Founder's Note
The Fed raised rates on Wednesday, a quarter point to a range of 3.75% to 4%, its first increase since 2023 and a unanimous vote. The ten-year Treasury is above 5% for the first time in nineteen years. Freddie Mac's mortgage rate jumped to 6.95%. More than a third of homebuilders are cutting prices, and the supply of existing homes for sale reached 4.9 months, the most since 2015. Everything moved this week except one number.
That number is the value of standing commercial property. Green Street's index was still up 5.0% over the twelve months through August, with the firm's own researcher warning that buyers are about to rethink what they will pay. This is how a repricing always runs. Rates move first, then the for-sale market, then the developers, whose apartment starts fell 22.5% in a single month, and last of all the building itself, because an owner does not have to sell until the debt says so. The debt is starting to say so: 11.42% of the commercial mortgage bond market was in special servicing in August, the most since 2013.
My read: for once the more important question about a deal is not the price but the date. A syndication that closed at last spring's numbers needs the repricing never to arrive. A fund that commits capital over time gets to meet the sellers the debt produces.
This Week in Markets
1. The Fed raised for the first time since 2023, and the ten-year crossed 5%
The Federal Open Market Committee raised the federal funds rate a quarter point on Wednesday to a range of 3.75% to 4%, by a vote of 12 to 0, the first increase in more than three years. Chair Warsh's summary: "The plain fact is that inflation is too high and has been for too long." Sixteen of the eighteen officials submitting projections expect at least one more increase this year, and four expect two. The ten-year Treasury moved above 5% for the first time since 2007, and Freddie Mac's 30-year mortgage rate jumped to 6.95% from 6.76% in a single week, against 6.26% a year ago.
Why it matters: The hurdle every private deal competes against is now a 5% risk-free rate, and the Fed says it is not finished. Ask what exit cap rate the deal assumes, and whether it was set before or after this week.
2. Home sellers blinked first: supply at a ten-year high, 38% of builders cutting prices
Existing-home sales fell 2.0% in August to a 3.98 million annual rate, the first reading under 4 million since June 2025, while the number of homes for sale rose to 1.62 million, a 4.9-month supply and the most since 2015. The median price still rose 1.6% to $429,100. Builders are further along. The NAHB confidence index fell to 32 in September, its lowest in a year, with 38% of builders cutting prices by an average of 6% and 66% offering incentives, the highest share since December.
Why it matters: This is the order a repricing runs in. Volume falls, inventory builds, incentives appear, and the sticker price moves last. The for-sale market is a few steps ahead of commercial property, and it is a useful preview.
3. Commercial values are still up 5%, and the people who measure them expect that to end
Green Street's commercial property price index rose 0.8% in August and 5.0% over twelve months, a run that started before the ten-year began climbing. Peter Rothemund, the firm's co-head of strategic research, put it plainly: "It's been a nice run for property prices, but I expect things will cool off," because higher borrowing costs are "likely to cause buyers to rethink what they're willing to pay." Developers have already rethought. Starts on buildings of five or more units fell 22.5% in August to a 344,000 annual rate, 15.5% below a year ago.
Why it matters: Two things are true at once. Standing property has not repriced yet, which favors capital that buys over the next year or two rather than on one closing date. And the supply that would have competed with it in 2028 is not being started.
The Take
Every repricing runs in the same order, and this week you could watch the whole sequence from your inbox. On Wednesday the Fed raised rates for the first time in three years. The ten-year crossed 5% for the first time since 2007. On Thursday the mortgage rate jumped to 6.95%. Home sellers are sitting on the most inventory in a decade, builders are cutting prices at 38% of firms, and developers pulled apartment starts down 22.5% in a single month. Only one number stayed put: the price of a commercial building. Green Street still has it up 5.0% over the year.
That is not a contradiction, it is the normal lag. A public stock reprices in an afternoon because somebody has to sell at whatever the bid is. A building reprices only when an owner is made to sell, and most owners are not made to sell by a rate. They are made to sell by a maturity. We saw it in 2022, when the ten-year doubled inside a year and it took the better part of two more for prices to catch up. Now the special servicing rate on commercial mortgage bonds is 11.42%, its highest since 2013. The debt has begun the conversation. So the question I would put to any deal this week is not what it pays. It is when it buys.
One. Ask when the capital goes to work. A syndication closes on a date and pays that day's price. A fund with an investment period buys into the next two years of prices. In a market that has moved on everything except price, the second structure holds a real option the first does not.
Two. Ask who has to sell. Sellers who can wait are waiting, which is why values are still up. The buyers who do well over the next eighteen months will be the ones standing in front of the sellers who cannot wait, and those sellers arrive with a maturity date, not a press release.
Three. Ask what happens if prices never fall. Green Street has printed twelve months of gains and a repricing is a forecast too. A seeded fund with real assets already inside it, and a preferred return the sponsor sits behind, does not need the forecast to be right to be a reasonable position. Do not pay for optionality you would not use.
The uncomfortable half deserves saying too. Deploying over two years means two years of your capital waiting on calls, and a diversified fund trades the upside of the one great deal for the average of fifteen. The fees are layered, an acquisition fee at the deal level and management fees at both the fund and deal level. Read the partnership agreement, not the summary.
But be honest about which bet you are making, because the two get blurred constantly. Buying on one closing date is a bet that the sellers already moved. Buying over an investment period is a bet that they are about to. This week gave you the whole sequence in order, and only one number has not moved yet. Target returns remain targets, diversification does not remove market risk, and a fund can deploy into a market that keeps rising. Ask when the deal buys before you ask what it earns.