Serra: The impact of the current tariffs (and any future tariffs) should be broken down into the a) true fiscal impact on pricing and b) the hedging of risk associated with the tariffs. This is similar to the Title 24 provisions that were enacted a few years ago. Some of the price increases were genuine, but many increases were simply a result of the volatility and uncertainty around the building code changes. The affect on real estate is dependent upon the sector. Lumber tariffs will have a more material affect on single-family and low-rise developments. Steel and aluminum tariffs will have a material affect on high rise steel structures but most projects will be affected in some regard whether its through reinforcement steel in foundations, columns and beams or aluminum in the partitions etc. There are reports that the tariffs will actually create a net decrease in employment in the construction sector so where the steel and aluminum mills domestically may improve, other jobs such as fabricated metals and motor vehicle components may be affected negatively.

GlobeSt.com: With construction costs already high, do imagine that land values will have to give to make these developments pencil?

Serra: Entitled land in Los Angeles is in very short supply at present, particularly in prime locations. Although the tariffs will increase construction costs and in turn drop residual land values, it's unlikely that the drop will be significant enough to see any material land value drops simply because the demand is very high and developers will likely take the risk that they can mitigate the impacts through value engineering /design changes.

GlobeSt.com: How has the development community responded to these new tariffs?

Serra: Several associations have spoken publicly against the tariffs, however its too early to really gauge how the community will respond. Within days of the initial tariffs being introduced, Trump then included exemptions for Mexico and Canada. The cadence of changes has led most people to sit on the sidelines and wait for things to settle before trying to understand the impact.

GlobeSt.com: What is your outlook for development activity in Los Angeles as a result?

Serra: For Los Angeles specifically we will likely see a bump in short-term construction pricing similar to the impact we saw with Title 24 until the true understanding of the ramifications of the tariffs are realized. The difference, however, this time is that we don't know what future tariffs may be enforced and what retaliation measures will be taken by Europe and Asia in response to such tariffs. This does not bode well when you look at the expansion of rapid transit in Los Angeles, the 2028 Olympics and many other infrastructure projects that are coming up over the next few years. While it may not slow down development activity, it will require developers and public entities to re-assess their capital spending and pro formas, and will add a further layer of risk to their projects. This comes at a time when we are already experiencing major skilled labor shortages in the construction industry which is already driving up construction pricing year-over-year, so forecasting longer term projects beyond the next 24 months becomes an increasingly difficult and speculative proposition.