“Volatility persists, but capital is still moving.”
The second half of 2025 is unfolding against a backdrop of tariff uncertainty, inflationary pressure, and political turbulence. Despite these headwinds, debt and equity capital remain available, with lenders repricing but not retreating. Below is our latest read on the capital markets and debt financing environment.
Market Highlights
CRE Lending Activity Accelerates: Lending momentum surged in Q2, with financing volume up 45% year-over-year, reflecting renewed confidence in project underwriting despite macro uncertainty.
Multifamily Strength: Absorption hit a record pace in Q2, pushing the national vacancy rate down to 4.1%, its lowest level in two years.
Private Capital Leads Transactions: Private investors accounted for nearly $97B in U.S. CRE deals in Q2, a 13% increase over last year.
Net-Lease Moderates: Investment volume slowed to $9.9B, down quarter-over-quarter but still showing resilience year-over-year.
MOB Investment Rises: Medical office building absorption turned positive, with Q2 volume up 32% to $2.2B and trailing 12-month totals hitting $9.1B.
Federal Reserve Watch
September’s market focus is squarely on the Fed. Chair Jerome Powell’s Jackson Hole speech struck a dovish tone, with comments that “downside risks to employment are rising” and tariff-related inflation may prove “relatively short-lived.”
Odds of a September Cut: 85% probability of a 25bp cut.
Future Path: Historically, once the Fed acknowledges policy is too restrictive, multiple cuts tend to follow—raising the question of whether this is the start of a cycle.
Treasury Moves: The 5-year UST fell to 3.70%, a six-month low, after President Trump dismissed Governor Lisa Cook amid controversy—stoking investor concerns over Fed independence.
Inflation Data: Core PCE is expected at 2.9% versus 2.6% consensus. Powell emphasized the Fed’s focus has shifted toward labor market stability rather than transitory inflation readings.
Lender Activity by Capital Source
Life Companies
LifeCos remain disciplined, honoring locked deals while gradually adjusting spreads downward from summer highs.
Quote Range: 5.05%–6.25% for ≤65% LTV.
Spreads: 130–225bps depending on size, leverage, and profile.
Best Pricing: Still achievable in the low–mid 5% range for leverage under 60%.
Banks
Banks continue to re-enter with renewed appetite as the yield curve normalizes.
Fixed Rates: 5.45%–6.45% for stabilized deals.
Floating Rates: 180–300bps over SOFR, or 6.00%–7.10% today.
Structures: 3-, 5-, and 7-year fixed-rate programs with step-down prepayment remain the standard.
Debt Funds
Funds are more aggressive this quarter, bolstered by SOFR stability and appetite for yield.
Leverage: 65–75% LTC.
Spreads: 225–350bps over SOFR.
Focus: Stabilized debt yields, lease-up plays, and strong in-place cash flow.
Multifamily Trend: Preferred equity positions behind agency debt continue to grow in popularity.
CMBS
CMBS markets have seen minimal volatility compared to other sectors.
Rates: 6.05%–6.80% depending on deal quality, debt yield, and leverage.
Terms: 5- to 10-year structures, up to 75% LTV, often full-term IO.
Spreads: Stable across both primary issuance and secondary markets this year.
Agencies (Fannie Mae & Freddie Mac)
Agency activity remains a stabilizing anchor for the market, with record inflows driving strong demand.
Rates: 5.05%–5.55%, with buydowns reducing effective costs to 4.75%–5.25%.
Volume:
Fannie Mae: $34.6B through July (up from $24.0B last year).
Freddie Mac: $29.5B through July (up from $23.9B last year).
Amortization: Select sponsors are still securing 35-year amortization schedules.
A review of national cap rate trends reveals that all-property cap rates fell by 9bps in the first half of 2025—early signs of compression after peaking in the cycle.
Multifamily has overtaken industrial as the leading asset class for projected performance.
Retail remains steady.
Office pricing remains highly uncertain, with Class B and C assets showing the widest spreads.
Macro Pressure: Tariff-driven volatility in Treasury yields continues to influence underwriting assumptions.
Historical Cap Pricing
Cap pricing trends over the past two years show volatility aligning closely with Treasury yield swings, but the broader trend is stabilizing as investor conviction returns.
Our View
Despite tariff uncertainty and political noise, the debt markets are not retreating—merely repricing. Liquidity is abundant, investors remain engaged, and lenders across the spectrum are still deploying capital.
For borrowers, this moment represents both opportunity and complexity. Whether refinancing, acquiring, or structuring equity and preferred positions, navigating spreads and lender preferences is critical.
At IMPACT CRE Capital, we help clients make sense of these crosscurrents and position their capital strategies for success.
Navigating Today’s Market
The expert capital advisors at IMPACT Commercial Real Estate Capital are dedicated to guiding you through evolving market dynamics with expert insight, deep capabilities, and tailored financing solutions. Whether you’re exploring options with banks, agencies such as Fannie Mae, Freddie Mac, and HUD, or debt funds, our team is here to help you secure the best possible terms for your commercial real estate financing.
Ready to discuss your next financing opportunity? Contact us or schedule a consultation today for expert guidance.
