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Fed Votes to Leave Rates Unchanged, Projects Two Cuts This Year

March 20, 2025

By Ben Schlegel, Ariel Property Advisors


Fed Votes to Leave Rates Unchanged, Projects Two Cuts This Year


At its March meeting, the Federal Open Market Committee left the target range for the federal funds rate unchanged at 4.25% to 4.50%. Policymakers are still projecting two rate cuts this year but lowered their GDP forecast to 1.7% because of economic uncertainty. Inflation has moderated yet remains above the Fed’s 2% goal. Total Personal Consumption Expenditures (PCE) rose 2.5% over the 12 months ending in February and, excluding food and energy, core PCE prices rose 2.8%.

 

“Looking ahead, the new Administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation,” Fed Chair Jerome Powell said. “It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high. As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves.”

CRE Market Update

Ben Schlegel, Director in the Capital Services Group, said, “Despite economic uncertainty, the commercial real estate market is rebounding nationwide. This trend is especially apparent among multifamily assets due to widespread housing shortages.”

After enduring several years of record inflation and subsequent interest rate hikes, Schlegel observed that investors today are simply adapting to the current macro environment and moving forward with necessary transactions.

“While we hope rates will fall, we're operating under the assumption that they will remain stable,” he said. “Consequently, people are resuming business as usual.“

Schlegel noted that commercial real estate activity began to rise last fall as Treasury yields fell below 4% in September, prompted by a 0.50% Fed rate cut. While the Fed further reduced rates by 0.25% in both November and December, yields climbed back to above 4% where they have remained. However, Treasuries have dropped 60 basis points from their peak in mid-January.

Sources of Capital

Another trend is ample capital is available for well-positioned investments, suggesting a strong and optimistic outlook among lenders, Schlegel said. These lenders are filling a void that was traditionally filled by banks, which are maintaining a more conservative lending approach. While banks are selectively aggressive in certain market segments, they haven't returned to the lending levels seen in 2021.

The capital sources filling the void include:

Private Money:This sector is highly competitive, with abundant capital seeking deployment. Consequently, private lenders are becoming more aggressive to secure deals. They're extending their lending parameters, venturing into deals previously considered bankable. They're providing quotes based on cash flow, even without significant upside potential.

CMBS: The CMBS market remains relatively aggressive, driven by consistent demand for their product. They underwrite to an interest only payment and are willing to finance deals that fit within their defined criteria.

“Investors are increasingly receptive to private or 'shadow bank' loans, as they are less inclined towards traditional 5, 7, or 10-year fixed-term mortgages with strict prepayment penalties,” Schlegel said. “This shift is driven by the desire for flexibility. Investors anticipate either prepaying early to capitalize on future property appreciation or refinancing into longer-term fixed rates when interest rates fall.”

Now, the emphasis is on flexible solutions, viewed as temporary measures, anticipating a more favorable long-term financing environment, he said. This contrasts sharply with the preference for 3 or 5-year fixed-rate financing prevalent 5 to 7 years ago, which was primarily used to execute value-add business plans.

Current Assignments

In recent months, Capital Services Group has arranged financing transactions exceeding $100 million throughout the United States. The team is currently working on assignments across New York City and partnering with GREA offices to serve clients in key markets including Washington D.C., Georgia, Pennsylvania, Maryland, and Texas.

Schlegel cited several assignments that reflect current market trends. These include a refinance for a new construction mixed-use building, nearing completion, for which he obtained six quotes below 9% and two debt fund quotes below 7%. Additionally, an investor with a debt-free building portfolio sought to leverage those assets by borrowing against them to fund further commercial real estate acquisitions.

Looking Ahead

While investors navigate an unpredictable macro environment, strong fundamentals and a generally business friendly environment are driving activity.

“Nationwide, a persistent housing shortage, coupled with reduced new development starts over the past two to three years, is attracting commercial real estate investment despite broader economic uncertainties,“ Schlegel said.

Multifamily Loan Programs

Portfolio Lenders
Term Rates
5 Year 6.15% - 6.50%
7 Year 6.375% - 6.75%
10 Year 6.75%+
Agency Lenders
Term Rates
5 Year 5.5% - 6.25%
7 Year 5.75% - 6.25%
10 Year 5.875% - 6.375%

Commercial Loan Programs*

Term Rates
5 Year - Bank 5.75% - 6.50%
7 Year - Bank 6.25% - 7.25%
5 Year - CMBS** 5.50% - 7.00%
10 Year - CMBS** 5.25% - 6.75%

*full-term interest only available

**rate buydown available

Construction / Development / Bridge (Floating Over 1-Month Term SOFR)

Type Spread (bps)
Stabilized / Core 225 - 325 bps
Value Add / Core Plus 325+ bps
Re-Position / Opportunistic 425+ bps

Index Rates

Index Rates
5-Year Treasury 4.02%
7-Year Treasury 4.14%
10-Year Treasury 4.25%
Prime Rate 7.50%
30-Day Avg. SOFR 4.34%
1-Month Term SOFR 4.32%
Ameribor Unsecured Overnight Rate 4.42%
Index SOFR Swap
5-Year SOFR Swap 3.81%
7-Year SOFR Swap 3.83%
10-Year SOFR Swap 3.88%

More information is available from Ben Schlegel at 212.544.9500 ext.81 or e-mail bschlegel@arielpa.com.

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