The Federal Reserve’s 25 basis-point rate cut (down to ~4.00-4.25%) in mid-September 2025 was the first one this year, and it signals a noteworthy shift in monetary policy. Though modest, this cut has potential ripple effects across commercial real estate (CRE). For investors and property owners, it’s not just about lower borrowing costs, it’s about strategy, timing, and using tax incentives to enhance returns. This post looks at what this rate-cut means for CRE going into 2026, and how cost segregation and the reinstatement of 100% bonus depreciation can amplify opportunity.
1. What the Rate Cut Means for Commercial Real Estate
Lower Borrowing Costs & Refinancing Opportunities
- Floating-rate and variable debt: Properties with loans indexed to short-term rates (or ones that reset soon) benefit most, as their interest expenses may decrease. That improves cash flow.
- Refinancing: For CRE owners with loans maturing in the next 12–24 months, there may now be incentive to refinance, locking in more favorable terms before rates fully adjust or other macro risks emerge.
- Deal volume: Early indications (from CBRE, among others) suggest that CRE investment volume may increase ~15% this year vs earlier estimates. Lower rates support this.
Valuations, Cap Rates, and Investor Sentiment
- As rates fall (or are expected to fall further), the cost of capital drops. That tends to compress cap rates (i.e. investors accept lower yield requirements) for high-quality assets. For high demand, gateway markets or properties with strong fundamentals, that means valuation uplift.
- However, other risk factors remain: macroeconomic uncertainty, inflation, labor market weakness, and sector‐specific issues (e.g., office space demand) mean it won’t be uniform across all segments.
What’s Not So Immediate
- Fixed-rate debt and long-term Treasury yields: Even though the Fed cuts the policy rate, many CRE loans are priced off longer-term yields. If those yields remain elevated or volatility remains, the benefit to those fixed rate borrowers will be delayed or limited.
- Market recognition: Some of this rate-cut may already be “priced in” by those following Fed forecasts. The real impact might depend on follow-through (future cuts) and stability of financing markets.
2. The Return of 100% Bonus Depreciation + Cost Segregation: Why It Matters Now
What’s Changed on the Tax Side
- Under the One Big Beautiful Bill Act (OBBBA), 100% bonus depreciation was permanently reinstated for qualifying property acquired and placed in service on or after January 19, 2025.
- This reverses and eliminates the prior schedule (from TCJA) that was phasing bonus depreciation down (80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and so on).
Cost Segregation as a Force Multiplier
- Cost segregation studies break a building into components that qualify for shorter depreciation schedules (5, 7, or 15 years) vs the standard 27.5 / 39 years for residential/commercial real property. When you combine that reclassification with 100% bonus depreciation, you can expense large portions of your property in year one, significantly reducing taxable income and improving cash flow.
- Certain property types, industrial, net-lease, car washes, c-stores/gas stations, etc., tend to have more assets/components that qualify under the accelerated classes, which magnifies the benefit.
3. Strategic Implications Going Into 2026
Putting together what the rate cut, bonus depreciation, and cost segregation provide, here are some strategies and things to watch for:
| Strategic Focus | What Investors Should Consider |
|---|---|
| Timing Acquisitions & Improvements | Since 100% bonus depreciation is now permanent, the urgency to buy strictly before a phase-down is reduced, but when placed into service still matters. If improvements are delayed into 2026, ensure you properly time the “in-service” date. Also, early cost segregation work yields more benefit. |
| Refinancing & Debt Structuring | Those with floating or maturing fixed debt should evaluate refinancing now, while rates are expected perhaps to fall further. Locking in before any increases or tightened lending spreads will help. |
| Asset Type & Quality | Assets in high‐demand markets and in sectors with strong fundamentals (multifamily, industrial/logistics, well located retail or net lease) are likely to see the strongest upside. For riskier sectors (office, underused retail), be more selective. |
| Tax & Cash Flow Modeling | Integrate bonus depreciation and cost segregation in investment pro formas. The tax savings can shift cash flows in early years materially. Also, plan for remaining tax liability in later years once depreciation deductions taper. |
| Capital Raising & Investor Communication | Because bonus depreciation improves after-tax returns, it can be a selling point to investors. Be transparent about how tax incentives are being used, what assumptions around depreciation and rates are baked into projections. |
| Regulatory/Legislative Risk | While bonus depreciation is now permanent per the OBBBA, tax law remains subject to change. Monitor state rules (some states don’t conform fully), and stay plugged in on potential modifications. |
4. Risks & Uncertainties to Keep in View
Even with these tailwinds, there are headwinds that CRE investors should not ignore:
- Inflation stubbornness could keep financing costs, labor, and construction materials expensive.
- The labor market is showing signs of softening; if job growth slows too much, leasing demand (especially for multifamily or office) could weaken.
- Long-term cap rates may be pressured by macro factors like rising Treasury yields, global economic uncertainty, or regulatory/tax policy changes.
- Liquidity constraints or tighter lending standards might persist in some markets; lenders may remain conservative, especially for riskier property types.
Conclusion
The Fed’s recent rate cut is a positive sign for commercial real estate investors, one that can help lower capital costs, push deal activity, and improve cash flow. But the real kicker is the structure of tax incentives now in place: with 100% bonus depreciation fully restored and cost segregation tools more powerful than in recent years, investors have potent levers to enhance returns, particularly if they act with foresight.
Investors who align acquisition timing, debt structure, and depreciation strategy now stand to benefit markedly, especially into 2026. For property types with eligible components, and strong fundamentals, the sweet spot may be here and now.
If you are planning on making investment moves and need to consolidate a solid tax strategy, contact us at CSSI today!
