{"id":1004805374,"date":"2026-08-19T08:37:17","date_gmt":"2026-08-19T16:37:17","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004805374"},"modified":"2026-08-19T10:38:52","modified_gmt":"2026-08-19T18:38:52","slug":"how-cre-investors-are-adapting-to-higher-for-longer-interest-rates","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/how-cre-investors-are-adapting-to-higher-for-longer-interest-rates\/","title":{"rendered":"How CRE Investors Are Adapting to Higher-for-Longer Interest Rates"},"content":{"rendered":"\n
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This article first appeared in the CPE Sneak Peek Newsletter. Subscribe now<\/a> for early access to exclusive content, in-depth analysis and key trends!<\/em><\/p>\n<\/blockquote>\n\n\n

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The doubling in interest has had a significant impact on cap rates, which have gone from the mid-threes to the mid-fives, said Scott Crowe, Executive Vice President & Chief Strategy Officer & Head of Equity Capital Markets at RXR.<\/figcaption><\/figure><\/div>\n\n\n

Waiting is no longer a viable commercial real estate investment strategy. After spending much of the past several years hoping lower interest rates would revive transaction activity and restore the economics that supported the previous cycle, investors are increasingly building their business plans around a less forgiving premise: Expensive capital may be here to stay, so they need to find ways to operate under current financing conditions.<\/p>\n\n\n\n

After rapidly raising its benchmark rate between 2022 and 2023\u2014from the 0.25 to 0.5 percent range to the 5.25 to 5.5 percent range, the highest it\u2019s been since 2001\u2014the Federal Reserve has made several cuts, bringing the rate to the 3.5 to 3.75 percent range<\/a> today. Investors had anticipated another two, possibly three, rate cuts this year, but stubborn inflation has diminished the likelihood of near-term relief and kept another increase within the realm of possibility.<\/p>\n\n\n\n

The resulting mismatch between financing costs and property yields continues to challenge the economics of direct ownership. The spread between borrowing rates and cap rates has made real estate less attractive relative to some competing investments, according to Scott Crowe, executive vice president, chief strategy officer & head of equity capital markets at RXR.<\/p>\n\n\n\n

Inflationary pressures from commodity prices, AI spending, government deficits, corporate borrowing and lower immigration levels are among the forces supporting the Fed\u2019s cautious position, he noted. And as long as they persist, cheaper debt may remain out of reach.<\/p>\n\n\n\n

The refinancing test<\/h2>\n\n\n\n

The most immediate consequence of higher-for-longer rates is becoming visible as loans mature. Nearly $1 trillion in commercial real estate debt is set to mature<\/a> this year alone, forcing owners to confront valuations and financing terms that may bear little resemblance to those in place when the loans were originated.<\/p>\n\n\n\n

Sellers hoping lower rates would restore property values are likely to face mounting pressure from lenders and investors to return capital or accept losses, according to Jakob Nicholls, managing director at Greysteel.<\/p>\n\n\n\n

\u201cAs more buyers resurface in bidder pools and sellers face maturity defaults and general capitulation, expect increased transaction volume,\u201d he said.<\/p>\n\n\n\n

Distressed office deals, nonperforming loan sales and lender-facilitated short sales are already playing a larger role in the market. Although some owners are repurposing challenged properties, Nicholls believes conversions are a relatively small share of the overall inventory. For now, much of the market\u2019s response is financial rather than physical, with borrowers turning to preferred equity, mezzanine debt and alternative capital solutions at the property or portfolio level.<\/p>\n\n\n\n

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CPE Capital Markets Newsletter<\/h2>\n\n\n\n

Executive Editor Therese Fitzgerald delivers the capital markets intel that moves the needle.<\/p>\n<\/div><\/div>\n<\/div><\/div>\n\n\n\n

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