CRE Finance Council's sentiment index falls to lowest since 2023

The CRE Finance Council's quarterly sentiment index fell to 83.3 in the third quarter, down 17.5% from the prior reading, landing 34% below the record 126.6 it set in the final quarter of 2024 and the lowest since the third quarter of 2023.

The reversal has been steep. From the board's most constructive quarter in late 2024, the reading has fallen to its weakest since the third quarter of 2023, with demand crossing negative for the first time since the end of 2022 and fundamentals following for the first time since early 2025.

Rates frame the reversal: 10-year Treasury yields cleared 5% in mid-September, lifting borrowing costs and threatening momentum in commercial real estate capital markets, and the Federal Reserve then raised its benchmark rate for the first time since 2023. More than three-quarters of respondents expect the 10-year to be at 5% or higher by year-end, and just 21% expect it below; the board does not anticipate a major decline in long-term rates before the end of 2026. That view bears hardest on floating-rate construction and bridge books, where the coupon resets with the index rather than the deal.

More than 90% of respondents expect mortgage and cap rates to weigh on CRE finance businesses over the next year, and the concern no longer stops at the cost of money; nearly two-thirds see the economy weakening over the coming year, which CREFC Managing Director Raj Aidasani called the key item to watch. "Our members' concerns now extend past the next Fed decision to inflation, fiscal deficits and the outlook for long-term borrowing costs," he said in a statement. A softer economy would mean weaker rents and cash flow, compounding the strain on borrowers already managing higher rates and maturing loans.

Borrower demand for CRE and multifamily financing turned net negative for the first time since the end of 2022, with 24% expecting stronger demand over the next year against 35% expecting it to weaken, while investor demand split evenly at 30% on each side. Fundamentals followed negative for the first time since early 2025, with nearly a third expecting occupancy, rents and net operating income to worsen—up from 11% last quarter—against 22% expecting improvement.

Liquidity is the line that moved most inside an otherwise steady answer: 65% expect it to remain unchanged, but the share anticipating a contraction jumped from 5% last quarter to 24% in the third quarter. The center of the distribution held while the tail thickened, a shift that says less about the average counterparty than the marginal balance sheet likely to step back from a deal before year-end.

For a credit desk, the useful split is between loan types that carry this repricing risk and the ones that do not: stabilized assets with in-place income can absorb a higher 10-year by resetting cap rates and taking the equity hit, while transitional and construction loans sized off exit assumptions and interest reserves cannot. If the board is right that long-term rates hold near 5% through 2026, the second category is where leverage, spread and reserve structures likely tighten first—and where the 24%-against-35% demand reading is worth watching for which deals get done at all.

The panel matters as much as the score. CREFC's index comes from its board of governors, senior executives at firms including TPG, Starwood Property Trust, Apollo Global Management and KKR—balance sheets that price transitional credit—and two of them have been in the market lately. Apollo funded a $74.5 million acquisition-and-redevelopment loan for a Stamford office-to-condo conversion in August, and Starwood provided a $29.1 million loan behind Related Ross's land purchase for a Wellington village center in September. Firms still writing those checks while their own sentiment index falls to its weakest reading since 2023 are describing caution about the market, not a shut window.

A board that expects long-term rates to stay elevated, borrower appetite to weaken, and liquidity to thin at the margin is one that will likely resolve maturing debt through extension, preferred equity and rescue capital before it discounts clean collateral. That is consistent with the refinancing wall this publication has described as split between a multifamily lender strike and a trophy-office markdown, with agency capital offering full-term interest-only as the escape valve for better assets. The third-quarter responses fit that shape, with one important limit: the survey reports no breakdown by property type or maturity year, so the aggregate cannot say where along the wall the pressure concentrates.

For now, the index points down from the record. The fourth-quarter print will arrive after the year-end 10-year call resolves, whether above 5% as more than three-quarters of this board expects or below it. The more telling number may be the liquidity tail—whether the 24% expecting a contraction keeps growing or settles back toward the 5% it showed a quarter earlier.