The U.S. Federal Reserve on Wednesday slashed interest rates by 50 basis points, setting the stage for an uptick in senior living lending and dealmaking.

With the Fed’s announcement Wednesday, the U.S. central bank lowered the target range for federal funds to 4.75% to 5%.

The Fed had previously held off on enacting rate cuts since March 2020, tying any future cuts to inflation. On Wednesday, Fed Chair Jerome Powell said the Fed sees the risks to achieving its employment and inflation goals as “roughly in balance,” which in part led to Wednesday’s action.

“This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and enable further progress on inflation,” Powell said.

Relatively higher interest rates since the start of the pandemic made securing financing for debt service or new development a tough task for many senior living organizations, and distress was still driving many mergers and acquisitions in the space as of August.

With occupancy rates continuing to improve across the industry’s primary and secondary markets, as tracked by NIC MAP Vision, lenders, buyers, and sellers could soon come off the sidelines heading into 2025.

VIUM Capital Executive Managing Director Steve Kennedy said Wednesday’s rate cut was a “welcome relief” for borrowers in senior housing seeking variable-rate debt, and “hopefully signals future short-term rate decreases still to come.”

“A decline in short-term interest rates has been one of the remaining major income statement improvements needed to achieve market NOI in order to drive asset reinvestment and M&A activity,” Kennedy told SHN. “Today is a good day for senior housing borrowers.”

Walker & Dunlop Managing Director Mark Myers told SHN the confluence of lowered interest rates, increased occupancy, and lack of new supply would “greatly improve transaction velocity as sellers come off the sidelines and get in the game.”

“Many of these sellers left the transaction field when interest rates ran up faster than cap rates, causing zero to negative cap rate/loan rate arbitrage,” Myers said. “They have been waiting for this moment to sell off good news rather than selling solely based on historical performance and limited arbitrage.”

Wednesday’s action by the Fed could ease numerous challenges for sellers and prospective borrowers in senior housing lending that led to buyers pausing activity, which caused buyer pools for once sought-after deals to dry up—but ultimate relief won’t be immediately felt in the space, according to SLIB Executive Vice President Dave Balow.

“We are hopeful over the coming months that more and more lenders will be willing to issue term sheets, leaving buyers with more options to finance their acquisitions,” Balow said. “We are hopeful that more and more buyers actively pursue acquisition opportunities, allowing brokers to create a better competitive bid environment for each deal. We are hopeful that the competitive bid environment will result in higher valuations achieved for our clients.”