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25 bps Down, 50 to Go
By: Joe Faw
What today’s Fed move really means for development & construction
The Federal Reserve just lowered the policy rate to 4.00% from 4.25%(−25bps) and indicated a steady pace of easing into year-end—two additional quarter-point rate cuts are the median path in the new projections.
Why this matters to your construction project:
Most construction loans float off SOFR plus a lender spread; when the Fed nudges the policy rate lower, SOFR generally drifts down as well (timing and basis can wobble), reducing interest carry during development
Rule of thumb: every 25 bps saves $2,500 per $1M of floating debt per year. To put that into context, a $20M project at 65% LTC (i.e., $13M floating loan):
That reduction in carry can lift DSCR by several basis points, sometimes even enough to nudge leverage up (e.g., 60%→ 65%LTC) without breaching covenants-assuming spreads, floors, and underwriting stay cooperative. Federal Reserve Bank of New York
Cap rates, exits, and timing
If the Fed delivers ~50 bps more this year, expect refi windows to improve first for stabilized assets; development exits follow as base rates and spreads settle. Keep expectations disciplined:
Good Operators, Good Developers are looking to partner with a Good General Gontractor. Competitive Pricing and Fast Schedules fueled by these rate adjustments means real relief for the development industry.
A schedule-led General Contractor converts uncertainty into a plan. The result is fewer surprises, tighter change-order control, faster critical-path execution, and days or weeks less interest burn—which protects DSCR and covenant headroom while getting you to revenue sooner.
Last year’s mantra was “survive ’til ’25.” Survival favored sponsors who had a GC with discipline—one that managed the schedule like a financial instrument, not an afterthought. This year, the playbook shifts to “thrive through ’25”: use that same GCtotranslate every basis point of rate easing into calendar compression and risk reduction.
Whether it’s storage, express wash, c-store, day care, or industrial, a great GC doesn’t just build the project—it de-risks the venture.
Sources: Federal Reserve (target range now 4.00%–4.25%); Reuters (dot-plot indicates two more cuts in 2025); New York Fed (what SOFR is); Bankrate/Northmarq (how floating CRE and ARMs link to SOFR).
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He has led initiatives that streamline acquisition and development processes, expand the firm’s portfolio, and enhance customer satisfaction through tailored solutions.
He has led initiatives that streamline acquisition and development processes, expand the firm’s portfolio, and enhance customer satisfaction through tailored solutions.
In his role, Mike has developed innovative approaches to market entry and client engagement, helping to position Bay to Bay Properties as a trusted partner for buyers, sellers, and investors. He has led initiatives that streamline acquisition and development processes, expand the firm’s portfolio, and enhance customer satisfaction through tailored solutions.
