The Federal Open Market Committee (FOMC) cut the fed funds rate by 0.25% at its October meeting, establishing a new target range of 3.75%-4.00%. This marks the second rate reduction since December 2024. One committee member wanted an even larger rate cut, recommending lowering the target range by 0.50%, and another voted against the cut. While official September employment data is delayed because of the government shutdown, the Fed noted available evidence suggests hiring and layoffs remain stable and that economic activity has expanded at a moderate pace. CPI-based estimates also point to year-over-year total and core PCE inflation holding at 2.8% in September, above the Fed’s 2% goal.

“We continue to face two-sided risks,” Fed Chair Jerome Powell said. “In the Committee’s discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion—far from it. Policy is not on a preset course.”

Lower Rates Fuel Investor Optimism, Boost Deal Pipeline

“With the latest Fed cut, we’re expecting interest rates to remain steady and continue their trend downward,” said Ben Schlegel, Director in the Capital Services Group.

Schlegel noted that the 10-year treasury has been hovering around 4% since the last 0.25% rate cut was announced on September 17, falling 79 basis points from the peak this year in January. Currently mortgage rates are in the low to mid-5.0% range with smaller deals above 6.0%.

“Lower treasury rates are justifying lower cap rates, which is allowing investors to be more aggressive in their acquisitions and business plans,” Schlegel said. “The Capital Services Group has seen an uptick in activity this year and our team currently has a pipeline of deals in various markets throughout the country including Baltimore, Philadelphia, Los Angeles, Orlando, Houston, Portland and, of course, New York City where our office is based.”

Market Bullish on Free Market Rentals in New York City

New York City’s multifamily market has been particularly resilient this year, rising to $2.55 billion in sales in Q3 2025, up 14% quarter-over-quarter and 17% year-over-year, according to Ariel Property Advisors’ Q3 2025 Multifamily Quarter in Review New York City. Investors continue to favor free-market multifamily buildings, which made up 84% of New York City’s dollar volume in Q3 but were less enthusiastic about the highly regulated rent stabilized market, which accounted for 14% of the dollar volume.

The New York City mayoral election was at the top of the multifamily report’s Watch List, noting that Democratic primary winner and current frontrunner Zohran Mamdani has built his campaign around a pledge to implement a rent freeze on all rent-stabilized apartments citywide. This has sparked significant concern among investors and landlords who are calculating how 0% rent growth could affect valuations, underwriting and investment strategies for rent stabilized properties.

Lenders and investors are bullish on free market housing in New York City, however, where rents have risen by 4.8% year-over-year and 5% month-over-month in contrast to the large sections of the country where an oversupply of housing has resulted in stalled or falling rental growth, the Yardi Matrix National Multifamily Report for September shows. Nationwide, the occupancy rate fell to 94.7% in August.

“There is still a strong demand to live in New York City where multifamily rents keep going up because young professionals want to live here,” Schlegel said. “Consequently, there is a great deal of interest from lenders in financing housing, especially free market multifamily.”

New York City is the #1 destination for college graduates, accounting for a 10.9% share of the country’s 2025 grads as they took jobs in finance, accounting and consulting, technology, life sciences and media, according to a study by JLL. Approximately 600,000 students attend 110 local colleges and universities in New York City, which is a top destination for international students and graduates of elite universities.

“If you're in a market where there's a significant amount of new housing that's come online, you're going to go look for the best deal that you can find and try to negotiate concessions,” Schlegel said. “In New York City, you can't do that because the Covid-era concessions have disappeared. Now, when you look for an apartment in New York City, there may be three apartments in your neighborhood and they will be leased within hours.”

Capital Services Group Arranges Financing for First Office-to-Residential Conversion in Midtown South Rezoning

Simply put, job growth in New York City has outpaced housing growth for 40 years, leading to a housing shortage and affordability crisis. In response, New York’s state and local government approved new housing development incentives and updated zoning laws, which are encouraging ground-up construction and office-to-residential conversions.

The Capital Services Group recently arranged a $68.1 million debt and equity package for the first office-to-residential conversion in the newly approved Midtown South Mixed-Use (MSMX) rezoning district. Attracting competition from a dozen lenders, the deal supported the $25 million ($320/SF) acquisition of a 12-story, mixed-use office building at 29 West 35th Street. The sponsors plan to use the 467-m tax abatement to convert the property into 107 studio apartments, 25% of which will be affordable.

Other examples of recent Capital Services Group closings include arranging a $6.5 million acquisition loan with a bank at a 6.5% rate for an owner/user to acquire a vacant 12,500 SF Duane Reade and repurpose it as a supermarket; a $6.173 million agency refinance loan with an interest rate of 5.8% for two buildings with 24 rent stabilized units and five commercial units; and a $5.6 million refinance loan with a bank at 5.95% for a 10-unit multifamily. All three properties were located in Brooklyn.

Banks Remain Active but Selective

Banks are returning to the market but remain selective in their lending, Schlegel said. To protect their balance sheets, many are choosing to invest in debt funds—which are deploying capital to commercial real estate nationwide at attractive terms—rather than lending directly.

“I feel like I meet a new private lender every week who's looking to get into the New York market in some way or another, whether it's ground-up development, some kind of transitional property or through a lease up play,” Schlegel said. “There’s a lot of low-cost capital coming out of the private space. Whenever we run a process, our list of lenders that are bidding to get into New York, grows with every deal that we work on.”