Navigating Tariff Uncertainty: Cambia Capital’s Strategy for Risk Mitigation
Note to reader: This blog was updated as of the date of posting. Tariff-related news continues to evolve, potentially impacting market conditions. The examples below reflect information available at the time of posting. Regardless, Cambia Capital's underwriting guidelines remain consistent.
In Cambia Capital’s latest housing market update, a positive outlook was outlined on investing alongside builders in for-sale projects despite ongoing challenges. One significant hurdle is the United States' tariffs on goods from Mexico, Canada, and China—with the potential for more in the future. This blog explores the tariff landscape and how Cambia Capital mitigates risk amid these changes.
Tariff Impacts
Last week, President Trump imposed a 25% tariff on Mexican and Canadian goods starting March 4, alongside a 10% tariff on Chinese goods. On March 6, the administration delayed United States-Mexico-Canada Agreement (USMCA) tariffs by a month, then announced a 25% tariff on all steel and aluminum imports on March 12.
The uncertainty surrounding tariffs is creating volatility in the marketplace. While the situation remains fluid, it is likely that full tariffs will be implemented in the coming months. If so, American companies importing these goods will have two primary options:
Pass the increased costs on to consumers through higher prices.
Absorb the added costs internally by cutting expenses elsewhere or accepting lower margins.
The construction industry is particularly vulnerable, as builders rely on lumber from Canada, steel from China, and appliances from Mexico, among other imports. According to housing market research firm Zonda, tariffs could drive material costs up by 6% to 14% in 2025, depending on supply chain exposure and domestic manufacturer responses. While these increases are below the full tariff rates, they could still erode builder margins, forcing developers to adapt.
Cambia Capital’s Underwriting Approach
Cambia Capital closely monitors the impacts of tariffs on builder partners and takes proactive steps to safeguard investments. While risk-mitigation strategies are not specific to tariffs, they are grounded in sound underwriting principles that are particularly critical in a shifting market.
Partnering with Experienced Developers:
The top priority is working with high-quality development teams. Strong builders understand their markets and supply chains, enabling them to be proactive and agile. By maintaining close relationships with suppliers and subcontractors, they can navigate cost challenges more effectively.Investing at the Right Time:
Beyond selecting the right partners, Cambia strategically times its investments. Capital is deployed when permits are approved—reducing entitlement risk while ensuring project plans are finalized. At this stage, subcontractor and supplier costs are locked in through signed contracts and purchase orders. During due diligence, the builder’s budget and subcontracts are reviewed to assess potential tariff impacts before committing to an investment.Structuring Investments for Risk Mitigation:
Cambia Capital structures investments to protect investor capital while aligning incentives with project sponsors. All projects include contingency budgets to account for unexpected cost increases.
At minimum, we require:
A 10% contingency on horizontal construction (land development, site work).
A 5% contingency on vertical construction (building costs), depending on project complexity.
Since materials typically account for 50-60% of a construction budget, our contingency requirements provide a buffer against cost increases in the 6-14% range. Additionally, project sponsors are required to absorb cost overruns, protecting investor downside risk. In return, sponsors earn a larger share of profits when projects outperform, ensuring alignment of interests.
About Cambia Capital
Cambia Capital is a leading sustainable real estate investment firm, partnering with best-in-class developers who are setting new industry standards. These developers go beyond code requirements to deliver third-party certified, higher-quality homes that command strong market demand and reduce sale risk.
Investing in sustainable real estate isn’t just good for the environment—it’s a competitive advantage. Looking ahead to 2025 and beyond, Cambia Capital seeks opportunities to bring highly differentiated, lower-risk housing products to market. The focus is on missing middle housing, a high-demand, undercapitalized sector with limited institutional competition and growing regulatory support. By bridging the gap between single-family and multifamily housing, Cambia Capital helps create resilient, high-quality communities.
In a rapidly evolving market, mitigating risk while capitalizing on competitive advantages is smart investing. Sustainability, quality, and strategic positioning drive long-term value, and Cambia Capital is committed to leveraging these strengths to deliver strong returns.
For further information, please contact:
info@cambiacap.com