Trends, Insights, and the Impact of Treasury Yields
With over 22 years of experience in commercial real estate, I have focused exclusively on multifamily sales, acquisitions, and valuations for both private and institutional clients. I began my career in Portland, leading the multifamily divisions of two national and West Coast-based real estate firms before relocating to Bend in 2021. I relocated to Central Oregon for the same reasons many do and take pride in calling it home — a sentiment shared by new Bendites and those who have been here since the Old Mill was actually a mill.
I am a University of Oregon alum and earned my rent as an on-site manager for two apartment complexes near the campus while working towards my economics degree. Before I even knew that multifamily was a sector of commercial real estate, I cut my teeth on the not-so-glamourous side of the industry collecting rents, negotiating leases and managing the occasional eviction process. This hands-on work provided invaluable insight into the day-to-day operations from a landlord and manager’s perspective that I continue to use with his clients today.
My tenure in the multifamily real estate and market research skills established me as the authority on the Central Oregon multifamily market. Here, I’ll deliver focused market data, more specific to Bend, broader national insights and the topic that excites me the most: shedding light on the often-misunderstood 10-year Treasury Yield, a key factor that has, and will continue to, impact owners, renters, and developers across all asset classes in both commercial and residential real estate.
This market can be viewed from both perspectives: renters and property owners, whether investors or developers:
Renters in Central Oregon have plenty of options. Over the past five years, Deschutes County has added 2,300 new units, increasing total market inventory by roughly 20%. Developers are competing for the same tenants, who are price-conscious, amenity-sensitive, and more mobile than expected. Some new projects offer introductory rents 10–20% below market, plus up to three months free, making it an attractive market for savvy renters. Many are willing to travel to save 15–20% on rent outside Bend, considering Redmond, La Pine, Sisters, and even Madras or Prineville. For example, the newly stabilized 36-unit Pine View Apartments in La Pine saw two-thirds of its tenants commuting to Bend, finding rent savings outweigh travel costs.
There is still a spread of roughly 40% between average rent and the average mortgage payment and more priced-out home buyers are renting. This continues to solidify the fundamentals of multifamily as the top performer in CRE. As homeownership becomes less attainable, renters increasingly seek a true sense of community. Gene Buccola, a longtime local investor, developer, and CEO of Cobalt Properties Group says, “Residents need quality service and attention, and owners need an advocate by their side. We are proud to provide for both.” Cobalt manages hundreds of multifamily units as part of its portfolio in Central Oregon and is expert at partnering with owners to find efficiencies and optimizing the property, while genuinely caring for residents.
Buccola also mentioned that more and more existing owners are improving tenant retention by investing in capital improvements and resident incentives.
Investors, developers and operators agree that the market is temporarily oversupplied. Central Oregon is experiencing the same effects as larger national markets but to a far lesser degree based on market size. Despite Deschutes County being one of the fastest-growing counties in Oregon (12.4% in a five-year period), unit deliveries outpaced demand. The absorption process takes time, softens rental rates and increases vacancy factors of new AND existing units. Historical average vacancy in our market is near 6%. Currently, vacancy for stabilized assets is closer to 7% with its highest mark at 10.7% towards the end of 2023.
When post-pandemic rates hit unprecedented lows, developers jumped to build when the cost of capital was cheap. When the Fed started raising rates in March of 2022 only the well-funded, most experienced and most vertically integrated developers pushed forward. The number of projects that stalled in permitting primarily for lack of funding meets or even exceeds the number of actual new deliveries. A substantial number of truly marquee projects went silent. And for those who got in late, with an average permitting timeline of 18 months, the market was already heavily stacked against them.
The upside for operators? With the same development timeline, and with rates still sticky, substantial deliveries will pause over the next two years, creating upward pressure on rents, increased valuations and improved occupancy. Rent recovery is projected to begin mid to late 2025.
Transaction activity remains flat, values are compressed, and the buyer-seller pricing gap persists. We won’t see rates won’t return to the 3-4% range unless another major economic disruption, like the pandemic, occurs. Investors waiting for rates to fall to that level shouldn’t hold their breath. Sellers need to better understand how inverse yield (cap rates below loan rates) impacts the transaction process. Exceptions can exist for top-tier assets in prime locations with obtainable and realistic upside.
Buyers now seek in-place cap rates of at least 6% before considering negotiations. Despite challenges, investors want to be in Bend, commercial lenders are active in the multifamily vertical, and the market remains one of Oregon’s most active and desirable markets. Notable projects of 100+ units like The Current, Strata, Hixon, Eddy, North 88, Solis at Petrosa, and Red Point are all at or approaching stabilized occupancy, contributing to much-needed absorption and setting the stage for rent and value growth in mid to late 2025.
Econ 101: 10-Year Treasury Yield vs Rates
The most influential indicator affecting all markets and asset classes is rates, particularly the link between rates and the 10-year Treasury yield. Often misunderstood, treasuries are a stand-alone investment vehicle not directly linked to banks or mortgages. However, they have significant influence: Treasury bills, notes and bonds are sold by the federal government at face value and pay out a return (yield) upon maturity. Treasuries are considered low-risk and offer a passive, “safer” fixed-income investment.
Treasury yields are influenced primarily by inflation and economic growth, which in turn affect each other. When healthy inflation exists, Treasury yields become higher as fixed-income products are not in high demand. When yields rise, it signals a drop in demand for Treasuries because investors become bullish about the economy and seek higher returns elsewhere.
Although the Fed has lowered the federal funds rate, bringing actual inflation down to 2.9% for year-end 2024 versus a high of 8% in 2022, the 10-year yield has risen substantially and remained. Why? Despite the actual data showing real inflation approaching normal levels near 2%, the sentiment of inflation is driving up the yield. The consensus seems to be that under the new administration, prices may rise due to tariffs, new tax policies and an overall stronger economy.
The link? Bank loans compete with the 10-year treasury yield. A bank loan is a fixed-income investment when packaged and sold on the secondary market, also known as a mortgage-backed security or commercial mortgage-backed security (MBS or CMBS). They compete for the same investors looking at fixed-income products. Loans often have a “secondary spread” or, extra rate amount, built in for the risk investors take on when buying that loan on the MBS market. The competition between the two keeps rates in line with the 10-year yield and the higher cost is passed on to the borrower.
Investors should keep an eye on actual policy changes, real inflation and the overall sentiment. My prediction is more stability as the market adjusts to the new administration and its policies with a refined focus on real data rather than perceived data I anticipate interest rates in late 2025 to resemble the early to mid-2000s where the slow and steady “norm” were rates between the mid mid-5% to mid-6%.
As the Central Oregon multifamily market continues to evolve, it’s clear that a period of transition lies ahead. While the oversupply of units and rising vacancy rates may challenge both renters and property owners in the short term, the long-term outlook remains positive. With fewer new projects expected over the next two years and rents projected to rise by late 2025, the region is poised for a rebound. Investors, developers, and operators who stay informed on key indicators like Treasury yields, inflation, and economic sentiment will be better positioned to navigate these changes. A shift towards stability is likely as the market adjusts, making Central Oregon’s multifamily sector a promising area for those who are prepared for what lies ahead.
