Following the Fed’s first rate cut since December 2024, the CRE sector is watching closely for clues about how far and fast monetary policy might change.

Chair Powell emphasized that although inflation remains elevated, weakening labor-market signals and a moderation of growth justified taking policy off its tightening course. The Fed’s 25-basis-point cut lowered the target range to 3.75%–4.00%, marking an inflection point in policy after an extended period of monetary tightening.

But what does that mean for investors and operators heading into 2026? Is this a true shift—or simply a recalibration in progress?

A Shift Toward Easing—With Caveats

This rate cut confirms that the Fed is transitioning from restrictive policy toward a more neutral stance. It’s a significant development for CRE capital markets, but not yet a signal for widespread easing.

Following the Fed’s announcement, 10-year Treasury yields eased by approximately 30 basis points in the days that followed—a sign that markets are increasingly pricing in a policy peak. That movement offered some relief after yields briefly breached 5% in October, their highest level since 2007. Still, credit spreads remain wide and risk premiums elevated, suggesting continued caution.

In other words, fundamentals still rule. Success in this phase of the cycle will hinge on asset quality, market selection, and operational execution—not cap rate compression.

Lenders Still Selective, But Conditions Improving

Across the capital stack, there’s been a modest uptick in engagement—especially among relationship-driven lenders focused on stabilized or lightly transitional assets. Credit standards, however, remain tight.

Floating-rate financing remains elevated, though the forward curve is beginning to price in further cuts later in 2025. Fixed-rate debt has regained appeal, with recent Treasury movement offering clearer pricing benchmarks.

Importantly, lender sentiment is becoming more segmented. Well-capitalized sponsors with disciplined business plans are finding capital, while more speculative projects are still finding limited traction.

In CF Capital’s target markets—including the Midwest and Southeast—we’re seeing lenders selectively reengage around multifamily assets backed by strong in-place cash flow and durable demand drivers.

What’s Next: A Cautious Path to Reengagement

We’re seeing early signs of renewed activity—particularly from groups that remained patient during the pricing reset of 2023–2024. But broad-based momentum remains limited.

Most investors appear to share a view: the Fed is done hiking, but rate relief will be slow, and market pricing still has room to evolve. In the meantime, underwriting discipline, operational upside, and local market insight remain the keys to execution.

At CF Capital, we’re particularly focused on submarkets where population and employment trends remain strong and where we can drive NOI growth through hands-on asset management—not speculative rent assumptions.

Final Thoughts

The Fed’s November rate cut marks a policy transition—away from tightening, but not yet into accommodative territory. For investors and operators, it brings welcome clarity, though not a green light.

In our view, deal volume will continue to build—selectively. Assets that can support current financing structures and provide stable yield will lead activity. Pricing discovery will continue into early 2025, but the directional shift from the Fed allows for more informed underwriting.

At CF Capital, we’ll continue tracking policy shifts, credit market signals, and on-the-ground fundamentals in our target markets. As always, we believe disciplined underwriting and ground-up execution remain the best compass in a shifting environment.