Commercial Interest Rates and Bond Market Update

Week Ending May 22, 2026

Federal Reserve Policy

• The next FOMC meeting is June 16 through 17; markets widely expect another hold at 3.50% to 3.75% amid persistent inflation above 2% and ongoing Middle East energy price pressures.
• April CPI rose 3.3% year over year, the highest since May 2024, driven by surging energy costs; May PCE data due late June will be the next key inflation checkpoint for the Fed.
• The April 28 to 29 FOMC minutes released May 21 revealed historic 8 to 4 dissent under new Chair Kevin Warsh; several members pushed to remove easing bias, signaling potential hikes ahead.

Bond Market Trends

• Treasury yields surged month over month: the 5Y rose from 3.91% to 4.25% (up 34 bps), the 7Y from 4.09% to 4.41% (up 32 bps), and the 10Y from 4.30% to 4.57% (up 27 bps).
• Moody's downgraded the U.S. credit rating from Aaa to Aa1 on May 16, the first ever, citing debt projected at 134% of GDP by 2035; the 30Y Treasury briefly touched 5.10%.
• Rising term premium and fiscal deficit concerns are steepening the curve; long end yields are increasingly disconnected from the Fed funds rate, compressing CRE debt coverage ratios.

Commercial Interest Rates

• Agency multifamily rates via Fannie Mae and Freddie Mac start at 5.95% for loans over $6M and 6.35% for smaller balance; spreads over the 10Y Treasury holding steady at 130 to 150 bps.
• Construction and bridge loans are pricing at SOFR plus 250 to 325 bps; lenders tightening LTV to 60% to 65% as exit cap rate assumptions rise with the broader yield environment.
• CMBS conduit rates range from 6.96% to 7.25% for non recourse 10 year fixed product; SBA 504 remains competitive at 5.88%, favored by owner users to preserve lower leverage.

Takeaway: The Moody's downgrade and hawkish FOMC minutes delivered a one two punch to bond markets this week, pushing the 5Y, 7Y, and 10Y Treasuries sharply higher month over month. With the June Fed meeting unlikely to bring relief and CRE spreads widening, borrowers should prioritize locking rates now and stress testing DSCR at current benchmarks before executing.

LA Commercial Real Estate Market Trends

Week Ending May 22, 2026

Multifamily

• A 96 unit value add property in Koreatown traded at a 5.1% cap rate at $295K per unit; institutional buyers remain active targeting 1970s to 1980s vintage stock with rent growth upside.
• A West LA 48 unit refinance closed via Fannie Mae at 65% LTV, 1.28x DSCR, and 5.95% fixed rate; sponsors acting quickly amid continued upward rate pressure.
• LA multifamily vacancy held at 4.2% with 3.8% year over year rent growth; chronic undersupply and strong employment fundamentals continue to underwrite the asset class resilience.

Retail

• A grocery anchored neighborhood center in the San Fernando Valley sold for $22M at a 5.75% cap rate; credit tenanted strip centers remain the most liquid retail product in LA.
• A mixed use retail asset in Culver City secured bridge financing at SOFR plus 280 bps at 60% LTC; sponsor targeting lease up of 8,000 SF junior anchor space to achieve stabilization.
• LA retail vacancy edged lower as experiential and fast casual tenants continue absorbing inline space; large format boxes still face headwinds from repositioning to alternative uses.

Industrial

• A 78,000 SF last mile logistics facility in the City of Industry sold for $36.5M at $468 per SF; land scarcity near the Ports of LA and Long Beach continues to support premium valuations.
• An owner user manufacturing acquisition in Vernon closed via SBA 504 at 5.88%, 90% LTV, and 25 year amortization; owner user demand steady despite elevated long term borrowing costs.
• LA industrial vacancy ticked up slightly to 3.8% as new supply deliveries outpace near term absorption; aerospace and defense tenant demand in the South Bay corridor remains a bright spot.

Office

• A creative office campus in El Segundo sold at $185 per SF, a 40% plus discount to replacement cost, attracting a value add operator targeting aerospace and tech tenant demand.
• A Pasadena medical office building refinanced with a life company lender at 58% LTV and 6.25%; healthcare anchored product drawing stronger institutional lender interest than traditional office.
• Downtown LA Class A office vacancy remains near 27%; Measure ULA's 4% to 5.5% transfer tax continues to suppress transaction volume at higher price points, slowing price discovery.

LA Market Takeaway: LA's CRE market remains bifurcated: industrial and multifamily continue to attract disciplined capital with sound fundamentals, while office faces structural headwinds compounded by Measure ULA and rising cap rates. With benchmark yields moving sharply higher this week, debt coverage and equity cushion are top of mind for lenders across all product types, and underwriting discipline and conservative leverage are the themes defining deal activity heading into summer.