Fiscal & Monetary Policies Signal Greenlight for Multifamily Investment
As the umpteenth summer of record-breaking rents in Manhattan and Brooklyn draws to a close, investors may wonder how national policies will impact the next 12 months of property ownership and investing. The Federal Reserve signaled its shifting disposition toward interest rates and the U.S. Congress passed some legislation that reinstated bonus depreciation. The emphasis today will be to unpack some of these changes and frame them in a way that showcases opportunities as well as risks in the NYC sector.
Monetary Policy
Powell Turning Over a New Leaf
Chairman Powell's August 22, 2025, Jackson Hole speech hinted at a Fed policy change (Bloomberg) that could be meaningful for investors. According to the Chairman, the dual risks on the horizon of rising unemployment and growing inflation could pose a threat to the Fed’s mandate to maximize employment and keep prices stable. In response to these threats, the chairman signaled an openness to lowering the federal funds rate this year.
“The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance,” Powell said in remarks prepared for the Fed’s annual conference in Jackson Hole, Wyoming on Friday. “Nonetheless, with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” (Bloomberg)
According to former St. Louis Fed President James Bullard, this is a strong nod toward a 25 basis point cut in September’s Fed meeting. With the benchmark rate currently between 4.25%-4.50%, a 25-basis-point cut in September could reduce it down to 4.00%-4.25%. This matters not only because of its immediate impact on lowering debt service costs (yes, also contingent on Treasury Yields following suit), but because of the potential for future rate cuts.
A 25 basis point cut in the Fed Funds overnight rate will not be a game changer for real estate investors, but a paradigm shift in Fed policy could be. Such a shift might be exciting; it could represent a greenlight for market optimism. And that optimism could turn into capital deployment when investors consider that a 100-basis point rate reduction could lower debt service costs by 10% on a $9.75m loan, or increase loan proceeds by $1.0m.
For prospective investors, higher leverage and lower debt servicing costs lower entry barriers into NYC multifamily, where Q1 2025 cap rates averaged between 4.5% and 5.75%, according to CBRE. Lower rates may compress cap rates further, potentially by 25-50 bps, as cheaper capital chases stabilized assets. But in my experience, asset prices and sellers are not as elastic on their pricing as loan officers are on credit adjustments for their loans, when it comes to macroeconomic shifts. Investor nimbleness comes into play here, and savvy firms and family offices deploying capital now may find they can arbitrage moments of lower treasury yields to maximize cash flow, without facing too many pricing adjustments from sellers. These same buyers may find themselves in strong risk-adjusted positions 12 months from now.
Not All Policy Shifts Are Good Shifts
On the other hand, investors that are feeding capital into deals to stave off defaults should tread carefully. Powell’s remarks may sound like an answer to real estate investors’ prayers, but it would be presumptuous to think financing-based distress will easily lift. There is a difference between wanting something to happen and having evidence that says it is happening. And distressed investors may have a hard time discerning. Here are three challenges that come up for these groups related to the Fed:
The Fed’s gradualism
Gradual cuts mean it may take a while to see pronounced changes in the capital markets lending environment. Distressed investors do not have the same time horizons as prospective purchasers. They need results now, and it does not seem like the Fed is going to deliver such a regime. What’s more, this also enables the Fed to moderate its approach and start and stop as it pleases.
Fed hawkishness
In the most recent policy meeting, the Fed announced a series of changes to its core policy framework. Many of these are distinctly hawkish, such as 1) the removal of “language that characterized low interest rates as a ‘defining feature of the economic landscape,’ ” (Bloomberg), 2) a reduced tolerance for hot labor markets and an increased willingness to deploy higher rates to hamstring inflation, and 3) scrapping a tolerance for “above-target inflation to make up for periods of undershooting the goal,” (Bloomberg).
Rising tides won’t lift all boats
Distress born from interest rates will solve some NYC property owner issues, but many owners will not get a lifeboat when rates fall. Properties subject to rent stabilization saw their values sink with the advent to 2019’s Housing Stability and Tenant Protections Act (HSTPA). That has no correlation to global capital markets and Federal Reserve decision making. Further, lenders exercise much more discernment when lending on rent stabilized properties today. Beefed-up credit standards by many community banks require higher debt coverage ratios and debt yields, and they are frequently coupled with requests for personal guarantees.
In summary, investors whose assets are worth $10.5m with loan balances north of $14.5m should be careful not to confuse future optimism for real lifelines today.
Fiscal Policy Encourages Opportunistic Investment
Alongside monetary policy, the U.S. government’s “real estate fiscal policy” offers investors some things to get excited about.
The passage of the One Big Beautiful Bill Act (OBBBA) in July 2025 reinstated and made permanent 100% bonus depreciation. The provision allows multifamily owners to immediately deduct the full costs of eligible improvements on newly purchased property—such as HVAC upgrades, interior renovations, or energy-efficient installations among others—rather than spreading them over 27.5 years under standard Modified Accelerated Cost Recovery System (MACRS) rules. This boosts investment returns because it front-loads tax savings, effectively deferring taxable income and freeing up capital for further acquisitions or debt service. For a typical value-add play in a 1950s Manhattan elevator building, where capex might run $150,000 per unit, bonus depreciation could improve deal returns by 2-4 percentage points, assuming a 35% marginal tax rate, by enhancing after-tax cash flows in the early holding period (since private equity investors do not hold assets for anywhere close to full 27.5 years, this is a net benefit).
Though it’s easier to see how accelerated depreciation benefits investors than it is to see how tariffs do so, the Trump administration’s tariff regime does have a silver lining. Tariff implemented by the Trump administration, such as 50% tariffs on all steel imports (except those from the U.K.) raise construction budgets significantly. These tariffs and others like them act to slow new building deliveries by increasing project costs. This fiscal policy serves as a supply brake for development, preserving occupancy and rent growth for existing multifamily. CBRE data shows NYC leading the nation in number of apartment absorptions in Q2 2025 with 19,300 (for perspective, about 34,000 apartments were delivered in all of 2024 in NYC!) When new development is slowed thanks to tariffs, that means the same level of absorption happens on a slightly more static supply. In other words, tariffs further drive rent growth and appreciation for existing property owners by furthering the scarcity of available housing.
Contact Sinclair Realty Group for guidance on the NYC real estate market.
I am bullish on NYC multifamily.
Best Regards
Romain Sinclair
646 326 2220
Sources:
Lowell, Michael, et al. "Trump 2.0 Tariff Tracker." Trade Compliance Resource Hub, 22 Aug. 2025, https://www.tradecomplianceresourcehub.com/2025/08/22/trump-2-0-tariff-tracker/.
Miller Samuel Inc. Manhattan Rental Market Report: June 2025, July 2025, https://millersamuel.com/files/2025/07/Rental-06_2025.pdf.
CBRE. Q2 2025 U.S. Multifamily Figures, 2025, https://mktgdocs.cbre.com/2299/d3beb926-9bb6-4d31-a8c0-d593837e47b7-1686665916/Q2_2025_U.S._Multifamily_Figur.pdf.
Sinclair, Romain. "Reading the National Market, Interpreting the Local Market." Substack, 2025, https://rsinclair.substack.com/p/reading-the-national-market-interpreting.
Kawa, Luke. "Powell Says Shifting Risks May Warrant Adjusting Interest Rates." Bloomberg, 22 Aug. 2025, https://www.bloomberg.com/news/articles/2025-08-22/powell-says-shifting-risks-may-warrant-adjusting-interest-rates.
CBRE. Q1 2025 U.S. Multifamily Figures, 2025, https://mktgdocs.cbre.com/2299/8b1f4369-f46c-40cd-9ace-ff957352af43-425097188/Q1_2025_U.S._Multifamily_Figur.pdf.