The Federal Reserve's September rate hike, the first since 2023, has pushed the 10-year Treasury yield to levels last seen in 2007, creating a tougher financing environment for commercial real estate. For brokers and investors, deals that penciled out a year ago may now fail to cover debt service, forcing a reevaluation of underwriting practices. Dan Mosher, co-founder and CEO of DealGround, an AI-powered commercial real estate intelligence platform, argues that higher rates don't halt deals but make accurate property-level data more critical than ever.
“The 10-year Treasury and the 30-year Treasury have all gone up to levels not seen in the last 20 years. That is going to tighten the screws a little bit on new deals getting done,” Mosher said. The core issue is debt service coverage: when the cost of debt rises, the margin between rental income and financing costs shrinks rapidly. Mosher illustrates with a simple example: “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.” Half a percentage point can be the difference between a viable deal and a busted one, leaving brokers with little room for error.
In a lower-rate environment, a wider range of outcomes could still lead to a successful transaction. Today, an estimate that is off by even a small amount can kill an offer after weeks of work. Mosher's solution is to underwrite from actual property-specific numbers rather than broad averages. “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. The same precision applies to existing debt: knowing how much debt is on a property and at what rate reveals the owner's position and whether a distressed situation may be emerging. Brokers who combine a forward view on rates with actual cash flow data can quickly assess deal feasibility.
Helping sellers adjust expectations is another challenge. Many owners still cling to last year's valuations, and Mosher notes it will take time for them to internalize that higher financing costs reduce what buyers can pay. “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. That’s just because it’s going to take higher costs to finance that purchase for whatever buyer comes to the table,” he said. For listing brokers, pricing a property on hope rather than current financing costs likely means it will languish on the market. Mosher says brokers armed with real comparable data can better guide sellers to a realistic price. “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,” he said.
Despite the headwinds, Mosher is clear that higher rates have not frozen the market. “Deals are still getting done,” he said. Buyers and lenders remain active, but transactions now require more precision—and sometimes a price adjustment—to close. The practical takeaway for brokers is to tighten inputs: underwrite using actual rents and actual debt on the specific property, price listings for today's financing environment, and avoid relying on stale market averages. Brokers interested in seeing how property-level rent, lease, and debt data can support this process can review DealGround's how it works page.
