In this issue of Real Estate Finance Insights, I share how I’m personally thinking about the current rate environment and how I’m advising clients to position themselves thoughtfully, without waiting for perfect conditions that may never arrive.
This is a practical conversation about capital structure, optionality, and staying ahead of the curve rather than reacting to it.
If you’ve been paying attention to headlines lately, you’ve probably noticed a familiar theme resurfacing:
“Rates are coming down.”
I hear it almost daily in conversations with investors, operators, and referral partners. And to be fair, the market is clearly signaling that the next move is lower. Futures pricing, forward curves, and Fed expectations all point in that direction.
But here’s the part that tends to get lost in the noise:
how rates move matters just as much as where they land.
That nuance is where good decisions get made and where costly mistakes tend to show up later.
So rather than flood you with charts and tables, I want to walk through how I’m personally thinking about this environment and, more importantly, how I’m advising clients to position themselves right now.
Let’s Start With the Rate Path
Yes, the market is pricing cuts. Roughly 50 basis points by late 2026 if expectations hold.
But this is not a panic cut scenario. The Fed is signaling patience. Inflation is easing, but it hasn’t disappeared. Growth is slowing, but not breaking.
What that tells me is this: we are entering a long, controlled glide path, not a dramatic reset.
In practical terms, that means I’m encouraging clients to stop trying to “win the rate call” and start focusing on structural resilience.
The difference between a good deal and a great deal over the next few years won’t be timing rates perfectly. It will be having options when conditions shift.
About the 10-Year Treasury: A Hard Truth
I want to be direct here, because this comes up often.
If you are waiting for the 10-year Treasury to meaningfully break into the low-3% range before doing anything, the data does not support that strategy today.
Analyst forecasts and forward markets are tightly clustered around the low-4% range through 2026. That tells me the market believes rates will ease, but not collapse.
So instead of waiting for a perfect number, I’m asking clients a different question:
“Does this deal work at today’s rates, and does it get better if rates move modestly lower?”
If the answer is yes, that’s a conversation worth having.
If the deal only works under an aggressive rate scenario, that’s not optimism. That’s exposure.
Floating Rate Debt Is Back… If You’re Disciplined
This is one area where the opportunity set has quietly improved.
SOFR has come down meaningfully, and interest rate cap costs have followed. What was once prohibitively expensive is now quite manageable, especially when aligned correctly with the business plan.
That said, I want to be very clear:
floating-rate debt is not “safe” again. It is usable again, provided it’s handled with intention.
I’m advising clients to think about caps as tools, not insurance policies bought out of fear. Strike selection should protect DSCR stability, not attempt to eliminate all risk at any cost.
When structured correctly, floating-rate debt can offer flexibility and upside without introducing unnecessary stress.
A Word on the Yield Curve
We’ve officially moved out of inversion, and I’ve seen some enthusiasm creep back into the conversation.
I would urge a bit of caution there.
A normalizing yield curve doesn’t signal a boom. It signals transition. Credit is still selective. Lenders are still disciplined. Strong sponsors are still winning terms, and weaker deals are still being sidelined.
That’s not a bad thing. It’s a healthy market. But it rewards preparation and penalizes complacency.
Where This Leaves Real Estate Investors
One of the more interesting dynamics right now is the divergence between public markets and real estate.
Equities have had an exceptional run. Commodities have moved aggressively. Real estate, by comparison, has lagged.
In my view, that’s creating selective opportunity, not broad-based distress or exuberance.
Capital is available, but it’s intentional. Leverage is available, but it’s earned. And underwriting standards still matter.
This is a market that favors operators who know their numbers, respect risk, and think several moves ahead.
What I’m Actually Advising Clients to Do
To make this concrete, here’s what comes up most often in my conversations:
Address refinance risk early
Waiting until maturity removes leverage from the decision-making process.Build optionality into the capital stack
Extension rights, IO flexibility, and refinance windows matter more than ever.Use floating rate debt deliberately
Cap costs are reasonable, but structure should match reality, not optimism.Assume today’s rates at exit
If rates improve, that’s upside. It should never be the plan.
Final Thought
We’re moving into a market that rewards calm, thoughtful decision-making.
Not urgency.
Not fear.
Not chasing headlines.
Just disciplined execution, realistic underwriting, and capital structures that allow you to adapt as conditions evolve.
That’s the posture I’m taking. And it’s the posture I’d encourage you to consider as well.
If you ever want to talk through how these dynamics apply to a specific deal, maturity, or acquisition you’re evaluating, those conversations are where I believe the most value gets created.
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.
