Market Overview
As July draws to a close, market participants have reset expectations on the path of monetary policy. With a July rate cut definitively off the table, attention turns to the September FOMC meeting, where the probability of a cut has declined from 90% to 60% in recent weeks. Uncertainty around trade policy, particularly the inflationary impact of newly proposed tariffs, has added volatility to rate forecasts. The market is now pricing in a coin-flip scenario for September, with two cuts projected by year-end and three more in 2026.
Meanwhile, the macroeconomic data remains mixed. U.S. initial jobless claims fell for the sixth straight week, now at their lowest level since April, signaling continued labor market resilience. However, markets were briefly roiled by reports that former President Trump may consider replacing Fed Chair Powell if re-elected. This led to a steeper Treasury curve and a weaker dollar. The implication: expectations for a more politically influenced Fed could push down short-term yields while raising inflation expectations and long-end rates.
Capital Sources
Life Companies
LifeCos are operating with tighter corporate bond spreads compared to earlier this year, bringing down the cost of capital for high-quality borrowers.
Rates: 5.25% to 6.40%
Leverage: Up to 65%, though best pricing remains at or below 60% LTV
Spreads: 130 to 225 bps over Treasuries, deal profile dependent
These lenders continue to favor low-leverage, core-plus assets with durable cash flows.
Banks
Banks are regaining footing as the yield curve normalizes and deposit pressures ease. Appetite is strongest for core assets with proven collections and resilient tenancy.
Fixed Rates: 5.65% to 6.65% (3, 5, and 7-year terms with step-down prepay)
Floating Rate: SOFR plus 180 to 300 bps (effective rates around 6.00% to 7.10%)
Bank capital is most competitive for stabilized deals with conservative leverage and quality sponsorship.
Debt Funds
Debt funds are re-engaging as SOFR stabilizes. There is renewed momentum behind bridge and lease-up executions for multifamily and industrial assets.
Spreads: 225 to 350 bps over SOFR
All-in Rates: Typically ranging from 7.00% to 8.50% depending on execution
Leverage: 65 to 75% LTC on value-add or transitional assets
Notably, preferred equity has made a resurgence, particularly behind Agency firsts on multifamily deals.
CMBS
The CMBS market remains stable, with spreads holding firm despite broader rate volatility.
Rates: 6.25% to 6.95%
Terms: 5 to 10 year fixed, up to 75% LTV, typically full-term interest-only
Outlook: Investors remain cautious but active; pricing remains steady on primary and secondary trades
CMBS continues to serve as a viable option for non-recourse borrowers seeking longer-term debt.
Agencies
Both Fannie Mae and Freddie Mac continue to experience record inflows and robust production volume.
Rates: 5.25% to 5.75%, with buydown options down to 4.95%
Loan Terms: Up to 35-year amortizations for experienced sponsors
Notable Trends: Strong year-over-year origination growth. Fannie Mae at $23.0B YTD compared to $15.4B in 2024. Freddie Mac at $16.7B versus $16.4B
Rate buydowns remain an effective strategy for qualified agency borrowers navigating benchmark volatility.
Strategic Takeaway
With rate volatility likely to persist through Q3, borrowers should remain agile. For stabilized assets, this is a window to lock in long-term fixed-rate debt before potential spread widening in the fall. Transitional deals may benefit from opportunistic capital through debt funds or bank floaters while SOFR remains range-bound. Sponsors evaluating agency executions should explore rate buydowns to maximize proceeds and preserve cash flow in a tightening cap rate environment.
For property owners and investors, now is a key time to evaluate financing options. Long-term fixed rates are still available near recent lows, but future market shifts could push them higher. If you’re refinancing or planning a new acquisition, locking in today’s rates can protect your cash flow. For value-add or lease-up deals, debt funds and flexible bank loans remain strong options. And if you’re pursuing an agency loan, ask your lender about rate buydowns — they can meaningfully lower your monthly payments.
Navigating Today’s Market
John Morelli and his team of expert commercial loan 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 me or schedule a consultation today for expert guidance.
