CRE Debt Market Sentiment: June 2025

Macroeconomic Backdrop & Fed Outlook

The Federal Reserve continues its tightrope walk, navigating conflicting economic signals. A slight contraction in Q1 GDP was largely driven by a tariff-fueled import surge and weaker government spending. Still, consumer demand and private investment remained firm. While recession fears linger, the broader consensus points to continued—albeit modest—growth, with annual GDP forecasted at 1.3%.

Inflation pressures remain sticky, especially with tariff-related cost escalations potentially looming. While no immediate Fed rate cuts are expected, markets are eyeing the September FOMC meeting as the first realistic opportunity—with a 65% probability currently priced in.

Life Companies

LifeCos have resumed activity after a temporary slowdown earlier this year tied to rising corporate bond spreads. With those spreads tightening again, pricing has stabilized. We’re seeing:

• Rates: 5.50%–6.50% for deals at or below 65% LTV

• Spreads: 130–225 bps depending on leverage and profile

• For best-in-class assets with sub-60% leverage, pricing is still available in the mid-5% range.

Banks

Commercial banks are returning to the lending arena more assertively in 2025, buoyed by a stabilizing yield curve and healthier balance sheets. Terms we’re seeing include:

• Rates: 5.50%–6.50% for stabilized properties with solid tenant rosters

• Structures: 3, 5, and 7-year fixed-rate options with step-down prepay; floating rate spreads in the 180–300 bps range over SOFR (current all-in: ~6.15%–7.25%)

Debt Funds

Funds remain aggressive in scenarios that allow for modest risk-taking:

• Leverage: 65–75% loan-to-cost

• Target Assets: Stabilized cash-flowing properties or lease-up multifamily and industrial

• Pricing: 225–350 bps over SOFR

• We’re also seeing an uptick in preferred equity placement behind agency senior loans—particularly in multifamily.

CMBS

Despite volatility in other sectors, CMBS spreads have been relatively stable. Structures remain consistent:

• Rates: 6.20%–7.00%, depending on leverage, asset quality, and debt yield

• Terms: 5–10 years, full-term interest-only, up to 75% LTV

Agency Lenders (Fannie & Freddie)

GSEs have been active and well-capitalized, with inflows continuing to drive high transaction volume:

• Rates: 5.30%–5.80% (buydowns available to 5.00%–5.50%)

• Volumes: Fannie at $17.4B YTD through April (vs. $12.7B in 2024); Freddie at $13.1B (vs. $13.8B)

• Despite headlines, we expect no near-term structural changes to the agencies

Property Type Trends

• Industrial: Shift toward earlier renewals (24+ months out), reflecting more tenant-favorable market dynamics.

• Office: Leasing activity rose 18% QoQ in Q1; 32 of 40 major markets saw positive YoY absorption. Rents have begun to grow modestly.

• Retail: Availability ticked up to 4.8%, and Q1 saw negative absorption for the first time since 2020. Retailers are bracing for margin pressure and potential pullback.

• Construction: Pipeline contraction persists. Construction costs are up ~35% from 2020, constraining speculative development.

Capital Markets Outlook

CRE investment volume totaled $88 billion in Q1, up 14% YoY. Investment activity is expected to grow by up to 8% this year, assuming 10-year Treasury yields stay in the 4.00%–4.50% range. While risk spreads have widened slightly, cap rates remain competitive in historical context.

Final Take

Financing markets remain highly dynamic. With volatility in benchmarks, lender behavior is evolving fast. We are actively advising clients on capital stack structuring and execution strategies to match today’s environment.

Contact us directly to discuss tailored financing options for your next acquisition, refinance, or development project.