The Federal Reserve’s Federal Open Market Committee voted unanimously at its November meeting to lower the federal funds rate by .25% to a target range of 4.50%-4.75% as the inflation rate continues to fall but the economy remains robust. The central bank cut rates by 50 basis points at its last meeting in September, which was the Fed’s first rate reduction since 2020. The Fed’s next meeting is December 17-18.

Fed Chair Jerome Powell said, “The economy is strong overall (GDP is 2.8% annualized) and has made significant progress toward our goals over the past two years. The labor market has cooled from its formerly overheated state and remains solid (the unemployment rate is 4.1%). Inflation has eased substantially from a peak of 7% to 2.1% (PCE Index) as of September. We are committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2% goal.”

Market Overview

“In a market hungry for certainty, many commercial real estate investors hit pause while waiting for two significant milestones to pass—the presidential election and additional Fed rate cuts,” said Ben Schlegel, Director in Capital Services. “With the re-election of President Trump and an additional rate cut behind us, we’re hoping to see an increase in commercial real estate financing activity in the first quarter of 2025.”

The Treasury market so far has reacted to the presidential election with a surge in yields, reaching levels not seen since July. Treasury yields were already trending upward in the weeks before the election, which Chair Powell noted was a reflection of stronger than expected economic activity.

Financing Options Available

As the cost of capital comes down, transitional money is getting more attractive and real estate investors are strategically finding creative ways to acquire properties and secure debt to maximize returns, Schlegel said.

“We’re actively engaged in identifying financing opportunities throughout the country and consistently see different types of lenders including shadow banks, debt funds and private capital competing and winning in spaces previously dominated by commercial banks and agencies,” Schlegel said.

For example, private lenders have rolled out shadow bank products that feature full term, interest only terms while not requiring a depository relationship. They also offer a more customized lending solution as they underwrite loans differently than the typical financial institution.

Additionally, Schlegel said that his team is arranging more deals with flexible prepayment structures so that borrowers can capitalize on future rate drops.

Recent Transaction Highlights

Developers also are seeing opportunities to build in markets where few new units are coming online in the next 12 to 24 months. The Capital Services team recently secured financing for three residential construction projects in New York—two condo and one rental development—that attracted 10 to 15 quotes because the projects will be delivered into a strong market short on housing.

In addition, the team recently arranged a $11.57 million refinancing loan for a 61-unit portfolio comprised of six mixed-use buildings in the South Bronx. A national multifamily lender provided the non-recourse financing, which included highly favorable terms: a 5.35% interest rate, five years of interest-only payments and a seven-year fixed rate.

Investor sentiment has experienced a notable improvement in recent weeks. In response, the Capital Services team has been involved in over $200 million in assignments, including condo conversions, office-to-hotel conversions, affordable housing projects and equity placements, among others. Lenders are increasingly eager to deploy capital in these areas as market conditions continue to stabilize and strengthen.