Pause in Rate Cuts Creating Stability for Lenders and Buyers
The Federal Reserve’s pause on rate cuts last week may have disappointed some. Yet, the stability following last fall’s easing has finally delivered what the market lacked—a predictable underwriting environment.
“We see the current stance of monetary policy as appropriate to encourage progress toward both our maximum employment and 2% inflation goals,” Powell explained at a press conference in Washington, D.C., last week. In his statement, he indicated that he viewed the economy in a favorable light, that it was expanding at a “solid pace,” and that “while job gains have remained low, the unemployment rate has shown some signs of stabilization.” The U.S. economy added 50,000 jobs in December, and the unemployment rate fell to 4.4%. For the full year, payroll gains averaged 49,000 a month, compared with 168,000 in 2024, according to a CNBC report that cited data from the Bureau of Labor Statistics. The annual inflation rate in the U.S. was 2.7% for the 12 months ending in December.
What This Means for Investors and Owner-Occupiers
For the first time in almost three years (the federal funds rate hit a 22-year high in July 2023), lenders and sponsors can finally underwrite to a stable benchmark of 3.50%–3.75%. While this is higher than the ultra-low federal funds rates investors became accustomed to, it’s well below the long-term historical average of 4.60% from 1954 through early 2026. What the pause in rates does is end much of the ‘wait-and-see’ speculation and give investors greater certainty. In 2024–2025, many investors and owner-occupiers stayed on the sidelines, anticipating further rate drops. With the pause in cuts, there’s now a stable floor, which should bring them back into the game.
Another factor that should increase transaction volume is that property valuations are stabilizing. In his 2026 CRE Outlook, First American Financial Corporation senior commercial real estate economist Xander Snyder states that, as property values have stabilized and posted modest gains, buyers are returning to the market. “This dynamic sets the stage for a more active 2026,” he writes. “As prices continue to grow, transaction volume should rise along with them. With greater clarity around pricing and a more confident buyer pool, the market is gradually shifting from a phase of skepticism and cautious optimism toward one defined by broader and more sustained activity.”
Lending, Transaction Volume on the Rise
Lending volume began increasing in the 3rd quarter of 2025 and is expected to grow moderately in 2026. Commercial and multifamily mortgage loan originations were 36% higher in the 3rd quarter of 2025 compared to a year earlier and increased 18% from the second quarter, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.
“Lending activity increased [in the 3rd] quarter across most major property types and capital sources, led by particularly strong growth in office, retail, and hotel properties,” said Reggie Booker, MBA’s Associate Vice President of Commercial/Multifamily Research. “While some sectors, such as health care and industrial, saw slower activity, overall volumes reflected improving sentiment as property values stabilized and loans reaching maturity were refinanced.”
The momentum carried into the end of the year, with CRE analytics firm Lightbox reporting that December was the high-water mark for transactions in 2025, “reinforcing late-year momentum in CRE transactions even as macro uncertainty intensified.” LightBox data shows 1,226 deals totaling $28.1 billion transacted during the month, with large transactions ($100 million-plus deals) leading the surge. “Multifamily led activity at 26% of deals, followed by retail (21%), office (18%), and industrial (18%). Pricing remained bifurcated, with office dominating discounted trades while multifamily posted standout appreciation.”
“While risks remain, active lenders, improved liquidity, and narrowing buyer-seller gaps suggest 2026 is shaping up for steady deal flow in the months ahead,” said Dianne Crocker, research director at LightBox.
Who’s Lending?
In an updated January report, MBA stated that the four largest lenders were commercial banks (37%), agency and GSE portfolios (23%), life insurance companies (16%), and CMBS (13%). Another significant development in CRE lending has been the re-entry of regional banks into the market. “Major U.S. regional banks are projecting renewed growth in commercial real estate lending after years of reducing risk, citing lower interest rates and credit quality stabilizing across properties,” a recent CoStar article reports.
Previously, regional banks had pulled back from CRE lending post-pandemic, as office valuations tanked and the 10 consecutive interest rate increases made new deals unworkable. Now, however, regional banks are returning to the sector, and the article credits the interest rate cuts that began in September 2024. “Lower rates improved banks’ ability to cover total debt payments with their operating income and made new commercial real estate projects economically viable,” the article states.
It should be noted, however, that despite the increase in lending, the lion’s share of the financing will continue to be for high-quality, stabilized assets with strong cash flow. Well-located apartment buildings, institutional-quality industrial properties, grocery-anchored retail, and data centers are prime examples. Lenders will remain conservative, emphasizing disciplined underwriting and prioritizing assets with demonstrated cash flows over speculative projects.
In its outlook for 2026, Trepp emphasized this point: “If there is one defining call for 2026, it is that CRE remains in a measured momentum lane, with a widening gap between financeable assets and everything else. Properties with strong sponsorship, realistic basis, healthy tenant demand, and manageable near-term capital needs are likely to refinance, transact, and in some cases see pricing stabilize or recover. At the same time, assets still fighting fundamentals or burdened by misaligned capital stacks will continue to face pressure.”
While the pause in rate cuts should increase lending and sales volumes, more cuts may be on the way in 2026. Futures markets are predicting two additional quarter-point interest rate cuts this year—the first in June and a second in the fall. Those cuts may be deepened, however, if President Trump’s nominee to serve as the next chair of the U.S. central bank is confirmed by the Senate when Jerome Powell’s term expires in May. Kevin Warsh, whose nomination in late January 2026 signaled a potential shift toward more aggressive easing in the second half of the year, recently advocated for a “tighter balance sheet but lower rates” approach.
Some see this appointment as a boon to the CRE industry, with Warsh garnering support from the MBA and several prominent conservative, financial, and academic institutions. His nomination is not without controversy, however. Some on Wall Street have raised concerns, and the nomination process is expected to be contentious.
Stay tuned.
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