Executive Summary
Rates reset higher: 10-year Treasury yields moved above 4.25% for the first time since summer, driven by global debt concerns and trade-related headlines rather than domestic economic deterioration.
Fed expectations recalibrated: Markets sharply reduced expectations for 2026 rate cuts, now pricing one cut mid-year with a partial probability of a second, while some major banks project no cuts at all.
Capital availability: Liquidity across banks, agencies, CMBS, and private credit remains strong, with private capital increasingly aggressive on structure and leverage.
Asset-class divergence: Multifamily and industrial underwriting is tightening, while office liquidity has improved meaningfully for well-located, institutional-quality assets.
Actionable insight: Volatility, not scarcity of capital, is the dominant risk. Borrowers must underwrite rate sensitivity and execution timing more carefully than at any point in the past six months.
Macro & Monetary Policy Context
Early January saw a meaningful repricing in long-term rates as 10-year Treasuries moved above 4.25%, reflecting a convergence of international and geopolitical factors rather than a deterioration in U.S. fundamentals. Concerns surrounding Japanese sovereign debt dynamics, combined with renewed U.S. tariff rhetoric related to Greenland, introduced uncertainty into global fixed-income markets.
Markets stabilized following President Trump’s remarks at the World Economic Forum in Davos, which appeared to de-escalate near-term trade risks. On January 21, President Trump confirmed that the U.S. would not impose tariffs on European nations after reaching a framework for a future agreement on Greenland with NATO. This announcement eased investor concerns that trade tensions might re-ignite broader inflationary pressures in 2026.
From a monetary governance perspective, the Supreme Court’s January 21 hearing regarding the continued appointment of Fed Governor Lisa Cook was viewed as an important reaffirmation of Federal Reserve independence. Markets broadly interpreted this as a stabilizing signal, reducing fears that short-term political pressure could influence rate policy.
Fed expectations shifted materially over the month. Futures markets now price:
One 25 bps cut mid-2026
A 72% probability of a second 25 bps cut
No expectation of a third cut
This represents a significant pullback from late-December pricing, when 50 bps of cuts and a modest probability of a third cut were expected. Notably, JP Morgan now projects no cuts in 2026, with a rate hike forecast for 2027.
Implication for CRE debt: Rate volatility has returned as a meaningful underwriting variable. While policy remains stable, the path of rates is increasingly uncertain, elevating the importance of structure, hedging, and timing in financing decisions.
Capital Source Activity
Agencies (Fannie Mae and Freddie Mac)
Momentum: Both agencies ended 2025 with strong origination volumes and entered 2026 with notable velocity.
Fannie Mae: ~$73B+ in 2025 originations (up from ~$55B in 2024)
Freddie Mac: $76.4B, a 17.4% YoY increase
Pricing: Highly competitive at ~5.00% to 5.50%, with rate buydowns pushing effective rates to ~4.70% to 5.20%.
Execution: Agencies remain the deepest and most reliable liquidity source for stabilized multifamily, particularly for experienced sponsors.
Life Companies
Spread environment: Corporate bond spreads remain stable year-to-date, down approximately 4 to 7 bps, supporting consistent LifeCo execution.
Pricing: 5.15% to 6.25% for 65% leverage or less.
Leverage discipline: Best pricing continues to cluster at ~60% LTV or below.
Positioning: Life companies remain a conservative, long-term capital solution, prioritizing durability and sponsor quality over yield.
Banks
Appetite: Yield curve normalization continues to support bank participation, particularly for core assets with strong tenant profiles.
Pricing:
Fixed: 5.50% to 6.40%
Floating: 180 to 300 bps over SOFR (approximately 5.50% to 6.70% currently)
Structure: 3-, 5-, and 7-year fixed programs with step-down prepayment remain standard.
Underwriting: Banks remain selective, with heightened focus on cash flow durability and relationship depth.
Debt Funds and Private Credit
Liquidity: Conditions are best described as frothy, with private capital actively competing on leverage and structure.
Leverage: ~65% to 75% loan-to-cost, with increasing willingness to underwrite lease-up risk and office exposure.
Pricing: 225 to 350 bps over SOFR.
Trends:
Preferred equity behind agency senior loans remains active in multifamily
Increasing selectivity in multifamily and industrial as fundamentals soften
Office assets are seeing some of the most competitive debt fund terms available
Execution reality: Aggressiveness is rising, but underwriting standards are diverging sharply by sponsor and asset quality.
CMBS Conduit & CRE CLOs
Spreads: Relatively contained across both new issue and secondary markets.
Pricing: 5.75% to 6.75%, dependent on asset quality and debt yield.
Structure: 5- to 10-year fixed terms, up to 75% LTV, frequently with full-term interest-only.
Role: CMBS remains a critical outlet for leverage-driven executions, particularly in office and mixed-use assets.
Asset Class & Buyer/Seller Sentiment
Multifamily
Agency liquidity remains strong, but underwriting assumptions have tightened as rent growth moderates and expense pressures persist. Capital is readily available for stabilized assets, but transitional deals face more scrutiny.
Industrial
Still favored, but no longer immune. Lenders are increasingly attentive to tenant rollover, location quality, and functional relevance, especially in secondary markets.
Office
Office sentiment improved meaningfully in 2025:
High-priced office sales ($10M+) increased 75.7% YoY
Transaction volume rose to $829M, with 23 deals completed, up from just five in 2023
Average deal size increased nearly 30% YoY, signaling renewed institutional interest
While overall activity remains well below the 2021 peak, the rebound confirms that capital is selectively returning to high-quality office assets with credible repositioning or long-term tenancy.
Retail
Activity remains selective, concentrated in necessity-based and service-oriented retail with strong tenancy and stable cash flow.
Market Dynamics & Execution Environment
Liquidity: Broad and competitive, particularly in private credit
Risk premiums: Increasingly asset-specific and sponsor-driven
Underwriting: Debt yield and in-place cash flow remain the primary gating factors
Execution risk: Rate volatility and geopolitical headlines are now meaningful timing risks for borrowers
Outlook & Forward Signals
Near-term: Expect continued rate volatility driven by global macro factors rather than domestic fundamentals.
Key risks:
Policy uncertainty around 2026 rate path
Re-escalation of trade tensions
Asset-level stress in weaker multifamily and industrial submarkets
Borrower posture: Conservative leverage, flexible structures, and realistic timing assumptions are essential.
Concluding Observations
January reinforced a defining feature of the current cycle: capital is abundant, but conviction is fragile. The CRE debt market is no longer constrained by liquidity, but by volatility and underwriting discipline. Borrowers who approach the market with conservative assumptions, resilient capital stacks, and clear execution plans are best positioned to succeed in an environment where conditions can shift quickly, even when capital remains plentiful.
Pricing and Spreads Comparison: January 2026 vs. December 2025
The January market reflects a modest repricing higher in absolute coupons, driven primarily by the move in Treasury yields, while credit spreads themselves remain largely stable across most lender categories. The net effect is higher all-in borrowing costs, despite continued liquidity.
Summary View
Benchmark-driven move: January pricing changes are primarily attributable to higher Treasury yields rather than spread widening.
Credit discipline unchanged: Lender risk appetite and leverage tolerance remain consistent with December, with no broad-based pullback.
Execution impact: Borrowers are seeing higher rate quotes, but materially similar proceeds and structures if underwriting clears.
| Capital Source | December 2025 | January 2026 | Directional Change |
|---|---|---|---|
| Agencies | 4.95% to 5.45% (buydowns to 4.65%–5.15%) | 5.00% to 5.50% (buydowns to 4.70%–5.20%) | Slightly higher coupons; spreads stable |
| Life Companies | 5.00% to 6.15% | 5.15% to 6.25% | Mild increase tied to Treasuries |
| Banks (Fixed) | 5.40% to 6.25% | 5.50% to 6.40% | Incremental increase |
| Banks (Floating) | 180–300 bps + SOFR (≈5.75%–7.00%) | 180–300 bps + SOFR (≈5.50%–6.70%) | Slight improvement at low end due to SOFR |
| Debt Funds | 225–350 bps + SOFR | 225–350 bps + SOFR | No material change |
| CMBS | 5.75% to 6.75% | 5.75% to 6.75% | Flat |
Interpretation by Capital Source
Agencies
All-in coupons drifted modestly higher with Treasuries, but agency spreads remain anchored. Rate buydowns continue to be the primary tool sponsors are using to manage volatility and improve early-year cash flow.
Life Companies
LifeCo execution remains fundamentally unchanged. The slight upward shift in quoted rates reflects higher benchmarks, not a change in risk appetite. Best execution continues to favor conservative leverage.
Banks
Banks passed through benchmark increases on fixed-rate programs but remain competitive for core deals. Floating-rate executions benefited modestly from recent SOFR movement, partially offsetting Treasury-driven volatility.
Debt Funds / Private Credit
Spreads are unchanged, and liquidity has arguably increased. Private credit remains the most aggressive source for leverage and structure, particularly for lease-up and office assets.
CMBS
CMBS pricing remains remarkably stable month-over-month. The asset class continues to offer some of the most efficient leverage and IO structures for qualifying collateral, especially where balance-sheet lenders are constrained.
Sponsor Takeaway
The January repricing reinforces a key theme of this cycle: rate volatility is benchmark-driven, not credit-driven. Borrowers should expect fluctuations in headline coupons, but not assume that liquidity, leverage, or execution certainty has materially deteriorated. Structuring flexibility and timing discipline remain the most effective tools for managing this environment.
Navigating Today’s Market
John Morelli and his team of expert capital advisors are dedicated to guiding you through evolving market dynamics with expert insight, deep capabilities, and tailored financing solutions. Whether you’re exploring options with banks, agencies such as Fannie Mae, Freddie Mac, and HUD, or debt funds, our team is here to help you secure the best possible terms for your commercial real estate financing.
Ready to discuss your next financing opportunity? Contact us or schedule a consultation today for expert guidance.
