commercial mortgage rate spreads remained relatively stable in January despite the Federal Reserve’s 25-basis-point rate cut in December.However, rising Treasury yields are creating uncertainty in the commercial real estate lending market.
As of February 2, 2026:
1-month Term SOFR: 3.65%[[Federal Reserve]
5-year Treasury: 3.88%[[U.S. Department of the Treasury]
10-year treasury: 4.32%[[U.S. Department of the Treasury]
5-year SOFR swap rate: 3.55%[[CMBS.org]
10-year SOFR swap rate: 3.89%[[CMBS.org]
While spreads have held steady, the five- and 10-year Treasury yields have increased by 12 and 15 basis points, respectively, according to recent market data. Simultaneously, the one-month Term SOFR, a key benchmark for floating-rate commercial real estate loans, has decreased by 15 basis points.
Factors Influencing Commercial Mortgage Rates
Several factors are currently influencing commercial mortgage rates. The Federal Reserve’s monetary policy, treasury yields, and the SOFR swap rates all play a crucial role. Kean Thomas,vice-president of finance and progress at Vestar,suggests potential slight compression in loan spreads due to their correlation with triple-B corporate bonds. This compression could lead to incrementally lower borrowing costs.
Though, uncertainty remains regarding the future direction of the federal funds rate and the 10-year Treasury yield, impacting the pricing of commercial real estate loans. Thomas emphasizes a conservative approach: “Our house view is that we shouldn’t count on to many more rate cuts. We’re going to continue borrowing with good lenders at a low cost of capital.”
Insurance Lender Activity and Bridge Loans
Ernie DesRochers, managing director at Northmarq capital, observes a trend among some insurance lenders to allocate capital towards higher-risk investments to boost returns. This includes an increased focus on three- to five-year bridge loans for properties undergoing lease-up or with short-term lease expirations. bridge loans provide temporary financing, allowing owners to stabilize properties before securing long-term financing.
Future Rate Expectations
Looking ahead, DesRochers notes that loan pricing will be heavily influenced by movements in benchmark interest rates. While the term of Federal Reserve Chair Jerome Powell ends in May 2026, and a successor nominated by President Trump is expected to favor rate cuts, market analysts are now less optimistic about a rate reduction in january.
“With the economy projected to show continued growth in 2026, the likelihood of significantly lower mortgage rates this year has decreased as rate cuts by the Fed are less likely,” DesRochers explains.
Key Takeaways
- Commercial mortgage rate spreads have remained stable, but Treasury yields are rising.
- Floating-rate loan interest rates have declined, while fixed-rate rates have increased modestly.
- Insurance lenders are increasingly interested in higher-risk bridge loans.
- Expectations for significant interest rate cuts in 2026 have diminished due to strong economic growth projections.
The commercial real estate lending landscape remains dynamic. Borrowers should carefully consider their financing options and work with experienced lenders to navigate the evolving interest rate habitat.
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