🚨Commercial real estate financing remains constrained with the Fed maintaining policy rates at ~4.25–4.5% instead of expected cuts [Source: Altus Group]. Transaction volumes declined ~19% YoY in Q1 2025, with a slight increase in Q2 Market participants await further rate guidance, impacting liquidity and deal flow.
Fed Funds Rate: ~4.25–4.5%, current.
Transaction Volume Q1 2025: $85B, -19% YoY.
10-Year Treasury Yield: ~3.6%–4.8%, recent volatility
-Loan Performance: Elevated rates and tighter credit contribute to higher DSCR requirements (commonly 1.40×). Exhibit strained carry on existing loans.
-Demand Dynamics: Multifamily shows resilience, but office and hotel remain weak. Expect moderated demand until cost of capital lowers.
-Asset Strategies: Emphasize NOI optimization to withstand reduced leverage; necessary downtime reductions and OPEX adjustments.
-Capital Markets: Private debt funds fill some gaps but at a higher cost. CMBS activity muted with wider spreads; term sheets reflect cautious lender stances.
Stable high rates hinder deal execution.
Multifamily favored for stability; office struggles with rent-beta risk.
Hold strategic reserve; limited new acquisition financing.
Wider spreads and conservative lender structures persisting.
🛠 Operator’s Lens
Refi: Evaluate stabilized assets for flexible repayment terms.
Value-Add: Align capex with lease commitments and retain contingencies.
Development: Monitor timing on construction expenses; sensitivity in pro forma necessary.
Lender POV: Risk pricing influences term outlook; emphasis on high-quality assets only.
Inflation and employment trends could alter Fed stance, affecting policy rates.
Watch for potential distressed asset sales to shift pricing benchmarks.
Political factors and 2025 U.S. elections might spark market volatility.
Altus Group — Quarterly CRE Transaction Reports (October 2025). Trepp — Market Statistics (October 2025). MBA — Weekly Applications Survey
