For much of the past couple of years, conversations about commercial real estate have consistently returned to the same question: when will the Fed cut? On September 16, that question changed. The Federal Open Market Committee voted unanimously to raise the federal funds rate by 25 basis points to 3.75%-4.00%. The Fed’s updated projections showed 16 of 18 participants likely supporting another increase this year.
Many CRE professionals and investors had built plans on an opposite assumption. Owners with loans coming due had anticipated cheaper replacement debt. Tenants had expected more generous renovation money. And both expected the Fed’s next move to be a cut.
A quarter point is a modest increase. But the bigger problem is that the numbers deals depend on keep shifting. A week after the decision, the 10-year Treasury yield reached its highest level since 2007. Professionals across multiple disciplines that fall under the CRE umbrella report clients holding off on decisions until they have a clearer read on rates, energy prices, and the broader economy.
That distinction matters; commercial real estate can function at a higher rate once rates look credible and durable. However, it struggles when rates, long-term yields, and lending spreads are unstable because no one can confidently price debt, cap rates, exit values, or refinancing.
Your loan rate isn’t necessarily the Fed’s rate
Headlines follow the federal funds rate; most CRE borrowing follows something else. Commercial mortgages generally price off longer-term Treasury yields plus a lender’s margin; variable-rate business loans tied to prime tend to reprice within days of a Fed move.
That distinction means a Fed hold doesn’t guarantee stable borrowing costs — and a Fed cut doesn’t guarantee cheaper ones. Owners and investors are watching the policy rate, long-term Treasury and swap rates, and the credit spread lenders charge on top. Spreads can move independently of the other two. In August 2026, weeks before the hike, life company pricing on longer-term fixed-rate loans had already widened further, for example.
A moving target can complicate deals
Most CRE acquisitions rely on estimates that look well into the future (e.g., net operating income, rent growth, debt service coverage, refinance proceeds, and exit cap rate). Shifting financing inputs make estimates less reliable.
The mechanics are straightforward. When loan financing changes materially between due diligence and rate lock, buyers want a bigger safety margin. That desire widens bid-ask spreads and slows transactions, while sellers keep anchoring to older valuations and buyers underwrite more conservatively.
A buyer who priced in cheaper future debt may discover that the model doesn’t work by closing time. A seller who expects conditions to improve has a reason to hold out. Neither side is wrong, but the two can’t agree on an asset’s worth.
Academic research points the same way. A study of Vancouver condo developments found that rising risk led developers to delay new real estate developments. Economists call this phenomenon the value of waiting. When the outcome is uncertain, and the commitment is hard to reverse, holding off has a definite payoff.
You can absorb higher, steady rates
2026 offers evidence that the market can adjust to expensive debt when conditions hold still. Early this year, the bid-ask spread was the narrowest it had been in over three years, with stable rate policy and declining macroeconomic volatility cited as reasons investors stayed active. U.S. investment sales volume rose nearly 15% in H1, even as rates were not falling.
Market analysts have described this adjustment as a shift toward disciplined underwriting and a greater emphasis on income durability. Lenders adapt as well. After the hike, one lender said it would underwrite new originations using higher stressed rates and stronger debt-service coverage cushions. Sellers are adjusting, too. Among relisted properties checked by one listings platform between mid-July and mid-September, more than half came back with lower asking prices.
Loan maturities put a deadline on waiting
Waiting has limits in CRE because loans come due. The International Monetary Fund (IMF) estimated that about $3.2 trillion in U.S. CRE debt would mature between 2025 and 2029. For 2026, the Mortgage Bankers Association puts maturing commercial mortgages at $875 billion, or 17% of the $5 trillion outstanding. (Another source puts 2026 maturities at $936 billion, but regardless, the number is stratospheric.) Lenders have often extended maturing loans rather than forcing sales, buying owners time but doing nothing to lower the cost of their next loan.
An owner approaching maturity needs answers to practical questions:
- How much debt can a property support?
- How much equity will they need?
- Will the coverage ratios satisfy the lender?
- Which is the least expensive path: a sale, extension, or recapitalization?
When conditions are stable, you can settle those answers months ahead. When they’re volatile, the answer can change between the term sheet and closing date.
The level still matters
The case for stability doesn’t mean rate levels are irrelevant. The spread between cap rates and the 10-year Treasury remains historically tight, so cap rates might move higher if bond yields stay elevated. In some favored sectors (e.g., multifamily, industrial), mortgage rates sit above going-in cap rates, leaving buyers depending on rent growth to make deals work.
The narrower claim holds up better: for deals completing in the near term — for price discovery and for refinancing decisions — predictability often matters more than which way rates are heading.
Fundamentals may absorb some of the shock. One post-hike analysis noted that improving CRE fundamentals may help cushion the impact of the policy shift.
Rate uncertainty takeaways for CRE professionals
The takeaway for brokers, lenders, attorneys, accountants, engineers, and contractors?
- Underwrite to today’s financing terms rather than to anticipated cuts.
- Build rate-lock contingencies into timelines.
- Start refinancing conversations well before maturity, while there’s still time to choose among options.
If you have clients working through a 1031 exchange, the identification and closing deadlines don’t move when rates do — another reason to line up financing early.
The next test comes soon. The Fed’s next rate decision is scheduled for October 28, 2026. Whatever the committee decides, the market will be watching for signs that borrowing costs are settling down.
Are you a commercial real estate investor or seeking a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United, an organization of CRE professionals from over 65 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
