Author: Matt Parker

Effects of Tariffs on Real Estate Investing

By: Andrew Carter

With tariffs taking center stage this week, the economy experienced significant volatility. The implementation of tariffs targeting Canada, Mexico, and China spurred what many are calling the “tariff trade.” This development introduced heightened uncertainty for equity investors, leading to a market sell-off as many sought safer, risk-averse alternatives. The sell-off exerted considerable downward pressure on bond yields, causing Treasury rates to drop sharply—nearly 70 basis points from their 2025 calendar year high. However, the 10-Year Treasury has already started to recover, rising approximately 12.5 basis points from its one-week low of 4.10%. Investors who seized the opportunity during this pronounced dip are likely to benefit as Treasury yields stabilize and regain balance.

The long-term effects of these tariffs remain uncertain, but their impact, combined with other influencing factors, has led the futures market to anticipate the possibility of one to two additional rate cuts by the Fed this year. Should these anticipated cuts materialize, they are expected to exert prolonged downward pressure on Treasuries. While the market will require a few more days to fully digest this information, the current expectation is that the 10-Year Treasury will likely stabilize within the 4.25% to low 4% range and maintain this steadiness for the remainder of the year. Additionally, abundant market liquidity has driven credit spreads tighter, contributing to a generally more favorable interest rate environment for real estate investors.

Takeaways from the 2025 Mortgage Bankers Association Conference

By: Scott Williams

Just got back from the Mortgage Bankers Association #CREF conference and want to share my main takeaways while they are fresh. That said, the red-eye back from San Diego was terribly bumpy last night and I am going on about 30 hours straight – so please bear with me.

– Attendance was down. I handicapped it at 25% – 30%. Someone said it felt more like 50%. It was tough to tell, but it was material. I think this was a factor of a lot of people on the lending side attending CREFC in Miami in January, and also NMHC. It seemed like sentiment from both of those conferences was the debt will be there, so there was less focus coming to this conference to learn about the debt markets.

– There is SO MUCH LIQUIDITY in CRE debt right now. The risk-adjusted return on CRE debt, private credit, and paper is SEXY. We only spoke to one group who had a modest increase in their allocation for CRE this year from $1.1 – $1.2ish B. Most groups we talked to were increasing their goals / allocations by 50%! These are groups that did $2B last year saying they are going to do $3B and groups that did $4B saying they hope to do $6B. In addition to bigger allocations, there are totally new and very competitive strategies, including several Agency alternative players coming into the market.

– Fannie and Freddie are painfully slow getting initial feedback on deals. That said, they know it and are staffing up to handle it. This was much welcome news.

– FRAUD was rampant in the height of the 2021 – 2022 gang buster transaction years. This was driven by fraudulent brokers, but also fraudulent Borrowers. It was easy to accomplish and easy to hide at 0% rates, but the tougher things have gotten the more it has all come to the surface. The scrutiny deals are getting on the front-end mostly from the Agencies sucks, but it is pretty warranted all things considered. This should get better with time and as they become more and more confident that they have dealt with the bad actors.

– Lender portfolios are holding up well. There is a lot less distress than I expected, especially in some of the more aggressive bridge lender portfolios. There was only one group we spoke to who had sizeable defaults, and they have brought a top-dog workout guy in to handle it. Lenders are also in the driver’s seat on the deals that are in trouble and are working from a position of power. They are moving quickly where needed. They are happy to continue to work with Borrowers who are playing nice, but there is no more stay for free.

– Sentiment on rates is pretty good. Most think that (outside of some days like today) the 10-year will be sticky at the 4.5% range as an upward bound, and that there is a chance the market works to move the long-end of the curve lower towards 4%. It might take all year, or maybe into next, but not a lot of surprise to the upside on rates is expected.

– Spreads are super tight and could even get better if the yield curve steepens. This goes along with the abundant liquidity and demand for paper in the market, but this theme should maintain for the year and will be welcomed by Borrowers.

– Equity is still working hard to make deals work. Return expectations have not come in and as hard is debt is trying to bridge the gap – deals are still tough. For deals that pencil, there will be quite a bit of appetite from the market.

This was my 10th consecutive CREF conference. That seemed like a meaningful milestone. It was so great to see old friends and catch up over a beer (or taco) and talk about how we met and all of our experiences over the past decade. With the lower attendance, the ones that were there were really the dedicated soldiers / lifers of CRE finance. True experts that I have been blessed to come up with and around and learn from. Hearing their perspective and expertise is always a privilege. I also met several new folks and made some new capital relationships that I am extremely excited about. In our business, knowledge is great, but connections are key. I appreciate everyone who took the time to meet with JD Lehman and me. I’m excited about a great and dynamic 2025 in CRE lending!

Navigating 2025: Strategies for Multifamily Success in a Challenging Market

We survived. As we turn the calendars to 2025, it’s important that we look at the reality of the year to come. 2025 looks to hold some new and interesting challenges for owners, investors, and brokers. With the 10-year treasury remaining elevated, the cost of debt having doubled since the “free money” days, and a tsunami-sized wave of loans coming due this year and next, multifamily owners in the southeast, especially those that took on floating debt, will soon be forced to make decisions that will dictate the future of their portfolios.
I opted out of NMHC as I felt like no one really knows which way we are heading. To be quite honest, we are doing a lot of BOVs that needed our attention. We seem to have more off market deals than ever before.

What Should Multifamily Owners Be Doing Right Now?

1. How can you collect more rent in a timely manner?

I recently sat down with an owner of a well-located property. Rents were late or unpaid, and evictions were slow. We brainstormed on how to collect rent and incentivize tenants to pay on time. If you’d like to explore these out-of-the-box strategies and what’s working for him, let’s talk.

2. Get Ahead of Loan Maturities

If you have debt coming due in the next 12-24 months, don’t wait until the last minute. Lenders are more risk-averse now, and refinancing isn’t as simple as it used to be. Consider restructuring debt, negotiating extensions, or exploring JV equity to bridge any gaps.

3. Rethink Pricing Expectations

Buyers are underwriting deals with much higher debt costs, which means yesterday’s valuations no longer apply. If you’re planning to sell, focus on real numbers, not past appraisals. The deals getting done are the ones where sellers are willing to meet the market.

4. Optimize Operations

With compressed margins, NOI growth has to come from actual operational improvements, not just market appreciation. This means tightening expense control, improving rent collection, and reducing turnover. Look at value-add strategies that don’t rely on heavy Capex but still drive revenue.

5. Consider Strategic Sales

If your asset isn’t performing, your debt is a problem, or you’re simply overleveraged, it might be time to sell while the market still has liquidity. South Carolina’s multifamily sector, especially in high-growth areas like Greenville, Charleston, and Columbia, is still attracting investors—just not at 2021 pricing.

The Outlook for South Carolina Multifamily

South Carolina remains one of the strongest multifamily markets in the country. Job growth, massive inbound migration, and a pro-business climate keep demand high—but the days of easy appreciation, fast rent growth, and cheap debt are gone. In this market, operators who understand today’s financing realities, realistic valuations, and how to drive NOI in a high-rate environment are the ones who will win.

The bottom line? You either adapt or get left behind. If you’re an owner, waiting around and hoping for rate cuts isn’t a strategy—now’s the time to make smart, proactive moves. If you’re a buyer, patience is key, but when the right opportunity comes, you need to be ready to move.
Navigating this market takes experience and the right team. Let’s talk.

Material Increase in Transaction Activity, Higher Than Expected Interest Rates, and Tremendous Amounts of Liquidity – Aline Capital’s 2025 Outlook for Commercial Real Estate

In an industry that hasn’t felt “normal” since the pandemic, it feels like every year we work to try and figure out how COVID-19 and its ensuing impacts on the economy and interest rate policy will affect the CRE market. At Aline Capital we are watching three specific trends, all somewhat correlated, that we think will be driving factors for the CRE market in 2025.

1. Material Increase in Transaction Activity

After peaking in 2021 at $877B, commercial real estate transactions maintained record-high levels in 2022 of $771B, before dropping off a cliff (-51%) in 2023 to $378B. While not finalized, a mild recovery of just over 9% ensued in 2024 to $413B. The expectation as reported by Urban Land Institute’s Real Estate Economic is for a much stronger recovery of just over 33% from 2024 to $550B in 2025.

Deep interest rate cuts spurred by the pandemic provided extremely inexpensive capital for CRE transactions in 2021 and 2022. This also allowed for peak valuations among assets, prompting many owners to become sellers with very low barriers for buyers given the low interest rate environment. Reversing course to fight inflation, the very quick run-up in interest rates by the Federal Reserve was the primary driver for the drop in transaction activity in 2023, as borrowing costs created a bid-ask spread between buyers and sellers that became insurmountable. In addition to that, an overall liquidity squeeze from traditional lenders and strain on the banking sector made a difficult problem even harder.

In 2023 the challenges was as much the pace at which rates increased as their ultimate resting place. While there was little to no expectation for rate increases in 2024, stubborn inflation data staved off the expectation for rate cuts, which were expected to show up much earlier in the year. This created significant volatility in the treasury markets and ultimately higher than expected interest rates for CRE Borrowers. 2024 began the year with a 10-year treasury just under 4.0%, but it quickly rose to its peak of 4.7% by the end of April, leaving many borrowers without good refinance options and also a basis above potential sales prices.

While a record number of loan maturities in 2024 should have driven more transaction volume, many investors were unwilling to accept where current values were given the dramatic drop in values from 2022 – 2024. Owners were between a rock and a hard place unwilling to sell without great options for refinance. Given the expectation that rate cuts were eminent and hopefully coming soon, many lenders allowed borrowers to extend their late 2023 maturities into 2024 with little skin off their back. When that same wall of maturities came in late 2024, the lending market had not improved remotely close to the level needed for investors to gain the proceeds they needed to refinance. While market pricing had stabilized and somewhat improved, many sellers still did not like the prospects of selling. Instead of dolling out loan extensions with little to no repercussions again in 2024, lenders began really demanding a pound of flesh for extensions, or providing extremely short extensions demanding payoffs, forcing some transaction activity.

The market faces a similar issue with another record level of maturities in 2025, even before considering the loans that got short extensions from 2024 into 2025. With $998B in loan maturities and no material improvement in borrowing options, lenders in 2025 will not be offering friendly extension options and many owners will be forced to sell. This will increase transaction activity independent of any favorable moves by interest rates.

In addition to forced sales, the market has had some time to absorb the movements in values and interest rates, and substantial demand and liquidity has built up in the acquisition space. While the industry faced some short-term challenges in 2023 and 2024, CRE has garnered the interest of the institutional and international investor market again. With the recent drop in values, many investors like the prospect of acquiring deals well below their peak values, while getting many of the benefits that CRE investment provides.

Overall, tough love from some lenders coupled with substantial demand and liquidity in a market that has garnered some price discovery will be major factors that drive CRE transactions in 2025.

2. Higher Than Expected Interest Rates

September 2024 marked the Fed’s first interest rate cut, followed by two additional cuts for the rest of the year, resulting in a total 1.00% cut to the fed funds rate from its peak. While the expectation is for additional cuts to the fed funds rate, this has had varying impacts on the treasury market, which is ultimately the source of fixed interest rates for CRE. In fact, the very day that the Fed made their first interest rate cut, the 10-year treasury increased slightly intra-day. A major part of this is the normalization of the yield curve, which is when longer-dated bonds have higher yields than their shorter-term counterparts.

The Federal Reserve controls the fed funds rate, the rate at which banks can borrower on an overnight or short-term basis from the Fed. This has the largest impact on short-term rates, and experts project that in a normalized yield curve environment, the 10-year treasury should be 100 – 150 bps (1.00% – 1.50%) above the fed funds rate. Cuts in 2024 were prolonged from an initial expectation in Q1 to ultimately not occurring until the end of Q3.

Beyond this and perhaps the biggest move, was the Fed’s upward adjustment of their expectation of where the fed funds rate will land in 2025. The graphic below shows a comparison of the Fed’s projections at their September 18, 2024 meeting, reporting a split majority between a 3.00% – 3.50% effective fed funds rate, to their projection on December 18, 2024, which provided a substantial majority at a 3.75% – 4.00% effective rate. This revision put significant upward pressure on treasury rates across the yield curve. The primary reason for the Fed’s revision was the expectation that inflation would actually increase in 2025 to 2.5%, over the YE forecast for 2024 of 2.4% (at the time of the meeting).

It is possible that some relief could come in rates, but all expectations are for inflation to remain stubborn and the Fed to remain their currently charted course. This is in contrast to investors’ previous expectation of a much lower fed funds rate that would have resulted in lower treasury rates and ultimately some much-desired reprieve for CRE Borrowers.

3. Tremendous Amounts of Liquidity

Liquidity for real estate flows from the institutional level down and impacts all levels below it on the food chain. At the institutional level, exposure to real estate comes in many forms. There is equity exposure in the form of direct or LP investment; many investors are lenders or invest in private credit; and there is a primary and secondary market for real estate mortgage-backed securities. Appetite for all of these investments provides for liquidity across the board for CRE investors and is what allows for transactions to take place.

Exposure to any of these elements would be considered commercial real estate investments from an institutional or large investor. Real estate investment is part of the larger category of alternative investments. Alternative investments are considered anything other than stocks, bonds, or cash. Commodities, private equity, private credit, hedge funds, cryptocurrencies, and infrastructure are some of the other primary alternative investment types.

One challenge for the CRE industry is that real estate was perceived as a poor risk-adjusted return compared to other alternative investments. When asset prices were at an all-time high and interest rates were low, equity investors had exposure at a level the market had not seen, and debt investors were exposed at similarly high levels earning little yield. Now that values have come down 20% – 40% from their peak and rates are up and somewhat stable, CRE is presenting a compelling case for investment at the institutional and large investor level again. This has provided significant interest and allocation from the capital markets to all facets of commercial real estate exposure. This liquidity will provide for more debt and equity options for CRE investors, which will increase the ability to get transactions done.

One benefit to the increased capacity for lending as well as demand for in investments in the commercial mortgage-backed securities market is that it will create downward pressure on credit spreads. Pure competition as well as demand for the products they create will help lenders lend at lower spreads over the treasury rates, which serve as the baseline index for the loans. This will help somewhat offset the higher-than-expected treasury markets, which are ultimately driving interest rates higher than expected as noted above. While the spread compression cannot fully offset the increased treasuries, any reprieve will certainly be welcomed by the markets.

Overall, there is substantial demand for CRE investment gearing up for 2025. Many lenders will force transactions in the face of higher-than-expected interest rates. The substantial amount of liquidity on the equity side will provide some competition and help close the horrid bid-ask spread that has existed for the past two years. Liquidity in the debt markets will also provide solutions for borrowers who need to take on leverage to complete their transactions. While it seems like no two years have been the same since the pandemic started, it seems that despite the challenges that exist, CRE investors are ready to get back to transacting at scale in 2025.

Market Projects 74% Chance of a Rate Cut In December

As of 10am December the 4th, the market is projecting a 74% chance of an interest rate cut at the next Federal Open Market Committee (FOMC) meeting. The meeting is set to take place on December the 18th and it would place the effective fed funds rate at 4.25% – 4.50%. As a real estate investor, understanding these probabilities is crucial for making informed decisions and predicting market movements. An excellent tool to find the information regarding upcoming market projections is The Chicago Mercantile Exchange (CME) FedWatch tool (Link).

The CME FedWatch tool utilizes futures contracts on the federal funds rate to estimate the likelihood of interest rate changes. By monitoring the prices of these contracts, market participants can gauge market expectations for future rate movements. The tool provides a visual representation of these probabilities, giving analysts and traders a clear view of market sentiment.

As one might expect, the information is very dynamic as it follows trades throughout the day and can change multiple times intraday. Moves are usually small when no breaking news or data comes out for the market to absorb, but it is very important to check back in any time a CPI report, or jobs report, or other data reports that the FOMC relies on to make its interest rate policy decisions. Additionally, drastic changes can take place after an FOMC meeting if the Fed makes any adjustments to their projections of policy in their “dot plot”.

Following the December meeting, the market is currently only projecting a 17.8% chance of a cut in January, but is more bullish of a cut in March with current projections at 46.7%.

While this information is extremely important and will have a direct impact on short-term floating rates, real estate investors need to keep in mind that the primary benchmark for what moves the needle for commercial real estate is the 10-year treasury rate. The 10-year has the largest impact on long-term fixed interest rates for commercial real estate loans, desired returns by equity investors, and in turn, cap rates. With all of the information regarding market predictions for the fed funds rate, the forward curve, which is the future estimate for the 10-year treasury, remains on a slightly increasing slope for the foreseeable future.

This means that while the expectation is certainly for the Fed to continue to cut their benchmark rates, the rate that most impacts CRE borrowing and values are expected to be mostly unchanged to slightly increasing in the face of Fed cuts. While a cut in short-term rates has the ability to spur some activity for construction and bridge loans that utilize short-term floating rates, the market will continue to face familiar challenges of the past two years of increased cap rates and long-term borrowing costs.

Treasury Rates Move Higher Immediately Following Election

November 6, 2024 – On the same morning that the 2024 Presidential election was called for Donald Trump, Treasury Rates across the yield curve moved materially higher. Intra day as of 8:30am, the 5-Year Treasury Yield rose by 10 bps to 4.27% and the 10-Year Treasury Yield moved 15 bps higher to 4.44%. This move comes not only after the presidential election was called for the republican candidate, but in what appeared to be a toss-up election where republicans have now gained control of the Senate and maintained control of the House of Representatives.

Pundits will speculate, but it seems difficult to determine in the near-term if the election has any material impact on this move, or if this move was already in motion prior to the election announcement. Another major event this week that also impacts bond rates is the Federal Reserve Open Market Committee (“FOMC”) meeting, which will be held today and tomorrow, with policy announcements made on November 7th at 2pm. It is not abnormal for material moves to start to occur in the days leading up to a FOMC meeting as market hedges are placed by those trying to determine what the FOMC conclusions will be.

Some feel as though the market has been playing a game of chicken with the Federal Reserve. Treasury Yields moved materially higher after the FOMC’s September meeting where they cut rates for the first time since they started their raising cycle in April of 2022 and laid out a path of future cuts through 2027. That said, other experts have stated that the upward movement in Treasuries is simply a function of the normalizing and steepening yield curve as well as normalizing market conditions. The expectation by markets has been that Treasury Rates will continue to move higher in the face of Fed Funds Rate cuts.

Of note, prior to the election results and as of October 28, 2024, the forward curve for the 5- and 10-Year Treasury for January 2025 were 4.09% and 4.29% respectively. This is with the expectation of an additional 50 bps of cuts by the FOMC to the Fed Funds Rate by that same time.

Looking further out to January 2026, the forward-curve of the 5- and 10-Year Treasury are 4.15% and 4.37%, respectively. These projections are expected at a time with an effective Fed Funds Rate of 3.25% – 3.5%, which is 75 – 100 bps below the January 2025 projection.

Leading up to the election many argued that economic policies of both presidential candidates were inflationary and would put upwards pressure on rates. With a Republican Sweep in the election, it certainly appears that the agenda has the ability to be put in place unabated by an otherwise split congress. Other experts and media personalities have stated that the projection of the deficit and current and forecast debt to GDP ratio is ultimately putting upward pressure on rates and is expected to create a lack of demand for US Treasuries.

Whether or not the election had a material impact on the move in rates, or if this movement is within the range of normal short-term volatility in what is otherwise an expected steady increase in rates, we may not be able to determine. What is absolutely true, is that that whatever administration was elected to office was going to have to face some hard challenges ahead balancing both monetary and fiscal policy in the face of the national deficit and forecasted debt to GDP. As it relates to commercial real estate, investors should heed the forward curve and understand that for the time being, all expectations are continued increases in long-term interest rates.