Over the past month, one question has come up in almost every conversation I've had with investors, financial partners, economists, journalists, and curious individuals alike: "How are you handling the tariffs?"
In this letter, I’m sharing my perspective on our strategic stance and tactical actions in the face of this uncertainty, volatility, and daily policy changes.
Strategic Mindset
My approach to strategic planning has been influenced by Peter Schwartz —author of “The Art of the Long View”— who explored future scenario planning frameworks to guide better decision-making today. As Schwartz notes, “The end result is not an accurate picture of tomorrow, but better decision-making today.” This principle is essential to our investment and execution process at Neutral.
In every deal we pursue, we follow the discipline of institutional financial underwriting, including extensive sensitivity modeling. By forecasting a range of possible outcomes, we strengthen our conviction in the base case and structure each investment to succeed under unknown future conditions.
We are not managing headlines like the recent tariff chaos; instead, we manage long-term returns. While short-term volatility can stir up the news cycle or shake the stock market, it hasn’t changed what we’re seeing on the ground: strong rent growth, low vacancy, and deep demand in markets like Madison, Milwaukee and Northwestern Arkansas. By adopting careful risk management practices at the outset of every project, using conservative financing, and procuring materials in advance, we position ourselves to navigate volatility and build long-term, sustainable value.
And in some cases, our strategic pursuit of strict sustainability design guidelines and certifications has implicitly helped. For example, our Neutral 1005 N Edison St project in Milwaukee is targeting Living Building Challenge (LBC) certification. This standard requires most materials to be sourced locally: at least 20% within 500 kilometers, another 30% within 1,000 kilometers, and an additional 25% within 5,000 kilometers. As a result, most of Neutral Edison’s materials are already sourced from U.S.-based suppliers, limiting our exposure to international tariffs.
Tactical Actions
While our strategic mindset helps us be prepared for future uncertainty, we’re also taking practical steps to reduce our exposure to tariffs.
Projects close to completion — including Bakers Place and 517 W Main — remain largely unaffected. The only exception is the kitchen packages for 517 W Main, which are sourced from Italy. We plan on receiving them within the current 90-day tariff pause with the European Union, but this may be affected by the continued policy developments. All other foreign-sourced materials have already cleared U.S. ports and are not subject to the new tariffs.
For projects still in planning or entering construction, we’re actively exploring domestic alternatives and continuing risk assessments for any imported components. The areas we’re monitoring most closely are:
- Mechanical systems;
- Appliances;
- Façade assemblies, particularly aluminum components sourced internationally;
- Mass timber;
- Specialty interior finishes.
For Neutral Edison project, these materials are not expected to arrive at U.S. ports until Spring 2026, and tariffs are only applied upon entry. With 13 months between now and the expected delivery window, there is still significant uncertainty regarding how trade negotiations will evolve. For example, during our recent webinar, Forest Economic Advisors suggested that mass timber may be exempt from new tariffs under the Trump administration’s executive order on reciprocal tariffs. That said, policy continues to shift almost daily, and it remains challenging to accurately predict where things will stand a year from now.
Using Peter Schwartz’s scenario planning framework, we’ve modeled a worst-case outcome based on potential tariff impacts. In this scenario, we assume that avoiding internationally sourced materials is not feasible in certain areas. If reciprocal tariffs are fully implemented per executive order 14257, issued on April 2, 2025, we estimate a $4,006,876 increase in total construction costs for the Neutral Edison development—equivalent to approximately a 2.4% rise across affected trades.
For investors, that impact would translate to a reduction in the annual internal rate of return (IRR), as outlined in the chart below:
In the weeks and months ahead, I’ll continue to share updates on how we’re analyzing the situation and the steps we’re taking in response. Resilience, in our view, doesn’t come from resisting the cycle—it comes from planning for it. That’s why we design our projects and funds to endure volatility, stay steady through down-cycles like the one we’re in, and be ready for the next up-cycle. Because, like spring, it always returns.
Sincerely,
Nate Helbach
CEO, Neutral
