Q2 Capital Markets Update
published May 15, 2025
The Fed Takes a "Wait and See" Approach
The Trump Administration’s rapid policy rollouts have caused significant market volatility, and their actions over the next 90 days, particularly tariff policies, will influence the Fed's upcoming interest rate decisions. During their meeting last week, Fed Chair Jerome Powell emphasized a "wait and see" approach, suggesting the costs of delaying action are low. While he hinted the Fed may have been slow to cut rates this last fall, the Fed is expected to remain cautious, given the tariff-driven inflation concerns, unless clear labor market weakness or recession signs emerge. While inflation would be the factor for holding rates, signs of weaknesses in the economy could motivate the Fed to cut rates sooner. This unknown is driving much of the volatility.
Futures suggest an 85% chance of two cuts by year-end, likely in September and December. Market odds reflect a 25% chance of a June rate cut and a 0% chance of a hike. Their next meeting is on June 18th.
Summary of Current and Projected Index Rates
(based on AI-aggregated data, factoring in market-implied forward rates and consensus Federal Reserve and economic forecasts)
Where do Lenders fit in?
In total for 2025, $957 Billion in CRE debt is maturing. Bank lending growth in the U.S. has slowed to the lowest quarterly growth rate in 11 years (0.14%). Some banks are managing their risks through loan sales, while others are either not lending or lending extremely conservatively (ie- lower leverage, full-recourse, and avoiding office). CMBS lenders are helping fill much of this void, but with higher spreads and worse structural terms. Life Insurance Companies, the Agencies, and private debt funds and REITS have also helped absorb this maturity wall. Our emphasis remains on sourcing flexible prepayment terms through floating rate structures or negotiating 1-2 year prepay timeframes, given the refinance opportunity over the next 2 years if rates do drop. Bridge lenders have also started making much more sense this year with spreads tightening, and very often a net benefit in the incremental cost of capital compared to lower leverage permanent debt with longer prepay terms.
Hot Money
Low Cost Recourse Fixed-Rate Bridge Debt in the 6%'s
Loan Size: $2 - $50 Million
Geography: Western US
Property-Type: Multifamily, Industrial, Retail, and other selectively
Rates: Fixed in the 6.50-7.25% range. Can opt to float.
Term: 2 - 5 years
LTV: 70% LTC
Underwriting: 1.25x stabilized DSCR and 9.0% stabilized Debt Yield.
Recourse: Recourse
Prepay: Flexible; can fix or float rate.
Recent Financings
Medical Office Loan
$8.30 Million Acquisition
Houston, TX
Lender: Life Insurance Company
- 63 lenders pitched
- 60% LTV, 1.25x DSCR
- 6.10% 5-Year Fixed Rate
- 2.5 Years Minimum Interest
- Non-Recourse
- No Deposit Requirements
$25 Million, 3-Property Industrial Mid-Construction & Horizontal Development Loans
Oregon and Washington
Lenders: Two different Debt Funds
- 55 lenders pitched
- Various rates
- Various Minimum Interests
- Non-recourse with completion guaranty
Lender Notes
Fannie Mae & Freddie Mac are offering competitive rates with spreads in the low-100's (with buydowns) to low-200's.
Life Companies remain active competing with spreads generally in the low to high 100's. Some are competing with more flexible prepay structures and offering early refinancing for pre-stabilized multifamily in lease-up.
Banks and Credit Unions are generally underwriting between 1.20x-1.25x DSCRs, with a few at 1.15x for multifamily. Most banks are not quoting office.
CMBS is filling the void where properties don't qualify for other sources of capital, particularly office.
Bridge Lenders are underwriting their take-outs conservatively, however remain active with spreads generally in the mid-200's to mid-400's over Term SOFR.
Preferred Equity sources have remained active with some creativity around low current pays. General market terms remain at 7%/14%.
Construction Lenders are active, but hesitant in over-supplied markets. Focus remains on Sponsorship track-record.
Lender
Max LTV
Rates
Closing
Notes
Fannie/Freddie
5,7,10-Year Fixed
80%
5.10% - 6.25%
(buydowns available)
45-50 days
LTV & DSCR dependent
FHA Refinance
35-Year Fixed
85%
5.0% - 5.75%
120-150 days
not including MIP
Life Insurance
Companies
65%
5.25% - 6.25%
45-50 days
DY dependent
Bank, CMBS, &
Credit Union
70%
5.75% - 7.0%
45-60 days
DY & term
dependent
Bridge
Debt Funds
75%
6.50% - 9.50% +
Spreads of 2.25%+
14-45 days
LTC & stabilized DY dependent
Construction
Lenders
55%-80%
7.0% - 9.25% +
45-60 days
LTC & size
dependent
Tim Gerlach, CPA | Principal
CPA Lic. 130463 | Broker Lic. 02038912
Direct: 323-505-9222