US10YBullish

8/26/2026 on

Commercial real estate’s risk premium, as measured by cap rate spreads over the 10-Year yield, has become unusually thin. At a 4.7 percent 10-Year Treasury yield, roughly where it is today, the spread between the all-asset CRE cap rate and Treasuries is about 1.6 percentage points, which is near the 6th percentile over the last 35 years. Historically, spreads this narrow don't tend to last long. When the spread has fallen into the bottom fifth of its historical range, it was wider one year later 82% of the time. That spread can normalize two ways, either by falling Treasury yields or higher cap rates. But if Treasury yields remain elevated, and I've written elsewhere why I think it's reasonable to expect long term yields to remain where they are or rise further, then spread normalization would depend on higher cap rates. Holding net operating income equal, this translates to lower property values. All told, the valuation tailwinds from cap rate compression that have become familiar from roughly 2001 - 2022 do not look likely to repeat in this CRE cycle.

US10YBullish

6/17/2026 on

The CRE takeaway from today’s FOMC release: don’t expect rate relief, short- or long-term. The Fed kept its target rate range unchanged, which means no immediate relief for floating-rate borrowers. More importantly, the dot plot projections released today showed a significant increase in Fed funds expectations by year-end, rising to 3.8% from 3.4% in the last projection in March. That’s a meaningful increase. Inflation expectations among Fed officials also seem to have increased. The language in the press release changed from inflation remaining “somewhat elevated” to simply “elevated,” and in the Summary of Economic Projections (SEP), inflation expectations increased across the board for both core and non-core PCE. For CRE, the more important question is arguably what happens to the 5- and 10-year Treasury yields. The 10-year is still just under 4.5%, and the yield curve remains flat. While short-term Treasuries are not directly impacted by Fed funds rate moves, they are highly correlated. So imagine a year-end scenario where the short end of the yield curve rises alongside current Fed funds expectations. That would create an even flatter yield curve unless long-term rates adjust upward. This is not exactly a recipe for near-term CRE borrowing relief. If there’s one takeaway for CRE from today’s release, it’s that “waiting for lower rates” is no longer a position anyone should be taking with much confidence. If anything, there is more room for long-term rates to move up.