Monday Market Moves | Week of 18 August 2025

Welcome to Monday Market Moves, the weekly series from Essex Capital Markets briefing you on Chicago commercial real estate capital markets. We cover key trends in CRE debt, refinancing, and capital structures to help investors, borrowers, and lenders navigate today’s CRE financing Market.

This Week: Interest Not “High” by Historical Standards

The commercial real estate (CRE) debt markets are adjusting to an environment of higher interest rates than the rock-bottom levels seen during COVID. However, it’s important to put today’s rates in perspective. While borrowing costs have risen from their pandemic-era lows, they remain historically attractive. In fact, current long-term yields are much closer to historical norms than many realize.

This week’s update breaks down why today’s interest rates aren’t truly “high” by long-term standards, how 10-year Treasury yields compare to pre-2010 averages, and what experts are saying about the outlook. We also explore why refinancing in the current climate can be seen as an opportunity rather than a threat – and why trying to wait for a dramatic rate drop could backfire.

Long-Term Perspective: Higher Than 2020, Still Low in History
It’s true that interest rates have climbed from their unprecedented lows of 2020–2021. The U.S. 10-year Treasury yield, a key benchmark for CRE loan pricing, hovered around 0.5% at the height of the pandemic stimulus – an all-time low. Today, the 10-year yield is in the mid-4% range (around 4.3%–4.4% as of this writing). That’s a big increase from the emergency lows. But in the sweep of history, ~4% is far from extreme. In fact, late 2023 was the first time since 2007 that yields even reached that 4.5% long-term average. For decades prior to the 2010s, it was common for the 10-year to trade above 4.5% – from 1966 through 2001, yields were consistently higher than 4.5%. Even the pre-2008 era saw “normal” Treasury yields in the 4–6% range. By those standards, today’s rates sit near historical norms, not highs.

It’s only when compared to the unusually low-interest environment of the 2010s (when the 10-year often lingered in the 2–3% range) that current yields feel high. The last decade of zero-bound policy was an anomaly fueled by crises and extraordinary central bank interventions (first the financial crisis, then COVID). Now, with the 10-year yield back around its long-term average, investors are welcoming the return to normal yields. As one commentator noted, long-term Treasury investors finally have something to cheer about now that yields are providing reasonable income again. In other words, 4% may well be the new normal – a level at which both borrowers and investors can operate comfortably. It’s a far cry from truly high-rate episodes like the early 1980s (when 10-year yields topped 15% in 1981). And it’s also a world away from the 0.5% aberration of 2020. Today’s borrowing costs occupy what some argue is healthy middle ground.

10-Year Yields and Fed Policy: Stable Outlook vs. Hopes of a Big Drop
The Federal Reserve’s actions have a strong influence on CRE interest costs. Over the past year, the Fed moved from aggressive tightening to a pause, with the Fed funds target rate currently around 4.25–4.50%. After raising rates rapidly to combat inflation in 2022–2023, the Fed began holding steady and even executed a couple of modest rate cuts by late 2024. As of mid-2025, policymakers remain cautious. At their late July meeting, the Fed kept rates unchanged and reiterated their commitment to getting inflation back to 2%. Importantly for rate watchers, market expectations for further Fed easing are limited. Citi’s analysis notes that futures markets are only pricing in roughly two more quarter-point Fed rate cuts in the remainder of 2025. In other words, investors anticipate the Fed might trim rates from ~4.5% to around 4.0% by year-end – not a plunge back to a level significantly below that.

This aligns with what many experts are saying: Don’t bet on a dramatic rate collapse. The U.S. economy has proven remarkably resilient, with solid growth, low unemployment, and cooling (but not vanquished) inflation. In fact, some analysts argue that monetary policy isn’t overly restrictive at current levels – the strong performance of equities, real estate values, and the broader economy suggests that today’s rates are hardly choking off activity. Morgan Stanley’s fixed-income team points out that unless the Fed delivers much larger cuts than forecast, bond yields are likely to stay in a moderate range. They see it as “very possible that U.S. Treasury yields remain in a broad 4%–5% range in 2025”. In other words, long-term rates could remain near where they are now, rather than falling precipitously.

The takeaway for CRE borrowers is that waiting for a return to 2% 10-year yields or ultra-cheap debt is probably unrealistic under current conditions. Economists at Citi Private Bank and elsewhere caution against expecting a sudden lurch back to the low-rate regime of the 2010s. Barring a severe economic downturn (which no one wants), the best case is a gradual, modest decline in rates over time – and even that is uncertain. As one Citi report noted, tariffs and fiscal dynamics could push long-term bond yields higher, even as the Fed trims short-term rates. The bottom line: Plan for the rate environment we have now, not for an unlikely rewind to all-time lows.

Investor Sentiment: Plenty of Capital and “Not So High” Rates
Despite higher base rates, the mood in the capital markets is far from bearish. Investor and lender sentiment in CRE debt remains generally upbeat, with ample liquidity looking for deals. At a major industry conference earlier this year, Walker & Dunlop professionals observed that “there is absolutely no shortage of debt capital within the capital markets today,” even though transaction volumes were down. In essence, lenders want to lend. Banks, private debt funds, and other institutions have money to deploy – and they’re competing to win business. That competition has a silver lining for borrowers: loan spreads have tightened significantly. At the same conference, W&D noted that credit spreads are as tight as they’ve been since 2021, as lenders vie for a limited pool of deals. In practical terms, while the Treasury yield or SOFR index might be higher than a couple years ago, the margin a lender adds on top could be lower. The net effect is that all-in borrowing costs are not as punitive as the headlines might imply.

From the investors’ standpoint, current yields are attractive. A chief investment officer at Nuveen summed it up succinctly: “We believe fixed income yields generally present a very attractive entry point, creating compelling income opportunities” for investors now. In other words, bond buyers see value in these yields. If bond investors are willing to buy CRE debt or Treasuries at today’s rates, that’s a sign that rates are reasonable. We’re not seeing investors flee from bonds en masse (which would happen if yields were expected to skyrocket more). Instead, we’re seeing robust demand – for example, investment-grade corporate bond issuance saw a surge of new deals recently as issuers moved to lock in current rates, and those issues were met with strong investor inflows. This confidence extends to commercial real estate finance: there’s “more capital than deals” and a lot of dry powder on the sidelines waiting for the right opportunities. Such an environment is hardly indicative of panic about “high” rates. On the contrary, it suggests that borrowers and lenders can transact at today’s rates and still meet their return hurdles. The market is adjusting expectations to a 4–5% 10-year yield world and finding ways to make projects pencil out in that context.

Refinancing: Opportunity Knocks (Don’t Wait on the Sidelines)
With this perspective in mind, the narrative around refinancing can shift from fear to opportunity. Yes, many CRE borrowers have been understandably hesitant to refinance loans that originated at 3% if the new loan costs 6%. In fact, industry data show several borrowers are delaying refinancing as long as possible because their existing debt carries interest rates a full 200+ basis points lower than current market rates. It’s tempting to “wait and see” if rates come down. However, there are compelling reasons to re-evaluate that strategy now:

• Historically Attractive Terms: As established above, today’s rates are not exorbitant in context. A loan in the 5–6% range was par for the course in the mid-2000s, and plenty of successful investments were made at those rates. With credit spreads tight, some borrowers are even seeing all-in refinancing offers that are competitive relative to pre-pandemic loans. In short, you can likely secure a rate today that is still below long-term historical averages for CRE borrowing costs.
• Ample Lender Appetite: Lenders are currently eager to work with qualified borrowers. The competition means you may negotiate favorable terms (lower fees, flexible structures, interest-only periods, etc.) that offset some of the rate increases. Waiting could mean missing this window of lender flexibility. When there’s a flood of borrowers all trying to refinance later (say, if rates dip modestly), that negotiating leverage might diminish. Remember that nearly $900 billion in CRE loans are set to mature in 2025 – a huge wave of refinancing is coming. Those who act early may beat the rush and lock in the best terms.
• Market Pricing in Modest Moves: Relying on a large rate drop may be a risky bet. Current market pricing and Fed signals suggest only modest rate relief ahead. If the economy stays resilient, a scenario where rates rise further is as plausible as one where they fall. Indeed, if inflation surprises to the upside or economic growth stays hot, long-term yields could even tick up from here. Refinancing sooner mitigates the risk of adverse rate moves later. By executing now, you convert an uncertain future rate environment into a fixed known cost. That certainty has value – it lets you focus on operations and asset strategy rather than fretting about interest rate timing.
• Opportunity Cost of Delay: There’s also an opportunity cost to consider. By refinancing or recapitalizing now, borrowers can often unlock trapped equity or invest in value-add improvements. Those actions can drive NOI growth and property value, which potentially outweigh the incremental interest expense. If one simply waits on the sidelines hoping for lower rates, that time might be lost – and if the hoped-for rate drop never materializes, it could lead to a worse outcome (for example, rushing a refinance under pressure as a loan matures, or facing a higher rate environment due to unforeseen events).In essence, refinancing in the current climate should be viewed as a strategic move, not a defeat. The conversation is starting to shift: savvy borrowers are asking, “How can I take advantage of today’s conditions?” rather than “How long can I avoid refinancing?” We see this optimism in the market – some issuers have proactively tapped the debt markets on dips in yields to “lock in borrowing” at attractive levels. That does not mean that one should refinance early if the current rate on your debt is lower than what is available in today’s market. It simply means that one should recognize that timing to take advantage of the absolute bottom of rates is nearly impossible, and the downside of waiting may outweigh the upside. As one CRE finance expert put it, trying to wait for a dramatic rate plunge is a gamble that “may backfire, especially given current economic resilience and market pricing.” In contrast, acting on viable refinancing or acquisition opportunities today can position investors to capitalize on the still-strong fundamentals in real estate (e.g. solid rent growth in many sectors, high occupancy, and inflation-adjusted asset values).

 
Looking Ahead: Embrace the “New Normal” and Stay Proactive
The key message going into late 2025 is one of optimistic realism. Yes, interest rates are higher than the extraordinary lows we got used to, but they are by no means high in a historical perspective. Long-term rates around 4–5% reflect a healthy, growing economy – the kind of environment where real estate can thrive. Debt investors are comfortable at these yields, and lenders are open for business. Rather than fearing the interest rate landscape, commercial real estate players should consider embracing it as the new normal and plan accordingly. That means recalibrating underwriting to slightly higher cost of capital but also enjoying the stability and predictability that comes with a return to more “normal” rates.For CRE borrowers and sponsors, the advice from market experts is clear: don’t let the myth of a “high-rate environment” paralyze you. There are opportunities to refinance and transact right now on constructive terms. Waiting indefinitely for some perfect low-rate moment could mean missing out on current opportunities – or worse, finding yourself forced to refinance in a less favorable market. As one Walker & Dunlop report emphasized, resilience and strategic foresight are crucial in these times. Proactive planning – whether it’s refinancing a maturing loan, raising fresh capital, or selling an asset – will be rewarded. The tide of capital will inevitably come back in, and those positioned for it will benefit.In summary, today’s interest rates should be viewed as a bridge to opportunity, not a barrier. The data shows they are still attractive relative to historical averages. The Fed’s trajectory and market sentiment suggest stability, not a spike or crash. And the CRE financing market is liquid and competitive, which is good news for borrowers. By reframing refinancing and investment decisions around these facts, CRE investors can move forward with confidence. Higher rates have certainly changed the math from a few years ago, but they have not killed the deals – far from it. With the right strategy (and a bit of rate perspective), 2025 can be a year of growth and opportunity in commercial real estate finance.

Sources:
Advisor Perspectives – 10-Year Treasury Yield Long-Term Perspective: July 2025
Nuveen – Economic Crosscurrents Drive Treasury Yield Turbulence
Investopedia – For First Time Since 2007, 10-Year U.S. Yield Reaches 4.5% Long-Term Average
Morgan Stanley – Is 2025 (finally) the Year of the Bond?
Citibank – A Mixed Outlook for the US Dollar
Walker & Dunlop – Key takeaways from MBA CREF 2025
Walker & Dunlop – The tides of CRE: Preparing for the Market’s Next Wave in 2025

To speak with our Capital Markets team about how multi family lenders are approaching today’s market, please fill out the form below.