On September 16, the Federal Reserve raised its benchmark interest rate for the first time since 2023. It was only a quarter of a point, but it changed the conversation. If you’ve owned commercial property for a while, you’ve lived through a few rate cycles. You know the headline never tells the whole story. What matters is what it does to the person on the other side of your deal.

So, let’s talk about what this means for sellers, what it means for buyers, and why I keep reminding my clients that it’s not all about the interest rate.

What It Means If You’re Selling

Your buyer is probably using debt, and that debt just got more expensive. That’s the whole story in one sentence. Buyers price a property based on the income it produces. When their loan costs more, they can pay less for the same income, or they need a higher cap rate to make the deal work. Here’s a simple example. Say a building produces $200,000 a year in net operating income. At a 6.5% cap rate, it’s worth about $3.08 million. At 7%, it’s worth about $2.86 million. Half a point on the cap rate is roughly $220,000. That’s an illustration, not a prediction for your building, but you can see how quickly the math moves.

It gets tougher when the cost of the loan is close to, or higher than, what the property earns. At that point, debt stops helping the buyer and starts hurting. Those buyers don’t disappear, but they get very disciplined, very fast.

This is where I see good owners get stuck. They’re anchored to the price a neighbor got a few years ago, or the number they were offered when money was cheap. Buyers don’t underwrite the past. They underwrite today’s rates.

My advice is simple: price to the market that exists, not the one you remember. An overpriced listing sits, and a property that sits starts to look like it has a problem. The sellers who do best in a rising-rate environment price accurately from day one and come prepared with clean leases, solid financials, and an honest picture of the building’s condition.

Here Is Some Context on Today’s Rates

The Federal Reserve’s target range for the federal funds rate is now 3.75% to 4.00%. The vote was unanimous, and the Fed pointed to inflation that is still stubbornly above its 2% goal. Most Fed officials expect at least one more increase before the end of the year, and the next meeting is October 27 and 28.

Context matters here, because rates have been a roller coaster:

• March 2020: The Fed slashed rates to near zero (0% to 0.25%).
• March 2022 to July 2023: The fastest hiking cycle in  decades took the range up to 5.25% to 5.50%.
• September 2024 to December 2025: Six cuts brought it down to       3.50% to 3.75%.
• Early 2026: The Fed held steady.
• September 2026: The first hike in more than three years, to 3.75% to 4.00%.

Two things stand out. First, today’s rate isn’t extreme by long-term standards. Before the Great Recession, the effective federal funds rate averaged 6.38%. But it feels high because so many owners bought or refinanced when money was practically free. Second, and this is the part that matters most for commercial real estate, your lender doesn’t price your loan off the federal funds rate. They price it off longer-term benchmarks like the 10-year Treasury, which was around 5.3% as of this weekend, and then add a spread. Published rates today run roughly 6.5% to 9.5% for conventional commercial loans, and about 7% to 8.8% for CMBS, depending on the term, the property, and the borrower.

What It Means If You’re Buying

Higher rates are a challenge for buyers, but they also create leverage. Sellers who have been waiting for last year’s price are starting to face reality, and that opens up room to negotiate.

The most important thing you can do is shop around. I mean that literally. Two lenders can look at the same deal and offer very different terms. Right now, published rates range from the mid-6% area to over 9%, depending on the lender, the loan type, and the strength of the borrower. A community bank, an SBA program for owner-occupants, a life company, and a CMBS lender each have different appetites and different pricing.

But as I frequently say, it’s not all about the interest rate. Before you pick a lender, compare:

• Prepayment penalties: What will it cost you to sell or refinance early?
• Recourse: Are you personally guaranteeing the loan?
• Term and amortization: When does the balloon come due, and what will rates be then?
• Leverage and coverage: How much will they lend, and how much income cushion do they require?
• Certainty of closing: Will this lender close on time, at the terms they quoted?

A slightly lower rate with a heavy prepayment penalty and a short term can cost you far more than a slightly higher rate with flexibility. And if the building’s income can’t comfortably cover the payment, the rate was never the real problem.

For Individual Investors and Small Partnerships

If you own with partners, rising rates are a conversation you can’t put off. A loan that comes due will reprice, and partners don’t always agree on whether to refinance, bring in more equity, or sell. It’s far better to have that talk now, while it’s still just a conversation, than at the maturity date with the lender’s clock ticking.

If you’re planning a 1031 exchange, remember that your replacement property will be financed at today’s rates. Run the numbers on the new debt before the 45-day identification window starts, not after. And bring your CPA and your attorney in early. The best outcomes I see are the ones where everyone is at the table before the decision is made.

The Bottom Line

Rates will keep moving. The Fed’s own projections point to another increase this year, and policymakers don’t expect inflation to get back to 2% until 2029. Nobody can tell you exactly where rates will land, and I won’t pretend to.

What you can control is accuracy. If you’re selling, your price has to reflect the current economy and the lending environment your buyers are walking into. Sellers who adjust early get deals done. Sellers who wait for the market to come back to them often wait a long time. If you’re buying, shop around, but remember that it’s not all about the interest rate.

Mike Porterfield is the owner of Tartan Properties Commercial, a real estate brokerage specializing in office, industrial, and flex properties in Northern Virginia. He can be reached at [email protected] and @theCREbroker on Instagram