CRE Borrowing Costs Stall as SOFR Finds a Floor in Q2

August 22, 2026 - 17:36

Commercial real estate borrowers saw little relief in the second quarter of 2026, as short-term borrowing costs stopped falling and long-term Treasury yields inched upward. The Secured Overnight Financing Rate, or SOFR, which underpins most floating-rate CRE loans, found a firm floor after months of gradual declines. That left many borrowers staring at the same rate quotes they saw in late Q1, with no clear signal that cheaper money was coming.

Lenders say the shift has pushed more deal activity into fixed-rate products. With SOFR stuck and the yield curve steepening, floating-rate loans no longer offer the same upfront savings they did a year ago. Borrowers who had been holding out for another rate cut are now locking in longer terms, hoping to avoid another surprise move from the Federal Reserve.

The result is a market that feels stable but not exactly healthy. Transaction volumes remain muted, and underwriting standards stay tight. Some investors are choosing to wait on the sidelines, while others are accepting higher all-in costs just to get deals done. The consensus among brokers and bankers is that rates will stay in this narrow band for at least another quarter, barring a major economic shock.

For now, the message to borrowers is simple: expect to pay roughly the same for capital in Q3 as you did in Q2. The days of chasing falling SOFR are over, at least for the moment. Fixed-rate quotes are becoming the default option, and the spread between floating and fixed has narrowed enough that the old arbitrage no longer makes sense for most deals.