The Federal Reserve’s September rate hike and a 10-year Treasury yield at levels last seen in 2007 have tightened the screws on commercial real estate deals. For brokers and investors, the math that worked a year ago may no longer pencil out. Dan Mosher, co-founder and CEO of DealGround, an AI-powered commercial real estate intelligence platform, says higher rates don’t stop deals from getting done, but they make accurate property-level data far more important than before.
“The 10-year Treasury and the 30-year Treasury have all gone up to levels not seen in the last 20 years. That is going to tighten the screws a little bit on new deals getting done,” Mosher said. Even a small rate increase can be decisive. “If I’m going to finance something and I’ve got a certain rent stream that’s coming from a property, if interest rates all of a sudden just went from five and a half percent to six percent, now all of a sudden the rental stream that I had may not be sufficient to generate return because I’m paying more interest on the debt,” he explained. Half a point can be the difference between a deal that works and one that does not, leaving less room for error in underwriting.
When rates were lower, a wider range of outcomes could still move a deal forward. With thinner margins, an estimate that is off by a small amount can sink an offer after weeks of work. Mosher says the answer is to underwrite from the actual numbers on a specific property rather than broad averages. “What are the rents on a specific property? Not the aggregated rents, not the hearsay rents that someone’s talking about, but the actual rents that appeared in the offering memorandum so that people can really analyze those deals before they make offers,” he said. The same goes for existing debt: knowing how much debt is already on a property, and at what rate, tells a buyer or broker what the owner is working with and whether a distressed situation might be afoot.
One of the hardest conversations in a rising-rate market is with sellers. Many owners still have last year’s values in mind, and Mosher says it will take time for that expectation to adjust. “I think there is a little bit of time that it’s going to take for the sellers to internalize that with interest rates going up, the value of their asset may be off from their expectations. That’s just because it’s going to take higher costs to finance that purchase for whatever buyer comes to the table,” he said. For listing brokers, a property priced on hope instead of on current financing costs is likely to sit. Mosher says brokers who can show sellers real comparable data are better positioned to set a price that holds up. “The visibility of DealGround allows brokers to help sellers price their properties more closely to what it will trade for. Not what they hope they’re going to get, but what they actually can get in this market,” he said.
Mosher is clear that higher rates have not frozen the market. Buyers and lenders are still active, but deals now require more precision, and sometimes a price adjustment, to close. “Deals are still getting done,” he said. For brokers, the practical takeaway is to tighten the inputs: underwrite from actual rents and actual debt on the specific property, price listings for today’s financing environment, and avoid relying on market averages that may no longer reflect what a buyer can pay. Brokers who want to see how property-level rent, lease, and debt data fits into that process can review DealGround’s how it works page.
