Waiting for Dramatically Lower Interest Rates Is a Mistake

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Following the Federal Reserve’s decision to hold rates steady—and growing speculation around a leadership transition from Jerome Powell to Kevin Warsh—many in commercial real estate are betting that sharply lower interest rates are just around the corner. This belief has led buyers to wait on the sidelines and sellers to delay transactions in hopes of a return to peak valuations.

That expectation is misplaced. Long-term market fundamentals, historical data, and capital flows suggest that the ultra-low rate environment of the post-GFC era was an anomaly—not a baseline that will soon return.

Why Betting on Much Lower Rates Is the Wrong Strategy

• The 10-Year Treasury, Not the Fed Funds Rate, Drives CRE Financing
  Most permanent commercial real estate debt is priced off the 10-year U.S. Treasury, not short-term Fed policy. Long-term yields reflect inflation expectations, fiscal policy, global capital flows, and risk premiums that extend far beyond who chairs the Federal Reserve.
• Historical Data Does Not Support a Collapse in Long-Term Rates
  Over the past 50 years, the average yield on the 10-year Treasury has been approximately 5.4%. Today’s levels remain below that long-term norm, underscoring how unusual the post-GFC ultra-low rate period truly was.
• Ultra-Low Rates Were an Anomaly, Not a Permanent Condition
  The extended period of near-zero rates was driven by extraordinary monetary intervention, quantitative easing, and a prolonged global flight to safety. That environment lulled many market participants into believing low rates were permanent. They were not.
• Structural Forces Are Putting Upward Pressure on Rates
  Persistent fiscal deficits, elevated government debt, geopolitical instability, reshoring of supply chains, and inflationary pressures all argue against a dramatic and sustained decline in long-term interest rates.
• Cap Rates and Values Are Driven More by Capital Flows Than Rates
  Property values are influenced not just by interest rates, but by investor confidence, liquidity, income durability, and global capital movement. Waiting solely on rate relief ignores the broader forces shaping valuation.
• Today Represents a Rare Buying Opportunity in NYC
  Pricing adjusts faster than sentiment. In markets like New York City, capital constraints and seller recalibration are creating what may be the best buying opportunity of a generation—not in the future, but right now.
  
  

Implications for Buyers and Sellers

For buyers, waiting for dramatically cheaper debt risks missing opportunities that emerge during periods of market transition. Transactions occur when expectations realign—not when rates return to historic lows.

For sellers, holding assets in the hope that declining rates will magically restore 2015-era valuations can be equally risky. In many cases, liquidity and clarity today may outweigh uncertainty tomorrow.

Markets do not need perfect rate environments to function. They need realism, transparency, and aligned expectations.

BKREA’s Perspective

At BKREA, strategy is grounded in long-term data, not short-term hope. While interest rates may drift modestly lower over time, a return to 2% Treasuries or 3% mortgage coupons would require a severe global shock. Building a business plan around that assumption is not prudent.

The market will move forward. Those who accept reality—and act accordingly—will be best positioned when transaction velocity normalizes.

Frequently Asked Questions

Will interest rates fall under a new Fed chair?

They may edge modestly lower, but history and macroeconomic conditions do not support a return to ultra-low long-term rates.

Why is the 10-year Treasury more important than Fed policy?

Because most commercial real estate financing is priced off long-term Treasury yields, which reflect broader economic forces beyond short-term monetary decisions.

Does this mean values cannot rise?

No. Values can improve through income growth, improved fundamentals, and renewed capital flows—even without dramatically lower rates.

Is now a good time to buy commercial real estate?

In markets like New York City, current pricing dislocations and pent-up demand suggest compelling opportunities for disciplined buyers.

What is the biggest mistake market participants are making today?

Waiting for a rate environment that is unlikely to return instead of adjusting underwriting and strategy to today’s realities.

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