Tariffs, trade policy, and geopolitical negotiations remain top of mind for investors as we approach the midpoint of the year. Given that negotiations are rapidly evolving and ongoing, predicting the potential impact on the macroeconomy and individual sectors, such as industrial real estate, with complete certainty is challenging at this time.

With that said, looking at previous periods of trade disruption can serve as a helpful guide. At the onset of the COVID-19 pandemic, industrial real estate initially faced headwinds as tenants and investors worked through the dynamic changes to the economy and the supply chain environment. However, over time, the trade disruptions in that period proved to be a tailwind for the sector as companies invested in their domestic supply chains to prevent similar supply chain shocks moving forward.

Today, even as tariffs are creating uncertainty, the industrial sector is undergoing a structural transformation driven by secular growth trends including growing e-commerce sales, the adoption of automation and robotics, and the onshoring of supply chains to the U.S. These trends have remained steadfast amidst the uncertainty in the market, particularly onshoring with many companies continuing to announce U.S. supply chain investments after the tariffs were put in place.

MaCauley Studdard, managing director at St. Louis-based ElmTree Funds. (Photo courtesy of ElmTree Funds.)

For institutional investors, we believe there are opportunities to capitalize on these long-term growth trends while investing in durable, defensive assets that can withstand the short-term volatility. Further, rather than seeing tariffs solely as a risk, investors should also consider the potential catalysts, such as driving new demand for domestic infrastructure and modern industrial facilities.

Tariffs Are Accelerating a Shift That Already Existed

While it might not have been as evident as in recent months, the new round of tariff policies being introduced or proposed in 2025 are reinforcing some of the trends that were already underway. Ongoing geopolitical tensions, pandemic-era supply chain disruptions, as well as a growing push for domestic manufacturing have changed how companies are thinking about their manufacturing and distribution strategies.

As corporations have looked to minimize risk and improve their operational stability, the demand for domestic industrial space has increased, particularly for newly constructed facilities that provide long-term efficiencies and allow for the use of automation and robotics. Tariffs have only reinforced this supply chain strategy serving as a further catalyst for investments in physical infrastructure, supply chain autonomy, and long-term operational resiliency.

Additionally, certain industries with underlying growth drivers serve as relevant examples for why demand for build-to-suit development has remained in place. Industries including pharmaceuticals, food and beverage, and digital infrastructure suppliers are continuing to expand their logistics networks despite these global pressures. Tenants in these industries have a need for new facilities to capitalize on changes occurring in their respective sectors.

In particular, demand for build-to-suit cold storage and data center facilities remains high. For cold storage, the demand is being driven by growth in the pharmaceutical industry along with food and beverage companies looking to capitalize on a consumer push towards fresh food and the increased adoption of food delivery. For data centers, the growth is being driven by hyperscale tenants’ need for new facilities to capitalize on the growth in AI and cloud computing.

These trends show that build-to-suit demand growth is often structural rather than cyclical. As a result, tariffs should indicate to institutional investors that, despite macroeconomic uncertainty, demand for high-quality, future-proof industrial assets remains structurally sound.

The Acceleration of Build-to-Suit

Despite tariffs, build-to-suit development has remained robust while speculative industrial developments have continued to decline. Corporate decision making has slowed a bit following the recent tariff announcements, but given build-to-suit industrial facilities are driven by specific tenant needs and are customized for long-term functionality, many build-to-suit projects have continued to move forward.

In terms of investment characteristics, build-to-suit facilities are typically leased for terms of 10 to 20 years or more, which mitigates against the re-leasing risk typically associated with real estate investments. Additionally, due to the customized nature of construction, build-to-suits tend to be strategically important to tenants’ overall operations, which increases the probability of renewal at lease expiration.

The newly constructed nature of build-to-suit assets also leads to owning assets that can maintain value over time due to their modern designs, Class A specifications and strategic locations. Infrastructure considerations, such as proximity to highways, airports, ports, and access to energy, as well as labor availability, have become critical underwriting components for many institutional investors. These factors not only determine the strategic value of a property to a tenant but also support the long-term viability and re-lease potential of the property. Site selection for a build-to-suit property is often the result of several years of planning by the corporation, which typically results in choosing optimal locations relative to infrastructure access and labor availability.

This combination of long-term leases, high renewal probabilities, and strategically located, Class A real estate offers a highly predictable income stream over a long-term investment horizon. During periods of elevated uncertainty and volatility, these defensive attributes often make build-to-suit assets highly sought after.

Institutional capital is gravitating toward this end of the industrial market, recognizing that build-to-suits assets offer a unique mix of security and scalability. The tenants occupying these properties, often Fortune 50, investment-grade-rated companies, are less likely to be deterred by short-term trade disruptions given their strategic planning and growth orientation is long-term in nature. They are also well capitalized companies with a proven track record of operating throughout various economic cycles, which minimizes tenant default risk in a potentially softening economic environment.

Domestic Demand Drivers

Outside of tariff dynamics, domestic fundamentals driving industrial real estate are strong. E-commerce growth continues to strengthen demand for logistics and last-mile facilities. According to the most recent U.S. Census report, online sales continue to gain market share, contributing 16.4% of total quarterly retail sales at the end of 2024 versus 14.9% at the beginning of 2023.

Another fundamental that is driving local growth is onshoring and reshoring efforts, which are prompting major investments in U.S. manufacturing and distribution hubs. The strength of the this trend has been highlighted by various companies announcing large-scale supply chain expansion plans after the onset of tariffs including Roche’s plan to invest $50 billion in U.S. manufacturing and R&D, Amazon’s $15 billion warehouse expansion plan, Nvidia’s plan to invest $500 billion in U.S. AI infrastructure, Abbott Laboratories plan to invest $500 million in manufacturing and R&D in the U.S., Novartis’ plan to invest $23 billion in U.S. manufacturing and R&D facilities, and Kimberly-Clark’s plan to invest $2 billion in U.S. manufacturing sites.

These large-scale manufacturing announcements will create significant follow-on demand within the build-to-suit sector. Suppliers will need to build new distribution, production and assembly facilities located near the manufacturing sites. Third-party logistics companies will need to expand their distribution footprints, which along with the manufacturing companies building out their own distribution capabilities, will drive significant demand for modern distribution facilities.

This reconfiguration of supply chains is also creating a sustained demand for industrial facilities that can support automation, robotics, and high-throughput operations. Many of the older industrial facilities across the U.S. lack the specifications needed to accommodate these capabilities so there is an ongoing flight to quality among tenants looking to future-proof their operations.

The shift in user demand is also being mirrored by investor behavior. Capital is continuing to flow toward new, Class A industrial assets that meet modern functionality requirements and are aligned with long-term trends in automation and domestic logistics. Tariffs, in this context, act less as a constraint and more as a confirmation that the demand for modern, domestic infrastructure is likely to persist.

Flight to Quality in Full Effect

In times of capital market dislocation, institutional investors tend to seek predictability over speculation. As a result, investors are spending more time analyzing market dynamics and tenant resilience, which leads to increased selectivity and a heightened focus on defensive strategies. Many investors are also prioritizing durable, income-generating assets that offer downside protection.

This flight to quality is particularly noticeable in the industrial sector today. Assets that have high quality tenants, long lease durations, and Class A specifications are commanding a significant premium over higher risk properties with a more speculative investment thesis. This bifurcation within the industrial sector is expected to persist over the foreseeable future as the uncertainty in the wider economy will continue to push investors towards defensive investments.

Flexibility Through Relationships and Structuring

While the flight to quality favors certain types of industrial assets, it also rewards investment managers with deep relationships and a proven track record, which can be a major advantage during a time of uncertainty. From the tenant perspective, build-to-suit developments are critical pieces of their growth strategies, and they place a high level of scrutiny on the capital and development partners involved in the process to ensure the projects are completed in a timely and efficient manner.

In rapidly evolving environments like the one today, tenants have an even stronger preference to work with counterparts that have experience in the build-to-suit sector. This experience provides tenants with confidence that their partners in the transaction can manage through the volatility in the market and ensure the property is completely on time and on budget.

Industrial’s New Age of Opportunity

Looking forward, investors should continue to monitor the tariff policy in the U.S. and its potential ramifications on the macroeconomy and capital markets. However, amidst the macro uncertainty, there are investment opportunities that have defensive characteristics that can protect against short-term volatility while still offering access to long-term growth trends.

Given it is difficult to predict whether current protectionist trade measures are temporary or long-term, we believe the best-positioned investment strategies are those that can perform well under either condition, which favors properties with long-term leases to investment-grade tenants that can offer predictable income streams over various economic and real estate cycles.

Industrial asset investment is no longer about targeting short-term growth potential, but rather it’s centralized around strategy, adaptability, and alignment with future economic priorities. For institutional investors, this means embracing a nuanced view of the sector and seeking opportunities to build critical domestic infrastructure, deploy capital into defensive investments, and partner with high quality tenants looking to continue to grow and build competitive advantages during a period of uncertainty.

MaCauley Studdard is managing director at St. Louis-based ElmTree Funds.

Beeville Independent School District (BISD) in Beeville, Texas, in collaboration with Pfluger Architects and Spawglass General Contractors, recently commenced construction on a new elementary school designed to consolidate two aging schools into one modern campus.

Following years of planning, bond proposals, and the approval of a $62 million bond by voters in Spring 2024, the new Beeville Elementary School will serve 1,200 students when it opens in August 2026.

Designed by Pfluger Architects, this campus marks the beginning of a long-awaited transformation for the district, creating a modern, fully enclosed facility designed to foster creativity and collaboration. The new 108,100-square-foot Beeville Elementary School at 1799 N. Fenner Street will replace the current Fadden-McKeown-Chambliss (FMC) and R.A. Hall Elementary Schools, both of which have served the community for over five decades. In addition to indoor classrooms and collaboration spaces, the campus will include 51,000 square feet of outdoor learning and natural play areas.

Pfluger Architects worked closely with Beeville ISD and the district’s Community Advisory Committee – a group of parents, teachers, administrators, and community members – in the bond planning process. Together, they asked big questions about enrollment growth, safety, and facility conditions and built a plan that reflects the community’s priorities.

The new facility offers Beeville students advanced learning spaces and state-of-the-art technology in a completely enclosed, secure environment, with designated learning hubs and collaborative spaces designed to enhance the educational experience. Once the new campus is completed in August 2026, R.A. Hall Elementary will be demolished and FMC Elementary will be repurposed for other district educational uses.

Leasing activity remained sluggish in the U.S. office market, while vacancy rates continued to rise in the first quarter of the year, according to the latest research from JLL.

JLL’s first quarter U.S. office report didn’t contain much in the way of surprises: The U.S. office market continues to struggle as companies seek smaller amounts of space and workers continue to work from home at least on a part-time basis.

According to JLL, office leasing volume in the United States during the last 12 months stood at just 89% of what this sector would typically see during a 12-month span before the COVID pandemic.

In a bit of good news, though, leasing volume did increase in the first quarter, with JLL reporting that the United States saw 50.4 million square feet of closed office leases during the first three months of the year. That is up 15.3% from the first quarter of 2024.

The higher leasing volume did not translate to a drop in vacancy rates, though. JLL said that the U.S. office sector posted 8.1 million square feet of negative net absorption in the first quarter of the year.

The loss in occupancy was elevated by federal lease terminations, federal contractor sublease additions and buildings removed for conversion that had space leased before removal.

Even these negative numbers were an improvement from the first quarter of 2024, when the U.S. office sector saw negative net absorption of more than 20 million square feet.

The U.S. office market total vacancy rate jumped by 34 basis points on quarter-over-quarter basis, hitting 22.64% in the first quarter, JLL reported.

Is there positive news? A bit. JLL predicted that net absorption is expected to stabilize during the remainder of the year. JLL also said that it expects vacancy rates to plateau and eventually decline.

This is partly because downsizing activity has lessened during the past year, with larger tenants trimming just 6.6% of their space once their office leases expire. With an increase in expansionary leases expected to hit the office sector throughout the rest of this year, JLL says, both absorption and vacancy rates should begin to improve in the second half of 2025.

In another key trend, JLL reported that the average number of days a week that employees at Fortune 100 companies are required to work in the office now stands at 3.74 days. That is up from 2.2 days in the fourth quarter of 2024.

Office investment volume also rose to $11 billion in the first quarter, according to JLL.

Anthem Development capitalized the development of a 256-unit Class-A luxury multifamily community at the intersection of I-35 and Justin Road in the Dallas suburb of Lewisville, Texas.

The institutional joint venture will break ground in May 2025 with completion scheduled within 24 months.

Anthem Village will comprise four four-story, elevator-serviced buildings, offering a diverse mix of thoughtfully designed residences. 

Residents will enjoy direct access to a host of nearby amenities, including Lake Lewisville, Old Town Lewisville, and the Lake Park Athletic Fields and Golf Course. Situated on I-35, the community’s strategic location also ensures convenient commutes to major employment areas throughout the Dallas-Fort Worth metroplex without disrupting neighborhood traffic.

Jorg Mast of Colliers International represented Anthem and arranged the financing and joint venture common equity that will be used for the acquisition and development.

Merriman Anderson Architects is serving as architect for the dual-branded hotel development that recently broke ground in Uptown Dallas featuring Marriott brands AC Hotel and Moxy Hotel. 

The 19-story tower includes a total of 264 rooms, modern amenities, and unique, complementary experiences for guests. The development’s address is 2910 N. Hall St. in the prime location of the McKinney Avenue corridor in Uptown Dallas, where there are endless restaurant and nightlife options. 

There are 110 rooms planned for the AC Hotel, and 154 rooms within the Moxy Hotel. Each hotel will have its own lobby and entrance but will share amenities such as a fitness center and a 261-stall parking garage. The signature Moxy Bar and Restaurant will be situated at street level, and a custom-branded bar and lounge will be located on the 8th floor, featuring an outdoor terrace deck, water features, and spectacular city views. 

The development is projected to be open in summer 2026. 

Peachtree Group is the owner of the development, and Phoenix Development Partners is the developer for the project. Moss Construction is the general contractor, and The Society is the interior designer. 

As commercial real estate is still finding its footing following the pandemic, the lending landscape continues to shift. Traditional lenders are maintaining a conservative approach, as they balance tight regulations, ongoing liquidity challenges, and sector uncertainty alongside borrowers.

As banks, insurance companies, and other large financial institutions assess their exposure to commercial real estate, private credit providers have complemented the established debt sponsors by offering flexible and efficient solutions to borrowers. With many projections suggesting that over the next five years the global private credit market could triple, borrowers will benefit from a competitive lending marketplace between both traditional and private lenders.

There are several opportunities, risks, and predictions for both borrowers and lenders when considering private credit in U.S. commercial real estate lending in 2025.

Efficiency Creates Opportunity

The lack of regulatory oversight and more structured internal controls allow private lenders to act quickly and nimbly. Fewer committees and administrative scrutiny provide borrowers with increased certainty that their deals will get done as quickly as needed. Private lenders can originate loans, secured by valuable collateral, while offering more flexible terms, albeit higher interest rates, to borrowers compared to more traditional bank loans.

Maturing Loan Environment

Industry experts estimate that approximately $1 trillion in commercial real estate loans are set to mature by the end of 2026. Many of these loans were originated during periods of historically low interest rates, leaving borrowers at an important inflection point as they look to refinance. The rapid rise in interest rates over the last few years has led to the repricing of assets, with existing lenders looking at significantly impacted property valuations now versus when the deal was underwritten. These factors have led to a funding gap that private lenders are uniquely positioned to fill, often on terms that better reflect current market conditions.

While borrowers may look to private credit to originate new loans, many borrowers with quality cash-flowing assets and maturing loans can also negotiate a loan extension with their existing lenders and use private credit as a complementary tool. Borrowers can look to the private market for new subordinate capital. This capital can be used for the additional equity required by the existing lender, can facilitate new interest rate cap purchases, may replenish the interest reserve for the senior loan, or cover other financing closing costs.

Investor Appetite and Borrower Opportunity

Given inflation concerns over the last few years, many investors have stayed on the sidelines and accumulated cash waiting for the right time to deploy it. With the tempering of inflation and a reset in valuations across commercial real estate, private credit lenders see this as an opportunity to achieve higher yields in the real estate market, with loans that can be structured for a relatively short duration. From a borrower’s standpoint, having several potential private lenders with “dry powder” creates a good marketplace to shop around and negotiate terms.

Risks Associated with Private Credit

While the influx of capital from private lenders opens new opportunities, it also introduces additional considerations for both borrowers and lenders. Borrowers may face increased pressure due to higher interest rates, as private credit loans often come with relatively high spreads. With the ongoing uncertainty in valuations, it’s crucial for borrowers to carefully analyze the collateral and assess potential deal and market risks. Should borrowers have issues satisfying debt service, for example, private lenders may be less patient and willing to work with borrowers than traditional lenders.

On the lender side, lower levels of regulatory oversight in private credit can be advantageous, but they also necessitate rigorous due diligence and thorough creditworthiness evaluations to mitigate potential risks. A strong understanding of how a borrower is capitalized for a particular deal is key. Once the loan is closed, the lender will need to remain actively engaged, monitoring covenants and continuing dialogue with borrowers to get ahead of potential issues.

Office and Multifamily Outlook

As we look across real estate sectors, the office market, most notably, is in a state of flux. Driven by evolving work patterns and changing tenant expectations, many legacy office buildings now require significant repositioning. Private credit can serve as a short-term option for borrowers in need of refinancing existing office buildings, an asset class many traditional lenders may be weary of in the current market. Borrowers looking to finance projects that involve necessary capital improvements to drive occupancy, adaptive reuse, modernization, or even conversion to mixed-use developments can lean on private credit as an option while developing creative solutions to inject value into existing office buildings.

Turning to multifamily, the market has seen a construction boom over the last several years, highlighted by more than 580,000 units being completed in the U.S. in 2024 according to Colliers, the most since 1974. With a significant number of construction loans maturing, there is an opportunity for private capital to step in as a financing source, particularly as developers continue to lease up completed projects, which in turn leads to stabilization and greater potential to refinance the asset with a traditional lender.

Interest Rate Environment

With recent news suggesting that the Federal Reserve may not cut rates as many times as previously expected in 2025, rates are likely to remain higher than in the last market cycle. Traditional lenders are more likely to wait out additional rate cuts before redeploying capital, creating an ideal environment for private credit lenders to invest in cash flowing assets, capitalizing on trillions in maturing loans and a reset in valuations.

Conclusion and Key Takeaways

Private credit is poised to play a big role in the commercial lending space over the next five years, creating a favorable market for borrowers. These key factors will drive that opportunity as we move through the next real estate cycle:

• Approximately $1 trillion in commercial real estate loans are set to mature by the end of 2026, creating significant demand for refinancing options at a time when higher interest rates have impacted property valuations.
• Private credit can serve as complementary capital for borrowers with quality assets who secure loan extensions from their existing lenders, providing funds for additional equity requirements or other financing needs.
• The office market presents unique opportunities for private lenders as traditional lenders scale back investment in this sector.
• With the Federal Reserve calling for fewer interest rate cuts in 2025, private credit lenders are well-positioned to capitalize on higher yields while traditional lenders remain conservative.

Courtney Mayster is the Managing Partner at Much Shelist, P.C. and a seasoned commercial real estate attorney with projects ranging from acquisitions and dispositions to financings and developments. Ian Shaffer is an associate at Much who counsels buyers, sellers, investors, landlords, tenants, and lending institutions on commercial transactions.