After a period of gridlock, the U.S. commercial real estate lending market is showing signs of renewed activity. With borrowing costs off their 2024 highs and both banks and private debt funds returning, the market is experiencing a welcome, if selective, thaw. This shift is improving liquidity for core assets and opening a crucial window for borrowers facing 2026 maturities, even as underwriting discipline remains in place.

Commercial property borrowing costs have eased by approximately 50 basis points from a year ago, driven by two Federal Reserve rate cuts totaling 50 bps in 2025. Agency multifamily and life company loans now price in the high-4% range—down from the mid-5% seen earlier this year—while the 10-year Treasury yield stabilizes around 4.1%. The compression of loan spreads, trimmed by 25–50 bps for strong deals, is allowing more transactions to pencil, even if absolute rates remain high relative to 2019. “Six months ago, nobody would quote under 6%—now, we’re seeing 5.2% for solid apartments,” shared one operator. This rate relief, though modest, is pivotal for deal viability.

Banks have reversed much of their 2024 retrenchment, increasing their share of new CRE mortgages over $2.5M to 33% this year, up from 27%. Regulatory constraint easing and balance sheet cleanup have spurred this return, though their market share remains below the pre-pandemic 40%. In parallel, private debt funds have raised $24 billion year-to-date—twice last year’s pace—deploying capital with more flexible terms and targeting transitional and bridge loans. This convergence is boosting liquidity, but lenders remain focused on stable properties and experienced sponsors. On balance, the lending rebound is broadening, but not indiscriminate.

While credit is more available, lenders are proceeding with caution. Loan-to-value ratios are inching up, but most deals still underwrite at 60–65% LTV, with only exceptional sponsors seeing 70%+. Debt service coverage ratios (DSCR) above 1.2–1.3x are standard, and covenants remain tight—especially for office and speculative development. CMBS and insurance lenders are offering slightly improved terms, yet the cost of capital for troubled sectors remains high. Meanwhile, debt funds are willing to stretch on structure, offering interest-only periods and higher leverage, but at 7–8% coupons. Ultimately, the credit box is wider, but guardrails are in place.

The reopening of lending channels arrives just in time: nearly $936 billion in CRE debt matures in 2026. The improved landscape enables more owners to refinance instead of merely extending or defaulting, reducing forced sales and stabilizing asset values. Transaction volumes are picking up as buyers regain confidence that debt is available and sellers feel less urgency to accept discounts. However, as many refinancings will lock in higher rates than legacy loans, property cash flows will remain compressed. If the Fed maintains its pause, these conditions could hold; if rate cuts resume in 2026, a true refinancing surge could follow.

Forward conditions hinge on Fed policy and competitive lender dynamics. Should the Fed hold rates in December, current liquidity likely persists; further cuts could prompt a surge in refinancing and tighter spreads. Yet, the influx of private capital may tempt some lenders to loosen standards—watch for signs of excess in underwriting surveys. A potential economic shock could reverse gains quickly, underlining the need for Plan B strategies. For now, borrowers and lenders are meeting eye-to-eye, but discipline remains essential as the credit cycle resets.

Liquidity is opportunity—but only for those who price discipline as tightly as debt.