🚨Debt origination is up year-to-date with alternative lenders taking share, while CMBS/CLO issuance is rebounding off 2024 lows and new-issue spreads are ~10–30 bps tighter. Banks remain selective but are extending maturities on performing credits; life companies keep steady allocations. Fed easing improves base rates, but market depth is still thinner than 2021, creating a barbell where stabilized/trophy and small-balance execute, while transitional relies on club capital. For borrowers, structure and readiness (QofE, ops packs, reserves) now drive execution as much as pricing.
CMBS/CLO primary spreads: ~10–30 bps tighter vs early-2025
Senior loan pricing: base + 275–425 bps (middle-market)
Advance rates: senior leverage 55–60% LTV on stabilized
Mezzanine pricing: +400–700 bps over base
Loan Performance. Tighter primary spreads shave debt service for stabilized assets, nudging DSCRs higher at the margin; lenders still require caps and, for value-add, interest reserves. Caps/floors matter: lower base rates help floating deals but floors preserve lender yield.
Demand Dynamics. Capital prefers stabilized cash flows (credit-tenant, necessity retail, top-quartile industrial/multifamily). Transitional demand clears when business plans are underwritten with conservative lease-up, realistic TI/LC, and documented backfills; concessions remain a drag where rent beta is weak.
Asset Strategies. Reduce downtime via rolling pre-leases; phase TI/LC to milestones; re-stripe OPEX to protect NOI. Tranche capex (core, code, optional) to keep draws aligned with value creation.
Capital Markets. Term sheets coalesce around base + 275–425 at 55–60% LTV with tighter covenants; CMBS conduits reopen intermittently, so timing matters. Debt funds price execution speed; CLO appetite returns for seasoned, diversified pools.
Rates lower but liquidity is selective.
Favor stabilized, durable NOI over high rent-beta plays.
Execute with complete data rooms and pre-baked reserves.
Spreads improving, but structures (caps, sweeps, reserves) remain stringent.
🛠 Operator’s Lens
Refi. For stabilized assets, prioritize prepay flexibility and cap coverage through maturity; underwrite refinance tests at conservative proceeds.
Value-Add. Tie capex to executed leases; hold 7–10% contingency and fund interest reserves up front.
Development. Sensitize pro formas to +50–100 bps spread risk and slower lease-up; align GC/FF&E schedules with lender draw cadence.
Lender POV. Banks extend/defend on-book performers; CMBS/CLO channels price speed and data quality; life-cos hold bar high but consistent.
Watch new-issue CMBS spreads for momentum confirmation.
Track warehouse capacity at debt funds/CLO shops for origination pace.
Monitor life-company allocations into Q4 for long-term fixed-rate depth.
ULI, CRE Daily, Dataset JPM, Dataset MBA
