Sale-Leaseback or Commercial Loan: Which Path Works Best in 2026?

Your client owns the building that powers its business, and they are looking for capital. Now the question is whether it should also fund their next phase of growth. With the Federal Reserve in an easing cycle but long-term rates stubbornly elevated, the choice between a sale-leaseback and a traditional commercial loan looks very different than it did even 12 months ago. Although every situation has some uniqueness, this is how the math, and the timing, typical lines up for owners looking to raise capital in the next six to nine months.

Where rates stand in May 2026

The Fed funds target sits in the 3.50 percent to 3.75 percent range after a measured easing cycle, while the 10-year Treasury has been trading in a tight 4.26 percent to 4.34 percent band. Conventional commercial mortgage rates start around 5.33 percent and run into the 7 percent-plus range depending on leverage, property type and sponsor strength. SBA 504 financing, tied to Treasury yields, remains one of the most attractive owner-occupier options with long-term fixed rates and as little as 10 percent down. Bridge debt is still costly at 8 percent to 15 percent.

Where CRE executives see rates by mid-2027

The consensus is gradual relief, not a return to 2021. The Fed’s own scenario points to a federal funds rate near 3.1 percent by the end of 2027, and Cushman & Wakefield forecasts a neutral rate around 3 percent by late 2026. Trading Economics aggregates projected roughly a 3.25 percent by end of 2027. Morningstar is more dovish at 2.25 percent to 2.50 percent if growth slows.

J.P. Morgan, by contrast, sees the Fed holding through 2026 with the next move possibly being a 25-basis-point hike in Q3 2027 if inflation reaccelerates. The takeaway: Most paths trim 50 to 75 basis points from today’s levels by mid-2027, but a wider band—anywhere from 2.5 percent to 4 percent on Fed funds—remains plausible.

Long-term Treasury yields, which actually drive commercial mortgage pricing, are forecast to drift toward 3.9 percent to 4.1 percent by the CBO and most major banks.

The sale-leaseback market has quietly reset

While debt costs have stabilized, the SLB market has firmed up meaningfully. Single-tenant net lease cap rates compressed to 6.80 percent overall in Q1 2026—industrial at 7.15 percent, retail at 6.55 percent— with bid-ask spreads narrowing as institutional capital returns. CBRE forecasts CRE investment activity to rise 16 percent in 2026 to roughly $562 billion, and W. P. Carey reports Q4 2025 SLB volume jumped 56 percent quarter-over-quarter to $4.7 billion.

Lower long-term rates have allowed SLB investors to offer more competitive cap rates to owner-occupiers, and private equity is increasingly using SLBs to fund M&A. Translation: The bid for occupied real estate is sharper than it has been in three years.

Choosing the right path for the business

If your client needs maximum proceeds and their credit and lease term can support a 10 to 15-year NNN commitment, the SLB window is genuinely attractive right now. They can unlock 100 percent of property value, eliminate floating-rate exposure and convert depreciation into fully deductible lease expense. The trade-off is permanent: They give up future appreciation and accept a long-term occupancy obligation.

If they have strong cash flow, healthy DSCR coverage and modest capital needs (say, 60 percent to 75 percent LTV), a commercial loan or SBA 504 still wins on long-term economics. Forecasts pointing to lower rates by mid-2027 also create a real refinancing opportunity within 18 to 24 months: They borrow now at today’s rates, then reset lower if forecasts prove correct.

Bottom line

Today’s environment is the most balanced we have seen since 2022. Rates have stabilized but not fallen far. SLB cap rates have compressed but not to pre-2022 lows. The right answer depends on three questions: How much capital do they need? How long do they want to occupy? And how much rate risk can their business absorb? With most forecasts pointing to only modest rate relief by mid-2027, waiting is not a free option—particularly if SLB cap rates compress further and the gap between bid and ask closes.

Daniel Levison is CEO of CRE Holdings USA.