Company: MMI
Filing Date: 2025-11-07
Form Type: 10-Q
Source: 0001628280-25-050707
Chunk: 125

Company: Marcus & Millichap, Inc.
Filing Date: 2025-11-07
Form: 10-Q
Item: Part I, Item 8
Chunk 125
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 Nonetheless, all commercial real estate property types aside from office properties entered the new cycle on sound footing, suggesting a durable performance outlook.

Capital Markets

Credit and liquidity issues in the financial markets have a direct impact on the flow of capital to the commercial real estate market. Real estate purchases are often financed with debt, and as a result, credit and liquidity impact transaction activity and prices. Movements of interest rates in one direction, whether increasing or decreasing, could adversely or positively affect the operations and income potential of commercial real estate properties, as well as lender and equity underwriting for real estate investments. These changes directly influence investor demand for commercial real estate investments and what they are willing to pay. Furthermore, the use of debt or loan-to-value ratios can shift along with lender confidence and underwriting standards. At times of heightened uncertainty or liquidity issues, loan-to-values decline, requiring buyers to provide more equity and take more risk to close deals.

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Interest rates appear to have stabilized, with the 10-year treasury rate holding relatively steady in the 4% range. While interest rate risks remain, the Federal Reserve has initiated a series of rate reductions that could restrain upward movement in lending rates. Lender spreads have tightened, taking commercial real estate lending rates to their lowest level since 2022, but the rate outlook is fluid. Debt capital liquidity remains healthy and regional banks have begun to reengage the market as they have stabilized their balance sheets and are encouraged by the prospect of looser banking regulation.

Although economic uncertainty together with financial market and interest rate volatility normally tend to increase investor caution, capital flows into commercial real estate could potentially be bolstered. As a “hard asset” with some level of resistance to inflation, recessions and financial market volatility, investment into commercial real estate could benefit from the current economic climate. The repricing of commercial real estate assets over the last three years has enhanced the yield profile, supporting positive or neutral leverage in many markets and property types. In addition, the passage of the new tax act provides some benefits and additional clarity to the commercial real estate market. Bonus depreciation rules, increased state and local tax (“SALT”) allowances, and increased deductibility of interest paid on commercial real estate could bolster investment activity. Furthermore, by making many of the new tax rules permanent, investors can rely on greater tax policy certainty, allowing them to deploy longer-term investment strategies. Whether capital migrates to commercial properties will likely depend on the risk perception of the broader financial market, but other hard assets have already experienced increased demand in the wake