- The 10-year Treasury yield reached 5.3% on Oct. 1, the highest since 2002, capping the largest quarterly increase since 1994 and rattling CRE capital markets.
- Lenders at Bisnow’s finance event expect leverage to fall, tougher underwriting and fewer loan extensions, while private credit is stepping in on distressed debt.
- Values are likely to reset lower, which could pressure legacy owners but create buying opportunities and rebuild basis for new capital.
The 10-year Treasury yield hit 5.3% on Oct. 1, its highest level since 2002, according to Bisnow. The move capped the biggest quarterly increase since 1994.
Lenders and investors at Bisnow’s National Commercial Real Estate Finance Event in New York said deals that worked a month ago may not pencil out now.
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How Yields Got Here
The 10-year closed at 3.96% on Feb. 27, its low for the year, and has not been below 4% since. It cleared 4.5% in May and pushed past 5% ahead of the Federal Open Market Committee’s September meeting.
Rising oil prices and an ongoing trade war have stoked inflation fears, and the Federal Reserve has raised rates. The national debt also passed a record $40T in August, adding pressure on long-term yields.
Lenders Warn of a Reset
AEW Capital Management COO Lauren O’Neil said rates jumping 75 basis points in 30 days “puts a complete chill out on the market.”
George Smith Partners President Justin Piasecki put it bluntly: borrowers must refinance or sell “at today’s price, not yesterday’s price.” Banks are asking for more equity in exchange for loan modifications, and private credit is taking over distressed debt.
Extensions Run Out of Road
The shift follows a long stretch of lenders extending maturities in hopes of lower rates. Rialto Head of Special Situations Joe Bachkosky said that when his team warned borrowers rates could rise in 120 days, they started paying off loans.
High construction costs already strained development financing, and Treasury yields add another layer. CRE also competes for capital with equities, which remain attractive given strong corporate growth in AI.
Why It Matters
KeyBank Real Estate Capital’s Joshua Mayers expects leverage to come down as lenders stress underwriting rates to protect takeout assumptions. Appraisals have not yet caught up, and panelists said that is about to change.
Dansker Capital Group CEO Andrew Dansker said lower values will hurt some legacy operators but ultimately reset basis. CRE Daily has also covered how Treasury yields above 5% reset borrowing costs.
What’s Next
Forced selling has been limited so far. Bachkosky said the longer rates stay high or climb, the more likely a “day of reckoning” arrives.
Brookfield’s Nailah Flake expects structures like interest reserves and equity funding guarantees to return as private credit gets more disciplined.
