Published in the second quarter of 2025, Alpaca Real Estate’s research on U.S. Treasuries and tariffs offers timely analysis of the intersection between trade policy, interest rate dynamics, and real estate investment fundamentals as market conditions create unique entry points for disciplined investors.

Key Findings:

• Real estate valuations fell ~20% from 2021–2024 as the Fed raised rates to 5.50%, pushing the 10-year Treasury to decade-high levels and significantly increasing financing costs.
• Although the Fed cut 100 bps beginning in September 2024, the 10-year Treasury rose an additional 100 bps, breaking from the pattern observed in the last six easing cycles since 1984.
• The new administration’s trade policy raised effective U.S. tariff rates to 25.5, the highest in nearly a century, introducing inflation uncertainty, cost pressures, and recession fears into the macro outlook.
• Tariff-driven increases in construction material costs (estimated at 3–5%) are already straining development margins and reducing near-term supply pipelines across commercial real estate.
• Alpaca maintains conviction in industrial and multifamily assets in select U.S. markets, where secular tailwinds and supply constraints continue to support durable long-term performance.
• Alpaca is underwriting higher going-in yields, exit cap rates 50 bps above market, and conservative NOI growth assumptions while targeting opportunities created by market dislocation and refinancing stress.

Together, these dynamics show how unusual Treasury behavior, elevated tariffs, and rising development costs are creating both volatility and opportunity; Alpaca’s disciplined underwriting and focus on structurally advantaged sectors position the firm to capitalize on dislocations while maintaining resilience in an uncertain macro environment.

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