Refinance or Sell? Running the Numbers With the 10-Year at 5%

Rate snapshot

Fed funds target	3.75% to 4.00%	Raised 25 bps on 9/16, first hike since 2023
10-year Treasury	5.00%	9/15 close; touched 5.04% on Fed day
5-year Treasury	4.83%	9/15 close
2-year Treasury	4.67%	9/15 close
SOFR	3.64%	9/15, set before the hike
Agency / bank multifamily	~6.1% to 6.8%	5 to 10 year fixed, published quotes

The Federal Reserve raised its target range by a quarter point on Wednesday to 3.75% to 4.00%, a unanimous 12 to 0 vote and the committee’s first increase since 2023. The statement pointed to inflation that “remains elevated” against an economy “expanding at a solid pace.” Chair Kevin Warsh signaled more increases could follow, and the 10-year Treasury pushed through 5%, its highest level since 2007.

For sponsors holding stabilized assets with loans maturing in the next 12 to 24 months, that move reopens the question every owner has been putting off: refinance and keep the asset, or sell and move on? CBRE’s H1 2026 cap rate survey found the median respondent believes the 10-year needs to fall to 3.75% before transaction volume meaningfully recovers. We’re 125 basis points away from that, and moving the wrong direction.

Waiting for rates to fix the decision isn’t a strategy. Running the numbers is. Below is a worked example on a real-world-sized apartment deal, with the tax math most refi-versus-sale comparisons leave out.

Three questions that decide it

1. How much can you actually borrow?

In a low-rate market, loan-to-value is usually the constraint. At a 5% 10-year it often isn’t. Permanent lenders size to the lower of LTV and debt service coverage, and as rates rise the DSCR test starts to bind first. That means every move in the Treasury flows straight into your cash-out proceeds, even if the appraisal doesn’t budge.

2. What does a sale really net?

Gross price minus loan payoff is the number brokers put in the email. The number that matters is after selling costs, depreciation recapture, capital gains, and the 3.8% net investment income tax. On an asset held for several years, that tax bill is frequently 20% or more of your equity.

3. What do you believe about the next five years?

A refinance is a bet that the asset’s NOI growth and exit value will outrun what you could earn by redeploying after-tax sale proceeds. If you don’t have a view on rent growth and exit cap rates, you don’t have a basis for the decision.

The worked example

A sponsor bought a 96-unit Class B apartment community seven years ago. The existing loan matures next spring.

Property profile
Purchase price (7 years ago)	$8,000,000
Land allocation	20%
Current NOI	$780,000
Market cap rate	6.00%
Current value	$13,000,000
Existing loan balance	$5,400,000
Accumulated depreciation (27.5-year straight line)	$1,629,091
Adjusted tax basis	$6,370,909

Option A: Sell today

Sale proceeds
Sale price	$13,000,000
Selling costs (2.5%)	($325,000)
Loan payoff	($5,400,000)
Pre-tax proceeds	$7,275,000
Unrecaptured Section 1250 gain at 25% ($1.63M)	($407,273)
Remaining capital gain at 20% ($4.68M)	($935,000)
Net investment income tax at 3.8% ($6.30M)	($239,555)
After-tax proceeds	$5,693,172

Total federal tax: about $1.58 million, or 22% of pre-tax equity. That assumes the top federal brackets and no state income tax, which is the case in Florida and Texas but not in California or New York.

Option B: Cash-out refinance

Permanent multifamily quotes this week run roughly 6.1% to 6.8% for 5 to 10 year fixed-rate agency and bank execution. We’ll use 6.40% on a 30-year amortization, sized to the lesser of 65% LTV and 1.25x DSCR.

Refinance sizing at 6.40%
Max loan at 65% LTV	$8,450,000
Max loan at 1.25x DSCR	$8,313,271
New loan (lesser of the two)	$8,313,271
Pay off existing loan	($5,400,000)
Closing costs (1.5%)	($124,699)
Tax-free cash out	$2,788,572
Annual debt service	$624,000
Year 1 cash flow after debt service	$156,000

Note what happened: DSCR, not LTV, set the loan amount. That’s the rate market doing the underwriting for you.

How much the rate moves your proceeds

Note rate	Loan amount	Cash out	Binding test
5.90%	$8,450,000	$2,923,250	LTV
6.40%	$8,313,271	$2,788,572	DSCR
6.90%	$7,895,534	$2,377,101	DSCR

A 50 basis point rise from 6.40% to 6.90% costs this sponsor about $411,000 of cash out. If the 10-year keeps climbing between now and your rate lock, that gap is real money.

Comparing the two paths over five years

A refinance gives you less cash today ($2.79 million versus $5.69 million) but keeps the asset, the cash flow, and the tax deferral. To compare fairly, we assume the sponsor sells in year five either way, pays all the deferred tax at that point, and reinvests every dollar received along the way (sale proceeds, cash out, and annual cash flow) at the same 7% annual return. The loan balance amortizes to about $7.77 million by year five.

Scenario	NOI growth	Exit cap	Refi path value, yr 5	Sale path value, yr 5	Breakeven return
Base	3.0%/yr	6.25%	$9.14M	$7.98M	13.0%
Flat	0.0%/yr	6.75%	$6.72M	$7.98M	Sale wins at any return
Stress	-1.0%/yr	7.00%	$5.92M	$7.98M	Sale wins at any return

Breakeven return is what the sale proceeds would need to earn each year for selling to match holding. In the base case, the sale proceeds would have to compound at 13% a year to beat keeping the property. In the flat and stress cases, selling wins even if the proceeds sat in cash earning nothing.

Simplifications: pre-tax cash flow is assumed to be largely sheltered by depreciation and interest; cost segregation, 1031 exchanges, state taxes, and capex reserves are excluded. Values are illustrative, not a forecast.

What the numbers say

The interest rate matters, but mostly through loan sizing. What actually decides refinance versus sale is your conviction on the asset’s next five years.

If you believe in 3% rent growth and a modestly wider exit cap, holding wins by a wide margin because you keep compounding on equity the IRS would otherwise take today. If you think rents are flat and cap rates keep drifting up with the 10-year, selling now beats holding even if you park the proceeds in Treasuries. The deferred tax isn’t free money when the asset’s value is falling underneath it.

The uncomfortable middle is where most sponsors sit: modest growth expectations, a strong local market, and a maturing loan that forces a decision before rates cooperate.

Paths between the two

Rate-and-term or partial cash-out refinance

Take less cash out, size to a stronger DSCR, and preserve cash flow and flexibility. You can always pull more equity on a supplemental loan later if rates fall.

Shorter-term bridge

If you believe rates are near a peak, locking 10-year fixed debt at a 5% Treasury may be the wrong trade. A 12 to 24 month bridge loan pays off the maturity, funds any remaining value-add, and lets you refinance into permanent debt, or sell, once rates or NOI improve. It costs more per year, so it only works with a credible exit.

1031 exchange

Selling and rolling into a replacement property defers the $1.58 million tax bill. It solves the tax problem but not the reinvestment problem: you still need a replacement asset that pencils at today’s cap rates and debt costs, inside strict identification and closing deadlines.

Recapitalization

Bringing in preferred equity or selling a partial interest can return capital to existing investors without a full sale, keeping the sponsor in control of the asset.

A checklist before you decide

Get a current appraisal-level value, not a broker opinion.
Size the refinance at today’s rate and at 50 bps higher.
Have your CPA calculate recapture, capital gains, NIIT, and state tax on a sale this year.
Build your five-year NOI and exit cap assumptions, then stress them.
Decide what you’d do with sale proceeds, and what that capital would realistically earn.
Price a bridge option if your loan matures before you’re ready to commit.

How QuadBlock can help

QuadBlock Capital provides bridge, transitional, and permanent financing from $250,000 to $30 million for multifamily, industrial, retail, self-storage, and specialty assets nationwide. If you have a maturity coming up and want to size a refinance, a bridge, or both before you decide on a sale, send us the rent roll and T-12 at quadblockcapital.com and we’ll run it with you.

This article is for general educational purposes and is not tax, legal, or investment advice. Tax outcomes depend on your specific facts, entity structure, and state of residence; consult your CPA and attorney before acting. Rates and market data are as of the dates noted and change daily.