Fed Maintains Interest Rates as CRE Confronts New Uncertainty From Iran War

The Federal Reserve held interest rates steady for a second straight meeting Wednesday.  The pause comes in the midst of the commercial real estate industry grappling with economic uncertainty as the war in Iran throws a monkey wrench into inflation trends.

The Fed, in a 11-1 vote, kept its benchmark interest rate at between 3.5 percent and 3.75 percent while indicating potential unknowns around inflationary pressures from ongoing turmoil in Iran and elsewhere in the Middle East. The central bank also released a quarterly “dot plot” matrix of individual committees, forecasting one cut this year and another in 2027. 

“The implications of events in the Middle East for the U.S. economy are uncertain,” Fed Chairman Jerome Powell said in a post-meeting press conference. “In the near-term, higher energy prices will push up overall inflation, but is too soon to know the scope and duration of the potential effects on the economy.”

The lone wolf dissenting vote came from Fed governor Stephen Miran, who supported a quarter-point reduction. 

Wednesday’s Federal Open Market Committee (FOMC) meeting marked the second to last for Fed Chairman Jerome Powell before his second term as chair is slated to expire on May 15. President Donald Trump nominated former Fed governor Kevin Warsh in late January to replace Powell two days after the FOMC kept interest rates in check following three straight cuts to close 2025.

Powell said Wednesday in the event Warsh is not confirmed by May 15, he will remain in his Fed leadership role in a pro tempore position based on bylaws until a successor is confirmed. The Fed chair also stated he would not leave his board of governors position that lasts through January 2028 until a Department of Justice investigation of him is “well and truly over with transparency and finality.”

Lisa Pendergast, CEO of the Commercial Real Estate Finance Council, said uncertainty about inflation only adds to the stress facing a number of floating-rate loans already facing looming maturities at higher interest rates.

“The reality is that you still have 4 percent  coupons that are maturing, and you’re moving to something with 6 and change, and that’s a lot of pain for some of these owners,”  Pendergast said. “For an extended period of time people were just extending those existing loans, but at some point that has to stop and that is when the pain points start.”

While the Iran war has fueled increased volatility to the near-term direction of inflation, Pendergast said the CRE market could see some expedited deal activity as a flight to quality unfolds as more investors buy Treasurys and seek more Class A properties with stable incomes. Pendergast cautioned, though, that the uncertainty from the war also could make some lenders more reluctant to fund certain deals.

Jay Neveloff, chair of real estate at law firm HSF Kramer, said the instability in the market stemming from the Middle East provides a compelling buying opportunity for CRE owners, and he is advising clients to take advantage. Neverloff has advised clients to execute deals since the war began but noted that many remain on sidelines for the moment. 

“I think this blip in time creates more opportunity because people need to transact and there’ll be a moment of time and that window could close,” Neveloff said. “There are some groups out there who see the opportunity, but it’s clear they’re in the  minority.” 

Neveloff added that lenders are becoming more proactive in early 2026 with distressed  properties with some looking at potential loan sales. Yet, he stressed that a wide gap remains in the bid-ask spread, which creates some barriers to transaction activity. 

Geri Borger Urgo, president for NewPoint Real Estate Capital, said interest rate conditions aren’t prohibiting deals from getting done but are also not encouraging borrowers to refinance out of an existing fixed-rate transaction. 

“You have a sort of tale of two cities, where on the one hand there are those that have time and no pressure to do anything, and on the other hand you’ve got a real debt wall,” Borger Urgo said. “No one is really incentivized to do anything with rates where they are now.” 

Prior to the Iran War, the 10-Year U.S. Treasury yield had dipped below 4 percent, with the Five-Year U.S. Treasury note hovering around 3.5 percent before popping back due to market uncertainty. 

Mark Weiss, managing partner and head of real estate for Chatham Financial, said many CRE owners have begun to sense a reality check of long-term interest rates remaining elevated following years of hoping they would return to their previous low levels. He said there is more capitulation in the CRE market now, which should lead to more deal flow despite some of the unknowns circulating. 

“People are just recognizing that we’re at that point now where you have to transact,” Weiss said. “You have a lot of these funds that have extended, extended, extended, and they just have to return the capital to their investors.” 

Andrew Coen can be reached at acoen@commercialobserver.com