“Volatility remains—but lenders are lending.”
The debt markets remain active amid a backdrop of government gridlock, economic data blackouts, and continued rate speculation. Liquidity is strong across life companies, banks, debt funds, agencies, and CMBS, but pricing is increasingly sensitive to spreads, leverage, and sector-specific fundamentals.
Federal Reserve Watch
The Federal Reserve followed through with a 25bps rate cut in September, moving the federal funds rate to 4.00%–4.25%. Markets now see a 99% probability of another cut on October 29th, with an 89% chance of a second cut before year-end, which would bring the range down to 3.50%–3.75% (CME FedWatch).
Government Shutdown Impact: A lapse in federal funding has triggered an economic data blackout—September’s nonfarm payrolls report will not be released. This lack of official data reduces the likelihood of the Fed reversing course in October.
Treasuries React: The Treasury market is benefiting from a stabilizing bid, with yields falling 5–10bps last week. Importantly, Treasury operations, auctions, and payments remain unaffected by the shutdown.
Context: The shutdown is not tied to the debt ceiling and does not imply sovereign default risk, but it adds a layer of uncertainty for policymakers navigating rate decisions.
Capital Source Activity
Life Companies
LifeCos remain a steady financing source, even as spreads move marginally.
Rates: 5.00%–6.15% for leverage ≤65%.
Spreads: 130–225bps, depending on property profile and leverage.
Best Pricing: Achieved for ≤60% leverage, in the low–mid 5% range.
Banks
Banks continue to show healthy appetite as the yield curve normalizes, though terms remain deal specific.
Rates: 5.40%–6.25% fixed.
Floating Options: 180–300bps over SOFR, or 6.00%–7.10% today.
Structures: 3-, 5-, and 7-year fixed with step-down prepay flexibility.
Debt Funds
Funds are maintaining their competitive role, especially for deals with more leverage or transitional elements.
Leverage: 65–75% LTC.
Spreads: 225–350bps over SOFR.
Focus: Stabilized yields, lease-up, and cash flow deals. Multifamily debt funds continue to pursue preferred equity positions behind agency senior loans.
CMBS
The CMBS market has been relatively calm, with spreads contained compared to other sectors.
Rates: 5.75%–6.75% depending on size, debt yield, and quality.
Terms: 5–10 years fixed, up to 75% LTV, with frequent full-term IO availability.
Agencies (Fannie Mae & Freddie Mac)
Agency financing remains the most competitive debt in the market, with record borrower demand.
Rates: 5.00%–5.50%, with buydowns reducing rates to 4.70%–5.20%.
Volume:
Fannie Mae YTD through August: $40.5B (vs. $27.6B in 2024).
Freddie Mac YTD: $29.5B (vs. $23.9B in 2024).
Amortization: 35-year schedules remain available for select experienced sponsors.
Sector Spotlight: Office Markets
After several difficult years, office headlines are no longer uniformly negative.
Fundamentals: Positive net absorption has returned across many U.S. markets, with more tenants actively looking to expand their office footprints. This points toward improving NOI prospects.
Capital Markets: Transaction volumes remain thin, but signs of thawing are emerging—even for Class B and C assets.
Cap Rates: According to industry surveys, the percentage of properties with double-digit cap rates declined modestly in H1 2025, the first such improvement in several years. While over 70% of Class B and C offices still carry double-digit yields, the slight reversal suggests early signs of a recovery phase.
Cap Rate Trends & Historical Pricing
The H1 2025 Cap Rate Survey shows:
All-Property Cap Rates: Down 9bps, signaling stabilization.
Multifamily: Retains leadership in long-term performance outlook, surpassing industrial.
Retail: Steady performance.
Office: Pricing bifurcation remains sharp, with Class B and C assets carrying the highest risk premiums.
Historical cap pricing continues to track closely with Treasury volatility, but early signs of compression are emerging for select property types.
My View
Despite political noise and rate uncertainty, liquidity is abundant. Agencies are the anchor, life companies are steady, banks are regaining strength, and debt funds remain flexible. For investors and borrowers, the opportunity lies not in whether capital is available—but in structuring it intelligently to capture value.
I help clients cut through the noise, secure competitive financing, and align capital strategies with today’s evolving market.
John Morelli and his team of expert capital advisors are dedicated to guiding you through evolving market dynamics with expert insight, deep capabilities, and tailored financing solutions. Whether you’re exploring options with banks, agencies such as Fannie Mae, Freddie Mac, and HUD, or debt funds, our team is here to help you secure the best possible terms for your commercial real estate financing.
Ready to discuss your next financing opportunity? Contact us or schedule a consultation today for expert guidance.
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