The most important number in the Washington Post's report on the One Big Beautiful Bill Act is not the size of the average tax refund. It is the deficit.
Americans are getting bigger refunds. That is the headline. But for commercial real estate capital markets, the real story is what the tax cut reveals about fiscal sustainability, long-term interest rates, and the cost of capital for the next refinancing cycle.
The One Big Beautiful Bill Act, signed a year ago, cut individual and corporate tax rates, expanded the child tax credit, and reduced the estate tax. The result: larger refunds for households, lower tax bills for businesses, and a federal deficit that is now running materially wider than pre-enactment projections.
That deficit matters for CRE because it is the single largest structural force pushing long-term Treasury yields higher. When the federal government borrows more, it competes with every other borrower for capital. That competition raises the risk-free rate, which is the foundation for cap rates, mortgage rates, and discount rates across every asset class.
Higher long-term rates compress valuations. A 50-basis-point increase in the 10-year Treasury yield, all else equal, pushes cap rates wider and reduces property values. For owners facing maturities in 2026 and 2027, that means less equity in the deal, lower refinancing proceeds, and a thinner cushion for lenders to underwrite against.
The tax cut also changes the incentive structure for corporate tenants. Lower corporate tax rates increase after-tax cash flow, which should support rent-paying capacity. But the benefit is not evenly distributed. Companies with large domestic tax bills gain the most. Companies with net operating loss carryforwards or significant foreign income see less benefit. The net effect on office and industrial demand is positive but modest, and it is already priced into current rent levels.
For multifamily owners, the expanded child tax credit and lower individual rates put more disposable income in renters' pockets. That supports rent collection and occupancy, particularly in workforce housing. But the benefit is marginal relative to the housing supply shortage and the affordability ceiling that caps rent growth in most markets.
The bigger risk is that the deficit forces the Federal Reserve to keep rates higher for longer. If the bond market begins to demand a term premium for holding long-term U.S. debt, the 10-year yield could rise even without a Fed rate hike. That would tighten financial conditions across the economy and directly raise the cost of debt for CRE borrowers.
Who benefits from this policy? Households with children and low-to-moderate incomes, who see larger refunds and more cash flow. Corporate borrowers with strong balance sheets, who can absorb higher rates and still underwrite deals. And owners of stabilized multifamily assets, where demand is least elastic to rate changes.
Who is exposed? Highly leveraged owners of office and retail assets, where rent growth is weak and refinancing risk is highest. Developers of new projects that depend on floating-rate construction debt. And any sponsor whose underwriting assumed a steady decline in long-term rates.
What should the market watch next? The Treasury's quarterly refunding announcements, which signal the size and duration of new debt issuance. If the government issues more long-dated bonds to fund the deficit, the yield curve could steepen, compressing CRE valuations further. Also watch the Fed's rhetoric on fiscal sustainability. If policymakers begin to flag the deficit as a constraint on rate cuts, the market will price that in immediately.
The tax cut is not a CRE story in isolation. But its fiscal consequences are a capital markets story with direct implications for every asset class. Larger refunds feel good at the kitchen table. In the bond market, they are a signal that the cost of capital is not coming down as fast as owners hoped.