[[{“value”:”
**Lower Interest Rates: More Than Fed Cuts**
In late October, the Federal Reserve opted to make its second 25-basis-point cut of the year to the Effective Federal Funds Rate (EFFR), bringing the overnight rate to a range of 3.75% to 4%. This move has generated speculation that it may trigger increased activity in the commercial real estate (CRE) market.
However, John Chang, Senior Vice President at Marcus & Millichap, emphasized that declining interest rates are influenced by a wider set of factors beyond the Fed’s policy decisions. “Lending rates over the last year have been driven by more than just the Fed rate cuts,” Chang explained in a recently released Marcus & Millichap video.
Here are the key elements contributing to the current interest rate environment:
**Banks Are Changing Course**
During most of 2024, banks were notably inactive in the commercial real estate space. “They were busy repairing their balance sheets and mitigating commercial real estate default risk,” said Chang, referencing the focus on cleaning up riskier debt and shoring up deposits.
Now, there are early signs of renewed activity. “It looks like banks may face a more lenient regulatory environment that requires lower reserves,” Chang added, suggesting this shift is encouraging banks to return to the lending market.
**Private Lending Capital Remains Plentiful**
Debt funds and other private capital sources have been increasingly stepping in where traditional lenders have pulled back. Instead of focusing on property acquisition, many investment funds have shifted toward investor financing.
Private lenders — who typically do not require personal guarantees — have been providing short-term bridge loans, often used for refinancing or renovating properties. In fact, private lenders raised approximately $24 billion during the first three quarters of 2025, up $13 billion from the previous year.
“This increased liquidity has helped put downward pressure on commercial real estate lending rates,” said Chang.
**Market Optimism and Fed Outlook**
Looking forward, expectations are that the Fed may continue to ease rates into 2026. As a result, lenders have gradually narrowed their spreads, encouraged by increased capital availability and expectations of relatively stable or even falling interest rates. Chang also noted that the ultimate rate offered to a borrower hinges on multiple factors, such as the borrower’s experience, asset type, and geographic location.
**Will the Trend Continue?**
Though current interest rates have come down compared to last year, they remain well above the historically low levels seen in 2021 and 2022. The long-term outlook is still uncertain.
At a recent press conference, Fed Chairman Jerome Powell cautioned that a rate cut in December is not guaranteed. Chang echoed this uncertainty, adding that expectations for further rate cuts in 2026 have become less certain. “We’re still in a fluid lending landscape, and there are a lot of forces in play that could move interest rates up or down,” he said.
In summary, while Fed cuts have played a role in shaping the interest rate environment, structural shifts in bank behavior, the rise of private capital, and market sentiment are also driving forces behind today’s lending conditions.
“}]]
