Your OM's Renovation Budget Is Already Wrong

Steel prices are up 23% since June 2025. Structural steel delivery lead times have doubled — from six weeks to fourteen or more. The 50% tariff on steel, aluminum, and copper under Section 232 survived the Supreme Court's February 2026 ruling on reciprocal tariffs. It's not going anywhere.

If you're writing an offering memorandum with a value-add renovation budget, a deferred maintenance reserve, or a development pro forma, and you haven't repriced those line items since Q4 2025 — your numbers are wrong.

Not directionally wrong. Specifically wrong. And buyers are going to notice.

What Changed and By How Much

At the NAIOP Charlotte conference on March 24-25, construction cost volatility was the single most discussed topic among CRE developers and brokers. The sentiment data tells the story: respondents still expect material costs to rise, but the panic is subsiding. The NAIOP confidence index score on material costs improved from 29 in March 2025 to 43 now.

That sounds like good news until you look at what actually happened to prices.

| Material | Tariff Rate | Price Change (June 2025 to March 2026) | Lead Time Change | |---|---|---|---| | Structural steel | 50% (Section 232) | +23% | 6 weeks → 14+ weeks | | Aluminum | 50% (Section 232) | +18-22% (varies by grade) | Extended | | Copper | 50% | +15-20% | Extended | | Average across all imports | 12% (Urban-Brookings, March 10) | Category-dependent | Varies |

The NAIOP sentiment improvement doesn't mean prices dropped. It means the rate of increase slowed. The gap between "less bad than feared" and "actually good" is exactly where OM assumptions fall apart. A broker who reads the improving sentiment headline and assumes CapEx budgets are safe is writing a pro forma disconnected from current pricing.

Where This Shows Up in Your OM

Not every offering memorandum is equally exposed. If you're marketing a stabilized net lease property with no renovation thesis, your CapEx section might be a one-paragraph reserve note. The tariff impact is minimal.

But if any of these describe your deal, the numbers need a fresh look:

Value-add renovation budgets. The classic thesis: buy at a discount, invest $15K-25K per unit in renovations, push rents $200-400/month. That $20K/unit budget from Q4 2025 assumed different steel and labor costs. Framing, HVAC ductwork, electrical conduit, plumbing fixtures — steel and copper touch almost every line item in a unit renovation. A budget that was tight in October is underwater now.

Deferred maintenance reserves. Roof replacements, structural repairs, parking lot resurfacing, elevator modernization — all steel-intensive. A $500K deferred maintenance reserve sized in 2024 doesn't cover 2026 work. If your OM's deferred maintenance section hasn't been repriced, a buyer running their own cost estimates will see the gap immediately.

Development pro formas. Ground-up or major repositioning projects have the largest exposure. Steel is typically 20-30% of structural costs. A 23% increase in that input changes total project cost by 4-7% before you account for the lead time impact on carrying costs and construction financing.

Tenant improvement allowances. TI budgets in office and retail OMs often carry forward from the previous lease cycle. If your offering memorandum quotes a $45/SF TI allowance based on 2024 contractor bids, that number needs to be re-bid. Brokers whose TI sections don't reflect current pricing are leaving a hole that buyer due diligence will fill.

The Lead Time Problem Is Worse Than the Price Problem

Steel up 23% is a math problem. You can update a spreadsheet. Lead times doubling from six weeks to fourteen is a scheduling problem — and scheduling problems compound.

A renovation that was projected at 8 months with 6-week steel delivery is now 10-12 months with 14-week delivery. That's 2-4 extra months of construction financing. 2-4 extra months before revenue stabilization. The pro forma IRR takes a hit from both the higher cost and the longer timeline.

Most offering memorandums don't model construction timeline risk at all. They state a renovation budget and a projected completion date. If that date was built on Q4 2025 lead times, it's already wrong.

Buyers who've built anything in the last six months know this. The broker who acknowledges the timeline risk in the OM — and shows they've priced it — earns credibility. The one who ignores it invites the buyer to question every other assumption in the document.

The Labor Side

Steel tariffs get the headlines. The labor side is quieter but moving in the same direction.

Stricter immigration enforcement is reducing labor supply in construction trades. The impact varies by market — Sun Belt metros with larger immigrant construction workforces are more exposed than markets with domestic-heavy labor pools. But the direction is consistent: labor costs are rising, availability is tightening, and OMs that quote labor rates from mid-2025 contractor bids are understating the real number.

The NAIOP conference data captured this too: labor supply was the second most-cited concern after material costs. For OM purposes, the fix is the same — get fresh contractor bids, not stale ones.

What to Actually Fix

If you're producing an offering memorandum this quarter with any CapEx component, here's the checklist:

1. Re-bid everything. Don't adjust 2024 or early 2025 contractor quotes by an inflation factor. Get new bids. The category-level differences (steel +23%, copper +15-20%, lumber flat-to-down) make blanket adjustments unreliable.

2. Show your work on timing. State the lead time assumptions. If your renovation timeline assumes 6-week steel delivery, say so — and note the current market reality. Buyers prefer transparency over optimism.

3. Separate material categories in your CapEx breakdown. A single "renovation budget" line item with no granularity invites buyers to apply worst-case assumptions across the board. Breaking out steel-intensive work from non-steel work lets buyers evaluate the exposure accurately.

4. Stress-test the pro forma with 14-week lead times. Run a scenario that adds 2-4 months to your renovation timeline. Show what it does to carrying costs, stabilization date, and returns. If the deal still works at the stressed timeline, that's a strong signal. If it doesn't, the buyer will figure that out anyway.

5. Update the market section. If your offering memorandum's market overview references construction costs, make sure the data is from Q1 2026, not mid-2025. Stale market data next to fresh CapEx numbers creates exactly the kind of internal inconsistency that AI-powered deal screening flags automatically.

The tariff environment isn't going away. The Supreme Court upheld Section 232 authority in February 2026. Steel at 50% is the baseline, not a temporary shock. OMs written as if current pricing is an anomaly are making a bet that buyers won't share.

Get the numbers right now. Buyers are going to check.