March 7th, 2025
According to the Fannie Mae Economic and Strategic Research (ESR) Group, recent data on GDP, the labor market, and inflation indicate that the economy started 2025 with strong momentum. While the ESR Group’s GDP forecast for the end of the year remains at 2.2%, its prediction for the Consumer Price Index has been adjusted upward to 2.8% by the end of 2025, up from the previous estimate of 2.5%.
Kim Betancourt, Fannie Mae’s VP of multifamily economics and strategic research, explained, "Economic growth began strong, with fourth-quarter personal consumption data exceeding our expectations." She also noted, "Looking ahead, we expect the economy to slow slightly as consumer spending aligns more closely with income trends. However, ongoing uncertainties regarding trade policy introduce risks to both our GDP and inflation predictions."
Additionally, the ESR Group has revised its mortgage rate forecast, now expecting rates to reach 6.6% by the end of 2025 and 6.5% by the end of 2026.
In an interesting podcast this week, Mike Comparato, head of commercial real estate at Benefit Street Partners gave some insight into the multifamily debt and equity market. He stated that they are writing senior loans in the 65-70% range with a spread of around 200+ basis points over the cap rate in primary markets. On a levered basis they are achieving equity like returns in the 13-15% range on the lowest risk portion of the capital stack while mezzanine secondary financing is slightly less than that and the equity is stuck with a high single digit return. In his 30 years in the business he mentions he has only seen this happen a few times and typically it unwinds quickly because it's an unhealthy dynamic. He goes on to state that the market is still wildly liquid on both the equity and debt side even though we have been seeing this dynamic play out for almost 2 years. He doesn't believe that we area headed for a V-like recovery in multifamily because we were materially overvalued in 2021-22 and that this correction actually represents fair value. His advice to investors is to align with lenders who can get deals done in tricky markets. He adds that Benefit Street had its second busiest year ever in 2024.
In an article titled "Tide is Turning: US Debt Markets are Re-Engaging," Cushman & Wakefield summarizes the debt market in the following way. The CRE debt and capital markets are entering a new phase of recovery after a challenging two-year period, spurred by the Fed’s easing cycle. Financial conditions have loosened, and trends show positive movement, including stronger corporate bond dynamics, increased CRE lending volumes, and a broader, more diversified lender landscape. Lending activity has grown across Private Credit and CMBS channels, as banks remain more constrained, and spreads are tightening, especially within CMBS and life insurance debt, leading to improved CRE debt costs. Public REITs also re-entered the debt markets in 2024, raising significant capital, which signals a potential for portfolio expansion and acquisitions. The overall capital markets are improving sequentially, though some volatility remains, particularly in the bond market. As rates decrease, there’s an opportunity to secure more favorable debt terms, particularly with short-term floating rate debt or tight fixed-rate spreads. Strategic recommendations emphasize caution in high volatility but suggest taking advantage of current conditions in the debt markets. Looking ahead, 2025 will see a cautious yet gradual recovery, with strong sector-specific trends positioning CRE as a preferred asset class for the coming cycle.
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