Why Didn’t My Rate Go Down for My Commercial Real Estate Loan?

With the Fed’s recent rate cuts, clients are calling, emailing, and texting me to ask why the commercial real estate loan rate hasn’t followed suit.

Despite a 100-basis-point reduction since September, long-term rates like those tied to commercial loans have risen, not fallen.

Here’s why:

The Treasury Yield Curve, which shows interest rates for different bond maturities, has “un-inverted,” meaning short-term yields are now lower than long-term yields. This shift hasn’t reduced rates across the board. While the Fed’s policy affects short-term rates like the Effective Federal Funds Rate (EFFR), longer-term yields—like the 10-year Treasury yield that often guides commercial real estate loans—are more influenced by market forces, inflation expectations and future growth projections.

Since September, the Fed has cut rates, but the 10-year Treasury yield has risen by 87 basis points, pushing borrowing costs higher for long-term loans.

Difference between Policy and Market Rates – While the Fed’s actions influence the short-term lending environment, long-term rates often react differently. When the Federal Reserve Chair signaled at the last meeting that the “recalibration phase” of rate cuts might be over, markets adjusted their expectations.

The result? Investors shifted focus to higher inflation and a potentially stronger economy, leading to a rise in long-term Treasury yields.

For borrowers, this means that even though the Fed has cut rates, the cost of securing a commercial real estate loan may remain elevated due to these market-driven forces.

Higher Inflation and Mortgage Rate Trends – The Fed has indicated that inflation could remain elevated, which puts upward pressure on longer-term yields.

This trend is reflected in mortgage rates tied to the 10-year Treasury yield. As of December 2024, 30-year mortgage rates climbed back above 7%, nearly one percentage point higher than they were in September.

A similar dynamic applies to commercial real estate loans, as lenders price in these higher long-term yields.

What It Means for Borrowers – If you’re frustrated by a lack of rate cuts in your loan terms, it’s essential to understand that lenders are not directly tied to the Fed’s short-term cuts.

They respond to broader economic signals, such as the normalization of the yield curve and rising expectations for long-term inflation.

While this can be disappointing, it highlights the importance of working with a capital advisor who is monitoring market trends and not just Fed policy announcements.

Investors and developers might consider locking in rates before further market shifts or exploring financing options tailored to current economic conditions.

TL;DR: The rate on your commercial real estate loan quote didn’t go down because long-term yields, influenced by market expectations and inflation, have risen even as the Fed cut short-term rates.

At Shōkunin, we have the capital relationships to find you the best capital source across the stack.

Need help figuring out how? Give us a call.

Marcelo Bermudez, CEPA

Marcelo Bermudez is the CEO of Shōkunin, a commercial real estate and business capital and strategy advisory firm.

As a strategist, keynote speaker, and mediator, he helps owners and investors unlock value and achieve their business and financial goals.

With hands-on experience managing businesses and navigating complex commercial real estate transactions, Marcelo understands the challenges of growth, restructuring, and successful exits.

He works closely with his clients to deliver practical solutions and drive results.