Q3 Capital Markets Update
published August 13, 2026
Weak Jobs, and a Stubborn Fed
Friday's jobs report was ugly by any measure: payrolls fell 23,000 in July against expectations of an 80,000 gain, and the prior two months were revised down a combined 103,000. At the same time, the Fed's July 29 meeting saw three members dissent in favor of a hike — the first time in a decade three dissents have landed in the same direction. Inflation, at least, surprised to the downside.
TAKEAWAYS
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Jobs cracked: -23K in July vs. +80K expected
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Fed staying hawkish: hike odds 32% in September, 65% by year-end
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Inflation surprised cooler: July CPI 3.4% YoY, down from 3.5% in June
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Lending market is deep: debt funds and banks heating up activity
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Spreads still tightening — average spreads down 21 bps year-over-year
JUST CLOSED
Brand-New Class A Industrial
$10 Million Refinance Loan
Portland, OR
Lender: Life Company
- 78 lenders pitched
- 65% LTV
- 6.17% 7-Year Fixed Rate
- Stepdown Prepay last 2 yrs
- Flexible Rate Lock
- Non-Recourse
Medical Office & Retail Portfolio
$5 Million Refinance Loans
Los Angeles, CA
Lender: Bank
- 37 lenders pitched
- 55% LTV
- 5.50% 5-Year Fixed Rate
- Stepdown Prepay
- Rate Lock at Signed App
- Recourse
OUT TO MARKET - $19M
Property: Creative Office value-add
Source: Debt Fund
Term: 2-Years
Proceeds: $19M, 70% Loan-to-Value
Rate: Top quote - Term SOFR + 475
OUT TO MARKET - $7M
Property: Retail Development
Source: Bank
Term: 2-Years
Proceeds: $7M, 65% Loan-to-Cost
Rate: Top quote - Term SOFR + 275
Hot Money
5.50% Fixed - 5yr/7yr Term
$2–20M · California · All major property types except office/hospitality · 1.30x DSCR · Recourse · Stepdown prepay
CRE LENDING CAPITAL FLOWS
Debt funds and alternative lenders remain the largest capital source at 38% of non-agency closings (up from 34% a year ago). Banks are back to 30% share (from 24%), and CMBS keeps losing ground — down to 11% from 19%. Life companies held steady at 21%.
Pricing keeps improving: commercial mortgage spreads narrowed 21 bps year-over-year to 204 bps, multifamily tightened 15 bps to 162 bps. Roughly $875 billion in CRE mortgages mature in 2026 (MBA), but unlike prior years, banks, life companies, CMBS, debt funds, and the CLO market are all bidding at once — producing real depth against that wall.
Outlook: Spreads likely tighten further as competition intensifies. Life companies stay selective at 55–65% LTV. Bridge borrowers should approach floating-rate structures with caution — Term SOFR (3.64%) has real room to move higher if the Fed hikes.
Forward Curve:
Term SOFR (blue), 5-year treasury (dark purple), and 10-year treasury (light purple).
THE ECONOMY & THE FED
Full-time employment has declined in six of the last seven months, and two of seven months in 2026 have posted outright job losses — a frequency last seen during COVID and the GFC. Average hourly earnings rose just 3.2% year-over-year, the slowest pace in five years. More than 2 million Americans have left the labor force since January. Healthcare remains the outlier, adding 952,000 jobs over 18 months while every other sector combined lost 362,000.
The Fed held its target range at 3.50%–3.75% on July 29, but Logan, Hammock, and Kashkari dissented in favor of a hike — the most hawkish alignment of dissents in ten years. Kashkari said he'd "rather get going now in small steps" than risk entrenched inflation; Governor Cook said she's "prepared to act by raising rates, if necessary." Iran remains the wildcard — the ceasefire behind June's cooler CPI has already broken down, and oil's move higher in July keeps energy as a live inflation risk into year-end.
Rate and Economic Indicators
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2 Year Treasury: 4.15% (up from 3.55% in early February pre-Iran)
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10 Year Treasury: 4.64% (up from 4.28% in early February pre-Iran)
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Term SOFR: 3.64%: Market expectation of ~4.10% by May 2027.
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EFFR (Effective Federal Funds Rate) Target: 3.50% – 3.75% (Fed on hold)
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CPI (July YoY): 3.4% — down from 4.2% in May
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Core CPI: 2.5% YoY (down from 2.6% last month)
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Unemployment Rate: 4.1% (down from 4.3% in May 2026)
Lender Notes
Fannie Mae & Freddie Mac: Still the cheapest all-in cost of capital for stabilized multifamily. Sponsors should expect continued scrutiny on small-balance execution following the move to a 1.25x DSCR floor and higher spreads for sub-$6 million loans.
Life Companies: Holding a steady 21% share with conservative leverage in the mid-50s to mid-60s LTV range. Best executed on core, well-leased assets. Spreads are compressing as insurers chase yield in a market with more competition than a year ago.
Banks and Credit Unions: Balance sheets have reopened meaningfully year-over-year. Execution remains relationship-driven and credit committees are still incredibly selective on office, but banks are once again competitive on construction and bridge-to-perm structures.
CMBS: Remains a compelling non-recourse alternative for properties needing max proceeds and that don't qualify for more competitive sources of capital. Overall volume is down from a year ago with more availability of competitive spreads found elsewhere.
Bridge / Debt Funds: Extremely active and compelling financing source with the spread differential between Term SOFR and treasury rates. More flexible prepay and higher loan proceeds have become incredibly valuable at this point in the cycle, but does carry some risks as the Fed may hike rates.
Preferred Equity: Remains active with some creativity around low current pays. General market terms remain at 7% current, 14% total, but there are some outlier sources that can price in the 10-12% range.
Construction Lenders: Spreads have tightened competitively but underwriting focuses heavily on market, leverage, and sponsor track record. Most lenders want 60–75% LTC with proven sponsors.
Lender
Max LTV
Rates
Closing
Notes
Fannie/Freddie
5,7,10-Year Fixed
80%
5.35% - 6.20%
(with buydowns)
45-50 days
LTV & DSCR dependent
FHA Refinance
35-Year Fixed
85%
5.25% - 6.0%
120-180 days
not incl. MIP
Life Insurance
Companies
65%
5.60% - 6.30%
45-50 days
DY dependent
Bank, CMBS, &
Credit Union
70%-75%
6.0% - 7.0%
45-60 days
DY & term
dependent
Bridge
Debt Funds
70%-85%
6.0% - 9.50% +
Spreads of 2.0%+
14-45 days
LTC & stabilized DY dependent
Construction
Lenders
55%-80%
6.0% - 9% +
45-60 days
LTC & size
dependent
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Tim Gerlach, CPA | Principal
CPA Lic. 130463 | Broker Lic. 02038912
Direct: 323-505-9222
Let's discuss your deal.