A divided Fed delivered its second 25 bps rate cut of 2025 but stopped short of promising more. Chair Powell’s caution that “a December cut is not a foregone conclusion” cooled hopes for rapid easing. For commercial real estate, the message was mixed: rates are lower than the summer peak but not yet “cheap.” Lenders remain selective, with financing reserved for low-leverage, cash-flowing assets. Capital is slowly returning to the market—but discipline defines who gets it.

Fed officials remain split on inflation risk versus growth. The 3.75–4.00% policy range marks progress from last year’s peaks, yet the 10-year Treasury stays around 4.1%. That gap preserves a “higher-for-longer” cost of capital. Spreads over risk-free rates hover 80–120 bps above pre-pandemic norms, showing that lenders still price caution into every quote. In turn, borrowers are modeling exit caps near 6% for core assets to avoid negative leverage. The adjustment is real—deals only pencil if pricing disciplines match monetary reality.

Despite the hawkish pause tone, credit availability is improving. The MBA forecasts CRE loan originations rising to about $827 billion in 2026 (+24% YoY), with agency and life insurer lenders leading the charge. Debt funds are also re-emerging, offering loans at 7–9% yields for prime assets. That marks a turn from 2024’s capital freeze. For borrowers, this means liquidity is available—but priced for discipline. As one life company lender put it, “We’re open for business, just not for fantasy spreads.” In practice, LTVs above 65% remain rare.

The NCREIF Q3 Index showed broad stabilization: every sector positive, led by senior housing (+2.9%) and hotels (+2.1%). Office barely moved (+0.9%), underlining persistent leasing strain. Meanwhile, Trepp data show office CMBS delinquencies at 11.8%, multifamily 7.1%—the highest since 2015. That divergence proves the Fed’s dilemma: policy relief may arrive too late for debt-heavy segments but too soon for inflation hawks. For credit investors, it’s a “selectivity cycle,” not a recovery yet.

For owners and buyers, the playbook is guarded optimism. Underwrite at today’s rates (~4% Fed, ~4.1% Treasury), add 100–200 bps to cap rates, and assume 1–2% rent growth through 2026. Lock financing on yield dips and hedge floating exposure. Transactions are thawing—September CRE sales rebounded +19% YoY (Trepp)—but pricing remains credit-driven. Liquidity windows may open briefly; operators ready with clean books and cash reserves will capture them. Ultimately, discipline has become the new form of momentum.

Fed watchers expect a pause in December unless growth rolls over. One more 25 bps cut is possible in early 2026 if core inflation keeps easing. Debt markets should gradually thaw—life insurers and CMBS shops re-entering selectively, especially for multifamily and industrial. If long yields stay near 4%, cap rates will level off and the bid-ask spread shrink. The economy’s soft-landing odds are rising, but defaults in office and older multifamily remain a brake on credit expansion. For now, capital stability is as valuable as cheap capital.