Here's what I've got for you this week.
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The real risk isn't tariffs... it's what comes next.
There's a lot more at work under the hood of the economy than just the tariffs. This week I look at other prominent factors driving CRE underwriting and risk assessment.
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BV Capital - Sponsored
In their latest offering, BV Capital are developing a 248-unit, Class A, ground up multifamily property in the Dallas-Fort Worth metro. Learn more here - and below.
- Podcast 712: The Fastest Way to Build an Investor Network:
As has been the case with many of this season's guests, Randy Smith didn’t start in real estate. Tune in to listen to this text book Capital Allocator has raised $13MM+ in equity.
Plus, a reminder of two main initiatives this year:
- Investors:
I'm looking for stable, light value add/core plus deals with accretive debt and well mitigated downside. Interested in the same?
Join my investor group here.
- LinkedIn Mastermind:
Dates for my next LinkedIn Mastermind are set - we start April 29.
Learn more and enroll here.
As always, please do not hesitate to email me directly if you have any questions.
Best,
Adam
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The Real Risk Isn't the Tariffs -
It's What Comes Next
The true risk facing the U.S. economy isn’t tariffs, it’s what they reveal about fading institutional discipline, especially at the Federal Reserve.
Tariffs dominate headlines, but the deeper issue is the Fed’s credibility in the face of persistent inflation, markets anticipating rate cuts, and, most significantly, political pressure. As trust in the Fed’s inflation-fighting resolve fades, the consequences ripple through global capital flows, currency strength, and commercial real estate.
This may be the moment where inflation expectations break free, liquidity evaporates, and long-held assumptions about monetary stability, and real estate values, come undone.
The U.S. economy is already softening.
As Larry Fink, BlackRock’s CEO, notes: consumer spending is slowing, business investment is down, and market unease is rising. Fink believes we are already in a recession - even before tariffs can fully bite.
Inflation is still high.
The Fed's core inflation measure, Personal Consumption Expenditures (PCE), is almost a full percentage point above target. Yet markets expect four rate cuts, not because inflation is tamed, but because they assume the Fed will again prioritize growth over discipline under pressure from the White House.
That’s the real danger.
The Fed has missed its 2% inflation target five years running, each time with a new excuse. When a central bank can’t consistently hit its primary mandate, and especially when it caves to political pressure, it loses credibility. That erodes asset prices, investment confidence, and capital flows.
And we’re now in a world of increasingly unanchored inflation expectations. Once belief in low inflation fades, it becomes self-fulfilling. Businesses preemptively raise prices. Workers demand higher wages. Input costs lock into contracts. Inflation goes from transitory to systemic.
Markets call this stagflation: slowing growth, persistent inflation.
Jamie Dimon, CEO of JPMorgan, flagged this in his shareholder letter. Tariffs drive up costs, cut purchasing power, and inject uncertainty that stalls business decisions. Retaliatory tariffs aren’t just symbolic, they weigh on global trade and capital markets.
Bill Ackman of Pershing Square went further, calling the current situation an ‘economic nuclear winter.’
These tariffs hit allies and adversaries alike, piling onto an economy already stressed by high debt, expensive capital, and a fragile housing market. Ackman's call for a 90-day tariff ‘timeout’ may be the most sensible policy idea on the table.
But instead, the political drumbeat grows louder – for pressure on the Fed for more rate cuts.
This is what should concern us most.
The Fed isn’t meant to boost markets or appease politicians. Its role is price stability, full employment, and macroeconomic predictability. Yet last September, mild labor softness triggered a 50-basis-point rate cut, twice what markets expected. Stocks jumped. Inflation climbed. Now markets expect the Fed to cave again, under pressure from the White House, using tariffs as justification.
If the Fed cuts while inflation is hot, it sends the signal that inflation doesn’t matter, and that monetary discipline is optional. That’s how credibility dies.
The Fed’s real power isn’t the federal funds rate; it’s credibility.
Credibility that it will act when necessary. Lose that, and even aggressive policy won’t move markets because expectations have already unraveled.
That’s an existential threat to capital markets.
Why Fed Credibility Matters
- It anchors expectations.
When people believe the Fed will keep inflation near 2%, they set moderate prices and wages. Lose that trust, and inflation becomes self-reinforcing.
- It enhances policy impact.
Credibility lets the Fed act with less force. Without it, markets resist, rates rise, and delayed action becomes more painful.
- It avoids inflation spirals.
Doubt in the target leads to preemptive price hikes, inflation-linked contracts, and capital flight. Restoring order would take impossible tightening.
- It preserves institutional trust.
If the Fed appears politically influenced or indecisive, confidence in its independence erodes, weakening its crisis response.
- It underpins real estate stability.
Rate stability supports cap rates and financing. Without it, sponsors lose visibility, debt becomes uncertain, and capital retreats, diminishing faith in the dollar and the US economy.
Right now, real estate values are high relative to income. If cap rates adjust upward with inflation expectations, prices could drop sharply. Today’s rates only seem restrictive compared to the free-money decade we just exited.
For real estate, the message is clear: don’t count on rate cuts. Plan for sticky inflation. Recheck your leverage. Re-underwrite deals assuming pricier capital and tighter tenant margins.
The bigger risk isn’t tariffs.
It’s the normalization of weak monetary discipline. Inflation expectations reflect market faith in the very institutions meant to provide stability. That faith is slipping, with consequences far beyond customs declarations.
The International Dimension
If the world loses confidence in the Fed, especially in the context of tariff aggression, the effects go global:
- U.S. Treasury demand drops.
If foreign governments see the Fed as politically compromised or inflation-tolerant, they’ll pull back on U.S. debt, forcing higher yields and pushing up rates on mortgages and corporate loans.
- Dollar weakens.
The dollar’s strength hinges on belief in the Fed’s commitment to price stability. Lose that, and capital shifts to alternative stores of value. Imported inflation rises. Commodities priced in USD become more volatile.
- Capital retaliation increases.
Tariff-targeted countries may diversify away from the dollar, set up new trade networks, and impose capital controls or taxes on U.S. investors, eroding America’s central role in global finance.
- 'Exorbitant privilege' collapses.
The U.S. enjoys cheap borrowing because of its global trust. If that erodes, so does its ability to run persistent deficits without consequence. A new, more volatile global financial order may follow.
Implications for Real Estate Investors
For commercial real estate investors, the shift in macro conditions demands a rethink across every phase of the investment cycle:
Acquisition Strategy
• Stress-test multiple inflation and rate scenarios
• Extend underwriting timeframes
• Bake in higher exit cap rates
• Evaluate tenant resilience to inflation
• Discount broker rent growth projections
Capital Structure
• Boost construction loan contingencies
• Avoid floating-rate debt
• Expect wider spreads for fixed-rate options
• Reduce overall leverage
Asset Management
• Add inflation protection to leases
• Increase CapEx reserves
• Audit vendor cost pass-throughs
• Focus on assets with pricing power
Disposition Planning
• Prepare for institutional recalibration
• Expect fewer international buyers
• Anticipate weaker 1031 exchange activity
Portfolio Strategy
• Diversify geographically
• Favor inflation-resistant sectors
• Reassess long-term ‘safe’ stabilized assets
• Balance value-add inflation upside with execution risk
In today’s environment, the real estate industry can’t rely on the strategies that worked during four decades of declining interest rates and anchored inflation.
That era is over.
The Fed’s credibility crisis reaches far beyond rate policy. It affects underwriting, financing, asset management, and global investor behavior.
Succeeding in what comes next will require a new mindset – one that favors durability over yield, operational resilience over leverage, and strategic discipline over short-term optimism.
Then again, those have always been the hallmarks of real estate’s enduring winners except for one thing: The margin of error just narrowed to virtually zero.
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With all that said (!), I remain active in my hunt for CRE investment opportunities with income, accretive debt to cap-rate, and (heavily) mitigated downside considering all the current market changes. If you'd like to join me, please complete this form, and I’ll be in touch.
Thanks as always,
Adam