Structurally Higher: Interest Rates and Multifamily Ownership into 2027

Long-term Treasury yields have remained elevated, in the 4 to 5 percent range, for reasons largely separate from the Federal Reserve's near-term policy. The ten-year yield is now near 5 percent, its highest level since 2007. This report reviews the forces behind that level and what they mean for how we underwrite and own multifamily.

Our January view, realized

The setup this year has been unusual. The Federal Reserve delivered three quarters of a point of cuts in late 2025, yet the ten-year Treasury has climbed, not fallen, and now trades around 5 percent. Under new Chair Kevin Warsh the Fed has held its policy rate at 3.50 to 3.75 percent through the summer and flagged the possibility of hikes, with underlying inflation proving sticky and energy prices firm. Front-end policy and long-end pricing have decoupled, and that decoupling is the whole story for real estate.

When long-term borrowing costs are set by the bond market, an owner should not underwrite to rate relief. We think that is the correct base case, and the reasons are structural.

Three forces anchoring long yields

Fiscal gravity

The federal deficit is running near $2 trillion, above 6 percent of GDP, and net interest on the debt has crossed $1 trillion for the year, with gross interest setting records and now exceeding what the country spends on defense. This is self-reinforcing: higher rates enlarge the deficit, a larger deficit requires more Treasury issuance, and more issuance into a price-sensitive buyer base pushes yields higher still. The Congressional Budget Office projects net interest roughly doubling to more than $2 trillion by 2036. Absent a change in fiscal trajectory, the supply of Treasuries is a persistent upward force on yields.

Fewer foreign buyers

For two decades, foreign central banks and sovereign investors absorbed a large and growing share of Treasury issuance. That share has been declining. As price-insensitive official buyers step back, the marginal buyer is an American investor who demands a real yield to hold duration. More supply meeting a more discerning demand base is a recipe for a higher clearing rate.

Global rate normalization

The final force is offshore. The Bank of Japan is tightening, and the ten-year Japanese government bond now yields around 2.7 percent, a 27-year high, up from roughly 2.1 percent in the spring. For years, near-zero yields at home pushed Japanese capital into US Treasuries. As domestic yields rise, that capital has reason to stay home. The same normalization is underway across developed markets, and it re-prices duration everywhere, the US included.

What higher-for-longer means for real estate

The implication for commercial real estate is direct. If the ten-year is anchored near 5 percent, meaningful cap-rate compression is unlikely, and the era of manufacturing returns by buying at one cap rate and exiting at a lower one is over. Value now has to be created, through operations, through basis, and through buying well. At the same time, tariff-driven construction cost inflation is keeping new supply expensive to build, which protects the owners of existing, well-located assets in markets where little new product pencils.

The multifamily setup

This is where the picture turns constructive for our asset class. The multifamily supply wave that pressured rents and net operating income over the past two years is clearing. Projected 2026 deliveries are around 316,000 units, down roughly 46 percent from 2024, and units under construction have fallen by half from their early-2023 peak. NOI growth turned negative in many markets as insurance and tax expenses ran ahead of rents, but as the supply passes and absorption catches up, the setup for 2026 into 2027 is a tightening market with reaccelerating rents. The secular demand behind it, a structural national housing shortage, has not changed. Supply-constrained markets are where those fundamentals are most durable.

Where the opportunity is

The same rate environment that closes the door on financial engineering opens a different one. More than $1.5 trillion of commercial real estate debt matures between 2025 and 2027, with the wall peaking near $1.26 trillion in 2027. A large share was originated at 3 to 4 percent and now has to refinance at 6 to 7 percent or higher. Many of those capital structures do not survive the reset. The result is motivated and forced sellers, and a chance for well-capitalized owners to acquire quality assets at a basis that reflects today's cost of capital rather than yesterday's.

How Vantage West is positioned

Our underwriting reflects this environment. That means conservative assumptions with a buffer between our entry and exit cap rates, a basis below replacement cost, and a concentration in supply-constrained Western markets we know well. It means disciplined operations, supported by a platform that tracks performance across every property, to protect and grow net operating income. And it means holding capacity to move when the maturity wall produces the right assets at the right basis. For a patient, well-capitalized owner, a higher-rate environment can present attractive entry points.