After lowering interest rates several times last year, an action that ended an inverted yield curve scenario, the Federal Reserve has held the line thus far in 2025, much to the chagrin of the commercial real estate community.
That stance might be changing at next month’s Federal Open Market Committee’s policy meeting, driven by prolonged economic uncertainty, the weakening national labor market, and intense influence from the current administration.
Several area banking and capital markets professionals weighed in with their predictions of an interest rate cut and its projected impact on investment sales activity.
25-50 bps cut expected
“We believe a rate cut of 25-50 bps is likely in September or October given the recent weak jobs data and other signs the economy is slowing,” explained Bill Libercci, Senior Vice President/Senior Director at NorthMarq. “The tariffs remain a wild card, but the pressure for a rate cut is substantial from Wall Street to Washington, D.C. to Main Street.
“Pricing for commercial real estate loans should benefit, especially for floating-rate debt and construction loans. Longer-term loans for CRE could benefit if the longer-term United States Treasury rates for 5- and 10-year terms see yields fall. There is not a direct correlation between the Fed’s short-term rate benchmark and longer-term yields, but cutting short-term rates will usually help.”
Brett Weil, Vice President and Commercial Banker at WesBanco, noted that “the general consensus among commercial real estate and capital markets professionals has been for two cuts for 2025… Based on Fed Fund Futures, it is a near certainty the Federal Reserve will cut rates by 25 basis points in September.”
However, Kevin J. Tehan, Principal at Columbia National Real Estate Finance, suggested that any rate-cut projections should be viewed with caution.
“Predicting interest rates has not been something we have focused on and, frankly, most who have tried have not been very accurate,” Tehan said. “The momentum does seem to be shifting toward lower rates, assuming future employment and inflation data give Federal Reserve Chairman Powell room to cut. While we do some floating-rate, SOFR-based lending, we are more closely tied to the 5-, 7-, and 10-year Treasuries for long-term, fixed-rate financing, which are primarily influenced by market forces. Because of that, we have already seen a bit of a rate drop over the past 60 days, driven by recent jobs and inflation reports.”
The CME Group’s FedWatch Tool pegs the probability of a rate cut at 86 percent.
Possible uptick in investment sales
According to data in MacKenzie Commercial Real Estate Services’ Q2 Market Report, MacKenzie Capital has seen and felt a shift in activity with investors re-entering the market pushing an uptick in trading volume. The composition of buyers, year-to-date, is 44.4% private buyers and 31.7% institutional buyers.
“Overall activity in CRE has been steady with Investment Sale volumes in 2H 2024 and 1H 2025 higher than the previous couple of years,” added Libercci. “Seller expectations seem to be getting closer to what buyers can pay, and lower rates should spur more investment sale activity.”
“Given the wide swings in rate cut expectations for most of 2025, I am not sure if cuts will lead to a significant impact on transaction volume,” Weil said.
“Regardless of Federal Reserve decisions, we are seeing more lenders coming back into the market for all property types, although we are still not seeing 100 percent market participation on the lender side,” stated Tehan. “I would expect more lenders to continue to get more aggressive moving forward, which will ultimately lead to more competition and tighter spreads, benefiting the borrowers.”