The benchmark index for most floating-rate commercial loans today.
The Secured Overnight Financing Rate (SOFR) is the benchmark interest rate index that replaced LIBOR for most US dollar floating-rate commercial loans starting in 2023. SOFR is published by the Federal Reserve Bank of New York and is based on actual overnight Treasury repo transactions — making it more transparent and less manipulable than LIBOR.
SOFR matters because virtually every floating-rate commercial real estate loan in the US — bridge loans, construction loans, large multifamily perm, mezzanine debt — is now priced as SOFR + spread. A bridge loan quoted as "SOFR + 350" means the all-in rate is wherever current SOFR is, plus 3.50%. As SOFR moves with Federal Reserve policy, the borrower's rate moves with it.
The transition from LIBOR to SOFR was driven by LIBOR's vulnerability to manipulation (revealed in the 2008–2012 scandals) and the fact that LIBOR was based on bank-submitted estimates of borrowing costs rather than actual transactions. SOFR, by contrast, is based on the volume-weighted median rate from ~$1 trillion of overnight repo transactions every business day — much harder to manipulate and a true reflection of market funding costs.
There are multiple SOFR rates in use. Daily SOFR compounds the overnight rate into the loan's applicable period. Term SOFR (1-month, 3-month, 6-month) is a forward-looking term rate published by CME based on SOFR futures. Term SOFR is most common in commercial real estate because it gives borrowers and lenders a known rate for the upcoming period — same convention as LIBOR before it.
For real estate operators, SOFR exposure is a major underwriting consideration. A bridge loan at SOFR + 350 with SOFR at 4.50% means 8.00% all-in today — but if SOFR rises to 5.50%, the rate jumps to 9.00% and DSCR compresses. Many operators buy rate caps at origination to limit SOFR exposure during the loan life, capping their downside at the cost of a small premium.
| Bridge loan amount | $5,500,000 |
| Loan structure | SOFR + 375 bps, IO, 24-month term |
| Current 1-month Term SOFR | 4.85% |
| Spread | 3.75% |
| Current all-in rate | 8.60% |
| Current monthly IO payment | $39,417 |
| If SOFR rises 100 bps → 5.85% | |
| New all-in rate | 9.60% |
| New monthly IO payment | $44,000 |
| Annual payment increase | $55,000 |
The Secured Overnight Financing Rate — a daily interest rate index based on overnight Treasury repo transactions. SOFR replaced LIBOR as the benchmark for US dollar floating-rate commercial loans.
Daily SOFR is the actual overnight rate, compounded over the applicable period. Term SOFR is a forward-looking 1, 3, or 6-month rate published by CME based on SOFR futures. Most CRE loans use Term SOFR.
The loan's all-in rate is SOFR (the floating index) plus a fixed spread (the lender's margin). A "SOFR + 350" loan with SOFR at 4.5% prices at 8.0% all-in. As SOFR moves, the all-in rate moves with it.
LIBOR was based on bank-submitted estimates rather than actual transactions, making it vulnerable to manipulation (revealed in the 2008–2012 LIBOR scandals). SOFR is based on actual repo transactions and is much harder to manipulate.
A derivative contract that limits a borrower's SOFR exposure. The borrower pays an upfront premium and receives payments if SOFR exceeds a strike rate — effectively capping the all-in rate on the loan. Rate caps are common on bridge and construction debt.
Matrix structures bridge and construction loans priced as SOFR + spread, with rate cap guidance and execution support built in.
