Monday Market Moves | Week of September 1, 2025

Welcome to Monday Market Moves, the weekly series from Essex Capital Markets briefing you on Chicago commercial real estate capital markets. We cover key trends in CRE debt, refinancing, and capital structures to help investors, borrowers, and lenders navigate today’s CRE financing Market.

This Week: Fed Meeting Looms, CRE Awaits Clarity

The Marriner S. Eccles Federal Reserve Building in Washington, D.C. — where Fed officials will meet in mid-September. Investors hope this pivotal meeting will finally deliver clarity on the direction of interest rates. All eyes in the financial markets – and in commercial real estate (CRE) – are on the Federal Reserve’s mid-September policy meeting. Investors and industry players are eager to see if the Fed will finally begin easing interest rates after an extended period of high borrowing costs, a decision that could have significant implications for Commercial Real Estate Debt Financing. Fed Chair Jerome Powell’s recent remarks at Jackson Hole were interpreted as a strong hint that a rate cut could be imminent. In fact, markets quickly priced in roughly an 85-90% chance of a 25 basis point rate cut at the upcoming September 16-17 FOMC meeting.

Fed in Focus: What Experts Are Saying

Powell struck a cautiously optimistic tone, noting that with policy “in restrictive territory,” the Fed may soon adjust its stance. This was the clearest signal yet that rate relief is on the horizon, sending stocks to fresh highs before optimism moderated this week. Expert commentary largely views a September cut as likely – but not guaranteed. For example, Fed Governor Christopher Waller has openly supported a quarter-point rate cut at the September meeting, citing a weakening labor market and urging that the Fed “not wait” for conditions to deteriorate further. Waller even indicated he “fully expects” additional cuts over the next 3–6 months to bring the policy rate closer to a neutral ~3% level – a notably dovish stance from within the Fed.

On the other hand, some analysts urge caution. Morgan Stanley’s Global Investment Committee, for instance, points out that economic signals remain relatively robust – with solid GDP growth, stable financial conditions, and inflation still above target – suggesting the case for immediate easing is less clear-cut. They peg the odds of a September cut closer to a coin flip (around 50/50) despite the market’s confidence. In short, while a rate cut is widely anticipated, the Fed has emphasized that any decision will depend on the latest data.

Key Data the Fed Will Weigh

Indeed, upcoming economic data releases will be critical in the Fed’s deliberations. All eyes are on the August jobs report (due this Friday, Sept. 5) which could sway the decision or the size of any move. Powell and other officials have noted a gradually cooling (but still historically tight) labor market and a “shifting balance of risks” – essentially balancing still-elevated inflation against emerging employment weakness. If the labor market shows significant softening and inflation remains in check, the argument for a cut (or even multiple cuts) strengthens.

Federal Governor Waller noted that unless the jobs data are much weaker than expected, he sees a single 0.25% cut as sufficient for now. However, clearer signs of economic slowdown could prompt the Fed to act more aggressively. Either way, by mid-September we’ll have a clearer picture from these reports – helping the Fed either confirm a long-awaited policy pivot or decide to hold off a bit longer.

Implications for Commercial Real Estate

The Fed’s rate decision is being watched especially closely in commercial real estate, where financing costs and investor calculations move in tandem with interest rates. For many borrowers, Commercial Real Estate Debt Financing has become more challenging, with higher benchmark rates pushing up borrowing costs and making refinancing more expensive. A potential Fed pivot could bring welcome relief. Over the last year, high benchmark rates (the Fed’s effective funds rate stands around 4.33% as of August) have translated into elevated borrowing costs for CRE loans, putting pressure on deal valuations and debt service coverage. Many stabilized properties now carry interest rates above 5%, with riskier assets even higher. The result? Higher capitalization rates and downward pressure on property values, as buyers demand better yields to justify deals at these financing costs. Refinancing has also become more challenging and expensive. A recent PBMares study estimates that over $1.5 Trillion in CRE debt will come due between 4Q25 and 4Q26. This will precipitate some difficult decisions for borrowers as they weigh re-financing or the sale of the underlying asset.

If the Fed provides rate relief or even just signals a downward trend ahead, it could markedly improve the landscape for CRE. A few key areas to watch:

• Borrowing Costs: Even a modest Fed rate cut could start to ease financing costs. Lower benchmark rates sometimes, though not always, trickle down to cheaper commercial mortgage rates, reducing monthly debt service for new loans and refinances. This can improve cash flows and make more projects pencil out.
• Deal Flow: High rates in recent quarters shrank buyer pools and slowed transaction volumes, as fewer deals could clear the higher cost of capital. A lower-rate environment expands affordability, bringing more buyers and sellers back to the table and potentially stimulating transaction volume.
• Refinancing Prospects: For owners with loans maturing, a pivot to lower rates would be a welcome relief. It increases the likelihood of successful refinancing or restructuring, and could reduce the number of owners forced into distressed sales. Overall, easing rates should help alleviate the refinancing crunch and improve terms for many borrowers.
• Investor Sentiment: Perhaps most importantly, clarity from the Fed can boost confidence. CRE investors dislike uncertainty – and the prospect of ever-rising rates has kept many on the sidelines. If the Fed confirms that rates have peaked and are inching lower, sentiment should improve. Historically, low-rate periods see cap rate compression and stronger buyer demand. A more accommodative stance could signal new momentum in Commercial Real Estate Debt Financing and encourage lenders to extend more favorable terms.

A Silver Lining: Opportunities in Clarity

Despite the challenges of the high-rate environment, there is optimism that clarity from the Fed could unlock new opportunities. With inflation now down to roughly 2.7% (though still above target) and economic growth steady around 3%, the macro backdrop is improving even before any rate cuts. Industry observers note that factors like technological adoption, stabilizing inflation, and certain sector recoveries are already contributing to a brighter outlook for late 2025. If the Fed’s mid-September meeting delivers either a rate cut or a clear signal of an upcoming policy shift, that could be the catalyst for renewed momentum in CRE. Lower borrowing costs would not only ease pressure on existing deals but could also reprice expectations – sellers might become more willing to transact, buyers can justify higher offers with cheaper debt, and lenders may grow more comfortable extending credit in a less uncertain rate environment. In short, a Fed pivot (even a small one) may unlock pent-up demand in CRE financing and investment.

Market sentiment tends to improve with visibility. By finally getting some direction from the Fed – whether it’s an actual rate reduction or simply guidance that the peak is behind us – investors and borrowers can plan with greater certainty. Clarity removes a big question mark that’s been hanging over the CRE sector, potentially freeing many to move forward with projects and transactions that made sense except for the interest rate risk. The coming Fed decision thus holds considerable sway over how the rest of 2025 might unfold for commercial real estate.

Preparing for What’s Next – Essex Capital Markets Can Help

In this environment, staying proactive is key. Whether rates dip this month or later in the year, or, we see a slight increase, now is an ideal time for CRE investors and borrowers to reassess their capital strategy. That includes evaluating refinancing timelines, exploring alternative structures, and carefully monitoring Fed policy shifts — all central to navigating Commercial Real Estate Debt Financing effectively.

Essex Capital Markets is here to help you navigate these questions. Our team is closely monitoring the Fed’s moves and the market’s reactions, and we’re ready to discuss how to capitalize on the opportunities ahead. For a comprehensive strategy check-up, don’t wait on the Fed’s decision – reach out to the Essex Capital Markets team today. Together, we can evaluate your financing options and position your investments to thrive, no matter which way the interest rate winds blow. The potential shifts in monetary policy could open new doors; we’ll help ensure you’re prepared to seize the moment. All that said, it’s important to remember that FED Discount Rate cuts don’t always lead to broader market interest rate reductions. In fact, when the FED cut the discount rate by 25 basis points in September of 2024 the 10 YR treasury yield rose by 11 basis points.

• https://money.com/fed-rate-cut-september-experts-predict/#:~:text=%E2%80%9CWith%20policy%20in%20restrictive%20territory%2C%E2%80%9D,%E2%80%9D
• https://www.reuters.com/business/finance/feds-waller-sees-rate-cuts-over-next-3-6-months-starting-september-2025-08-28/#:~:text=,in%20setting%20appropriate%20monetary%20policy
• https://www.morganstanley.com/insights/articles/fed-rate-cut-september-2025-forecast#:~:text=,cap%20quality%20stocks
• https://www.investopedia.com/fed-chair-powell-keeps-september-rate-cut-on-the-table-11795858#:~:text=,indicating%20it%27s%20a%20sure%20thing
• https://agorareal.com/blog/commercial-real-estate-market-outlook/
• https://lowerypa.com/2025/07/25/how-interest-rates-affect-commercial-real-estate/#:~:text=Key%20implications%3A

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