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Federal Reserve Leaves Interest Rates Unchanged

September 21, 2023

By Ben Schlegel, Matthew Dzbanek, Matthew Swerdlow, Eli Weisblum, Ryan Schwartz and Hagay Yuhjtman; Ariel Property Advisors

Federal Reserve Leaves Interest Rates Unchanged

At its September meeting, the Federal Reserve voted unanimously to leave interest rates unchanged, maintaining the target range for the federal funds rate at between 5.25% and 5.50%. However, if necessary, policymakers are prepared to raise rates one more time in the two remaining meetings this year to help achieve the Fed’s goal of lowering the inflation rate to 2%. While inflation has moderated somewhat since the middle of last year, the Consumer Price Index for August showed that inflation rose by 3.7% over the previous 12 months.


“Given how far we have come, we are in a position to proceed carefully as we assess the incoming data and the evolving outlook and risks,” Fed Chair Jerome Powell said. “Real interest rates now are well above mainstream estimates of the neutral policy rate, but we are mindful of the inherent uncertainties in precisely gauging the stance of policy. We are prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective.”

In the Fed’s September Summary of Economic Projections, meeting participants indicated that rates might stay higher for longer, projecting that 2023 would end with a median Fed funds rate of 5.6%, while 2024 would end at 5.1% and 2025 would end at 3.9%.

Market Overview

“Although lenders are more cautious, they are continuing to provide financing for multifamily properties in areas of the country like New York City where free market rents are increasing because of the lack of new housing supply,” said Ben Schlegel, Director in Capital Services at Ariel Property Advisors. “Specifically, we’ve seen a lot of interest from financial institutions in the Brooklyn market, which has been particularly resilient.”

For example, Ariel’s Capital Services team recently closed over $20 million in financing for multifamily projects in Brooklyn including condo construction and inventory loans as well as loans for multifamily acquisitions and refinancings, Schlegel said.

Average rents for free market residential units in New York City have risen to record levels, however, new housing development is at a virtual standstill after the State Legislature failed to pass a successor to the 421a tax abatement to incentivize new development. The number of proposed job filings for multifamily units dropped by 60% to 3,088 in 2Q 2023 compared to the same period last year, according to research by the Real Estate Board of New York (REBNY). The mismatch between the supply and demand of housing in New York City virtually guarantees that market rents will remain elevated.

Consequences of Rate Hikes

While the Fed chose not to raise rates at its latest meeting, the consequences of previous hikes continue to reverberate throughout the New York City market. Structural changes coupled with the increased cost of capital contributed to New York City investment sales declining 43% to $12.8 billion in 1H 2023 from 1H 2022, according to research compiled by Ariel Property Advisors.

The value of rent stabilized buildings in 1H 2023 fell to their lowest level since 1H 2015 because of higher rates combined with significant regulatory changes created by the Housing Stability and Tenant Protection Act of 2019 (HSTPA). As a result, properties originally purchased in 2014, 2015 and 2016 sold in the first six months of 2023 for a discount of close to 30%, and owners are struggling to refinance mortgages as they mature.

Additionally, vacancies, hybrid work and higher interest rates have resulted in distressed office properties, with some major owners who are facing mortgage maturities handing the keys back to their lenders, including RXR with 61 Broadway; L&L Holding Company with Metropolitan Tower at 142 West 57th; Related with 2100 49th Avenue and 2109 Borden Avenue in Long Island City, Queens; and Blackstone with 1740 Broadway. However, investors with a long-term outlook and the ability to withstand the storm are managing to successfully refinance, attract new capital and leverage the repriced values of their office buildings. These include newer, well-located, occupied buildings with high rents such as SL Green’s 245 Park Avenue; Tishman Speyer’s 300 Park Avenue; RFR’s 375 Park Avenue; RXR’s 601 West 26th Street; and Blackstone’s Willis Tower in Chicago.

Financing Options

Interest rate hikes have substantially changed the financing landscape in the last year as regulators closed Signature Bank and First Republic, which had been two of the most prolific lenders in the New York market.

“New, often smaller financial institutions and private lenders have entered the market as well as preferred equity or subordinate financing to enhance proceeds behind senior loans,” Schlegel said. “Through our network and process, Ariel has been able to successfully navigate the more challenging landscape with creative structuring to see transactions through to closing.”

Loan volume has also fallen in tandem with the decline in property sales. New York City loan volume dropped over 75% in August 2023 from August 2022, according to Actovia data. With 63 new loans, Signature Bank was the top lender in New York City in August 2022 and First Republic was number six on the list with 23 new loans, compared to August 2023 when the top two lenders only made 10 new loans each.

Most of Signature’s deposits and select loan portfolios were acquired by Flagstar Bank, a wholly owned subsidiary of New York Community Bancorp, Inc., with the FDIC retaining the balance. First Republic was acquired by JPMorgan Chase.

This month, the FDIC began marketing the Signature loans it retained with the goal of completing the transactions by the end of the year. When it failed, Signature had over 2,800 multifamily loans totaling in excess of $20 billion on its books, of which approximately $15 billion were loans collateralized by 2,200 rent stabilized or rent controlled properties.

Schlegel noted, “With nearly 80% of the Signature multifamily loan portfolio secured by rent regulated buildings, we’re expecting their disposition to give investors more clarity on pricing for this sector. We’re interested to see how the market will respond to this sale and the transparency it will provide to buyers and lenders.”

Multifamily Loan Programs

Portfolio Lenders (Max 75% LTV)
Term Rates
5 Year 6.25% - 6.75%
7 Year 6.50% - 7.00%
10 Year 6.50% - 7.00%
Agency Lenders (Max 80% LTV)
Term Rates
5 Year 6.20% - 6.85%
7 Year 6.05% - 6.80%
10 Year 6.00% - 6.60%

Commercial Loan Programs

Term Rates
5 Year - Bank 6.50% - 7.00%
7 Year - Bank 6.75% - 7.25%
10 Year - CMBS 6.75% - 7.50%

*full-term interest only available

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

Type Rates
Stabilized / Core 300 - 400 bps
Value Add / Core Plus 400 - 500 bps
Re-Position / Opportunistic 525+ bps

Index Rates

Index Rates
5-Year U.S. Treasury 4.63%
7-Year U.S. Treasury 4.58%
10-Year U.S. Treasury 4.47%
Prime Rate 8.50%
30-Day Avg. SOFR 5.32%
1-Month Term SOFR 5.32%
Ameribor Unsecured Overnight Rate 5.51%
Index Rates
5-Year SOFR Swap 4.25%
7-Year SOFR Swap 4.11%
10-Year SOFR Swap 4.03%

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

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