Multifamily Cap Rates And Interest Rate Spread

The rate math turned upside down over the past 24 months — and it's still upside down.

Since 3Q24, the Fed cut the funds rate by 150 bps (5.13% → 3.63%) , but the 10-year Treasury did the opposite — it rose 63 bps over that stretch and now sits at 4.79%, up nearly a full point from its September 2024 low . Multifamily cap rates barely moved through all of it: a 10-metro average tracked at 5.26% in 3Q24 and 5.28% today — essentially flat.

That divergence flipped the spread story on its head:

Quarter	Avg MF Cap Rate	10yr Treasury	Fed Funds	Cap Rate minus 10yr Treasury (bps)	Cap Rate minus Fed Funds (bps)
3Q24	5.26%	3.81%	5.13%	145	13
4Q24	5.27%	4.58%	4.48%	69	79
1Q25	5.29%	4.23%	4.33%	106	96
2Q25	5.30%	4.24%	4.33%	106	97
3Q25	5.30%	4.16%	4.22%	114	108
4Q25	5.30%	4.14%	3.72%	116	158
1Q26	5.28%	4.35%	3.64%	93	164
2Q26	5.28%	4.44%	3.63%	84	165
Current (Sep 2026)	5.28%	4.79%	3.63%	49	165

The cap-rate-over-Treasury spread — the market's real risk premium on long-duration CRE risk — compressed from 145 bps to roughly 50-85 bps , thin by historical standards (CRE has typically priced 150-200 bps over the 10yr). Meanwhile the cap-rate-over-fed-funds spread widened from 13 bps to 165 bps — cap rates look "cheap" relative to short rates only because short rates fell so far, not because cap rates actually moved.

What this means for underwriting today:

Negative leverage is still the base case, not a temporary condition. Fannie Mae 10-year/65% LTV debt prices around 6.0% against a 5.28% average going-in cap rate — a 73 bp gap . Leverage still dilutes stabilized cash-on-cash at conventional agency proceeds. Underwrite the going-in yield on its own merits; don't lean on debt to boost day-one returns.
Don't underwrite cap rate compression as your exit lever. Cap rates have been dead flat for two years through a full Fed cutting cycle — the long end, which actually anchors both cap rates and permanent debt pricing, backed up instead of falling. If the 10yr stays elevated or grinds higher, cap rates have more room to widen than compress from here.
The real opportunity sits in short-duration and floating-rate structures. SOFR is down roughly 170 bps from its 2023-24 peak and construction/bridge debt has repriced with it . Value-add and development deals financed floating capture that relief in-period even while cap rates and fixed-rate permanent debt haven't budged — that's where the rate move is actually showing up in deal economics right now.
Thin spreads mean thin cushion. At 50-85 bps over the 10yr, multifamily pricing isn't leaving much room for a bad NOI surprise or a further Treasury move. Underwrite to conservative in-place NOI growth and stress-test the exit cap rate flat-to-wider, not tighter.

Happy to size any specific deal against this — e.g., what a bridge-to-agency structure or a 5-year hold clears against the current negative-leverage gap.