Associated Bank Thought Leadership Podcast

WGN: We're on with Tom Wolf, senior vice president in equipment financing and leasing at Associated Bank. Tom, welcome back.

Tom Wolf: Thank you, Steve. Appreciate it.

WGN: I want to focus our conversation today on construction, the forecast for not only non-residential construction, but home construction as well. From everything that I'm reading in some of these reports, the forecast is sort of uneven moving forward, isn't it?

TW: No, you hit it right on the head. Ironically, last year, you know, the first half of ‘25, there was a lot of delays, a lot of projects, a lot of uncertainty related to tariffs. And honestly, what we really thought was a lot of that that inventory or buildup was going to push into ‘26, that there was a ton of optimism. Unfortunately, in that meantime, conflicts over in the Middle East, interest rates happened to go higher. Still uncertainty. So, you know, across residential, office, there's still a lot of uncertainty and flatness in the market.

Really, the one industry that's somewhat propping up the industry is just related to the data center built, where a lot of construction companies across all industries are obviously able to take advantage of that. So I think that's where the propping up what might be a much lower outlook into 2026.

WGN: Yeah. And Tom, I want to get into each of these sectors. I'm going to hit them individually, but I want to go back to that part of the about the economy. The uncertainty is caused by what? What are we looking at here? Because for, you know, most economists say that the economy generally is doing pretty well. What's causing the uncertainty?

TW: You know, I think most of the uncertainty just relates to—not to get into political—but I think it's just in regards to, you know, everyone wants certainty going forward, either at the interest rates with an understanding that they're going to go down, how are they going to go down. In regards to costs—you know, everyone wants to understand that what they're paying for, there's some certainty going forward. And all of that kind of remains in flux for a lot of people in a lot of industries. So I think, certainly from the construction side of it, even though I think things are okay, optimism is not all there. And I think growth is something that really isn't going to happen until we start really seeing interest rates go down, I think we might see a turbo boost in the economy. But again, I think that one’s yet to play out.

WGN: Yeah, and I think this past week I read a couple of different economists’ views moving forward that we might actually see an interest rate increase in the coming months.

TW: Yeah, there certainly was chatter of that as well. And I think if that's the case, obviously there's fears of inflation, and I think some of that inflation concern relates to the oil cost. You know, it's not just what you pay at the pump. Oil is in a lot of different derivatives in what we make out there. And those costs, if not, have doubled again, you know, that's a trickle-down effect. And again, inflation concerns are certainly something we're going to have to address. And in order to address that, we might have to increase rates, which again, it's just going to slow things down.

WGN: Yeah. So then we have the tariffs. You mentioned tariffs, you mentioned interest rates. Immigration policy is one that I want to focus on because I don't think a lot of people realize how important immigration issues are to the construction industry. I saw a report that of the 12 million payroll and non-payroll employees in construction, a quarter of them are foreign-born. And that share goes up to a third for craft workers in the industry. So what's happening with the immigration is really having a big impact on the construction industry, isn't it?

TW: I would agree. It certainly is not allowing them to grow. Again, you know, if there's stagnation in jobs, but also not having the people to do it, is certainly going to slow things down. So, again, I don't really know the solution outside of the fact that is, is that immigration to our, certainly the construction economy, is important. And obviously, with some of the things that we've seen in place, the number that are coming back into the country, into those jobs, is decreasing. So something we'll have to address, certainly if things start to accelerate, and growth starts to take hold.

WGN: And also, I saw cutbacks in federal spending are having an impact as well. This is a surprising one because I don't think we've really heard of construction projects being impacted. But I'm guessing if there's fewer federal dollars going out, there's some of that that had been planned for construction, right?

TW: Oh, yeah. When you start talking about federal projects, either the roads or other different type of projects out there, you know, those are usually large and multi-year. And again, that spending has decreased. And, you know, the chatter I hear on the street is that those big, large federal projects either being delayed or they’re just not coming to fruition. So again, will definitely affect growth in the construction industry.

WGN: Let's dial in closer on some of these forecasts for the different construction sectors. You mentioned data centers being really strong, the consensus is strong and rapidly growing. These data centers are popping up everywhere. Talk to us a little bit about that.

TW: Yeah, you know, I think from a construction standpoint, again, these are large, multibillion dollar projects. Now, it's not as if they're on every corner in every street. So, again, you know, these are obviously growing right now. They're multibillion dollar projects that involve a lot of people in the construction industry, to concrete, to electrical, to general contractors, all of which get involved in these projects at certain times. So, I think there’s a lot of positives. But again, at some point, those data centers are going to be built, and it's likely going to then all of a sudden fall off and hope all of the other side of things start to catch up, i.e., residential.

Office is probably one of those sectors that isn't going to see an increase. I think office is probably going to be stagnant for a few years, where I think some of those excess office buildings are likely going to be moving to residential until we kind of right-size, you know, the people that are coming into the office, because I just think we just have excess there.

WGN: Back to the data centers thing—you know, a couple of states, and I think Illinois was one of them, considering in the spring legislative session new rules about data centers. And I know other states are doing that as well. Do you think that is actually a bigger groundswell of opposition than we're thinking, and that might actually impact that number?

TW: There certainly is opposition. I think I see it in the sense of, I think it's certainly making a lot of headlines. But I think at the end of the day, the need for it is going to be there. And I think it's just a matter of kind of it getting through the process. Will it affect how many? I'm not sure, but I think it's something that I think everyone will be recognizing that we need it. Now, again, it's just where they're going to go. It's going to be kind of, what this is going to play out.

WGN: And I saw an interesting story today about how Microsoft is building a data center in Wisconsin or has built one in Wisconsin that uses about as much water as a restaurant would use in a year. It's a new innovation, new innovative way of building a data center. It's going to take new innovation to get over some of these hurdles, right? To make these data centers less—how I'm going to describe this the right way—less impactful on the environment?

TW: It's interesting, from an environmental honestly, that's over my skis, but in regards to a lot of the innovations related to—and I'll give you an example here—there's, I think, this is related to the one going up in Wisconsin. And there happened to be, you know, a customer, somebody that I spoke to, that happens to be in the anti-freeze business, which I think would just be in cars, etc.,

right? But this anti-freeze is just kind of related to cooling things down. And what we're realizing is that these data centers create a lot of heat. So then, all of a sudden, it's just developing new ways that they have to use this coolant. So again, it's just opening up other avenues for what might be considered old-world type uses, to new-world type uses.

So again, I think that people have to just be creative and kind of how they move forward, because it is certainly something that I think, even though there might be opposition, at the end of the day, this is coming whether you like it or not.

WGN: Just on the housing market level, there's still a lack of units available out there. And I know housing starts are predicting construction coming, but that number really hasn't come to reality yet. They really started building because of all the things we've been talking about. When we do see this openness happen, is it going to be like an opening of the floodgates?

TW: I do. I honestly do, because I think I think people aren't going to, so many of us are in these 2% or 3% mortgages. And if you don't have to move, who wants to pay twice as much for the interest rate? Right? Add to the fact that even though you might get a lot for your house today, but if you're moving someone else, they're going to be spending a lot for something else, so those are really two things that I think are dragging down that side of it.

I think at the end of the day, interest rates are going to drive it. And if we start seeing a tick down in that, I think it's going to open the floodgates for people to move, which is the trickle-down effect. And then, all of a sudden, we're going to see a lot more new builds and expansion into that.

WGN: But in terms of helping the housing market, building new stuff is going to take a while. So even if they open the gates tomorrow, we're talking about a year or two away from having a lot more housing units, aren't we?

TW: I think you hit it on the head that it's going to take a while. And again, I think the cost of entry now into new homes is also affecting this as well. So, again, you know, is there going to be a growth in more moderately priced housing, you know? Time will tell. We'll have to see. But I think, you know, the whole price of housing today has gone up significantly. And the fact that it costs almost twice as much, on an interest rate perspective, is just slowing down people's motivation to buy.

WGN: Right. And then what you do in terms of equipment financing and leasing—if we don't have these big construction projects going on, people are not leasing equipment and doing other financing for that sort of thing, are they?

TW: Yeah, it's right now the majority, from a construction standpoint, is that a lot of the opportunities that I'm looking for more in replacement, you know, as opposed to growth. Now that's a good thing of what I do. At the end of the day, people still continue to have to replace the assets that they have right now, but they're not growing at the pace or adding new that we might see in another type of economy. So right now, that still exists. We still see good opportunity within the market because of replacement needs, but from a growth need perspective, it's certainly not visible right now.

WGN: All right, Tom, great conversation. How can people get ahold of you and have a one-on-one if they want?

TW: Yeah, My name is Tom Wolf, Associated Bank. Best way to reach me is email at Thomas.Wolf@AssociatedBank.com.