We’ve been financing commercial property up and down this coastline for thirty years, and I can tell you 2026 is one of the strangest markets I’ve ever seen. Not bad. Strange. You got office towers in Santa Monica sitting roughly a third empty while a warehouse in Torrance leases half a million square feet to a nuclear startup before the concrete even cures. Malibu is rebuilding itself parcel by parcel, and Huntington Beach is so tight on industrial space you can hardly find a building to buy at any price. Four coastal submarkets. Four completely different stories. Here’s what the numbers actually say as of August 2026, and here’s where Michael Schwartz thinks the smart money goes.
First, the Money: Where Rates Sit in August 2026
Everything in commercial real estate starts with the cost of money, so let’s start there. On July 29, 2026, the Fed held the federal funds rate at 3.50% to 3.75%, and it wasn’t a friendly meeting either — a divided 9-3 vote, with three regional presidents pushing for a quarter-point hike because inflation is still running above the 2% target. SOFR is sitting at 3.62%. The 10-Year Treasury is trading around 4.68%, and that’s the number that matters most for anyone locking in a fixed rate this quarter.
| Benchmark / Product | Rate (August 2026) |
|---|---|
| SOFR (overnight) | 3.62% |
| 10-Year Treasury | ~4.68% |
| Federal Funds Rate | 3.50% – 3.75% (held July 29) |
| Conventional commercial mortgages | ~5.74% – 7.75% |
| Bridge loans | 8.0% – 12.5% (most deals 9% – 11%) |
What does that mean in plain English? The overnight money got cheaper, but the long end didn’t cooperate. Floating-rate borrowers are breathing easier than they were two years ago. Fixed-rate borrowers are staring at a 10-year that’s drifted back up. That’s the backdrop for everything below.
Santa Monica: A Tale of Two Buildings
Financial Compound is headquartered in Santa Monica, so this one is personal. And I’ll be honest with you — the office market here is still hurting. Vacancy across the roughly 11.8 million square feet of tracked office inventory is running near 30%. Landlords are advertising around $6.25 per square foot per month, but nobody pays sticker. Free rent, fat tenant improvement packages, flexible terms — the landlords are competing for tenants now, not the other way around. That’s a complete reversal from 2019, and everybody knows it.
But here’s the thing about a market like this: the pain is where the opportunity lives. Santa Monica is seeing real momentum in adaptive reuse — obsolete office buildings getting converted into private schools, apartments, medical, and creative uses. And with a wall of office loans maturing over the next 12 to 24 months, distressed refinancings are going to hand well-capitalized buyers acquisition opportunities we haven’t seen on the Westside in a generation.
Meanwhile, the multifamily side of town never got the memo about a downturn. Average asking rents run about $3,653 a month — roughly 69% above the LA metro median. Buildings trade around $680,000 per unit against $420,000 metro-wide, a 62% premium, and product priced to current market is moving in 60 to 90 days. Rent-controlled buildings with below-market rents are the value-add play everybody wants. Scarcity, strict zoning, coastal demand. Same story for forty years, and it’s still true.
Malibu: A Rebuild Economy
Malibu in 2026 is not a normal market, and it won’t be one for a while. The January 2025 fire took 597 single-family homes, 67 multifamily units, and nine commercial properties, and left more than 320 beachfront parcels facing severe geohazard conditions — 173 of them on active landslides. Pacific Coast Highway was closed to through traffic for six months, and some businesses saw sales fall by more than half. That’s the hard part, and I won’t sugarcoat it.
Here’s the other part. Permit activity has climbed throughout 2026 as owners move from planning to construction under the city’s Fast Track Rebuild Program. The Cross Creek Ranch retail center has been opening in phases since late 2024, landing national tenants and giving Malibu retail a genuine anchor. And the city is committing to serious infrastructure — a $14 million Carbon Canyon water main and pump station as part of a larger $200 million regional water effort, plus a proposed $140 million sanitary sewer along PCH.
For borrowers, Malibu right now is a construction and bridge financing market, plain and simple. Rebuild loans, lot acquisition loans, repositioning capital for damaged commercial parcels. Conventional lenders get skittish around geohazard designations and insurance question marks, which is exactly why deals out here need a broker who can run the whole capital stack — banks, debt funds, private credit — and find the one lender who actually wants the deal.
South Bay: The Hottest Industrial Story in Southern California
Now for the fun one. The South Bay industrial market is on an absolute tear, and it’s being driven by something a lot of people didn’t see coming: aerospace, defense, space, and advanced manufacturing tenants who need to be near LAX, the ports, and each other.
The numbers are remarkable. Greater LA industrial posted about 4 million square feet of net absorption in Q2 2026 — the best quarter since 2021 — and the South Bay did the heavy lifting. The submarket recorded its highest quarterly leasing volume ever, and with roughly 7.97 million square feet leased through mid-year, the South Bay has nearly matched its entire 2025 total in six months. Valar Atomics took over 500,000 square feet in Torrance. Divergent Technologies took roughly 400,000 more. New construction in Torrance is commanding some of the highest industrial rents in the region.
And here’s the part tenants and buyers should pay attention to: the window is closing. Average asking rents across LA industrial are still down about 4.5% year-over-year and more than 20% off peak — but the construction pipeline has collapsed 55% from its 2023 high, vacancy is stabilizing in the 5% to 6.5% range depending on who’s counting, and preleasing on new South Bay product is strong. When supply dries up and demand is setting records, rents don’t stay soft. They just don’t. If you’ve been waiting to buy or lock a long-term lease in Torrance, El Segundo, Carson, or Gardena, 2026 is your year, not 2028.
Huntington Beach: Quietly the Tightest Market on the Coast
Huntington Beach doesn’t make headlines like Santa Monica or Malibu, and that’s exactly why I like it. Industrial vacancy in Surf City is down to 3.5% — from a 5% peak in early 2024 — with essentially no new supply coming and asking rents around $1.55 per square foot. Fewer than 10 industrial buildings sold in all of 2025, the lowest total in at least a decade. Cap rates that blew out during the rate correction have settled into the mid-5% range and are starting to compress again. Forecasts point to rent growth resuming in 2027 and accelerating in 2028. That’s what a supply-constrained market looks like, folks.
Retail tells a similar story with a coastal twist. Huntington Beach draws more than 11 million visitors a year, and retail rents run from about $2.75 per square foot on inland corridors to north of $7.00 on Main Street and inside Pacific City — one of the widest rent spreads of any city in Orange County. The city logged 16 retail lease deals in Q2 2026, among the county’s most active submarkets. And Orange County multifamily keeps humming along near 3.8% vacancy, one of the tightest metros in the nation.
The Hot Trends Tying All Four Markets Together
- Adaptive reuse is real money now. Obsolete Santa Monica offices becoming schools and apartments isn’t a novelty anymore — it’s a repeatable investment strategy with lenders who understand it.
- The maturity wall is here. Office and retail loans written in 2016–2021 are coming due into a higher-rate world. Distressed refis and note sales will create the best buying window of this cycle over the next 12 to 24 months.
- Aerospace and advanced manufacturing are the new anchor tenants. Nuclear, satellite, defense, and 3D-printing companies are absorbing South Bay industrial at record pace and paying top-of-market rents for new product.
- Effective rents beat asking rents. Across office and retail, landlords are holding headline rents and giving it back in free rent and TI dollars. Negotiate the concessions, not the face rate.
- Flight to quality, everywhere. Class A industrial, amenitized office, prime-corridor retail — the good stuff leases. Commodity product sits. Underwrite accordingly.
Best of the Market: Where the Smart Money Goes in 2026
Best Value-Add Play: Santa Monica Multifamily
Buildings with below-market rents and deferred maintenance, bought right and repositioned. The rent gap between controlled and market units keeps widening, and thats upside you can underwrite.
Best Growth Story: South Bay Industrial
Record leasing, collapsing supply pipeline, credit tenants from the space and defense economy. Buy or lease before the 2027 rent curve does it for you.
Best Long-Term Hold: Huntington Beach Industrial
3.5% vacancy, no new supply, rent growth forecast through 2028. Boring in the best possible way.
Best Contrarian Bet: Santa Monica Office (Bought Right)
Thirty percent vacancy scares most people. It shouldn’t scare everybody. Well-located buildings acquired at distressed pricing, converted or repositioned, will make somebody alot of money this cycle. Just needs the right basis and the right capital.
Best Construction Play: The Malibu Rebuild
Hundreds of parcels, a fast-track permit program, and billions in eventual construction. Complicated? You bet. That’s why the returns are there.
Financing These Deals: What Works Right Now
Every one of these plays needs a different capital stack, and that’s the whole reason borrower-only brokers exist. Santa Monica multifamily wants agency debt — Fannie Mae, Freddie Mac — at the tightest spreads in the market. Value-add and rebuild deals want bridge capital in the 9% to 11% range with a clean exit to permanent. Owner-users buying South Bay or Huntington Beach industrial should look hard at SBA 504 before anything else. And office acquisitions need creative structures — debt funds, seller financing, participating capital — that your neighborhood bank wont touch.
Financial Compound has placed over $6 billion in commercial real estate debt and equity since 1996, representing borrowers exclusively, with no upfront fees. We know which lenders are actually quoting coastal LA deals this quarter, because we talk to them every day.
Frequently Asked Questions
Is the Santa Monica office a bad investment in 2026?
Not automatically. Vacancy near 30% means pricing has reset hard. Buildings bought at distressed basis with a credible reuse or repositioning plan can outperform. Buildings bought at yesterday’s prices will not.
What is driving the South Bay industrial boom?
Aerospace, defense, space, nuclear, and advanced manufacturing tenants clustering near LAX and the ports. The South Bay leased roughly 7.97 million square feet in the first half of 2026 — nearly matching all of 2025 — including deals over 400,000 and 500,000 square feet in Torrance and Long Beach.
Can you get financing for a Malibu rebuild or commercial reposition?
Yes, but conventional banks are cautious around geohazard and insurance issues. Most deals get done with construction loans, bridge debt, and private credit, then refinance to permanent once stabilized.
What are commercial mortgage rates in August 2026?
Conventional commercial mortgages run roughly 5.74% to 7.75% depending on asset and leverage, with bridge loans at 8% to 12.5%. SOFR is 3.62% and the 10-Year Treasury is around 4.68%. Rates move daily — verify before you lock.
Which coastal LA submarket has the lowest vacancy in 2026?
Huntington Beach industrial, at roughly 3.5% — down from a 5% peak in early 2024 — with no meaningful new supply on the way.
Talk to the Broker Who Works for You, Not the Lender
Whether you’re refinancing a Santa Monica office loan coming due, buying South Bay industrial, or rebuilding in Malibu, Financial Compound represents borrowers exclusively — over $6 billion placed since 1996, no upfront fees. Call (310) 260-5900 x3 or visit our contact page for a free loan quote.