Misreading the Spread: Why CRE Borrowers Get Loan Pricing Wrong in 2025 Article originally posted on Globe St. on November 3, 2025 This year, seasoned real estate investors have faced a persistent puzzle: the commonly accepted gap between 5-year and 10-year commercial loan costs doesn’t align with reality at the closing table. Despite years of market sophistication, the assumption that a 10-year loan must carry a 40 to 50 basis-point premium over shorter-term debt continues to steer refinancing and acquisition strategies across the industry. But today, that spread is much tighter—and those who know this have a tactical edge. A Mismatch Between Perception and Execution Willy Walker, CEO of Walker & Dunlop, has seen this misunderstanding play out in real time. “If you look right now at a take the same property and put a five-year loan in it, or a 10-year loan with Fannie Mae or Freddie Mac, the difference in borrowing costs … right now is about 15 basis points, not 50…” Walker explained in a recent corporate podcast. That fact challenges how risk and duration are priced in the market, especially as more borrowers flock to short-dated paper. Earlier this cycle, borrowers embraced five-year loans primarily for flexibility. Walker describes a market that “at first… was people saying, I want the flexibility, because I think that rates might come down, and I don’t want to be locked in forever at this high coupon rate. And so therefore I want some flexibility, shorter duration.” Agency Spread Compression—More Than Just Math Over time, however, investor psychology shifted. Property values declined, and maximizing proceeds became critical, so the five-year decision was framed as an opportunity to secure a modest rate discount. Yet as Walker points out, “the mathematics” do not support the popular belief. Agency lenders have compressed the spread substantially, thanks to competitive pressure and capital availability, making much of the market’s preference for shorter-term debt more a matter of perception than reality. In practice, “we honestly can’t seemingly sell a 10-year loan today… Everything we’re doing these days is five years, and that’s very different than historically, where people would borrow, particularly in our agency business, where pretty much everyone was 10-year either fixed or float.” The pipeline has changed not because the numbers warrant the shift, but because few borrowers are aware that the spread has shrunk so dramatically. The Strategic Impact for Investors The consequences of this misperception can be significant, especially given the wave of maturing loans and uncertainty about future refinancing conditions. Investors who base their strategies on outdated cost assumptions may forego the security and risk mitigation offered by longer-term money—security they could afford for only a minor increase in borrowing cost. For large portfolios with complex refinancing exposures, these missed opportunities can cascade across asset and risk management plans. Competitive lending dynamics have further contributed to the compression. Lenders are eager for business, particularly in multifamily and agency space, and have trimmed their margins to win deals. “Many clients see the almost 50 basis points between the 10-year and the five-year on the Treasury and don’t understand that spreads have come in dramatically on the 10-year,” Walker said. Without recognizing that agency execution now offers longer-term certainty at near-parity pricing, borrowers might choose short-term debt for the wrong reasons, exposing themselves to greater refinancing and rate risk just as market volatility persists. Rethinking the Loan Pipeline and the Next Cycle A final thread comes from Walker’s observation that borrowers are now facing a wall of refinancing, with rates still above the rates on incumbent debt even as the Fed pivots. “What I think has also happened now is people have gotten out of that hope for significantly lower rates, and they’re moving more towards that. The difference in cost of five-year paper versus 10-year paper, on the face of it, is 40 to 50 basis points. The issue with it is, as I told you earlier, if you look right now … the difference … is about 15 basis points, not 50.” These facts matter as capital decisions are made and risk tolerance is set for the next cycle.