The Federal Reserve’s September rate hike, the first since 2023, has pushed the 10-year Treasury yield to levels last seen in 2007, fundamentally altering the calculus for commercial real estate transactions. For brokers and investors, a deal that penciled out a year ago may now struggle to cover its debt, as even a half-point increase in borrowing costs can erode returns and turn a viable project into a non-starter.
Dan Mosher, co-founder and CEO of DealGround, an AI-powered commercial real estate intelligence platform, said higher rates do not halt deals but they narrow the margin for error. “If I’m going to finance something and I’ve got a certain rent stream that’s coming from a property, if interest rates all of a sudden just went from five and a half percent to six percent, now all of a sudden the rental stream that I had may not be sufficient to generate return because I’m paying more interest on the debt,” Mosher said.
The implication for brokers is clear: underwriting must now be based on actual property-level rents and existing debt rather than broad market averages. Mosher emphasizes that aggregated or hearsay figures are no longer sufficient. “What are the rents on a specific property? Not the aggregated rents, not the hearsay rents that someone’s talking about, but the actual rents that appeared in the offering memorandum so that people can really analyze those deals before they make offers,” he said. Knowing the precise debt load and rate on a property also reveals whether a distressed situation is looming.
Sellers, too, are feeling the shift. Many owners still hold last year’s valuations, and Mosher notes it will take time for expectations to adjust. “I think there is a little bit of time that it’s going to take for the sellers to internalize that with interest rates going up, the value of their asset may be off from their expectations,” he said. Listing brokers who can present real comparable data are better positioned to help sellers price properties realistically, avoiding listings that languish. “The visibility of DealGround allows brokers to help sellers price their properties more closely to what it will trade for. Not what they hope they’re going to get, but what they actually can get in this market,” Mosher said.
Despite the tighter environment, Mosher is adamant that transactions continue. “Deals are still getting done,” he said. The practical takeaway for brokers is to tighten inputs: underwrite from actual rents and debt, price listings for today’s financing costs, and discard stale market averages. Brokers seeking to understand how property-level data can support that process can review DealGround’s how it works page. For the industry, the message is that precision, not pessimism, is the order of the day—and those who adapt their underwriting to the new rate reality will be the ones still closing deals.
