiations have been favorablein terms of just the tariff rate

(04:09):
coming down from a worst casescenario, there's been other
countries that have been worseoff than we expected. And I
think just big picture, taking astep back where we are today,
the effective tariff rate in TheUS, which essentially combines
all these different rates oncountries and products, it's
still about 10 percentage pointshigher today than it was heading

(04:31):
into this year. And so that'sconsequential. That's a cost
increase that businesses,consumers, developers are going
to have to pay. And it's goingto take time for that to shake
out.
And that's really the bigquestion mark for me are the
implications to The US economy,to financial markets,
construction costs, all of thosethings. And it takes time to

(04:54):
work itself through the supplychain. And so I think we're
still very much in that periodwhere not only do we have the
tariff policy uncertainty, butyou're also starting to see some
of this spill into the economicdata, right? Like, so we got a
jobs report this morning, 73,000jobs for the month of July, not
great. And if you look back overthe prior months, we had some

(05:16):
significant downward revision.
So economy is clearly slowing,economy is clearly slowing,
policies unpredictable. And thenyou talk about the Fed too on
the monetary policy side ofthings, that puts them in a jam.
So I don't think there's a lotof clarity out there. There is
good news, though. And I thinkheading into this year and still

(05:37):
over the course of the firsthalf, we've seen a lot of
resilience across commercialreal estate, whether you're
looking at leasing fundamentals.
We're seeing improvement in debtmarkets, equity. So there's some
green shoots out there and Ithink this recovery has some
resilience, has some momentum,notwithstanding some of the
macro risk that's out there.

Mark Bonner (05:58):
So look, there's been a lot of doom and gloom
headlines on the macroeconomicagenda that that is that that
The US has been trying to face.There's been a lot of
geopolitical issues. You talkedabout the Fed. The Fed held,
they're probably not gonna lowerrates in September, although
it's probably a jump ball. Mosteconomists say that that
interest rates probably won'tstart coming down in December,
probably going to Q one twentysix.

(06:19):
I mean, you're talking aboutthese green shoots. We've been
covering this for months. Youare correct. So, how do you make
sense of the macroeconomic noisewhich a lot of people say is
doom and gloom and scary. Thejobs report didn't come in as
strong as we had hoped.
Why are these green shootssprouting? How is this possible?

James Bohnaker (06:37):
Well, I think you have to consider, go back a
few years, commercial realestate's been in a slump many
regards for a while now. Thingswere going pretty well for the
better part of 2022 until we gotthe ramp up, significant ramp up
in interest rates. Right. Andbeing such an interest sensitive

(06:59):
sector, we really saw thecapital markets ground to a
halt. A lot of uncertaintyaround the office market with
obsolescence and more distresscoming online.
And so we're kind of well intothe slump and the recovery had
already started, right? Even ifyou look across the office
sector, there's some absolutegreen shoots there that we're

(07:21):
seeing. And so real estate haskind of already been through its
bumpy period. And so I thinkthat with the backdrop of a
mostly resilient economy, mostof that softness that we've seen
in our sector has kind of beenworked its way through the
system. Right.
And so I think there's just aton of capital on the sidelines,

(07:42):
both domestically and foreign,that's been parked there for a
couple of years now. And so Ithink there's just that urgency
to get back in the marketplace.Remember, real estate is mostly
a long term investment, right?And I think we're very clearly
in many regards kind of at thebottom of the cycle or even a

(08:03):
bit beyond it. And now lookslike a really compelling time to
make those investments incommercial real estate from a
number of different angles.
And so I think the fundamentalsfor real estate look a little
bit better than kind of justlooking at the overall macro
economy right now.

Mark Bonner (08:21):
Just getting back to tariffs just for a second.
You know, steel and aluminum arestill taxed at 50% as of today.
That's keeping development costselevated by 10% or more. You and
I were talking about copperlevies earlier. That came in a
little lighter than feared.
That triggered a plunge inprices after markets had
overcorrected. Are developersstill in freeze mode today, or

(08:43):
are they gonna begin or can theynow begin to model these new
scenarios based on fixed ratesand these friendlier trade
corridors?

James Bohnaker (08:53):
Yeah. So we've been modeling this very closely.
So just to give you a sense, Iknow you referenced the 10%
increase due to tariffs. By ourestimation, we're looking at
materials costs based on thetariffs that are in place today
that are about 6% to 7% higheron an aggregate basis across
commercial real estate projectsjust for the materials. So if

(09:16):
you kind of assume that labor iswhat it is, no changes there,
we're only estimating that theproject costs are up about 3% to
4% in terms of the exclusiveimpact from tariffs.
So that being said, it's maybenot as bad as some other
estimates out there or you mightexpect just given those 50%
tariffs. So that's one thing. Ithink that the costs aren't

(09:40):
increasing as much as could beexpected. But to answer your
question, I think it'sultimately a little bit of both.
And it kind of runs thespectrum, right?
So we've got a developmentenvironment, which if you look
at multifamily, industrial, ofcourse, the office market,
retail construction has beensubdued for years now. So all of

(10:02):
these sectors, we're seeingreally soft activity, right? Not
just because of interest rates,but because of market
conditions, too. And so, youknow, I think there is a sense
that developers would like tomitigate the cost pass through
that they pass on to theircustomers. But that's going to

(10:22):
be some of it.
But the reality is that, youknow, these costs increase,
given what we've seen over thepast number of years, right?
It's not like construction coststhat went up dramatically in
'twenty one and 'twenty two.It's not like they've come down.
So these are just additionalcosts in an already tight market
in terms of turning a profit onnew developments. And so I think

(10:45):
to some extent, we'll seeprojects paused or perhaps
scrapped altogether.
But that's probably theexception rather than the rule
right now. Think that for themost part, developers, for
projects that are alreadyunderway are going to try to
make that work. But it is a verytight operating environment
right now. And we're just notseeing a lot of new development.

(11:08):
And I don't think that we reallybreak out of a slump here
anytime in the next couple ofmonths.
I think that's probably more ofa 2026 recovery period.

Mark Bonner (11:19):
Right. I mean, this was supposed to be the year
where all that sideline capitalwas then going to reenter the
playing field coming off of thepandemic and everything that
happened during that period oftime. Yet, talk about green
shoots, CRE finance councilsentiment index jumped 28% in
Q2. That's one of the sharpestquarterly rebounds on record.
Borrowers are back.

(11:40):
Lenders are cautiously leaningin and Trump's tariff clarity.
However, aggressive and howeverbad this may make Europe feel or
other countries around theworld, it may be helping the
market to price risk. The bigquestion and you kind of touched
on in 2026 is like when exactlywill the sideline capital
finally reenter the series stackand what will it take to get

(12:04):
that sideline capital to get offof the sidelines more
aggressively?

James Bohnaker (12:10):
Yeah, well, I think some of the wheels are
already in motion here, right? Ithink most importantly, from a
lending perspective, the debtmarkets are coming back. And
that's obviously crucial for themajority of real estate
transactions, whether you'retalking about existing
properties or secondarily newconstruction. And so lending
standards, by and large, havebeen easing for well over a year

(12:33):
now, very gradually, right, at avery measured pace. So if you
look at credit spreads for theCMBS market, for example, those
are fairly tight compared towhere we were a year, two years
ago.
If you look at short term loanto value ratios, I should say,
those have been fairlyconservative, right? At the same

(12:55):
time, we've also seen a pricingadjustment, right? Commercial
real estate values are well downfrom the peak several years ago.
And so all of the stars are kindof aligning. And it's just taken
some time for that to happen.
I think, you know, from aninterest rate perspective, we've
all been kind of waited withbated breath for lower interest

(13:16):
rates. And that will help, too.I think there certainly are some
question marks about whether theFed cuts in September or not. I
think at this point, probablymore likely that we are leaning
into a lower rate environmentthan one in which rates are
going to be higher. But eventhat's kind of kind of a
question mark.
And so I think, you know, andmeanwhile, the backdrop is that

(13:39):
fundamentals across mostproperty sectors are pretty
resilient, pretty healthy rightnow, notwithstanding, you know,
some temporary softness in theindustrial market and perhaps in
retail a little bit. But there'sa lot to like out there. And so
I think that, you know, once weenter a lower rate environment,
that's going to help. And thedebt markets have been really

(14:02):
crucial. I think that equity isslowly starting to come back,
right?
You're seeing institutionalcapital start to lean in a
little bit more. As I mentioned,I think anytime you have this
sort of significant dislocationin terms of pricing, again,
thinking about the longer term,there's some very compelling

(14:24):
reasons to believe that thingswill turn up again. So right
now, I really think it is themacro uncertainty, the policy
uncertainty that's kind of justkeeping things from a stronger
recovery. But we're moving inthe right direction. You know,
transactions are up on atrailing twelve month basis,
15%.
So so we're moving in the rightdirection. And I think we'll see

(14:44):
that continue throughout thisyear and especially into into
next.

Mark Bonner (14:49):
Yeah. Look. I mean, the chaos theory has been deeply
at play under the Trumpadministration. You know, the
policy whipsaws from one side tothe other. That's unpredictable.
And banks don't like that. SoJames, let me just ask you here.
I mean, you're an underwriteradjusting a loan term, how do
you bake in US policy risk? Andwhat I mean by risk is that
that's not a comment on whetherit's the right policy or not.

(15:11):
It's a comment on the policychanging so rapidly day to day,
week to week, just like it didin the last twenty four hours.
How underwriters bake that in?

James Bohnaker (15:21):
Yeah. I mean, the way that I think about it is
just given the heightened levelof uncertainty that we have from
every angle right now, I thinkscenario planning is crucial.
Anyone who says they have ahighly confident view of how the
economy is going to perform orhow real estate markets are
going to perform or whereinterest rates are going to be,

(15:44):
I think that's I'm skeptical ofthat, right, because there's
just so many different outcomesthat can play out. I mean, just
take tariffs, for example. Wehave never entered.
We've never had this type ofpolicy in the modern U. S.
Economy where tariff rates arewhat they are. And so there's
not really a lot to base it offof in terms of modeling what the

(16:06):
outcomes are going to be for anyof those variables that I
mentioned. And so I thinkscenario planning is crucial.
And I think on the margin, youknow, whenever you have these
kind of tail risks that, youknow, is going to lead lenders
to be somewhat more cautious.And so, you know, while we have
seen significantly more interestfrom banks in terms of CRE

(16:27):
lending, especially the top 25banks in The United States,
While there is more, you know,they're more eager to get back
into commercial real estatemarkets, I think, you know, if
the economy starts to turn southand financial markets get
volatile, remember, it's that'sa bigger it's a bigger problem.

(16:49):
And so could kind of slow thingsdown here from a liquidity
standpoint. Now, I don't expectwe at Cushman Wakefield don't
expect a severe recession. Weall know that the economy at
this point is slowing down, butthat was expected to happen
anyway in 2025.
And so I think things continueto keep moving in the right

(17:09):
direction from a lendingperspective, especially with the
banks and life codes. We've alsoseen private debt funds really
ramp up their activity in termsof lending. That's become very
competitive and is now about 20%of the lending pool, up from 11%
pre rate hiking cycle. Sothere's a of debt out there, and

(17:33):
it's become more competitive.And so I think at the end of the
day, barring a severe recession,which at this point seems like a
low probability event, thingsare going to keep gaining some
traction in the capital markets.

Mark Bonner (17:48):
You're just tuning in, it's Tariff Week Liberation
Day Part three, and we'rebreaking down how the new global
trade order could reshapecommercial real estate. With us
is James Bonacre of Cushman andWakefield. James, let's go to a
couple of questions from ouraudience. Yep. Do you you have
an idea about the effects ofimmigration policy on the cost
of construction?

James Bohnaker (18:09):
That is a great question. I have some
theoretical ideas. Were going tofocus on tariffs today, why not
turn to some more policy risk?So we've already seen, I'll just
say, as I think most peopleknow, we've already seen
immigration into The UnitedStates slow down dramatically in
2025 and even toward the end oflast year. And the foreign born

(18:32):
workforce in The United Statesaccounted for essentially all of
the labor force growth over theprevious two years.
And so with that materialpullback layered on top of that,
you know, some of thedeportations we've seen and, you
know, kind of fear factor of,you know, hearing about people
not going to work or to schoolor whatever because of, you

(18:54):
know, concerns over that. Ithink all those things together
is going be very impactful forconstruction costs. I don't have
a quantitative estimate for youright now, but, you know, in the
construction sector, I thinkit's about 10% of the workforce
is undocumented. And then a muchlarger portion of the workforce

(19:15):
is, you know, obviously foreignborn legal immigrants. And so,
you know, both of those thingsare likely to put upward
pressure on wages.
And, you know, right now it'snot as big of a factor because
there's just not a ton ofconstruction activity, whether
we're talking about commercialor resi. But, you know, once we
get to a point in the cyclewhere, you know, construction is

(19:38):
picking up, I think there'sthere's a good potential to run
into labor shortages and, ofcourse, higher cost pass
throughs. So, you know, that'ssomething that that we're going
to have to grapple with as faras the impacts once we see how
the how the how immigration andthe labor force plays out.

Mark Bonner (19:56):
Another question from the audience. What's the
probability of a, quote,unquote, big bang of new
investment into CRE versus acontinuation of the, quote,
unquote, low long, slow grindwe're current currently
experiencing, James?

James Bohnaker (20:11):
Yeah, I think it's hard to say. I think right
now it's very difficult for meto say there's going to be a big
bang of investment activity. Ithink we could see it kind of
come in fits and starts in thatin that manner. Right. You know,
the market sentiment right nowappears to be gaining momentum.

(20:32):
I think that, I mean, one thingthat could could really boost
things is, you know, maybe a bigFed rate cut. Maybe one day
President Trump walks into theOval Office and signs an
executive order that all tariffsare back to zero. Something like
that. But I think, you know,barring those kind of events, I

(20:56):
think we're more or less in thisslow grind period. 2026 is
anyone's guess.
I think we definitely see moresubstantial activity once we get
to next year. Right now, we'rejust kind of in that period
where there's being a a lot kindof thrown at us from from a
policy uncertainty standpoint.So right now, I think more of a

(21:17):
slow grind.

Mark Bonner (21:19):
Yeah. I mean, look, and there's been a lot of
speculation about a tariffinduced recession. Right? And if
that were to come to pass,James, I mean, just play ball
with me for a second. Whatsectors of commercial real
estate do you think would bemost affected by that?
Retail? Office?

James Bohnaker (21:35):
Yeah, I mean, I think it, you know, the obvious
answers are industrial retail. Ithink that, you know, while the
end goal, at least one of themof the tariff policies is to
bring, manufacturing andindustrial activity back to The
US. And there have been somecommitments for investments in

(21:56):
The United States in certainisolated regions and sectors.
But if you kind of look atmanufacturing activity year to
date, we've seen 28,000 joblosses. Manufacturing activity
overall has been contracting forfive months.
And so I think there really is alot of concern there within that

(22:19):
sector just with less importsexpected to come in. We've
already seen that fall off. Andso your coastal port markets may
see somewhat less activity. Andwe may see some geographical
shifts there as far as whichregions of the country benefit
and which ones kind of strugglea little bit more. And then

(22:40):
retail, I think we had alreadyseen a lot of evolution over the
past year.
2024, we saw several highprofile bankruptcies, which of
course were unrelated to tariffsor anything. But that's working
its way onto the market. Andthat's going be a challenge for
retailers. Consumers arestretched pretty thin right now.

Mark Bonner (23:03):
And I

James Bohnaker (23:03):
think something has to give. You kind of have to
pass those costs along or lookto cut costs elsewhere. And so I
think those two sectors are mostdirectly in the crosshairs right
now.

Mark Bonner (23:18):
It seems like institutional capital, though,
is making some moves lately,right? Pensions, sovereigns,
credit funds are reengaging,especially in assets linked to
AI or renewables and, you know,stable long term demand. Risk
committees are demandingflexibility. Shorter hold
periods, broader force majeureclauses and supply chain
diversification. James, in youropinion, is tariff sensitivity

(23:40):
now a required line in thecapital stack model?

James Bohnaker (23:44):
Well, I don't know if I would say required. I
think it's the smart way to goabout it. Because right now, as
I mentioned, real estate's beenthrough its lumps over the past
number of years. I think thatall this capital has been
sitting on the sidelines kind oftheoretically evaluating
portfolio strategies and now iskind of ready to get out and

(24:07):
actually deploy that, only tokind of have these new risk
factors layered on top of it.And those things are always
going to be there.
But I think, again, it justfalls under that macro risk
bucket, whether you're talkingabout geopolitics or interest
rate risk or economic risk. Andso think that's, again, the

(24:30):
scenario planning is alwaysprudent. And I think what we're
going to see and we already havebeen seeing, right, is a focus
on income resiliency from an NOIperspective, right? We're not
likely to see a lot of capitalappreciation through pricing, at
least in the near term. Right?

(24:50):
So I think those sectors, youknow, residential, AI, things
that have structural kind oftailwinds are most going to be
in favor and most resilient tokind of whatever is thrown at us
from a macro sense because it'sjust so hard to predict. I think
it's very hard to make a playbased purely on the macro unless

(25:14):
you're thinking about it longerterm, right? What are going to
be the structural forces drivingthe economy, driving real estate
markets over the longer term?

Mark Bonner (25:25):
I know you look at a lot of data, James, and I'm
sure you've been studying thelast six months in particular
about everything that'shappening economically in the
country. What concerns you themost when you're looking at the
numbers that maybe people likeme can't see because we don't
have the same skill set or thesame eyes that you have? What
concerns you?

James Bohnaker (25:45):
I I've I've got a long list, but I I think

Mark Bonner (25:49):
We've got a few minutes. Let's get into it.

James Bohnaker (25:51):
Well, mean, I'll just mention one thing. And it's
because it's such an importantfactor for the economy, and
that's consumer spending. Theconsumer has been so resilient
over the past few years. There'sbeen calls that debt levels are
rising and this is going to bethe moment inflation, obviously,

(26:14):
this is going to be the momentwhen consumers finally pull
back. And I think if you youlook at consumer spending
overall, so for example, in thesecond quarter of this year, it
was grew 1.4 after adjusting forinflation.
So, you know, not declining byany means, but for context, it
was double that in 2024, 2.8%.And consumer spending is 70% of

(26:39):
the economy. And if you thinkabout how many parts of real
estate that impacts, right,there's retail, entertainment,
mixed use, industrial with ecommerce. So that's really, I
think, the thing that I'm mostclosely watching. We got a
reading on consumer sentimentthis morning.

(27:00):
Still pretty weak. And ofcourse, sentiment doesn't always
translate into spending, but itmay starting to be. So we've
seen a very clear slowdownthere. And then furthermore, if
you kind of look across theincome distribution, there's a
big chunk of consumers that dohave high debt loads and their

(27:20):
wage growth is slowing. Andperhaps we're starting to see a
more difficult job market.
So kind of the big thing for meis just monitoring the consumer.

Mark Bonner (27:30):
Yeah, you bring up and look, today was not a good
day for the consumer. No. Andso, you know, and you're right.
There's a big difference betweensentiment and what a consumer
actually does. The sentiment hasbeen negative for the last
twenty four months, but the datahas shown that to your point,
that consumers have beenincredibly resilient, willing to
spend money on all sorts ofthings.

(27:52):
If and when that changes, Ithink you're right that that is
something that that should bevery concerning for the
commercial real estate industry.We're running a little low on on
time, James, but I did want toget to one final question from
the audience. In your opinion,how is the chaos in US policy
affecting overseas investmentinto The United States as far as
commercial real estate?

James Bohnaker (28:15):
It's hard to say with a broad brush. My sense is
that investment or interest ininvestment into The United
States is very strong, perhapseven stronger. I think that it
all kind of goes back to thesense that The US is the largest

(28:36):
market in the world, the moststable. At the end of the day,
the dollar, in my opinion, isnot at risk of losing its
reserve currency status, atleast anytime soon. So I think
anytime there's volatilityglobally, investors naturally
look to The United Statesbecause of those democratic

(28:58):
system of government, reservecurrency, and generally just
better economic performance,less volatility compared to
other parts of the world.
And so I think this time is nodifferent. Yes, on the margin,
there might be certain investorsin parts of the world that say,
hey, I'm staying away justbecause of all that volatility.

(29:19):
But I think by and large,investors realize that there's a
tremendous amount of opportunityhere and have confidence in The
United States.

Mark Bonner (29:29):
James, thank you so much for being here today.

James Bohnaker (29:32):
Absolutely, my pleasure. Great talking to you,
Mark.

Mark Bonner (29:36):
Alright, that's it for this week's edition of First
Draft Live. We'll be back nextweek with more from the front
lines of commercial real estate.You can subscribe to this show
wherever you get your podcastand you can find every episode
on biznow.com. I'm Mark Bonner.This is First Draft Live.
Have a great weekend y'all.