Treasury Rates Open Opportunity for Multifamily
Terrydale Capital
Aug 9, 2024 5 Min read
The 10-year Treasury rate is a critical benchmark in the world of finance, particularly in the context of commercial real estate. Due to the current market conditions as of late, the treasury rate has hit the lowest point of the year with many investors buying treasury bonds and commercial real estate investors - especially in the multifamily sector - are seeing opportunity arise.
What Is the 10-Year Treasury Rate?
The 10-year Treasury rate is the yield or return on investment that investors receive when they purchase U.S. government bonds with a maturity of 10 years. These bonds are considered one of the safest investments in the world, backed by the full faith and credit of the U.S. government. As a result, the 10-year Treasury rate is often seen as a "risk-free" rate, serving as a key reference point for other interest rates, including those in the real estate market.
Why Is It Important for Commercial Real Estate?
The 10-year Treasury rate is closely watched by commercial real estate investors and professionals because it influences borrowing costs and, by extension, property valuations. Here’s how:
- Interest Rates on Loans: The 10-year Treasury rate is often used as a base for setting interest rates on long-term loans, including commercial mortgages. When the 10-year rate rises, borrowing costs typically increase, which can lead to higher expenses for property investors and developers. Conversely, when the rate falls, financing becomes cheaper, potentially boosting investment and development activity.
- Cap Rates and Valuations: Cap rates, which are used to estimate the return on investment for commercial properties, often move in tandem with the 10-year Treasury rate. A higher 10-year rate usually leads to higher cap rates, which can reduce property values. On the other hand, a lower rate tends to result in lower cap rates, increasing property valuations.
- Investor Sentiment: The 10-year Treasury rate also serves as a gauge of broader economic conditions. A rising rate may signal economic growth, leading to increased demand for commercial real estate. However, it can also indicate higher inflation, which could dampen investor enthusiasm. A falling rate might suggest economic uncertainty, but it can also make real estate investments more attractive compared to lower-yielding bonds.
Where the Opportunity Lies
With treasury rates reaching a low, multifamily assets have seen a surge in opportunity. With many lending options for multifamily assets basing their pricing off of the treasury rate, lending programs have become very favorable with some agency options boasting rates in the low 5’s.
For investors considering a new acquisition or are seeing an opportunity to lower their current rate through a refinance - now has become the best time of the year to do so.
Conclusion
As the market continues to change, it always pays to have the right team by your side. With a vast collective experience in the commercial real estate sector and a great deal of experience in multifamily, Terrydale Capital is poised to help you achieve your financing needs. Contact us today!
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Headquartered in Dallas, Texas, Terrydale Capital is a leader in commercial real estate financing. We have close relationships with the nation’s top banks, lenders & family offices allowing us to provide the most competitive financing solutions in the market.
