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A report that the National Association for Business Economics (NABE) published in August

showed either confident or somewhat confident that the Fed would be able to achieve their soft-

landing goal. Bulge bank analysts are beginning to publicly acknowledge the soft-landing

trajectory, and in the blink of an eye, we seem to have gone from recession to slow-cession, to

no-cession. Last month Goldman Sachs cut the odds of a recession for next year, the staff at the

Federal Reserve reversed their recession forecast call, and JPMorgan still acknowledges some

risk, but has backed off their mild contraction call. The same NABE survey has 45 percent of

respondents marking the next recession as starting the second half of next year or later.

While the path to a soft landing has become wider, it is by no means a given, and many analysts

are still considerably handicapping the possibility. If such a soft landing were to stick, then some

assumptions need to be revisited – starting with U.S. Treasury (UST) yields and mortgage rates.

In this scenario, the phrase ‘Higher for Longer’ should just be replaced with ‘Higher.’ A soft

landing means no recession, which would also imply that the 10-year UST is mispriced. It’s

commonly accepted that an inverted yield curve is a recessionary signal, and if we accept the

‘no-cession’ scenario, then the curve needs to un-invert. This would happen more by the front

end of the curve dropping as the Fed gradually cuts their overnight rate from restrictive to

neutral, but the longer end of the curve could also rise in conjunction with growth expectations

for the United States. In short, we would see a yield curve much like the 2002-2007 period, with

shorter-term rates close to neutral, and 10-year UST anchored more closely to four percent than

anywhere else – which would yield mortgage rates much like the upper and lower bounds in the

graph below.

The attempt to stick the soft landing is a laudable goal for the Federal Reserve, and bringing

inflation under control without triggering significant job losses or creating demand destruction

would be a terrific outcome from the aggressive rate hiking campaign the Federal Reserve

undertook. The reality of ‘Higher for Longer’ becoming just ‘Higher’ will have broad downstream

effects, which include elevated volatility. For commercial real estate borrowers seeking debt

financing, positioning yourself to take advantage of the volatility and capture downswings in

Treasury yields should be one factor you consider when lining up your financing options.


Commercial real estate lending by banks represents one of the largest blocks of available debt financing

in the U.S. market. In the wake of the regional banking crisis, where three of the four largest American

bank failures happened in the span of a couple months and the Federal Deposit Insurance Corporation

was forced to take over, the attention of the market and regulators shifted to analyzing CRE lending and

any complicity this sector had in the collapse of regional banks.

The expectation in the immediate aftermath was that credit standards would tighten and access to

lending from bank balance sheets would dry up. While some of these expectations have come to

fruition, the extent to which credit tightening was expected has not fully materialized, especially for

multifamily products.

Key Takeaways: 

 Small domestically chartered commercial banks steadily increased their market share in

commercial real estate lending when compared to large banks over the past decade.

 All the speculation and assumptions around drastic pullbacks in bank lending have yet to fully


 U.S. Banking regulators rolled out a proposed rule for stricter bank capital requirements

designed to ensure the stability of both top and second tier banks – called the Basel III Endgame

 Multifamily remains a preferred sector, with abundant debt financing options – including banks

– making a play for the limited acquisition and refinance activity the capital markets are

currently seeing.

Free download of our Real Estate Financing Options Course