Fed Rate Cuts Won’t Save Commercial Values. The 10-Year Treasury Will.

Marc Perlof • January 12, 2026

By Marc Perlof | MarcRetailGuy

January 12, 2026


If you own commercial real estate, here’s what just changed for you.


A rate cut by the Federal Reserve and even the prospect of a new Fed Chair are topics of increasing discussion. When they hear it, many commercial property owners believe that borrowing costs will decrease and property values will increase. That is just partially accurate. You need to understand the distinction between the fed funds rate and the 10-year Treasury to understand the true effect of interest rates on commercial real estate.


One short-term rate that the Federal Reserve controls is the fed funds rate. Short-term loans, credit cards, and bank lending are all impacted. The yield on a 10-year Treasury bond is a market rate. It reflects global demand for safe assets, government debt levels, and long-term inflation expectations. Interest rates and commercial real estate cap rates are significantly more correlated with the yield on the 10-year Treasury bond than with the fed funds rate.


Even as markets discuss potential rate decreases, the 10-year Treasury yield is currently in the low to mid-4 percent area based on data from late 2025 and early 2026¹. That gives us some crucial information. Long-term rates are not automatically lowered by a Federal Reserve rate cut.


Why is this important for owners of commercial real estate? Because long-term rates, not headlines, determine cap rates. If the Fed lowers rates in response to a real economic slowdown and inflation remains under control, the 10-year Treasury yield may decline and support values. If the cut is perceived as premature or driven by political pressure, long-term rates may remain high or even rise, keeping cap rates elevated.


Owners who price assets assuming that fed rate cuts automatically increase values risk chasing the market down. Buyers are underwriting off the 10-year Treasury, not press releases. Understanding this gap is often the difference between trading at market pricing and sitting unsold.


The market has also been confused by recent Fed actions. To stabilize deposits and reduce stress, the Fed added liquidity to the banking system. This was not quantitative easing. It was not money printing. It was temporary support. As a result, it helped prevent panic but did not guarantee cheaper long-term financing for property owners².


Key takeaways supported by non-fiction research

  • The 10-year Treasury yield is set by markets, not by Fed announcements alone³
  • Long-term rates reflect inflation expectations and Treasury supply, not just policy rates¹
  • Commercial real estate cap rates and interest rates tend to move with the 10-year, not the fed funds rate³


Here are a few verified data points to ground this discussion. As of Q4 2025, the 10-year Treasury yield traded in a roughly 4.0 to 4.5 percent range according to U.S. Treasury and Federal Reserve data¹. Core inflation measures in late 2025 remained above the Fed’s 2 percent target, generally in the mid-2 percent range depending on the index and reporting month, which helps explain why long-term rates remain sticky². Commercial and commercial mortgage pricing continues to be quoted at a spread over the 10-year Treasury, reinforcing its importance for cap rates and interest rates³.


For commercial real estate owners, the lesson is simple. Do not base decisions on fed funds headlines alone. Watch the 10-year Treasury yield, debt spreads, and lender behavior. That is where real pricing and value signals come from.


If you own commercial real estate and are deciding whether to sell, refinance, or hold, now is the time to look past the noise and focus on how long-term rates are actually behaving. Reach out if you want a pricing or exit strategy built around where long-term rates are, not where headlines say they should be.


If the Fed cuts rates but the 10-year Treasury stays high, how does that change your pricing expectations and exit strategy?


#CommercialRealEstate #InterestRates #CapRates #CommercialRealEstate #MarketInsight

Disclaimer

This post is for information only. It is not legal, tax, or financial advice. Always check with a licensed professional before making decisions.



Footnotes


¹ U.S. Department of the Treasury, Daily Treasury Yield Curve Rates, Q4 2025 to early 2026 reporting period.

²U.S. Bureau of Labor Statistics, Consumer Price Index and Core Inflation Measures, 2025 reporting period.

³ Federal Reserve Bank publications and commercial mortgage market commentary, 2025 reporting period.





© 2025 Marc Perlof Group. All rights reserved.

Retail Property Succession Planning: Will Your Family Inherit Income or Problems?

By Marc Perlof • February 23, 2026
By Marc Perlof | MarcRetailGuy February 23, 2026 If you own retail real estate, here’s what just changed for you. What Happens to Your Property When You’re No Longer Running It? Most mom-and-pop retail owners built their property over decades. You likely handled tenant calls yourself, negotiated leases personally, and made repair decisions without a committee. For many owners, the property is not just an investment. It is a major part of retirement income and family wealth. But here is the question few owners answer clearly: What happens to the property when you are no longer the one making decisions? Legacy Planning Just Shifted Again For several years, owners were told the federal estate tax exemption would drop sharply in 2026 and that they needed to act quickly. That urgency has changed. For estates of decedents who die in 2025, the federal estate and gift tax exemption is $13.99 million per person under IRS guidance¹. Under prior law in the Tax Cuts and Jobs Act of 2017, that higher exemption was scheduled to sunset after December 31, 2025 and revert to a lower level beginning January 1, 2026 if Congress took no action². However, the One Big Beautiful Bill Law, enacted July 4, 2025, prevents that reversion and permanently resets the exemption beginning January 1, 2026³. Starting in 2026, the exemption is $15 million per person, or $30 million for a married couple with proper planning, and it will be indexed for inflation going forward³. The annual gift tax exclusion remains $19,000 per recipient for 2026⁴. This means the expected tax drop is no longer the main threat. But taxes are rarely what hurt families who inherit retail property. What Actually Reduces Value After more than 20 years in retail investment sales and nearly $750 million in closed transactions, I have seen what causes problems for heirs. It is usually operational risk, not tax exposure. Common issues include leases expiring within a few years, major roof or parking lot repairs that were postponed, and no clear decision-maker in the family. Sometimes adult children inherit the property but do not want to manage tenants or deal with capital improvements. In many cases, the children do not even know who the estate attorney, real estate attorney, CPA, tax attorney, ADA specialist, or trusted vendors are. If the contact list for your handyman, plumber, roofer, and HVAC technician only lives in your phone, that is a real operational risk. None of these issues show up in an estate tax calculation. All of them show up in the sale price. Why Timing Matters Interest rates remain much higher than they were during the 2010–2020 period, with the Federal Funds Rate at 3.5%-3.75% to date from the Federal Reserve reporting⁵. Higher borrowing costs reduce buyer purchasing power and can compress pricing when owners consider selling investment property before retirement. At the same time, baby boomers continue to control a significant share of U.S. real estate wealth, and a large intergenerational wealth transfer is underway according to U.S. Census Bureau data⁶. In simple terms, many retail properties will change hands over the next decade. The only question is whether those transitions are planned or forced. What Strong Retail Property Succession Planning Looks Like Retail property succession planning should focus on the asset itself. That means reviewing lease rollover schedules, evaluating tenant credit strength, budgeting realistically for capital repairs, and creating a clear family real estate transition strategy. For some owners, commercial property inheritance planning makes sense because the next generation wants the asset and understands the responsibility. For others, selling investment property before retirement may protect wealth and reduce stress for the family. The right answer depends on lease structure, property condition, and family goals. If you own retail real estate and want a clear evaluation of your lease exposure, capital risk, and transition options, I can help you review it from a real-world retail perspective. Call or DM me for more information or comment “PLAN” if you want a succession checklist. If your largest tenant gave notice tomorrow, would your family know exactly what to do? #RetailRealEstate #CommercialRealEstate #CREBroker #InvestmentProperty #PropertyOwners #SuccessionPlanning #PropertyInheritance #FamilyWealth #NetLease #LosAngelesRealEstate

Weekly Perl: A Commercial Real Estate News Recap

By Marc Perlof • February 20, 2026
This Signal Triggered Before the Last 4 Recessions. It Just Happened Again. The question of whether the U.S. economy is heading toward recession is a polarizing one. On one hand, GDP grew at a 4.4% annualized clip in the third quarter. The unemployment rate is still in the 4% to 5% range. Inflation is still well above the Federal Reserve's target but it's also sustainably below the 3% level...

Why Retail Developments Fail After Site Control: Underwriting, Cap Rates, and Real Risk

By Marc Perlof • February 16, 2026
By Marc Perlof | MarcRetailGuy February 16, 2026 If you own retail real estate, here’s what just changed for you. Retail Developers: Why Your Deal Dies After You “Win” the Site Winning the site is not the win. Making the numbers work is the win. Today, many retail deals fail after the land is secured. Not because the site is bad. Because the math breaks when the market changes. If you own retail property, you must understand: Retail development underwriting. Retail real estate return on cost. Retail development exit cap rates. Retail capital stack risk. Retail tenant lease-up risk. These are no longer just developer terms. They determine whether your investment survives. Let’s look at the math. Example: You build a retail project for $12 million. You expect $1,000,000 in annual net operating income. Your retail real estate return on cost is: $1,000,000 ÷ $12,000,000 = 8.33% That looks strong. Now look at your exit. If buyers price the deal at a 6.75% cap rate, the value is: $1,000,000 ÷ 0.0675 = $14.8 million. Now stress test it. What if: Construction costs rise 8% Tenant Allowance costs rise Leasing is delayed 6 months Retail development exit cap rates expand 0.75% New total cost: $12.96 million New exit cap: 7.50% New value: $13.33 million Your profit shrinks fast. That is how deals die. Now let’s talk about retail capital stack risk. Most retail developments today use: 60 to 65% senior bank debt 10 to 15% mezzanine or preferred equity 20 to 30% sponsor equity If lease-up slows, lenders may: Increase reserves Delay refinancing Restrict distributions Tighten loan covenants Even a good property can become a weak investment. Retail tenant lease-up risk is another hidden problem. If your anchor tenant opens late: Interest continues Carry costs increase CAM recovery slows Cash flow weakens A short delay can materially impact your return. What does the market show? Retail vacancy remained near 5% in 2025, even as leasing velocity slowed.¹ Net lease cap rates averaged around the high 6% range in late 2025, with investors focused more on tenant quality and lease term than rate movements alone.² Assets with strong credit tenants and longer lease terms continue to command better pricing.² These trends mean one thing. Your retail real estate return on cost must exceed your retail development exit cap rate by a meaningful spread. A thin margin no longer protects you. If you earn 8.25% and expect to exit at 6.75%, that 1.5% gap may not be enough once capital stack risk and lease-up risk are fully modeled. Today’s retail development underwriting must include: Cap rate expansion Lease-up delays Construction overruns Higher cost of capital If your deal cannot survive realistic stress testing, it is not an investment. It is a momentum trade. If you own retail real estate or are planning a development, do not rely on optimistic pro formas. I stress test return on cost, exit assumptions, tenant structure, and capital stack exposure before capital is committed. Call or DM me for more information. What happens to your current property value if exit cap rates expand and your next tenant takes longer to open than expected? #RetailDevelopmentUnderwriting #RetailRealEstateReturnOnCost #RetailDevelopmentExitCapRates #RetailCapitalStackRisk #RetailTenantLeaseUpRisk
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