10/05/2026
If you have been working on a commercial real estate transaction lately and suddenly feel as though the numbers are moving faster than the deal, you are not imagining it.
The 10-Year Treasury recently touched approximately **5.3%**, its highest level since 2002. Federal Reserve data showed the 10-Year at 5.24% on October 2.
That may sound like another Wall Street statistic to accompany your morning coffee.
It isn't.
For commercial real estate, movements in the Treasury market can work their way directly into borrowing costs, valuations, leverage and ultimately whether a transaction pencils.
And after several months when it appeared CRE capital markets were finally finding their footing, the math has changed again.
A Deal That Worked Last Month May Look Different Today
This is perhaps the most important message for borrowers and brokers right now.
A property did not suddenly become a bad property because Treasury yields moved.
The tenants may still be paying rent. Occupancy may still be strong. The location did not move overnight.
But the financing assumptions supporting the purchase can change surprisingly quickly.
Bisnow reported last week that lenders and investors are becoming more cautious as the sharp rise in Treasury yields works through commercial real estate. Higher borrowing costs can mean lower proceeds, more conservative underwriting and greater equity requirements.
That changes conversations at the negotiating table.
A buyer who expected 70% leverage may discover the lender is more comfortable at 60% or 65%. A refinance that looked straightforward earlier in the year may require additional equity. And a seller still anchored to yesterday's valuation may encounter buyers underwriting today's cost of capital.
Nobody necessarily did anything wrong.
The spreadsheet simply received some new instructions.
The Fed Is Only Part of the Story
One misconception deserves attention.
Commercial real estate borrowers often watch the Federal Reserve and assume that Fed policy will tell them where financing rates are going.
It isn't always that simple.
Long-term Treasury yields respond to a much wider set of forces, including inflation expectations, economic growth, federal borrowing and investors' expectations about the future.
That means commercial borrowing costs tied to longer-term benchmarks can remain elevated even when investors expect relief elsewhere in the rate environment.
The recent move illustrates the point. The 10-Year Treasury was below 4% in late February and crossed 5% in September before reaching approximately 5.3% at the beginning of October.
That is a meaningful change in the cost-of-capital equation.
The Mood Has Changed, Too
The numbers are beginning to show something else: confidence has weakened.
On October 5, the CRE Finance Council reported that its third-quarter Board of Governors Sentiment Index fell **17.5% from the previous quarter to 83.3**, its lowest reading in three years.
All nine of the survey's core questions weakened, with interest rates and the economic outlook contributing heavily to the decline.
That matters because real estate transactions don't happen on spreadsheets alone.
They require confidence.
Buyers have to believe in their projections. Sellers have to accept the market's pricing. Lenders have to believe they will be repaid. Equity investors need adequate returns for the risk they are assuming.
When uncertainty increases, everyone tends to reach for the same button:
Pause.
And enough people pressing pause can slow an entire market.
But There Is Another Side to This Story
Higher rates don't eliminate opportunity.
They change who is positioned to capture it.
If financing remains expensive, some owners approaching maturity will have difficult decisions to make. Others may need to contribute additional capital, restructure debt or sell.
That can finally begin closing the pricing gap between buyers and sellers that has frustrated the market for several years.
For buyers with liquidity and realistic expectations, that reset could create opportunities.
For private lenders and alternative capital providers, it can create opportunities to finance transactions traditional lenders cannot comfortably structure.
And for experienced brokers and advisers, this may actually be one of the environments where knowledgeable guidance matters most.
Easy markets don't require much creativity.
Complicated ones do.
What I Would Tell Borrowers Right Now
Don't wait until two weeks before closing to find out whether your financing works.
Run the numbers early.
Stress the interest rate.
Understand your debt-service coverage.
Know how much equity you actually have available.
And perhaps most importantly, have a Plan B before you need a Plan B.
A bank may still be the best solution. But depending on the transaction, borrowers may also need to consider SBA financing for eligible owner-occupied properties, credit unions, life companies, CMBS, bridge financing, private credit or other alternative structures.
The cheapest capital is wonderful when it is available.
The capital that actually gets the right transaction closed is sometimes more valuable.
For Brokers, Financing Should Move Toward the Front of the Conversation
There was a time when financing could almost be treated as something that happened after the purchase agreement was signed.
I would be careful with that approach today.
Before everyone spends weeks negotiating a transaction, it makes sense to ask some basic questions.
What leverage is realistically available?
What does the debt service look like at today's rate rather than the rate everyone hopes will arrive six months from now?
Does the property still support the requested loan?
And if the conventional structure doesn't work, is there another legitimate capital source that does?
Those questions aren't designed to kill deals.
They're designed to prevent surprises from killing them later.
California Doesn't Get a Pass
Here in California, we already operate in markets where acquisition costs, construction expenses, insurance, taxes and regulatory requirements can make transactions complicated before financing ever enters the conversation.
Add a materially higher cost of capital, and discipline becomes even more important.
But California also remains home to enormous amounts of business activity, entrepreneurship, population centers and valuable commercial real estate.
The opportunity hasn't disappeared.
The margin for sloppy underwriting has.
My Take
For the last few years, commercial real estate has been waiting for something.
Waiting for rates to fall.
Waiting for sellers to adjust.
Waiting for lenders to loosen up.
Waiting for transaction volume to return.
Maybe the next phase isn't about waiting.
Maybe it is about accepting that the market in front of us is the market we have to transact in.
There will still be acquisitions.
There will still be refinances.
Businesses will still need buildings.
Investors will still look for returns.
And lenders will still lend.
But the successful transactions will increasingly belong to borrowers and investors who understand their numbers, maintain liquidity, stay flexible and structure around the market that exists rather than the one they wish would return.
The deal isn't necessarily dead.
**The math changed.**
And in commercial real estate, understanding the math early can make all the difference.
Sources
Bisnow, *Lenders Warn Commercial Real Estate's 'Day Of Reckoning' Is Close At Hand*, October 1, 2026.
Federal Reserve Board, *H.15 Selected Interest Rates*, October 2, 2026.
CRE Finance Council, *Q3 2026 Board of Governors Sentiment Index*, October 5, 2026.
Commercial Observer, *Higher Forever: How Surging Treasury Yields Are Impacting Commercial Real Estate*, September 2026.
