🚨The Federal Reserve’s first rate cut has eased the financing overhang that kept U.S. CRE volumes muted. The Wall Street Journal reports property values, already down ~20% from peak, now have a base from which cap rates may compress if debt costs fall further. Liquidity is expected to return sooner in multifamily and industrial than in office, where leasing and TI burdens keep valuations soft. Refi math improves as all-in coupons decline, but lender spreads and credit boxes remain gating factors.
CRE values: ~20% below 2022 peak as of Sept. 2025
Debt costs: forward curve implies 25–75 bps lower all-in rates within 6–12 months
Cap-rate relief: upside case −50 to −75 bps by YE-2026 (MF/IND); office −25 bps max
Loan Performance. DSCR cushions widen as coupons reset down, but underwriting should stress at current spreads. Refi viability rises, especially in agency-backed multifamily.
Demand Dynamics. Stabilized MF/IND benefit first from thawed liquidity; office absorption drag persists with higher TI/LC (+$5–$10/SF/yr) and low renewal odds.
Asset Strategies. Bid dual tracks (today vs. −50 bps cap) to capture optionality; embed 2% transaction cost buffer; re-shop op-ex lines for levered return lift.
Capital Markets. CMBS/agency execution critical: tighter conduit spreads and refreshed appraisals could re-open shelves by Q1; banks still conservative on office.
Rate cut reduces friction but doesn’t eliminate spreads/credit hurdles.
MF/IND best positioned for early velocity; office still price-discovery heavy.
Financing optionality improves; refreshed appraisals essential.
Market still bifurcated: lenders reward stabilized income, penalize value-add office.
🛠 Operator’s Lens
Refi. Lock extensions, stress DSCR ≥1.30x at today’s spreads.
Value-Add. Budget higher TI/LC; contingency on rollover risk.
Development. Advance pro forma exits 6–12 months in upside scenarios.
Lender POV. Agencies reopen MF first; CMBS tone improves if spreads compress; banks remain selective.
Watch CMBS conduit spreads and agency guides as leading proof of liquidity return.
Expect Q4–Q1 uptick in trades if path of cuts holds.
Main risk: spreads stay sticky, muting actual transaction velocity.
WSJ
