The First Cut: What Borrowers Should Know

The Federal Reserve reduced the Fed Funds Rate by 25 bps, its first cut of 2025. Projections suggest two more cuts may follow before year-end. While this brings potential relief for CRE borrowers, particularly those with floating-rate or shorter-term debt, lingering inflation and a slowing economy could create headwinds.

Why This Matters?

• Treasury Yields: Fed policy moves often ripple into Treasury yields, influencing pricing from life companies, CMBS lenders, and other capital sources.

• Floating-Rate Debt: 1-Month Term SOFR has already declined about 20 bps over the past 90 days, providing early relief. Looking further ahead, the forward rate curve for 1-month Term SOFR has dipped to a low of 2.90%, expected to bottom in June 2027. The cost of floating-rate debt, such as construction and bridge loans, is projected to continue falling over the next 12 months, with the largest declines expected in the next two quarters. This creates a window to get these deals in front of lenders, vetted and ready to fund.

• Market Timing: Historically, CRE transaction volume lags Fed policy shifts, meaning early movers may benefit before competition intensifies.

What's Your Next Move?

Lower financing costs open opportunities, but timing is critical. Borrowers who prepare today by evaluating capital structures, refinancing timelines, and acquisition strategies will be positioned to act when conditions align, rather than competing at the back of the line once activity accelerates.