The First Rate Hike Since 2023. What Changes and What Does Not.
The decision
The Federal Open Market Committee raised the target range by 25 basis points to 3.75% to 4.00% on September 16. The vote was unanimous. It is the first increase since July 2023. The projections show 16 of 18 participants expecting at least one more hike, four of them seeing two, and no increases penciled in beyond this year. Cuts appear in the projections for 2028 and 2029.
What the hike changes
For a floating-rate borrower, the debt service rises by a quarter point immediately. On a $50 million bridge loan that is $125,000 a year. For everyone else, the direct effect is small. The 10-year had already moved. Lenders had already priced a hike into quotes since Jackson Hole. Deals in the market this month were underwritten to it.
The Commercial Observer's reporting the day of the decision found most market participants expecting transaction volume to hold through year end. That matches what we see. A quarter point is not what stops deals. Uncertainty is, and the hike removed some.
What the projections change
Sixteen of eighteen expecting another hike means the funds rate is heading to 4.00% to 4.25% by December, and the market has to consider 4.50% in early 2027. That is the number to put in any model with a refinancing in 2027. A loan underwritten in 2022 at 4.5% that refinances in 2027 at 6.75% or 7% needs either a lot more NOI or a lot less balance than the sponsor planned.
The projections also say the cycle is short. No hikes after this year, cuts starting in 2028. That is a plateau of roughly two years at 4% to 4.5%. Business plans that can survive two years at that cost and refinance in 2028 are fine. Business plans that needed the 2027 refinancing to be cheaper than the acquisition loan are not.
Three practical moves
Fix any floating-rate debt with more than 18 months of term left. The swap costs less than the expected path of hikes. Move every 2027 maturity conversation to now, because the refinancing gap only grows from here and lenders reward borrowers who arrive early. And widen the exit cap in any model that has not been re-run since June. A fed funds rate a full point higher than the January consensus is the single largest change in the assumptions behind every valuation done this year, and it has now happened.
What does not change
A well-leased building with reasonable debt and a sponsor who can write a check is worth about what it was worth last month. The hike does not change tenant demand, does not change rent, and does not change the value of a long lease with a credit tenant. It changes the price of debt. Owners who used debt carefully will barely notice. Owners who used it as the business plan already have.
The debt schedule should be a report, not a project
After a hike the owner needs a single view: every loan, its rate type, its maturity, its extension tests and its prepayment terms, against every property's NOI and coverage. Most owners have this in someone's head and in a spreadsheet last updated at the previous refinancing. Building it fresh takes a week and the loan documents have to be reread to get the extension tests right.
Extract the loan terms from the documents once, keep the property cash flows in a model that updates as the rent roll changes, and the debt schedule is a report that runs on demand. The 2027 maturities with a coverage shortfall are on the first page. The prepayment penalty that makes an early refinancing cost more than the rate saves is on the second. That is a week of work replaced by a query, and it is how an owner walks into the lender conversation in October with the facts instead of in February with a problem.