CRE Debt Market Update

Treasury Market Trends

Recent Treasury market activity reflects optimism in response to the White House’s announcements, particularly regarding trade policies. While proposed tariffs on Mexico and Canada were mentioned, they were not part of day-one executive actions. Investors remain focused on the administration’s broader review of trade relationships, with results expected by April 1.

Federal Reserve Outlook

The Federal Reserve is unlikely to implement a rate change during the upcoming meeting, with March projections showing only a 26% chance of a rate cut. However, labor market data from January and February could influence the Fed’s decisions later in the year. Current projections suggest the possibility of a rate cut exceeding 50% odds by May, though this remains contingent on further economic developments.

Financing Landscape Metrics

Life Companies
Life company financing remains a cornerstone for borrowers seeking stability. Rates for transactions with up to 65% leverage range from 5.85% to 6.75%, with spreads between 140-225bps based on deal size, leverage, and property profile. Deals with leverage below 60% can secure pricing in the low-5% range, demonstrating the continued competitiveness of this sector.

Banks
Banks are poised to regain momentum in the debt market, driven by the normalization of the yield curve. Currently, quotes for deals with reliable collections and a strong tenant mix fall between 6.45% and 6.95%. Fixed-rate offerings are available for 3-, 5-, and 7-year terms, often with step-down prepayment structures. Floating-rate loans are quoted at 275-350bps + SOFR, making them a viable option for borrowers prioritizing flexibility.

Debt Funds
Debt funds have ramped up activity, particularly for multifamily and industrial asset types. Leverage typically ranges from 60-70% loan-to-cost, with spreads spanning 265-400bps over SOFR. Many funds are pursuing preferred equity positions in multifamily deals, particularly behind agency senior loans, reflecting an evolving approach to capital stack solutions.

CMBS
CMBS lenders are focusing on 10-year terms, as shorter durations have proven more challenging to price. Current rates hover between 6.50% and 7.25%, depending on loan size, property type, and debt yield. CMBS offerings frequently feature full-term interest-only payments and leverage up to 75% LTV, maintaining their appeal for long-term borrowers.

Agencies
Agency lending remains robust, with Fannie Mae reporting $55B in new business volume for 2024 and Freddie Mac surpassing $65B. Current agency rates range from 5.85% to 6.50%, but rate buydowns have become a favored strategy for many borrowers. These buydowns can reduce rates to as low as 5.55%-5.95%, presenting a cost-effective solution amid volatile benchmarks.