Why the Fed’s Rate Cuts Aren’t Showing Up in Your Commercial Mortgage Rate

With great anticipation and optimism, we watched the Fed cut rates 75 basis points in late 2025!

But your commercial mortgage rate barely budged. Many sponsors expected a one-to-one drop. That’s not how it works.

The Fed Funds Rate Is Not Your Mortgage Rate

The fed funds rate is an overnight lending rate between banks. And that is all that it is. When it drops, sometimes longer-term rates drop, sometimes they go up, etc. The Federal Reserve controls the fed funds rate. The market controls pretty much everything else.

Commercial mortgages — especially 5, 7, and 10-year fixed-rate loans — are priced off the Treasury curve (5-year or 10-year Treasury), not the fed funds rate. The 10-year Treasury was sitting around 4.25–4.50% in early 2026 — roughly where it was before the cuts started. Long-term rates are driven by inflation expectations, government borrowing, and global capital flows — forces the Fed doesn’t directly control.

Investor Spreads Are Not Static

This is the piece most people miss. Your commercial mortgage rate = benchmark rate (Treasury, Swaps, or SOFR) + investor spread. Even if the benchmark drops, the spread can move in the other direction.

Spreads are driven by perceived credit risk in CRE, competition (or lack thereof) among lenders, delinquency trends (office delinquencies near 18%), the $1.2 trillion maturity wall creating refinancing pressure, and individual deal risk factors. In 2025, CMBS spreads actually compressed as issuance surged past $150 billion — a post-Global Financial Crisis high. But that compression was selective. Strong multifamily and industrial deals saw tighter pricing. Office, retail, and deals with hair on them? Spreads remained wide or widened further.

What This Means for Borrowers Right Now

Don’t wait for rates to “come down” — this isn’t 2019 and it’s not going back there anytime soon. The opportunity is in execution and structure, not in timing the rate market. Nobody is predicting that rates make it back into the 3s right now. We are seeing typical loans in the 5.25% to 5.75% range, depending on asset type, location, and leverage.

Life companies are competitive on stabilized, low-leverage deals (rates as low as the low-5s). Debt funds are aggressive on transitional assets. CMBS conduit is lending aggressively with full term interest only, but slightly higher rates than other sources. Banks are competing for relationships and desperately want deposits. The best rate you can get depends on your specific deal — property type, leverage, market, sponsorship, and how it’s structured.