Black Gold, Rising Rates, and Your Bottom Line — Six Months Later
Black Gold, Rising Rates, and Your Bottom Line - Six Months Later
The War didn't end, oil didn't come down, and the Fed did't cut. It raised rates
Steven Jimenez, Analyst, Triton Realty Group
In our Q2 report we warned that oil-driven rate cycles “tend to hold until the economy buckles, then reverse fast.” Six months later, the holding part is going great. On April 1, the 5-year Treasury was 3.97%, benchmark multifamily loans priced in the 6s, and we called that painful. If only we’d known how nice we had it.
Where We Left Off
Our spring report went out April 1, a month after U.S. and Israeli strikes on Iran set off what the International Energy Agency called the largest supply disruption in the history of the global oil market.[1] With the Strait of Hormuz largely shut, Brent crude had gone from about $70 to more than $100.[2] We laid out the chain from oil to your mortgage: oil raises input costs, inflation rises, the Fed holds or hikes, Treasury yields climb, and commercial loans priced off the 5-year Treasury follow. We called that path “multi-step, but historically consistent and well-worn.” It also turned out to be quick.
Scoreboard: April 1 vs. Today
In December 2021, the 5-year Treasury was 1.26%.[7] That’s where 3%-handle loans and 4% cap rates came from. We don’t mention it to torture anyone. We mention it because a lot of sellers are still pricing off it.
The War: Don’t Hold Your Breath
Since April, three ceasefires have been announced and all three have collapsed. The most promising, June’s Islamabad Memorandum, lasted about three weeks before Iran began attacking commercial ships in Hormuz in July.[8] Late September brought a second chokepoint crisis as Houthi escalation threatened the Bab al-Mandab at the mouth of the Red Sea. Iran has floated a 60-day ceasefire with a phased reopening of Hormuz,[9] but Washington won’t lift sanctions without “sufficient goodwill,” and talks continue only through mediators.[10] The oil market is pricing that track record, not the headlines. Even a signed deal would take months to restore normal shipping, rebuild confidence, and work its way into inflation data. Underwrite for an extended war, and treat peace as upside.
Why Rates Rose Even Though Core Inflation Didn’t
Core inflation fell to 2.4% in August, its lowest level since March 2021.[6] So why did the Fed hike, and why is the 10-year above 5%? It’s the stagflation trap we flagged in the spring. Rate hikes don’t move tankers through Hormuz, but the Fed is afraid that a long stretch of $100 oil gets built into wages, contracts, and expectations. Its September 16 statement called inflation “elevated” and projected the funds rate at 4.1%–4.4% by year-end, so another hike is on the table.[4][11] Bond investors are also demanding a bigger cushion against sticky inflation, and that premium goes straight into your loan quote. In March, Allianz expected the Fed to hold “well into late 2026.”[12] That was the optimistic scenario.
What This Means When It’s Time to Refinance
The MBA puts 2026 CRE mortgage maturities at $875 billion, and other trackers estimate as much as $936 billion.[13] Loans maturing now carry an average rate of about 4.76%.[14] In our own underwriting and the lender quotes crossing our desks, 7% is about the best rate you can expect today on a conventional commercial multifamily loan for a stabilized property. Anything less than stabilized prices higher. Here is April’s $2 million loan example at today’s pricing:
In April the gap was $28,000 to $60,000. Today’s best case is roughly the spring’s worst case. Agency programs can price lower for larger deals that qualify,[15] but for the bank loans behind most small-balance Chicago buildings, 7% is where the conversation starts.
What owners should expect:
Smaller loans, not just higher coupons. Lenders size loans to a debt service coverage ratio, typically 1.20x–1.25x. When the rate goes up, the loan a property can support goes down. Many owners will find the new loan doesn’t cover the old balance, which means a cash-in refinance.
Less generous extensions. Lenders have been “extend and pretend” partners since 2023. With the 10-year at its highest level since 2007 and banks holding about 60% of near-term maturities, expect extensions to come with paydowns, rate floors, or cash-management triggers.[14]
Little room for floating-rate borrowers. SOFR is near 3.7% and the Fed is signaling more hikes, not cuts.[15] If your rate cap expires before your loan does, replacing it will be expensive.
What This Means If You’re Buying, and Why Prices Have to Adjust
For buyers, what matters is how much debt a property can carry, because that determines what a buyer can pay. Take a building producing $300,000 of NOI. Only the financing changes:
The building earns the same, but even at today’s best rate it supports about $1.4 million less debt. A buyer covers that with more equity, a lower return, or a lower price, and the market does mostly the last one. Cap rates tell the same story. At a 4.5% cap rate, which was common in 2021, that NOI is worth about $6.67 million. At 5.5% it’s worth $5.45 million, and at 6% it’s worth $5.0 million. Each half-point takes roughly 8–10% off the value.
In 2021, buyers happily paid 4.5% cap rates because debt cost 3.5%. Every borrowed dollar earned more than it cost. That’s positive leverage, and it made 2021 feel like genius was abundant. Today, a 5.5% cap rate financed at 7% is negative leverage: every borrowed dollar lowers the buyer’s return. Buyers will accept that only for a clear value-add story, a 1031 deadline, or a building they plan to keep in the family for three generations.
That’s why we expect sale prices to be held back in the coming period:
Buyers’ math has changed. We’re underwriting deals at 7% in our own office. At that rate, a buyer can’t pay 2021 prices and make the numbers work.
Cap rate pressure is already visible. CBRE’s H1 2026 survey found stabilized New York multifamily widening from 4.5%–5.0% to 5.0%–5.5%, with some coastal markets up 50–100 bps since late 2025.[16] Chicago entered the year with infill Class A at 5.25%–5.50%. Higher starting yields give the city some cushion, but not immunity.
Buyers are cautious. 77% of CBRE’s respondents said the Iran conflict is hurting their 2026 investment outlook.[16]
Values aren’t collapsing. National apartment prices are roughly flat year over year (+0.2%), rents are still growing, and vacancy is steady at 6.8%.[17] Think of it as a ceiling rather than a crash, and the longer rates stay here, the lower that ceiling gets.
For sellers: A well-run building with solid NOI still sells. A 2021 price with 2026 debt doesn’t. The listings that trade will be priced to the buyer’s lender, not the seller’s memory.
For buyers: Patient buyers with real equity get paid in this market. Motivated sellers with maturing debt are a real and growing group. Look for assumable low-rate debt, seller financing, and buildings with below-market rents you can raise at renewal.
The Good News (We Promised We’d Include Some)
What we said in the spring still holds. Inflation has historically been kinder to income-producing real estate than to most asset classes. Rents reset with the market. Construction costs are rising with fuel, materials, and financing, which slows new supply and supports the value of existing buildings. Shelter inflation is running a steady 3.0%.[6] Owners with long-term fixed-rate debt, strong occupancy, and below-market in-place rents are in good shape. For them, this cycle is an earnings event. For everyone else, the time to act is before your maturity date, not on it.
The Owner’s Playbook, Updated
1. Audit your maturities, and treat 2027 as close. If a loan matures in the next 18–24 months, talk to your lender now. In April we said to lock or extend if you could. Owners who did are about 100 bps ahead of those who waited.
2. Get off floating-rate debt, or price a new rate cap now. The Fed is hiking, not cutting. Model another 50 bps and ask yourself honestly whether the property survives it.
3. Size your refinance at 7% plus a cushion. Run the new loan at 1.25x DSCR using today’s rate plus 50 bps. If the answer comes in below your current balance, start planning the equity now, whether that’s reserves, a partner, or selling a different asset.
4. Lock in operating expenses wherever you can. Energy is up 16% year over year. Fixed-price, multi-year service contracts and utility hedges protect NOI, and in this market NOI is what supports your value.
5. Sellers: price to today’s buyer. Overpriced listings go stale, and stale listings sell for less than well-priced ones. Ask your broker to walk you through the buyer’s financing math, not just the comps.
6. Buyers: underwrite honestly. Use current debt costs and assume cap rates don’t compress at exit. If a deal only works with a 2027 rate cut, it doesn’t work.
Closing
In April we wrote that this cycle “will run its course, as all cycles do.” We still believe that. We just underestimated how long it would take. Six months from now, we may look back on a 5% 10-year Treasury with the same regret we now feel about April’s 4.3%. Or a ceasefire will hold and this issue will look alarmist. We’d welcome that. Owners who prepare for the first scenario will be fine in the second.
Questions about your building, your maturity, or your next purchase? Contact the Triton team. We’re running these numbers every day.
Comments