CBRE: Commercial Real Estate Lending Fundamentals Remain Strong
(Cover illustration courtesy of Scott Webb via Pexels)
Commercial real estate lending maintained momentum in the second quarter, with the number and average size of loans increasing while spreads and loan-to-value ratios tightened, according to CBRE, Dallas.
The CBRE Lending Momentum Index, which tracks the pace of CBRE-originated commercial loan closings in the U.S. over a 36-month period, stood at 1.0 at the end of the second quarter, remaining at a historically elevated level despite easing from its five-year high of 1.5 in the first quarter and 1.3 a year ago.
CBRE reported the number of commercial loans increased 11% year-over-year and the average loan size rose 5% year-over-year, with spreads and LTV ratios tightening, signaling that lenders are competing on price rather than leverage.
Commercial mortgage loan spreads narrowed by 21 basis points year-over-year to an average of 204 basis points in the quarter, while multifamily loan spreads tightened by 15 basis points year-over-year to 162 basis points. (These figures are based on fixed-rate, five-to-10-year permanent loans.)
“We are seeing no change to the availability of capital in the credit space,” said James Millon, president & co-head of capital markets for CBRE. “Given deployment objectives, the necessity to match assets and liabilities, and strong investor demand for credit, fixed-rate lenders are making concessions on credit spreads to compete for product—many are total return driven, which will partially offset further widening in benchmarks.”
Millon noted the steepness of the yield curve is driving a meaningful shift in borrower behavior. “The math is straightforward: a 70-basis-point spread between SOFR and the 5-year fixed rate is too wide to ignore,” he said. “Even the most committed fixed-rate borrowers are moving toward floating-rate structures, responding to both the cost differential and the prepayment optionality that floaters provide. Cap costs have risen recently and will act as a natural check on the trend, but underlying demand in the commercial real estate lending market remains strong and the change in borrowing convention is already well underway.”
The report said alternative lenders led CBRE’s non-agency loan closings in Q2 2026, accounting for 38% of total volume, up from 34% a year ago, as debt fund activity continued to grow. Banks held the second-largest share of non-agency loan closings at 30%, up from 24% a year ago, while life companies accounted for 21% of non-agency loan volume in Q2 2026. CMBS lenders represented the remaining 11% of non-agency loan volume, down from 19% a year ago. Key underwriting metrics showed mixed movement year-over-year but stayed within a healthy range in Q2 2026. The debt service coverage ratio rose to 1.43 from 1.34 a year ago, while the debt yield improved to 10.2% from 9.7%. Average mortgage interest rates edged down to 5.7% from 5.9% a year ago. Average commercial LTV ratios averaged 59.6% in Q2 2026, down from 60.8% a year ago, while multifamily LTV ratios eased to 63.3% from 65.8%, reflecting more disciplined leverage and healthy lender competition on pricing.
