The Federal Reserve raised its benchmark rate by 25 basis points, to a range of 3.75% to 4%. It was the first increase since July 2023. The vote was unanimous. Chair Kevin Warsh blamed persistent inflation, driven mostly by energy prices.
For most owners, the direct cost of this hike is small. What it signals matters more. Long rates will likely stay high, and that hits your valuations and your refinancing.
What the Fed did
Rates moved up a quarter point after three flat years. The trigger was energy. Conflict in the Middle East pushed oil prices up, which kept inflation high.
Expect more. Most Fed officials see another hike this year. They forecast inflation at 3.7% for 2026, easing to 2.3% in 2027. Plan for rates to stay high, not fall.
The fed funds rate touches only part of your debt
The fed funds rate sets short term borrowing costs. It flows straight into floating rate debt like construction loans, bridge loans, and lines of credit. If you carry floating rate debt, your cost rises this month.
Fixed rate owners feel almost nothing right now. Permanent mortgages price off the 10 year Treasury, not the fed funds rate. The two do not move together. A fed move takes about six months to reach the 10 year, if it reaches it at all.
So your risk depends on your debt. Floating rate borrowers and developers pay now. Fixed rate owners pay later, through lower values and tougher refinancing.
Watch the 10 year Treasury and cap rates
The 10 year Treasury is your number. It has climbed to about 4.80%, the highest since early 2025. Warsh named three reasons it stays high. A strong economy. Heavy competition for capital as tech firms fund data centers. Geopolitical risk. None of these fades fast.
Higher long rates lift cap rates. When the risk free 10 year rises, investors demand more from riskier property. A higher cap rate on the same income means a lower price. Cap rates averaged about 5.2% in late 2021. They sit near 6.4% now. One model puts them at 7% to 10% if spreads return to normal. Underwrite for more increases, not a plateau.
The maturity wall turns this into a cash flow problem
Refinancing is the real risk. About $875 billion in commercial and multifamily loans mature in 2026. That is 17% of the $5 trillion market. More than $1.5 trillion comes due from 2025 through 2027.
Most of that debt was written between 2019 and 2022 at 3% to 4%. It now matures into a 6% to 8% market, against values that are often 16% to 35% lower. The average new loan runs near 6.24%. The debt it replaces averaged 4.76%.
That gap creates a problem. The new loan is smaller than the balance you owe. You cover the shortfall with new equity, preferred equity, or a restructuring. If you cannot, you cannot refinance.
Lenders have stopped rolling troubled loans forward the way they did in 2023 and 2024. One analysis found that more than half of the roughly $100 billion in securitized CRE loans due in 2026 will not pay off at maturity. In 2023, payoff rates topped 80%. Assume a full underwrite, not an extension.
Sectors are splitting apart
Property type matters more than ever, and the hike widens the gap.
Office is in the most trouble. Data centers and industrial are strong. Grocery anchored retail and well run multifamily still get financed. Even so, multifamily maturities jump 56% in 2026, from about $104 billion to $162 billion.
Capital is there for good assets. Banks, life companies, CMBS conduits, and debt funds all compete for clean, cash flowing deals. Quality decides who gets funded, not a shortage of money.
There is also a buying window. Brookfield raised $16 billion for its latest fund and is buying 20% to 40% below peak values. Starwood closed a $10.2 billion distressed fund in July. Most of what trades is not broken real estate. It is overleveraged real estate that still operates well. If you have cash, prices are the best in years.
What to do now
- Start refinancing 9 to 12 months out. Lenders are swamped, and 90 days is too late.
- Stress test at today’s rates. Model coverage at 6.5% to 7% and confirm the deal holds. If it does not, find the gap now.
- Size your refinance gap early. Know the shortfall before your lender does, and line up the equity while you still have leverage.
- If you buy, get liquid. Distressed capital is already moving, and this pricing window closes when rates turn.
Bottom line
This hike is not a big cost event for most owners. It confirms that long rates will stay high and that the maturity wall is finally being priced honestly. Fix your capital stack ahead of your maturity dates, not at them. Owners who move a year early will have options. Owners who wait will not.
This article is provided for informational purposes only and reflects the author’s views as of the date of publication. It does not constitute legal, investment, or financial advice, and does not create an attorney-client relationship. Market conditions change, and readers should consult qualified professionals before making decisions based on this information.
For questions, contact David J. Murphy at dmurphy@murphypc.com or 617-993-0650.