The CORE QuestionWhen Does the Math Stop Working?
Borrowing costs have reset faster than commercial real estate prices. CORE President Josh Soley explains what that gap means for investors—and where opportunities are emerging in secondary New England markets. Josh Soley, President, CORE Commercial real estate investors have spent much of the past several years waiting for interest rates to normalize. Instead, the cost of capital has moved sharply in the opposite direction. The 10-year U.S. Treasury reached 5.18% on September 24, 2026. Banks and other commercial real estate lenders have repriced accordingly. Yet one critical part of the market has been much slower to adjust: the price of the real estate itself. The issue today isn't necessarily a lack of capital or a lack of buyers. The issue is that the cost of debt has changed dramatically, while the expectations of many sellers have not. Eventually, those two sides of the equation have to reconcile. The cost of capital has reset The 20-year view makes the regime change clear. The 10-year Treasury fell below 1% in 2020 and has since moved above 5%. Bank prime followed the same tightening cycle and stood at 6.75% in August 2026. Prime is a broad indicator of bank lending conditions, not a quote for a specific commercial mortgage. Graphic 1: 20-year view of the 10-year Treasury and U.S. bank prime rate. CBRE reported that the national average net-lease cap rate held at 6.9% in Q2 2026 while the average 10-year Treasury yield was 4.5%, a 241-basis-point spread. Since then, the Treasury has moved to 5.18%, underscoring how quickly the capital-market backdrop can change. Graphic 2: A Q2 national cap-rate benchmark alongside the Treasury yield observations. The math has changed In the secondary New England markets where CORE is most active, quality commercial real estate opportunities can often be found around 7% to 7.5% capitalization rates, depending on asset class, tenancy, lease duration, location and business plan. Meanwhile, financing for quality investments and projects can hover around 6.5%, with actual pricing varying by borrower, leverage and lender. At first glance, borrowing at 6.5% to acquire a property at a 7.5% cap rate may appear to provide positive leverage. But the coupon is not the annual debt-service burden. A 6.5% loan amortized over 25 years carries an annual debt constant of approximately 8.1%, before points and other financing costs. People naturally compare the cap rate to the interest rate, but that doesn't tell the entire story. If I'm buying at a 7.25% cap and my debt constant is over 8%, leverage is working against me on day one. Unless there is a compelling growth or value-add story, that is difficult to justify. The situation becomes more challenging once acquisition costs, capital expenditures, tenant improvements, leasing commissions and reserves are included. That does not necessarily make a transaction a bad investment. It means basis, income growth, value creation and debt structure matter far more than they did when debt was inexpensive. Why prices have been slow to react Private real estate does not reprice instantaneously. Many owners have no immediate need to sell. Some acquired assets years ago at substantially lower bases; others have legacy fixed-rate debt or little leverage. Buyers, however, must underwrite acquisitions in today’s capital markets. The result is a persistent bid-ask spread: the gap between what sellers expect and what buyers can justify. National data doesn't tell the whole story National statistics help explain the macro environment, but they can obscure an important distinction for CORE: the firm is focused heavily on secondary New England markets, not only on gateway markets. An office, retail or industrial property in Portland may trade at a very different cap rate from a comparable institutional asset in Manhattan. The Treasury benchmark influencing the broader cost of capital, however, does not change because a building is in Maine rather than New York. An investor buying a building in Portland or Worcester may be able to achieve a meaningfully higher going-in cap rate than an investor buying a comparable institutional asset in Boston or New York. But both investors are borrowing in a capital market ultimately influenced by the same Treasury curve. CBRE cautions that broad averages can mask significant differences among markets and property types. CORE's 7%-7.5% range is its observation of quality assets in the secondary New England markets where it operates, not a national cap-rate average. Capital is available. Deal flow is still low. Today's market is not simply a liquidity crisis. Buyers still want to transact and lenders still want to lend. The friction is that many transactions do not produce acceptable leveraged economics at today's combination of asking prices and financing costs. We're seeing willing buyers and we're seeing available capital. What we're not seeing enough of are transactions where the acquisition basis, capitalization rate and financing structure all make sense together. Buyers will need to get creative If conventional acquisitions no longer pencil under conventional financing, buyers can wait for prices to adjust, accept lower returns or structure transactions differently. CORE is increasingly focused on the third option, including marketed and off-market opportunities with higher yields or value-add potential. In this market, investors have to look beyond what is broadly marketed. We are spending a significant amount of time sourcing opportunities off market—situations where there may be a higher going-in yield, operational upside, lease-up potential or another component that allows us to create value rather than simply hope that cap rates compress. Below-market rents, vacancy, expansion opportunities, redevelopment, management efficiencies, seller financing, assumable debt and other capital structures can all become meaningful parts of an investment thesis. The other half of the equation: debt Finding the right property is only half of the challenge. Through its debt brokerage team, CORE works with institutional, regional and local lending partners to source financing for acquisitions, refinancings and projects, including for third-party clients. In today’s environment, the headline coupon is only one part of a financing decision. Amortization, loan-to-value, debt-service coverage, interest-only periods, recourse, prepayment provisions, reserves and covenants can each materially affect investment economics. The lowest stated interest rate isn't always the best financing. Structure matters enormously right now. A lender that understands the asset, the sponsor and the business plan may be able to structure a transaction in a way that creates significantly more value than simply shaving a few basis points off the coupon. Local and regional institutions can be especially valuable when they know the market and can evaluate a transaction on its individual merits. There are still lenders that want to lend. Our job is to understand which institutions are actively looking for a particular type of transaction and then connect the right borrower, property and capital source. The lending market has become more selective, but selective does not mean closed. A market for problem solvers Higher interest rates will ultimately have to be reflected somewhere in commercial real estate economics: through higher cap rates and lower acquisition prices, stronger net operating income, more favorable financing structures or some combination of the three. There is a fundamental mismatch in the market right now, but mismatches create opportunity. You cannot control the 10-year Treasury, and you cannot force every seller to adjust their expectations. What you can control is what you buy, the basis at which you buy it, how you finance it and what you do with the asset after closing. Finding opportunity in a dislocated market For CORE, the current environment means continuing to source commercial real estate opportunities throughout New England—particularly opportunities that may never reach the broadly marketed investment-sales universe—while expanding relationships with institutional, regional and local lending partners. This isn't a market where I would want to rely on rising values to make an investment work. The transaction needs to make sense based on today's numbers. If we can buy at the right basis, identify real value-add opportunities and pair those investments with thoughtful financing, there are still very compelling deals to be done. For investors, the practical test is whether a property works at today’s price and financing terms, with a credible plan to improve its performance. Higher rates have made careful pricing, thoughtful financing, and early action more important. Six months from now, will you wish you’d made the call sooner? Sources and methodology Federal Reserve Board via FRED: 10-Year Treasury Constant Maturity Rate and Bank Prime Loan Rate. CBRE: Q2 2026 U.S. Net-Lease Investment Figures. Bank prime is a broad indicator of bank lending conditions, not a commercial real estate mortgage quote. CORE's 7%-7.5% secondary-market cap-rate range and 6.5% illustrative loan coupon are market observations/illustrations and will vary by transaction. The approximately 8.1% debt constant assumes a 6.5% coupon and 25-year amortization.
October 13, 2026
