3rd Quarter Newsletter
As we enter Q4 2026, the Brewers are resting while they await the winner of the ALCS between the Rays and Guardians. Football fans from London to Phoenix and Auburn to Provo have renewed hope after fantastic wins that included 5 of the top 7 College teams suffering a week 7 defeat. The "Caniacs” have returned to Lenovo Center in Raleigh to hoist the 2026 Stanley Cup banner, and are hoping for a repeat in 2027. Leaves are beginning to change color and fall through the Mid-Atlantic and down into the Southeast, but interest rates have moved aggressively in the opposite direction.
Since the 2026 trough on February 27th, the benchmark 10-year U.S. Treasury yield rose 134 bps from 3.97% to 5.31% on October 5th and currently sits at 5.13%.
Investment Grade Bond spreads remain relatively stable as a benchmark used by lenders to measure spreads for commercial mortgages. The BBB US Corp Index Option-Adjusted Spread peaked at 1.16 in March and bottomed out in the low 90s in Jan/Feb and May/June. After the September Fed meeting, it jumped 12 basis points and sits at 1.06, 4bps higher than where it started the year. The High Yield spread index shows a similar trend, albeit with a wider trading range and currently sits at 3.31, 48 basis points wider than at the start of the year.
SOFR tracks the Fed Funds Rate more closely than longer-dated Treasury yields, and after the Fed concluded its September meeting with a 25-basis-point hike, SOFR rose from 3.62% to 3.87%. The Federal Reserve’s latest Summary of Economic Projections suggests at least one more rate hike before year-end, and I’ve heard at least one bank economist predict a third hike. That timing is less certain, but the plateau is consistently expected to stretch through the end of 2027, and pundits have returned to the “higher for longer” mantra.
Year-to-date as of September 30, Medalist Capital has closed 92 deals for a total of $1.48 billion. Life Companies lead the way with 32%, followed by Banks (31%), Debt Funds (19%), and Agencies (11%). CMBS and Credit Unions evenly split the rest. By property type, Multifamily clocks in at 43%, followed by Industrial (19%), Retail (14%), Office (9%), and Student Housing (8%). Hotels, Self-Storage, Land, MHP’s, and a golf course round out the rest. Refinancing accounted for 65%, acquisitions for 21%, and construction for 14%.
In summary, Banks and Debt Funds were increasingly active in 2026, but sources in both areas say some deals they did earlier this year wouldn't close today. Debt Funds are prescreening hot buttons with their line banks more than usual, and higher interest rates will further constrict loan proceeds across all capital sources.
One of our borrowers on a mixed-use refinance a few weeks ago rationalized locking in a rate in this higher environment without hesitation by saying, “We’ve never really tried to time the market, and we are optimistic that if the numbers work at this level, then our returns should only improve if we are able to refinance in a lower rate environment.”
Coincidentally, this theme resonates with my rotation in the newsletter cycle, since my last letter in 2022 referenced a 127-basis point increase in the 10-Year UST yield through the first quarter, albeit over a shorter timeframe with a much lower starting point (1.51%). Hence, we’ve been through rate-tightening cycles before, and we’ll get through this one; one day, we’ll go through it all over again. Until then, and just to be safe, I suggest tapping someone to write our next newsletter whose rotation has historically hit during the rate-EASING part of the cycle!