How Interest Rate Cuts Could Impact Commercial Real Estate
(Source J.P. Morgan)
The Fed began its easing cycle with the first rate cut since 2020. Here’s how it could impact multifamily real estate investors.
Key takeaways
The Federal Open Market Committee (FOMC) lowered its benchmark by 25 basis points at the November meeting—following its first rate cut of 50 basis points in September—bringing the target federal funds range to 4.50%–4.75%.
J.P. Morgan expects the Fed to remain on a gradual path of bringing rates back toward neutral; however, incoming macro data could influence the timing of rate cuts in the coming year.
Multifamily investors have many opportunities in a lower rate environment, such as refinancing and portfolio expansion options.
Lower rates present multifamily investors with many opportunities, including:
Refinancing properties: Falling rates can be especially beneficial for investors with loans near the end of their term. By refinancing, investors can lower their monthly payments and potentially save thousands of dollars in interest. Property refinancing can also help improve cash flow and free up capital for renovations or new building purchases.
Growing their rental portfolio: “The recent 25 bps decrease in the Fed funds rate is helpful. Lower short-term rates are helpful for real estate investors primarily helping short-term financial needs like construction loans,” Brooks said. Valuations have continued to stabilize, especially true in larger markets such as Los Angeles, New York and San Francisco, where the cost of living tends to be higher and there’s a naturally large pool of renters. Aside from expanding to new markets, multifamily investors can add new asset classes to their portfolios, such as mixed-use, retail and industrial properties.
