How Higher Treasury Yields Affect Central Valley Multifamily Owners

If you own a Central Valley multifamily property with a loan maturing in the next 12–24 months, there is one number you should be watching closely: the U.S. Treasury yield.

Treasury yields serve as the foundation for commercial real estate lending. When yields move higher, borrowing costs typically move higher as well. And while rates have moved around over the past year, they’re still well above the levels many owners enjoyed when they financed between 2020 and 2022.

For Central Valley multifamily owners with upcoming loan maturities, that creates a challenge.

A loan that was financed at 3.5%–5.0% several years ago may need to be refinanced into a significantly higher rate environment today. Even if your property is performing well, higher debt service can reduce cash flow and impact loan proceeds.

This relationship between Treasury yields, borrowing costs, and property values is not new. In fact, we discussed how rising interest rates impact commercial real estate pricing, cap rates, and leverage several years ago in our article, What to Know About Interest Rates and Commercial Real Estate. While today’s market conditions are different, many of the same lending fundamentals continue to influence investment decisions.

What does this mean?

1. Reduced Cash Flow
   Higher interest rates generally mean higher monthly payments.
   For many owners, that translates into lower distributions and tighter operating margins, even if occupancy and rents remain stable.
2. Debt Service Coverage Challenges
   Most lenders require a Debt Service Coverage Ratio (DSCR) of approximately 1.20x to 1.25x.
   If your property’s net operating income doesn’t support the new loan payment, a lender may reduce proceeds, require a principal paydown, or ask for additional equity at closing.

Those conversations are much easier to have six months before maturity than sixty days before maturity.

We’ve recently seen this challenge play out firsthand with multifamily owners facing loan maturities after securing historically low interest rates. In our case study, Multifamily Loan Maturity: What to Do When Your Rate Jumps from 2.9% to 6%, we walk through how one owner evaluated refinancing versus repositioning their investment to better align with today’s lending environment.

If my loan matures in the next 12-24 months, what should I be doing today?

If You’re Planning to Refinance
Here are a few steps worth taking now:

• • Run your property’s DSCR using today’s lending assumptions.
  • Make sure your rent roll and trailing financials are accurate and current.
  • Speak with multiple lending sources early. Agency lenders, banks, and other capital providers can have materially different terms.
  • Evaluate whether interest rate buy-downs or alternative loan structures make sense for your investment goals.
  • Begin the process well before maturity to preserve flexibility and negotiating leverage.

If Refinancing Doesn’t Make Sense

Refinancing isn’t the only option. Depending on your goals, you may also consider:

• • Negotiating a loan extension with your current lender.
  • Selling before maturity pressure limits your options.
  • Completing a 1031 exchange into an asset that better aligns with today’s financing environment.
  • Bringing in additional equity or a capital partner to strengthen the balance sheet.

Every property is different, which is why it’s important to evaluate multiple paths before you’re forced into a decision.

The Bottom Line
The owners navigating today’s market most successfully aren’t waiting for their maturity date to arrive. They’re evaluating their options early, understanding their refinance exposure, and making decisions from a position of strength.

If you’d like a second opinion on your property’s refinance outlook, sale potential, or 1031 exchange opportunities, I’d be happy to help. A brief conversation today can provide clarity well before a lender’s deadline does.

Dustin Ilic, CCIM
Multi-Family Investment Advisor
Visintainer Group
CA License 01772625

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Continue reading more updates from Dustin:

• Multi-Family Late Fees Just Got More Complicated in California
• Regulatory Updates for Apartment Investors
• Central Valley Multi-Family Real Estate Market Analysis
• Rising Insurance Premiums: What Multifamily Investors Should Know
• 3 Ways to Increase the Value of your Multi-Family Property

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