H1 Capital Markets Update

Written By Katherine Camak

Market Pulse

On June 18th, the FOMC announced that it will once again leave the federal funds rate unchanged (4.50%). The committee cited rising inflation expectations, in part due to tariffs, which they believe will exert upward pressure on prices. Their year-end inflation forecast increased from 2.7% to 3.0% and Powell noted, “Ultimately the cost of the tariff has to be paid, and some of it will fall on the end consumer.” Additionally, it appears sentiment within the Fed is shifting: in March, only 4 of 19 members anticipated no rate cuts in 2025, that number has now increased to 7 members.

Meanwhile, the hospitality real estate debt markets are showing strong momentum, with high demand in top 25 MSAs for partial and non recourse products. Lenders remain aggressive for stabilized properties, with spread compressing 50-75bps since the beginning of 2025. The availability of variable-rate permanent debt is giving borrowers the opportunity to benefit from a declining SOFR index expected to stabilize at or below 4% by year end.

The Financing Front

Conventional Lending:

  • For stabilized assets with a Debt Service Coverage Ratio (DSCR) above 1.50x, and 13%+ debt yields, banks are quoting rates as low as SOFR + 185bps

  • Loans are typically structured with 25-year amortization schedules and partial recourse.

  • For 11.5%+ debt yield loans, banks are lending in the S+225-265bps range, typically looking to be under 65% leverage

Permanent Debt:

  • The hotel sector is seeing a highly competitive lending environment, particularly in the SASB and CMBS markets.

  • While treasury yields are hovering near 4%, tightening credit spreads are helping to offset the impact on all-in rates.

  • CMBS lenders are quoting spreads as low as T+250 for high-yield deals (13%+ debt yield), and into the low 300s for loans with debt yields above 11.00%.

  • This aggressive pricing is expected to persist, and potentially intensify, in the second half of 2025, signaling continued spread compression across the market.

Short-Term / Bridge Debt:

  • The non-recourse bridge loan market is also becoming increasingly competitive.

  • For transitional assets with single-digit debt yields and leverage around 70% LTV, spreads are starting around SOFR + 300.

  • An influx of capital into the debt markets is driving the broader adoption of structured finance solutions, including preferred equity and mezzanine tranches within the capital stack.On the Road

Recent Closings

Home2 Suites by Hilton San Antonio North Stone Oak — CMBS loan, 11.5% debt yield, fixed interest rate of 7.37%

Crowne Plaza Executive Center Baton Rouge — $11.7 million note, 65% loan-to-cost ratio, Prime + 0.75% rate, interest-only payments, 36-month variable term

Katherine Camak