Florida Market Update: February 4, 2025
Florida Market Update: February 4, 2025
Written by Benjamin Blanton , Vice President - Originations
Floating versus Fixed
With earlier expectations that interest rates would fall post-U.S. election this past November, many borrowers established a “wait-and-see” holding pattern. Following November 5th, Treasuries saw a slight decrease into the first few weeks of December; however, word of looming tariffs to be imposed on trade partners was a contributing factor to the recent rebound. Why? Tariffs are viewed as inflationary because they increase the cost of imported goods. If inflation increases, the expectation of future rate cuts goes down.
January 13th, 2025 saw a 52-week high for the 10-year Treasury, closing out the day at 4.80%. As of this writing, the 10-year stands at 4.52%, approximately 23 bps higher since November 5th.?
Meanwhile, 1-Month CME Term SOFR has fallen 30 bps during that same time frame. For sponsors willing to move on financing, we’ve seen a significant increase in interest for floating-rate debt versus fixed rate. Below is the forward yield curve for both Term SOFR and the 10-Year Treasury.
As can be seen above, the forward yield curve shows SOFR rates continuing to fall through early 2026. Borrowers are opting for floating-rate debt in hopes of riding that wave downward.
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Wall of Maturities
According to Trepp, 292 properties totaling more than $2.95 billion in CMBS loans will mature this year in Florida. Additionally, another 111 properties totaling more than $1.3 billion in Agency loans in Florida will mature over that same time frame. These loans account for only a small fraction of the overall total of CRE loan maturities.
For example, over the last five years, banks accounted for 12 of the top 20 lenders by total loan origination volume in Florida (Real Capital Analytics). We’ve witnessed firsthand on countless occasions banks providing extensions to borrowers over the past 12-18 months. How long these extensions will continue is to be determined; however, where we’ve seen a recent uptick in loan refinancing velocity is among the community/regional bank cohort. Many of the banks here in Florida have expressed interest in unloading some of their commercial real estate loans, particularly in certain asset classes like office and hospitality.
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2025 Lender Forecasts
Leading up to our industry’s largest lender conference in early February, the MBA CREF in San Diego, Largo’s correspondent life company lenders and other capital providers joined Largo’s company-wide meetings in January to detail their goals for the year as well as their available buckets of capital. Among the correspondent lenders with whom Largo has already spoken, all of them have increased allocations for 2025.
The strongest appetite remains consistent from last year with multifamily and industrial leading the way. Grocery-anchored retail, well-located strip retail, self-storage, and manufactured housing follow closely behind. While hospitality has typically been a laggard among desired property types, many lenders have expressed a willingness to look at more hotel deals, with some lenders offering very competitive terms for quality hospitality assets.
Historically focused on longer duration, nearly all our life companies now have fixed-rate buckets of capital for as short as three years. Pricing for CM-1 deals starts at +135 bps over the corresponding Treasuries. Despite the ongoing concerns with property insurance costs, Florida remains a target market for most lenders given the continued population growth throughout the state. Some of our life companies also do not require wind coverage, which can greatly reduce the cost of property insurance. In Florida, many borrowers have become forced sellers during policy renewal periods because of the increased costs. No wind coverage requirements have saved numerous deals from either a cash-in refinance or an outright sale.
As we evaluate whether “Survive to ‘25” is still the most appropriate expression, one thing that’s for certain is that interest rate volatility will continue to be a determining factor for transaction volume. Far fewer Fed rate cuts are expected for this year, which – with consistency in the Treasuries – will (hopefully) help pull capital off the sidelines.
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