At its June meeting, the Federal Open Market Committee (FOMC) decided to keep the federal funds rate unchanged, holding it between 4.25% and 4.50% for the fourth consecutive meeting this year. In their updated Summary of Economic Projections for June, FOMC participants still anticipate two rate cuts in the latter half of this year, forecasting the federal funds rate to be 3.9% by the end of 2025. However, compared to their March median projections, the Committee revised some key economic indicators for the year: GDP growth is now expected to be 1.4%, a decrease from the previous 1.7%; the unemployment rate is projected to tick up by 0.1 percentage point to 4.5% and PCE inflation is now anticipated to be 3%, an increase from the 2.7% forecast in March.

“Changes to trade, immigration, fiscal and regulatory policies continue to evolve, and their effects on the economy remain uncertain,” said Fed Chair Jerome Powell. “The effects of tariffs will depend, among other things, on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity.”

Lenders Shrug Off Headwinds, Keep Capital Flowing

Ben Schlegel, a Director in Capital Services, said lenders have largely ignored recent headlines, setting aside tariff concerns and maintaining ample liquidity for the commercial real estate industry.

“The lending landscape continues to see a significant shift, with a growing appetite from lenders to deploy capital,” Schlegel said. “Barring a major recession or an event severely impacting their balance sheets or liquidity, many financial institutions that have successfully weathered past storms are now actively looking to lend and position themselves for the next cycle.”

According to the Mortgage Bankers Association’s (MBA) latest Commercial/Multifamily Mortgage Debt Outstanding quarterly report, commercial/multifamily mortgage debt outstanding increased by $46.8 billion (1.0 percent) to $4.81 trillion in the first quarter of 2025.

Multifamily mortgage debt increased $19.9 billion to $2.16 trillion from the fourth quarter of 2024, with federal agency and government sponsored enterprise (GSE) portfolios and mortgage-backed securities (MBS) holding the largest share at $1.07 trillion (50 percent), followed by banks and thrifts with $639 billion (30 percent), life insurance companies with $242 billion (11 percent), state and local government with $94 billion (4 percent), and commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDO) and other asset-backed securities (ABS) issues holding $62 billion (3 percent).

Active Pipeline Dominated by Multifamily Refinancings

The Capital Services team’s pipeline reflects this increased activity, with debt and equity closings doubling year-over-year and 65% of the loans secured by multifamily properties.

The trend is exemplified by a $9.5 million refinance loan Schlegel recently closed for a newly constructed, eight-story, 50-unit, 30% occupied mixed-use property with a ground floor commercial space in Philadelphia. The bank loan featured a 5-year fixed rate at 2.10% over the 5-year Treasury and 70% LTV.

Emergence of Short-Term Debt For Borrowers Seeking Flexibility

Schlegel noted that in recent years, banks have been somewhat constrained in their direct commercial real estate (CRE) lending due to the significant reserves that they required to hold against such deals, as per Basel III. However, a strategic shift has emerged: banks are increasingly providing back leverage to debt funds offering bridge loans, which aren’t classified as direct real estate investments but as loans and lines of credit that don’t require the same level of reserves. This dynamic, in turn, has fueled the growth of private funds, which are now able to secure more leverage from banks, enabling them to deploy greater amounts of capital into the market.

By running a process, the Capital Services team is consistently connecting with 50 to 60 debt funds and alternative credit lenders, a comprehensive approach that helps identify and leverage less visible lenders who are eager to compete with more favorable rates, Schlegel said.

“Clients are demanding flexibility in negotiations today,” he said. “Therefore, many are choosing loans with shorter terms without prepayment penalties as they look for rates to drop and properties to appreciate over the next two or three years.”

Examples of recent bridge loans Schlegel has arranged include acquisition financing totaling $10.25 million for an 8,900-square-foot, four unit, mixed-use property in the Flatiron neighborhood of Manhattan, and a $3.2 million recapitalization for a construction project with 10 townhomes totaling 12,400 GSF in Philadelphia.

Amidst Lingering Uncertainty Policy Shifts Are Boosting Multifamily Development

The team is also seeing increased activity in the development space. Since the beginning of the year, our Investment Sales Group has arranged about 10% of New York City’s development transactions totaling 1.65 million BSF. Additionally, the firm is marketing or has in contract an additional 28 development sites across the City totaling 1.7 million BSF.

Government incentives and tax benefits are driving this activity, including the “City of Yes“ initiative approved by the New York City Mayor and City Council last December and New York State’s new housing policy, which introduced two tax incentives last year.

The 467-m tax incentive is designed to encourage office-to-residential conversions and, according to the Wall Street Journal, analysts estimate that about 40 million square feet of offices in New York City will be converted into residential and other uses over the next five to 10 years.

Additionally, a new tax incentive called 485-x replaced the expired 421-a tax program to encourage ground-up construction. However, perhaps as significant, the housing policy extended the completion deadline for 421-a vested development sites from 2026 to 2031.

Consequently, we expect activity in the development sector to continue in New York City, fueled by a liquid financial market and pent-up housing demand.