January 2025 CRE Debt Market Update

Debt Market Trends

Despite a significant rise in Treasury yields over the past two months, spreads have compressed, particularly for transactions with strong credit profiles and lower leverage. This dynamic has put material pressure on spreads to remain low, creating opportunities for borrowers in certain sectors.

Fed Watch

The Federal Reserve’s next moves remain uncertain, as investors adopt a “wait-and-see” approach. The potential for the 10-year Treasury yield to breach 4.75% looms, influenced by upcoming employment data and policy clarity from the current administration.

Market expectations suggest that a rate cut by the FOMC isn’t likely until mid-2025. Even then, the odds of a quarter-point cut don’t exceed 50% until May. Stay informed with the CME FedWatch Tool for updates on rate movement probabilities.

Life Companies

Life insurance companies continue to provide competitive financing options with stable corporate bond spreads as the baseline for pricing. Current quote rates range from 5.85%-6.75% for leverage up to 65%. For the best pricing, spreads remain in the low 5% range for leverage below 60%. Spreads vary between 140-225 basis points, influenced by deal size, profile, and leverage.

Banks

Banks are expected to re-enter the market at a stronger pace in 2025, supported by a normalized yield curve. Current quotes for bank loans are in the range of 6.45%-6.95% for stable assets with strong tenant mixes.

Fixed-rate programs typically offer terms of 3, 5, and 7 years, often with step-down prepayment structures. Floating-rate options are priced at 275-350 basis points over SOFR, providing flexibility for certain borrowers.

Debt Funds

Debt funds are ramping up activity as SOFR continues to decline. Borrowers seeking 60%-70% loan-to-cost leverage will find debt funds focused on stabilized debt yields, in-place cash flow, or lease-up opportunities in the multifamily and industrial sectors.

Spreads typically range between 265-400 basis points over SOFR, with a notable trend of multifamily deals incorporating preferred equity positions behind agency senior loans.

CMBS

The CMBS market continues to favor 10-year terms, while 5- and 7-year terms remain challenging to price. Rates are quoted between 6.50%-7.25%, depending on loan size, asset quality, property type, and debt yield.

Loan terms generally feature up to 75% LTV, often with full-term interest-only (IO) options. Spreads in the CMBS space have remained relatively stable, with new issue and secondary market movements contained in recent weeks.

Agencies

Agency lenders have successfully managed spread compression despite rising Treasury yields. A transaction recently secured a 10-year, full-term interest-only loan at a 75-basis-point spread—an exceptional result in today’s market.

Fannie Mae reported $45.4 billion in new business volume through November (compared to $48.1 billion last year), while Freddie Mac’s volume reached $52.1 billion (up from $41.1 billion in 2023). Agency pricing ranges from 5.85%-6.50%, with buydown strategies offering rates as low as 5.55%-5.95%.

Rate Snapshot