Talk Your Book: How Higher Rates Are Re-Shaping Commercial Real Estate

Commercial real estate has been pronounced dead more than once since the pandemic, but the reality is more complicated than a simple obituary. As rates have shot up and the economy has remained surprisingly strong, the sector is experiencing a slow-motion reckoning rather than a sudden crash. On this episode of Animal Spirits, Jerry Bagland, head of real estate at Benefit Street Partners (a Franklin Templeton company), walked through how higher rates are reshaping commercial real estate lending, where the real pain is hiding, and why he has more conviction in credit strategies today than he did six months ago.

Why the Rate Spike Changes Everything (and Nothing)

The 10-year Treasury yield — the base rate for all real estate debt — has been screaming higher, and Bagland’s phone has been ringing off the hook. “If AI doesn’t kill us, the 10-year will,” he joked. The speed of the move is what’s spooking the market. It’s going to slow transaction volume, make refinancings trickier, and put pressure on valuations. That sounds like a disaster, but Bagland pushed back on the pure doom narrative. Higher rates are happening for a reason: the economy is humming. We have strong growth, massive AI investment, and productivity gains. Those are good things that put upward pressure on rates. The real problem is that the industry got addicted to the low-rate environment and assumed it wa