For the fifth consecutive meeting this year, the Federal Open Market Committee (FOMC) voted to leave the federal funds rate unchanged, maintaining its target range at 4.25% to 4.50%. Two committee members dissented at the July meeting, preferring to cut the fed funds rate by a 1/4 percentage point. The next meeting is scheduled for September 16-17 when a revised Summary of Economic Projections will be released. Overall, economic indicators highlighted in the Fed’s announcement were positive. Job gains have averaged 150,000 per month over the past three months and the unemployment remains low at 4.1%. GDP grew at 3% in the second quarter, up from a 0.5% contraction in the first quarter. While inflation remains somewhat above the Fed’s 2% goal, it has eased significantly from its high in mid-2022. Personal Consumption Expenditures (PCE) rose 2.5% over 12 months ending in June and, excluding food and energy, rose 2.7%.

“Changes to government policies continue to evolve, and their effects on the economy remain uncertain,” Fed Chair Jerome Powell said. “Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen. A reasonable base case is that the effects on inflation could be short-lived—reflecting a one-time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed.”

Lending Environment Has Improved Despite Pause in Rate Cuts

Matt Dzbanek, Senior Director of the Capital Services Group, said, “Even though we haven’t seen a rate cut from the Federal Reserve since last December, the lending environment has improved dramatically from three years ago when the Fed began hiking rates, which created widespread volatility and made it difficult to close deals. We did see a temporary slowdown in activity following the initial tariff announcement in April, but the market has since stabilized.”

Refinancings are a key driver for sales as lenders have become more aggressive in their efforts to offload problematic loans and increase their available capital, Dzbanek said.

Dzbanek noted that the Capital Services Group has a robust pipeline of loan refinancings for borrowers who are well-positioned to retain their assets. In the recent weeks, the team has closed refinance loans for a 44,250-square-foot garden-style apartment complex with 48 units in Oregon; four mixed-use properties in Brooklyn, NY; a 10-unit, free market multifamily building in Manhattan; and a newly constructed, eight-story, 49-unit, 30% occupied multifamily property with a ground floor commercial space in Philadelphia.

Commercial Real Estate Demonstrates Resilience

Improved cash flow from client loan repayments is strengthening balance sheets and enabling lenders to invest new capital into the commercial real estate market, which has demonstrated remarkable resilience in recent months.

In the first half of the year, New York City investment sales increased to $13 billion, a year-over-year uptick of 3%, and transactions rose 7% to 1,089, according to Ariel Property Advisors’ New York City 2025 Mid-Year Sales Report Highlights.

New York City asset classes responded to market conditions in different ways in the first half of the year:

• Multifamily sales increased to $4.4 billion in 1H 2025, up 5% from the same period last year. Free market buildings dominated, accounting for 57% of New York City’s multifamily dollar volume and 47% of the transactions. Smaller free market buildings were particularly popular with investors, agency lenders and banks.
• In contrast, rent stabilized multifamily buildings, which make up about half of New York City’s rental units, accounted for only 23% of the dollar volume and 46% of the transactions. Prices for these assets have fallen by 50% on average because of the Housing Stability and Tenant Protection Act of 2019, a regulation that blocks rent growth even on vacancy; COVID, which eroded the payment culture; a 54% surge in expenses over the past decade; and rapid interest rate hikes.
• Development sales totaled $2.4 billion and transaction volume rose 19% from 2H 2024 for this sector, which is gaining significant traction with banks and debt funds. The State Housing Policy and City of Yes rezoning initiative are stimulating the development market by providing developers with greater zoning flexibility and crucial tax incentives for projects including office-to-residential conversions.
• Recovery in the office sector led to sales rising to $3.07 billion in 1H 2025, up 116% year over year. Class A and Trophy buildings accounted for 74% of the total office sales, propelled by demand from high-credit tenants in finance, law and tech seeking quality space to lease. The office market also saw refinancings and recapitalizations, signaling renewed confidence in this sector.

Competition and Policy Converge to Create Opportunity

The competitive lending environment is leading to more attractive terms, which is contributing to the increase in transaction activity.

Opportunistic lenders are eagerly seeking development deals that will benefit from the new City and State housing policies, particularly ground-up projects and residential conversions.

The proposed Midtown South Mixed-Use Plan, which was recently approved by the New York City Planning Commission and is now under review by the City Council, is an example of an area that is generating interest from both lenders and developers. If approved, the plan will rezone 42 blocks in Manhattan’s Midtown South from manufacturing to residential use, potentially unleashing a large number of office conversions and creating 10,000 units of housing.

New York City’s investment sales market is on the upswing, a trend we expect to continue into the second half of the year as more capital is deployed in the market.