The True Cost of Power: A 5.12% Treasury Yield and $108 Oil Put the Squeeze on Net Operating Income

Energy costs, borrowing costs and the Federal Reserve now press on the same line of the pro forma. Owners hold three levers that do not depend on either market.

Oct 21, 2026

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The 10-year Treasury yield closed at 5.12% on October 20, and Brent crude settled at $108.79 per barrel. Both numbers feed the same line on a property pro forma: net operating income. Lenders price debt off the first, utilities and suppliers pass through the second, and the Federal Reserve meets October 27 and 28 with a second rate increase live.

Key Facts at a Glance

10-year Treasury: The yield closed at 5.12% on October 20, below the October peak of 5.31% on October 5, according to the U.S. Department of the Treasury.
Oil: Brent crude settled at $108.79 per barrel and West Texas Intermediate at $97.82 on October 20, as Iran talks and tanker attacks near the Strait of Hormuz kept prices volatile.
Inflation: The Bureau of Labor Statistics (BLS) reported September consumer prices up 3.7% year over year, with energy up 20.4%, gasoline up 9.1% on the month and electricity up 4.4% year over year.
Federal Reserve: The Fed raised rates a quarter point in September. Reuters reported on October 14 that futures priced about a 45% chance of another increase at the October 27 to 28 meeting.
Commercial electricity: The Energy Information Administration (EIA) forecasts 14.00 cents per kilowatt-hour for 2026, up from 13.41 cents in 2025.

The Yield and the Barrel Hit the Same Pro Forma

The 10-year Treasury closed at 5.12% on October 20. The October high was 5.31%, reached on October 5. Commercial mortgage pricing follows that benchmark, so refinancing math that assumed a lower base rate no longer holds for loans maturing in the next 12 months.

Energy prices add pressure from the operating side. Brent settled at $108.79 on October 20, and Fortune reported an intraday quote of $112.85 that morning. EIA forecasts Brent near $105 in the fourth quarter. Oil does not set electricity prices directly in most U.S. markets, but the BLS data show how energy inflation travels: electricity prices rose 4.4% year over year in September, while the broader energy index rose 20.4%.

A $1,000 reduction in annual operating expense adds about $12,500 of value at an 8% capitalization rate. The reverse also holds. Every unmanaged utility increase subtracts value at that ratio, and it does so while buyers face higher financing costs.

The Federal Reserve Keeps October Live

The Fed raised rates in September. After the September inflation report, with core prices at 2.6% against 2.5% expected, Reuters reported that futures markets put the odds of an October increase near 45%, up from about 22% before the report. The October Beige Book from the Fed described rising diesel and fuel costs moving into transportation and supplier pricing.

The September increase lifted the federal funds target range to 3.75% to 4.00%, according to Northmarq. September payrolls rose only 29,000 and unemployment held at 4.2%, so the Fed weighs 3.7% inflation against a slowing labor market. Northmarq’s October commentary says an October increase may be unlikely, while Reuters reported odds near 45% on October 14. The spread between those readings shows how divided the market is.

Underwriters should model two cases for the October 28 decision, a pause and a second increase, and test debt service coverage under both. Odds shift daily, so confirm the current pricing before the meeting.

Regional Winter Exposure Decides Which Buildings Feel It First

EIA projects higher household electricity bills of about 4% this winter and heating oil expenditures up 21%, while natural gas costs fall 9%. Those national averages mask wide regional differences, which the previous column in this series examined. Electric-heat buildings carry the most exposure to the electricity increase, and gas-heated buildings benefit from lower gas costs.

Grid strain adds to the fuel effect. PJM Interconnection reached a record 162.6 GW on July 2, and ERCOT reached 91.1 GW on July 22, 6.5% above its 2024 record. EIA expects commercial electricity demand to grow 2.8% in 2027, and the North American Electric Reliability Corporation forecasts summer peak demand up 224 GW over 10 years. Federal Energy Regulatory Commission and Nuclear Regulatory Commission commissioners meet October 22 on how to manage that load growth.

Commercial electricity at 14.00 cents per kilowatt-hour sets the energy cost baseline, but the bill reflects more than the energy rate. Demand charges, which price a building by its single highest interval of use, and fuel or purchased-power adjustment riders vary by utility tariff. Pull the tariff and read both line items before forecasting 2027 operating expenses.

Three Levers Sit Inside the Owner’s Control

JLL studied 4,437 offices in seven markets and found the most efficient buildings cost $1.58 to $5.13 less per square foot each year to operate than the least efficient buildings in the same city. Each lever below targets that gap.

Lease language. Gross and modified gross leases leave utility escalation with the owner. Consumer Price Index-linked utility escalators and expense stops move part of the increase to tenants at renewal.
Onsite generation and virtual power plants. Solar with storage lowers the energy purchased and cuts the peak that sets demand charges. Enrolling the battery in a utility or aggregator virtual power plant program adds a revenue line during grid peaks. Program terms vary, so confirm payment rates and dispatch rules in the enrollment contract.
Commercial Property Assessed Clean Energy (C-PACE). The financing repays through the property tax bill, which allows a retrofit to proceed without a bank loan priced off the Treasury. Counsel at Hodgson Russ note that under triple net leases the assessment can pass to tenants, that unpaid assessments can create a senior lien requiring existing lender consent, and that some leases exclude PACE assessments from the definition of taxes or operating expenses. Review those definitions before closing. The Department of Energy adds that the assessment transfers to a new owner on sale, so it affects exit pricing.

Every dollar of operating expense removed adds about $12.50 of value at an 8% cap rate.

Three Actions for This Week

1. Run debt service coverage on both October 28 outcomes for every loan maturing in the next 12 months.
2. Pull each property’s utility tariff and list demand charges and adjustment riders by line item.
3. Audit lease expense definitions for utility escalators and for C-PACE treatment before the next renewal cycle.

The Bottom Line

Capital costs and energy costs moved against owners in the same week. Operating levers (tenant cost recovery, peak reduction and low-cost financing) are the part of the pro forma that owners control, and each one converts directly to net operating income.

ChargedUp!

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