Financing Strategies for a Volatile Market

So much for the summer slowdown. Key benchmarks are under pressure, volatility has returned, and everyone is talking about the rate climate again. The past two weeks have been disruptive but not catastrophic for commercial real estate. Conflict with Iran. Impacts to energy markets. Tariff policies. Inflation. A new Fed Chief and shift in communication style. All real concerns affecting conditions.

Are they so much different from war in Ukraine, Liberation Day tariffs, or inflationary countermeasures of recent years? We’ve been here over the past few years, where forces outside of the commercial real estate marketplace shape the playing field for debt. Regardless, if you look at rates over the past forty years, we are still operating well under historic highs. Asset performance continues to hold strong or improve. The economy remains resilient. All signs we remain in a manageable financing environment.

Active markets

The cost of capital is up but there is plenty of capital in the pipeline for new loans. A highly accessible and competitive debt market should offset some of the challenges brought on by new rate volatility. Allocations to CRE lending were robust at the beginning of the year and there has been no pullback from the full spectrum of borrowers – banks, agencies, life companies, CMBS, credit unions and debt funds all remain active. Expect they could even look to increase allocations for 2027. This competitive landscape means spreads are as low today as they’ve been at any time in the past five years for the right deal. Stabilized multi-tenant bulk industrial, multifamily, and neighborhood retail continue to invite the best spreads as lenders compete for loans to these top performers. Equity is harder to come by but still available. Preferred equity, joint venture equity, and mezzanine debt are all viable options to ease debt service strains with multiple sources still available – at a price. For any sponsor seeking equity to right size a refinance, the cost of keeping an asset will have to beat the outcome of a strategic sale. The key for confidence is there are still options to consider.

Rate volatility

We should expect that treasury volatility will be a hallmark of this cycle moving forward regardless of market disruption outcomes if the Federal Reserve continues to engage in this more laissez-faire approach to forward guidance. In a market where debt service is driving loan sizing, challenges will emerge. My advice is to take rate concerns off the table as soon as possible. Engage the market at the earliest opportunity, identify the best option for a targeted outcome, and execute. Don’t wait and don’t hesitate. Earlier this year, many held back, anticipating an improved rate climate into the year, and that left them vulnerable to recent volatility. Expect the unexpected. Discussions in February on “why not wait?” now feel like ominous foreshadowing. No one was predicting widespread conflict with Iran. Hindsight is 20/20. CMBS is most vulnerable to dramatic shifts in rates, as the final rate is only set on the day it closes. Banks, credit unions, agencies and debt funds will lock rate early in the process. Know your target lender and prepare accordingly.

Permanent debt

Most borrowers maturing out of amortized 10-year loans from 2016 will still find cash neutral or even cash out permanent refinancing viable and readily obtainable. Higher capital costs are being offset by rent growth, appreciation, and sustained performance. For many borrowers, the spread between the five-year and ten-year treasury are making five-year loans more appealing in a permanent structure. For legacy hold assets however, the idea that there will be a significant rate change at a future refinance shouldn’t offset the benefits of stability. We shouldn’t expect the 10-year to reach 3% or below anytime soon and achieving even 4% will require some dramatic changes to numerous forces driving treasury markets today. With permanent lenders including competitive prepayment options in their loan programs, longer duration terms can still make sense for long hold assets.

Variable rate loans

Treasury benchmarked debt costs are making floating rate loans set above SOFR appealing again to some borrowers as an option to higher fixed rates and can provide a lower all-in rate at the front end. A five-year floating rate at a 150-bps spread over SOFR is approximately 85 bps lower than a five-year permanent loan right now. It is a gamble on rate expectations. Some of that advantage my disappear if you price in a future swap cost if benchmarks escalate. The front-end assumption is that the Fed will be lowering rates over the next two to three years, and in that mindset, even short-term increases to SOFR will be bearable and more attractive at a later refinance than current fixed rate alternatives.

Heed the urgency

None of us have a crystal ball or prophetic certainty to know exactly where rates will be heading moving forward. Volatile times create volatile conditions. We can however prepare for an extended period of what is being called a “higher for longer” rate cycle with expectations that permanent all-in rates will remain in the current high fives to mid sixes range for the coming months. The market has essentially adjusted to the current cost of capital, and while we may be setting a new high-level benchmark, financing remains obtainable and accessible. If there was ever a time to be early to the process, it has arrived.

Mike Wood is a partner with Gantry.

Please note: To become a Viewpoint writer, reach out to Therese Fitzgerald at therese.fitzgerald@cpe-mhn.com. All Viewpoints are copyright of Commercial Property Executive 2026. We do not accept AI-written content.