Q4 Capital Markets Update
published October 21, 2025
Economic Resilience Amid Sticky Inflation
As we approach the end of 2025, the U.S. economy demonstrates notable strength, underpinned by robust consumer spending and a still-resilient labor market, despite some potential cracks showing, and even as inflation remains above the Fed’s 2% target. Major banks have recently reported low consumer delinquencies and a surge in dealmaking, signaling confidence despite some uncertainties still around tariffs.
With $957 billion in commercial real estate loans maturing this year—representing 20% of outstanding mortgages—it has remained a “lenders market” with most credit spreads elevated and more conservative approaches to underwriting. It remains challenging to justify locking in longer term financing in light of the Fed-driven rate tailwinds the market is expecting in the next several months.
Fed's Outlook: Rate Cuts on Horizon Despite Inflation Pressures
While the easing path may be more cautious, federal funds rate is expected to fall to the 3.5%–3.75% range by year-end through two additional 25-basis-point cuts. Median forecasts point to GDP growth of 1.6%–1.8% in 2025, unemployment rising to 4.5%–5.0% before stabilizing, and PCE inflation cooling to the range of 2.6%–3.1% by year-end.
Despite August seeing the highest bump in inflation since January, Fed Chair Powell emphasizes possible cracks in the labor market outweigh inflation concerns, which supports their anticipated path to cutting rates.
Banking Sector Signals Economic Strength
The big banks have described the economy as "sturdy," with healthy consumer spending, declining delinquencies, and a dealmaking boom driving Q3 profits. Regional banks face some pressures with loan maturities, while the White House weighs lowering the allowable debt to equity leverage ratio from 9% to 8%, which would spur their ability to increase lending. Further, new regulatory changes now allow banks to stop reporting modified loans after 12 months, which could help liquidity but raises transparency concerns.
CMBS Surging, with Distress Seemingly Easing
CMBS issuance is over $90 billion through Q3, up 50% year-over-year and on pace for $120+ billion for the year—the strongest since 2007's $230 billion peak. CMBS delinquency rates have fallen to 7.23% in September—the first decline since February—driven by office cures, though retail ticked up. While loan sizing is tighter than a few years ago, the secondary markets supply-side have welcomed issuances while the demand side has remained hot with so many maturities and less availability of more competitive lending options.
Rate and Economic Indicators
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2 Year Treasury: 3.45%.
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10 Year Treasury: 3.96%.
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Term SOFR: 4.0% down from 4.30% 3 months prior: Market expectation at just above 3.0% by the end of 2026.
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Unemployment Rate: 4.3% as of August. No more recent data because of government shutdown.
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Core CPI: 3.1% YoY as of August. September numbers expected Oct. 24.
Hot Money
Small Balance Well-Priced Perm Debt
Loan Size: $2 - $20 Million
Geography: California only
Property-Type: All Property Types (including Office starting at 5.50%)
Rates: Fixed starting at 5.30%, with no lender fee
Term: 3 - 10 years fixed
Interest Only: Up to full-term dependent on LTV
LTV: Up to 70% LTV
Underwriting: 1.20x DSCR for multifamily, 1.25x for everything else
Recourse: Recourse (Non-Recourse for higher DSCR requirement)
Prepay: Stepdown (None for small lender fee)
Recent Financings
High-Rise Multifamily with Ground-Floor Retail
Refinance $7.3 Million Cash-Out
Dallas, Texas
Lender: Credit Union
- 31 lenders pitched
- 70% LTV, 1.20x DSCR (no seasoning)
- 5.96% 5-Year Fixed Rate
- No prepay
- No Deposit Requirements
Two-Property Multifamily Portfolio
Acquisition Financing
Topeka, Kansas
Lender: Fannie Mae
- 12 lenders pitched
- 66% LTV, 1.35x DSCR
- 5.72% 5-Year Fixed Rate
- Full-Term Interest-Only
- No Lender Fee
Mapped Data: Multifamily Cap Rates in 2025 through September
Top 30 MSAs by transaction volume
(Click on map to open interactive map.)
Lender Notes
Fannie Mae & Freddie Mac continue to win multifamily financings with the use of buydowns to push loan proceeds with most deals still maxing proceeds to minimum debt service coverage thresholds.
Life Companies remain active competing with spreads generally in the low to high 100's. Some are competing with early refinancing for pre-stabilized multifamily in lease-up.
Banks and Credit Unions are generally underwriting between 1.20x-1.25x DSCRs with rates in the 5.50%-6.0% for multifamily and industrial with other asset classes 25-50 bps wide.
CMBS has remained a compelling alternative for properties that don't qualify for sources of capital with tighter spreads, and competing well on max proceeds requests with full-term interest-only available.
Bridge Lenders have become a more compelling option with Term SOFR falling. The flexible prepay and higher loan proceeds are making bridge lenders a great option for even light value-add business plans. Spreads are generally in the mid-200's to mid-400's over Term SOFR. We have seen a few recourse bridge lenders quote in the 180-220 spread range.
Preferred Equity sources have remained active with some creativity around low current pays. General market terms remain at 7%/14%, but there are some outlier sources that can price in the 10-12% range for the right deal and combined leverage.
Construction Lenders are active, but conservative with focus on Sponsorship track-record.
Lender
Max LTV
Rates
Closing
Notes
Fannie/Freddie
5,7,10-Year Fixed
80%
4.50% - 5.50%
(with buydowns)
45-50 days
LTV & DSCR dependent
FHA Refinance
35-Year Fixed
85%
4.70% - 5.40%
120-150 days
not including MIP
Life Insurance
Companies
65%
4.75% - 5.80%
45-50 days
DY dependent
Bank, CMBS, &
Credit Union
70%
5.30% - 6.50%
45-60 days
DY & term
dependent
Bridge
Debt Funds
80%
6.50% - 9.50% +
Spreads of 2.0%+
14-45 days
LTC & stabilized DY dependent
Construction
Lenders
55%-80%
6.30% - 9% +
45-60 days
LTC & size
dependent
Tim Gerlach, CPA | Principal
CPA Lic. 130463 | Broker Lic. 02038912
Direct: 323-505-9222