Colliers Insights Team
Colliers Capital Markets recently sat down with Matt Rocco, President; John Randall, Production Manager; and Rob Vaughn, Agency Relationship Manager, of Colliers Mortgage to discuss the latest trends in debt financing.
Colliers Capital Markets (CCM): Have investors come around to 4%+ 10-year Treasuries?
Colliers Mortgage (CM): Yes, though with some strategic adjustments. Investors who need to transact are taking advantage of the current shape of the yield curve by opting for shorter loan durations. Many are choosing to fix rates off the 5-year Treasury versus the 10-year, offering a roughly 50-basis-point positive delta. We expect Treasury rates to remain volatile for the foreseeable future. While we anticipate the Fed will lower rates by 50-75 bps in the remainder of 2025, and potentially another 50-75 bps in 2026, we do not expect Treasuries to move in lockstep. Historically, the 10-year Treasury has traded around 150-200 basis points above inflation, which is slightly above today’s level of 4.10%.
Year to date, the yield curve has not only moved lower but has also steepened. As a result, we continue to see borrowers select 3-, 5-, and 7-year fixed-rate loans over 10-year terms. For construction financing, banks are pricing over SOFR and offering swaps for mini-perm loans.
CCM: With debt capital widely available, how are lenders viewing the market?
CM: Commercial mortgage loans (CMLs) continue to offer more favorable spreads compared to corporate debt and are also an important investment diversifier for portfolio managers. Lender competition for quality CRE assets, borrowers, and markets is intense. Banks are selectively originating construction loans, particularly in the multifamily, retail, and industrial sectors. Meanwhile, government-sponsored entities (GSEs) and HUD are offering competitive multifamily financing across the housing asset class, and insurance companies are aggressively pursuing opportunities by offering favorable pricing and terms for quality assets at more moderate leverage. Private credit and CRE collateralized loan obligations (CLOs) are also winning deals with leverage.
CCM: Is equity uniquely positioned in today’s market?
CM: Yes. Following the Global Financial Crisis, the commercial real estate recovery was driven mainly by equity capital. More recently, from 2020-2022, historically low interest rates and compressed cap rates meant borrowers needed more equity to make deals work. Today, credit and underwriting conditions remain relatively balanced, and we expect patient equity investors will be able to take advantage of recent CRE value recalibrations. Still, CRE owners and investors will need to ensure they have the staying power of five-plus years, as their returns will be generated primarily from property cash flow rather than cap rate compression. Institutional equity capital generally sees better risk-adjusted returns in credit, but we expect that to evolve as accretive leverage becomes more prevalent.
The extension of the Tax Cuts and Jobs Act preserves most tax investment advantages for CRE, but investors using negative leverage must remain disciplined.
CCM: Pressure is mounting as loans mature. How are lenders navigating this challenge?
CM: Roughly $1.5 trillion in CMLs is set to mature by the end of 2026, with banks and CRE CLOs holding about half of that volume. Another $800 billion is scheduled by 2028. It is important to note, however, that many qualified maturing loans have been extended by 12 to 24 months, helping to ease near-term pressure. Still, this maturity volume suggests that transactional velocity will accelerate rapidly beginning in 2026 and last for several years. With this increase in velocity, we also anticipate higher CRE default rates, as impaired assets and borrowers will be forced to confront distressed situations. Investment sales, recapitalizations, refinancings, and structured sales and JVs will accelerate to meet this wave of maturities.
Marianne Skorupski
Raul Saavedra
Steig Seaward