Fed Cuts Rates a Quarter Point as CRE Industry Eyes Lower Borrowing Costs

The Federal Reserve cut interest rates for the first time in nine months Wednesday in what the commercial real estate industry anticipates will be the start of a downward path to lower borrowing costs.

The Fed lowered its benchmark interest rate by 25 basis points to between 4 percent and 4.25 percent to snap a streak of five straight pauses dating back to its late January meeting. The central bank also signaled more cuts based on its quarterly “dot plot” matrix of individual committee members projecting two additional cuts this year, a third drop in 2026, and a Fed funds rate of 3.1 percent by year-end 2027. Its last “dot plot” in June projected a 3.4 percent benchmark rate in late 2027. 

“In the near term risks to inflation are tilted to the upside and risk to employment to the downside,” Fed Chair Jerome Powell said in a post-meeting press conference. “With downside risk to employment having increased, the balance of risks shifted accordingly. We judged appropriate at this meeting to take another step toward a more neutral policy stance.”

Powell added that while 2 percent inflation remains the Fed’s long-range goal, risks to inflationary pressures have lessened since April due to a “softened” labor market coupled with a slowing of gross domestic product growth.

The central bank’s 11-1 vote came amid a backdrop of President Donald Trump‘s push for political control of the Fed while demanding the central bank lower interest rates. Trump has attempted to fire Fed Governor Lisa Cook, who President Biden appointed to a 14-year term that expires in 2038, citing allegations of mortgage fraud which is now playing out in the courts. The president has also sought to fire Fed Chair Jerome Powell before his term expires in May 2026. 

Stephen Miran, a new Trump-appointed Fed governor, pushed for a half-point cut and was the lone dissenting vote. 

John Buran, president and CEO of Flushing Bank, said he anticipates “accelerated” investment sales activity if interest rates take an expected downward trend. He said material boost in debt deals will likely be seen at the end of 2025 since it often takes roughly 90 days from applications for loans and the closing to take effect.

While there is a strong desire to see lower interest rates, the future independence of the Fed is also of great importance to CRE and the overall banking industry, according to Buran, who joined Flushing Bank in 2001 as chief operating officer.

“The process has largely worked pretty well through the years keeping an independent Fed, and I think we would see much more volatility if the Fed got more politicized,” Buran said. “I certainly feel it’s within the purview of the president to make his thoughts known and clearly he has, but I think that a more politicized Fed would be detrimental to the capital markets in general and have repercussions beyond what we can even see.”

The central bank’s first interest rate cut since last December coupled with Trump’s rising influence on the Fed are raising expectations for a far more dovish approach going forward with monetary policy than the hawkish stance Powell took fighting inflation. The Fed implemented 11 rate hikes out of 12 meetings between March 2022 and July 2023 followed by a 14-month pause. It then slashed interest rates by 100 basis points in late 2024 before holding them steady throughout 2025 until Wednesday. 

Jay Neveloff, partner and chair of U.S. real estate at global law firm HSF Kramer, said many of his lender and borrower clients have been kicking tires on deals of late, and an interest rate cut will spur more transaction volume. 

He expects the interest rate cut to spur more near-term transaction activity given how much money is sitting on the sidelines ready to deploy. He noted that, even prior to the Fed cut, real estate was an attractive investment in 2025 with many investors taking debt positions and getting equity returns and lower interest rates only.

“They’ll seize on anything to validate their underwriting of a transaction,” Neveloff said. “I’ve been talking to such a wide group of people including private equity, hedge funds, family offices, and they’re coming around to the view that they’re willing to be more active.” 

Paul Rahimian, CEO and founder of Parkview Financial, said that while indications the Fed is set to cut short-term interest rates will be positive for the CRE industry, the future direction of long-term interest rates will play a bigger role in determining the health of many properties. The yield on the 10-Year Treasury fell to around 4 percent this week ahead of the Fed meeting, but Rahimian noted it may rise over the next few weeks due to investor concerns about inflation from the national debt and tariff policies.

“Inflation, tariffs and the size of the U.S debt are all long-term concerns which will keep the long end of the yield curve elevated so the 10- and 30-Year will probably be higher than what people want,” Rahimian said. “They are within historic norms, but when you look at the market dislocation in real estate there really is a hope that those numbers will come down.”

Rahimian noted that the first half of 2025 was “very stagnated” in terms of lending volume as a result of higher-for-longer interest rate conditions and unknowns about the economic impact of tariffs. He said late 2025 has potential to be more “dynamic” on the deal front as more clarity on interest rates materializes. 

Joe Biasi, head of research for commercial capital markets at Newmark, noted that the 10-Year Treasury spiked up last year following the Fed’s half-point cut in September 2024, and a similar scenario could play out this time around. The 10-Year rose from around 3.6 percent to as high as 4.8 percent in late 2024 before settling in the low 4 percent range for much of 2025. 

“We’ve seen [the 10-Year] move down which is certainly helpful for commercial real estate investment activity, and it helps with spreads on pricing which means you would expect more capital to flow into the sector,” Biasi said. “We have a fairly flat yield curve at least on the short end of the yield curve so you’re getting no term premium whether you invest in very short-term rates or longer-term rates, and at some point we would expect that to normalize to some degree.” 

Andrew Coen can be reached at acoen@commercialobserver.com.