September 17th, 2025

📉 Expected Fed Rate Cut Brings Hope — But Not a Full Fix

The Federal Reserve is widely expected to lower its benchmark interest rate tomorrow — a move that could provide a modest boost to the market, though its impact may be limited.

While this reduction in borrowing costs is generally welcomed, it is unlikely to dramatically change investment behavior or project values on its own. This move is already widely anticipated, especially after Fed Chair Jerome Powell signaled it was coming — a sentiment echoed (and pressured) by former President Donald Trump.

🧾 What a Cut Could Mean for CRE Financing

Lower interest rates could reduce the cost of capital for developers and investors, potentially increasing confidence to move forward with paused or delayed projects. However, the impact on cap rates and valuations will likely remain muted unless paired with broader economic improvements.

Office Space: Demand remains weak post-pandemic; some properties are trading well below previous valuations.

Industrial Real Estate: Tariffs and high rates have taken a toll, with demand shrinking for the first time since 2010.

Multifamily: New starts dropped over 35% year-over-year, with investors split between aggressive and cautious strategies.

🚧 Key Takeaway

Even if the Fed delivers the expected rate cut and signals more easing ahead, its impact will be more psychological than financial — restoring some confidence, but not fundamentally transforming the CRE landscape. Investors are looking for confirmation of rent growth and management of costs in addition to the sentiment change.

 ⚠️ Job Market Jitters Shake Consumer Confidence

Concerns about job security are rising sharply across the U.S., as a weakening labor market collides with persistent inflation and slowing hiring. Recent revisions from the Bureau of Labor Statistics erased more than half the jobs previously estimated between March 2024 and March 2025, triggering renewed anxiety about employment prospects.

Layoff fears are at their highest since the COVID-19 pandemic.

Fewer consumers believe they could find a new job quickly if laid off.

High earners—typically the most optimistic—are now among the most worried.

📊 Job Openings Drop Below Unemployment for First Time Since 2021

Data from July’s Job Openings and Labor Turnover Survey (JOLTS) revealed that job openings now trail the number of unemployed Americans for the first time in over four years. This shift is putting additional pressure on both job seekers and policymakers.

 💼 High-income earners ($100K+): Reported a steep drop in confidence, with only 45.9% believing they could find a new job within three months—a 9.5-point fall since January.

 🧑‍🏭 Middle-income earners: Remain relatively steady, likely due to stability in healthcare and education hiring.

 🧾 Lower-income workers: Confidence dropped slightly, now expecting a 37.6% chance of being quickly rehired.

💵 Inflation Fears Easing, But Prices Still a Problem

Though consumer inflation expectations are moderating, price levels remain elevated. Worries about price growth have calmed, concerns about job loss now dominate, particularly among top-income households — a group that has been driving much of the recent consumer spending.

🛍️ Spending Outlook: All Eyes on High Earners

Consumer spending surprised to the upside in July, rising 0.3% after adjusting for inflation. However, spending growth is increasingly reliant on higher-income consumers. If their confidence continues to erode, overall economic momentum could take a hit.

🔍 Looking Ahead: Fed in a Tight Spot

With the labor market softening and inflation still above target, the Federal Reserve faces difficult decisions:

Markets are expecting up to 75 basis points in rate cuts by the end of 2025.

The goal: stimulate hiring and activity without reigniting inflation.

 A return to the Fed’s neutral rate is anticipated by Q3 2026—if inflation remains stable.

The next major data point: Consumer spending figures due later this month. A pullback among high-income earners could signal broader economic trouble ahead.

Multifamily Capital Markets Data

Sales Volumes: Through July 2025, national apartment sales totaled $77.4 billion, up 5% year-over-year, though still below pre-pandemic levels due to a weak 2024. Excluding Blackstone’s acquisition of Air Communities, single-asset deals rose 23%, while portfolio deals fell 39%, indicating a market favoring smaller transactions.

 Cap Rates vs. Interest Rates: Apartment cap rates average mid-5%, up only 100 basis points from 2022, despite treasury yields rising 300 basis points and federal funds rates increasing over 400 basis points.

Debt Trends: Multifamily debt originations surged 43% in the first half of 2025, reaching 2019 levels, driven by banks, insurance companies, and government-sponsored enterprises (GSEs). Debt funds have also expanded, providing liquidity but at higher costs.

 Distress: Despite expectations of a “wall of maturities” in 2025, distress is still limited, with only 4% ($81 billion) of multifamily debt potentially distressed, per Newmark estimates. Lenders often extend loans due to optimism about the sector, though some older, highly leveraged assets face challenges, particularly those bought at the market peak with weak locations or high CapEx needs.

The Rent Roll, Episode 50: Multifamily Capital Markets Overview

 Interview with Jim Costello (Chief Economist MSCI Real Assets)

Cap Rates and Interest Rates: Costello explains that cap rates are influenced by liquidity and income growth, not just interest rates. The apartment sector’s resilience stems from institutional investors shifting from office and retail, increasing competition and keeping cap rates stable.

 Market Stabilization: MSCI’s property price index shows apartment values up 40 basis points year-over-year, suggesting a market bottom. However, values remain 20% below their 2020-2022 peak, driven by excessive optimism and low treasury yields (60 basis points in 2022).

 Debt and Private Credit: The rise of private credit, including debt funds and preferred equity, has prevented widespread distress by offering high-cost financing to struggling owners, avoiding defaults. This contrasts with the chaotic distress sales of the Global Financial Crisis (GFC).

Transaction Volumes: Sales are up 5% year-to-date, but volumes remain low due to lagging returns. Institutional investors prioritize returns, driven by rent growth, demographic demand, and capital costs. Costello predicts significant transaction growth may not occur until 2027-2029, as supply drops and rents rebound.

 Construction Timing: Costello suggests starting construction before the market inflection point to capitalize on limited supply, a strategy some REITs are adopting due to better capital access, unlike smaller developers (75% of starts) who face financing challenges.

 Key Takeaways:

The episode highlights multifamily’s enduring appeal despite short-term hurdles like high interest rates, soft rents, and policy risks. Stabilizing values, increased debt availability, and limited distress signal a potential market bottom, with long-term optimism driven by demographic demand and constrained supply. Policy missteps, like rent control and vacancy taxes, risk undermining affordability efforts.

The Weekly Take: REITs 101 with Steven Wechsler Overview

Steven Wechsler, CEO of Nareit, provides a comprehensive overview of REITS. The discussion covers REIT definitions, market size, investor benefits, financial structures, global presence, and recent performance, emphasizing their role in democratizing real estate investment.

 Introduction and Nareit’s Role

Nareit, founded in 1960, represents U.S. REITs through advocacy, conferences, and data dissemination, engaging policymakers and investors. Wechsler, a veteran industry leader, discusses REITs’ significance in real estate and finance.

 REIT Definition and Structure:

A REIT is a tax-advantaged real estate company electing to follow federal tax rules, recognized by states. Requirements include:

75% of assets in qualifying real estate.

75% of income from rents or mortgage interest.

 Distribution of at least 90% of taxable income as dividends annually (often 100% to avoid corporate taxes).

 Types: Equity REITs (owning properties) dominate, but mortgage REITs (financing real estate) also exist. Publicly traded, private, and public non-listed (NAV) REITs cater to different investors.

 Market Size and Diversity:

REITs manage $4.5 trillion in U.S. real estate assets: $2.5 trillion in publicly traded REITs, $1.5 trillion in private REITs, and the rest in non-listed REITs.

 Beyond core sectors (retail, residential, industrial, office), REITs cover healthcare, data centers, and cell towers, reflecting economic shifts. For example, healthcare’s GDP share grew from 5% in 1960 to nearly 20% today, driving healthcare REIT growth.

Investor Benefits:

Accessibility: Approximately 170 million Americans (half of U.S. households) own REITs directly or through retirement plans (e.g., 401Ks, IRAs), fulfilling the 1960 goal of democratizing real estate investment.

Dividends: REITs distribute at least 90% of taxable income, often 100%, taxed primarily as ordinary income with a 20% Section 199A deduction. Some dividends include capital gains or return of capital, reducing tax basis.

Liquidity and Transparency: Public REITs offer liquidity via stock exchanges and accountability through market scrutiny, unlike private real estate’s higher leverage (60% vs. 30% for REITs).

Diversification: REITs provide exposure to diverse sectors and global markets, including cities like New York, London, and Tokyo.

Financial Characteristics:

Low Leverage: Public REITs average 30% leverage, half that of private real estate, due to market preferences for lower risk.

Debt Structure: REITs primarily use unsecured, investment-grade corporate bonds, unlike developers’ property-specific mortgages, offering financing efficiency.

Funds from Operations (FFO): FFO, a key metric, adjusts GAAP net income by adding back depreciation and excluding property sale gains/losses, approximating cash flow more closely than Net Operating Income (NOI).

Global Presence:

Over 40 countries, including all G7 nations and two-thirds of OECD countries, have REIT laws. In developed markets, 80% of listed real estate is REITs. Nareit’s FTSE EPRA Nareit Global Real Estate Index tracks global REIT performance, enhancing investor access.

Management structures vary: U.S. REITs typically internalize management (post-1986 Tax Reform Act), while Asian and Mexican REITs often externalize it.

Recent Performance and Challenges:

Volatility: REITs exhibit short-term stock-like volatility but align with real estate fundamentals long-term (90%+ real estate assets). Rising interest rates post-COVID, driven by inflation and government spending, negatively impacted REIT performance, especially in 2022-2023.

Office Sector: Office REITs face obsolescence due to remote work and technological changes, with demand concentrated in high-quality assets. Older buildings may convert to residential or other uses over time.

Mortgage REITs: Residential mortgage REITs, financing single-family homes via Fannie Mae/Freddie Mac paper, and commercial mortgage REITs, offering mezzanine or primary loans, were hit hard by rate hikes but are stabilizing.

Market Position: In a transaction-slow market, REITs are competitive due to low leverage and capital access, particularly for accretive acquisitions (purchased below the REIT’s net asset value to avoid shareholder dilution).

Future Outlook:

Wechsler predicts mergers, acquisitions, and potential privatizations in the next few years as interest rates stabilize and conviction grows. The REIT sector’s stability (around 200 listed REITs for decades) reflects its adaptability to economic changes.

Taxable subsidiaries (enabled in 1999) allow REITs to provide non-qualifying services (e.g., third-party property management), enhancing competitiveness, especially in multifamily and self-storage sectors.

Key Takeaways:

REITs are a cornerstone of U.S. real estate, offering liquidity, low leverage, and diversified investment opportunities across traditional and emerging sectors. Despite recent challenges from rising interest rates, their disciplined structure, global reach, and adaptability position them for future growth, supported by Nareit’s advocacy and data initiatives.