Tariffs, Construction Costs, and Why DST Investors Are Smiling

Tariffs, Construction Costs, and Why DST Investors Are Smiling

With construction costs skyrocketing due to Section 232 metal tariffs, real estate investors facing a 1031 exchange are discovering a surprising advantage.

Ground-up developments are getting squeezed by surging material expenses and contractor re-quotes, but investors who pivot to pre-managed, institutional-grade Delaware Statutory Trusts are bypassing the tariff penalty entirely while benefiting from rising replacement costs.

Discover why savvy investors are using this exact market environment to turn supply constraints into a win and how existing properties hold the upper hand.

Human Authored by

Daniel Goodwin

Let me tell you about two guys.

Greg owned a 40-unit apartment complex in Fort Worth. He bought it in 2019, managed it himself for six years, and finally decided to sell. Good timing! He walked away with a $1.8 million gain. But Greg wants to stay in real estate. He’s already lining up contractors for a ground-up multifamily build outside San Antonio.

Same starting point. Very different exposure to what’s happening right now.

Then there’s Paul. Paul also sold his rental portfolio—a couple of strip-center units in Katy—and netted a similar gain. But Paul went a different direction. He used a 1031 exchange to roll into a Delaware Statutory Trust backed by a Class A apartment community that is already built, already leased, and already managed by professionals.

Same starting point. Very different exposure to what’s happening right now.

The 50% Problem

If you’ve talked to a contractor lately, you already know. Steel is up over 20% year over year. Aluminum is up 33%. Copper? Up nearly 16%.

The culprit isn’t some mysterious market force: it’s a 50% tariff on imported steel, aluminum, and copper under Section 232 of the Trade Expansion Act. These tariffs were expanded this spring when a presidential proclamation restructured them to apply to the full customs value of imported products, not just the metal content.

Now, you might be thinking: didn’t the Supreme Court just strike down tariffs?

They did, sort of. In February, the Court ruled that the broad IEEPA-based tariffs (the sweeping “reciprocal” tariffs on imports from nearly every country) were unconstitutional. Those are gone. But the Section 232 tariffs on construction metals were authorized under a completely different law. The Court didn’t touch them, and they’re likely not going anywhere.

The numbers are brutal. Construction input prices surged at a 12.6% annualized rate in early 2026, the fastest pace since 2022. The Brookings Institution estimates that these tariffs add roughly $17,500 to the cost of every new home built.

Greg, our ground-up builder, is staring down steel framing bids that would have been 30% cheaper eighteen months ago. His contractor just told him the electrical package is getting re-quoted—again—because copper wire pricing moved mid-bid.

That’s the world of new construction in 2026.

Why Existing Properties Win

Here’s what makes this moment interesting for DST investors like Paul.

When you exchange into a Delaware Statutory Trust, you’re buying into a property that’s already standing. The steel is in the ground. The copper is in the walls. The aluminum storefront was installed before tariffs doubled the price of the raw material.

That means two things.

First, your acquisition cost doesn’t carry the tariff premium. You’re buying based on the property’s income stream and market value, not on what it would cost to build the same thing from scratch today.

Second, and this is the part that really matters, the replacement cost of your property just went up. If it costs 8 to 25% more to build a competing property next door, the value of the one that already exists goes up with it. Developers who might have broken ground on a competing project are now penciling deals that don’t pencil. That’s less new supply coming to market, which supports rents and occupancy for properties that are already operating.

This is one of those rare moments where doing nothing is actually the smartest move. Paul’s DST property is appreciating in relative value, specifically because no one can build a replacement cheaply.

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Don’t Ignore the Clock

Here’s what I would add: tariff-driven cost inflation doesn’t just affect new construction. It eventually creeps into renovation, maintenance, and capital expenditure budgets for every property owner, including DST sponsors. But institutional-grade DST properties are typically underwritten with reserves precisely for this kind of environment, and the management teams running them have buying power that individual landlords don’t.

The investor sitting on appreciated real estate right now faces a decision. You can roll into a new build and inherit today’s inflated construction costs, uncertain timelines, and contractor re-quotes. Or you can use a 1031 exchange to step into something that’s already producing income, already stabilized, and that actually benefits from the construction-cost environment everyone else is struggling with.

“Developers who might have broken ground on a competing project are now penciling deals that don’t pencil.”

BOOK A STRATEGY CALL WITH DANIEL GOODWIN

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Step 1 of 3 – Step 1 of 3 – What Brings You Here Today?

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What to Do Next

If you’re sitting on a capital gain and wondering whether this is the right time to act, let’s talk strategy. I walk investors through exactly these kinds of decisions: the 1031 mechanics, the DST landscape, and how to match the right replacement property to your specific tax situation.

The tariff environment isn’t going away. But neither is the opportunity.

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