How Geopolitical Uncertainty Affects Commercial Real Estate Lending

This article explores the impact of current geopolitical uncertainty on commercial real estate lending. Through an interview with David Bruni, Principal at Slatt Capital, we delve into actionable advice for borrowers, examine how lenders are responding to market volatility, and highlight strategies for navigating a shifting financial landscape.  

1.When geopolitical tensions rise — like what we’re seeing right now — what is the first thing you tell a borrower who calls          you concerned about their deal? 

• • Depending on where clients are in the loan process, those who have unsigned applications are advised to lock rates before U.S. Treasury rates increase further.  In the last 30 days, treasury indices increased 20-40bps.  If clients have maturing loans later in the year, we can watch the market for a dip in rates. Deals under application have locked rates and borrowers can focus on the closing process. 

2. How quickly do lenders typically react to major geopolitical events, and what does that reaction look like on the ground for borrowers? 

• • Lenders call us to say that rates or spreads quoted are good for 24-48 hours. After that, we guide borrowers on the fact that any outstanding quotes are subject to repricing.  It’s a courtesy to the borrower and it motivates them to start the loan process.  Lenders can also establish rate floors to protect themselves in volatile markets. Not all lenders are created equal, and they all have different responses to volatility. It is important for mortgage bankers/brokers to understand this and prepare borrowers accordingly.  CMBS, debt funds, lifecos and banks could all have very different responses to an event or volatility.   

3. Are you seeing any shift in lender appetite or pricing right now as a result of the current environment? 

• • Most lenders increased allocations for loan production in 2026, so appetites for new originations remains high.  Due to the current environment, lenders widened spreads, mirroring the “benchmark” of corporate bond spreads.   

4. How does oil price volatility — which tends to spike during Middle East conflicts — ripple into commercial real estate cap rates and financing costs? 

• • In the simplest of terms, treasury yields are often driven by inflation expectations, and oil has certainly been a major factor contributing to inflationary fears over the past 30 days.  Cap rates are directly correlated to interest rates over the long term, but treasury indices fluctuate more than cap rates on a day-to-day basis.   

5. Are certain lender types — life companies, banks, debt funds — more or less sensitive to geopolitical uncertainty than others? 

• • Yes, lenders that borrow capital (debt funds) have a higher cost of capital if they leverage their loans or portfolio. Conduit/CLO lenders are dependent on Wall Street and spreads generally widen in uncertain markets, increasing the cost of the loan.  Life companies lend from a steady cash flow of premiums and are less sensitive to geopolitical events. 

6. Are there specific property types or markets that tend to hold up better when geopolitical uncertainty is elevated? 

• • Yes, properties located in larger MSAs, including necessity-based retail, industrial and multifamily tend to do better.   

7. Are there deals or asset classes you’d be more cautious about right now, and why? 

• • I would be cautious of financially troubled tenants, properties with over-market rents and properties in mismanaged cities.  Each example results in weakness in long term predictable cash flow. Seasoned real estate investors have made mistakes and learned from others. 

8. What should a borrower who needs to close in the next 60–90 days be doing right now to protect their deal? 

• • Gather and review all the documents lenders need to close the loan. Make sure the operating agreements, leases and financials are up to date.  If possible, try to extend any leases that will mature in the next 6-9 months. 

9. Is this a time to lock in rates quickly, or does waiting make sense in certain scenarios? 

• • Borrowers should lock rates at the application stage. There is a 50/50 chance rates will go up or down tomorrow; some predictions indicate long-term rates will fluctuate in the range we have been in for the last six months until the consumer price index (CPI) is under 3%. 

10. What documentation or preparation can a borrower do today to make themselves a more attractive candidate to a lender who may be tightening standards? 

• • Lenders often look at tenants’ remaining term and lease maturity stacking.  Try to keep tenant rollovers below 25% of net rentable area (NRA) in any given 12-month period.  Lower leverage and higher debt service coverage ratios (DSCR) are always at the top of lender preference lists.  

11. Does geopolitical uncertainty ever create opportunities for well-positioned borrowers or investors — and if so, what does that look like? 

• • Yes, there are times when geopolitical uncertainty drives investors to exit equities and purchase bonds.  This demand can lower treasury indexes and create brief dips for borrowers to lock in rates.  

12. What is the one piece of advice you would give a commercial real estate owner or investor trying to make smart financing decisions in today’s environment? 

• • For mid- to long-term real estate holders, I always recommend that my borrowers not to over-leverage themselves unless their business plan is to reposition their assets.  Deals with a DSCR of 1.50x or higher receive better pricing, terms and less scrutiny with fluctuations in tenancy and rents.  This will hopefully avoid any paydowns at the time of refinancing.  Over the past five years interest rates increased by over 150%, as insurance, utilities and labor costs increased expenses.