Debt Funds Surge as Spreads Hold Firm in 2026
Commercial real estate lending momentum strengthened in the first quarter of 2026, climbing to its highest level in five years as larger loan sizes, expanding non-agency participation, and broadly stable underwriting metrics signaled a firmer–but still disciplined–credit environment, according to the latest CBRE data.
The CBRE Lending Momentum Index, which tracks the pace of CBRE-originated U.S. commercial loan closings over a rolling 36-month period, rose to 1.5 in Q1 2026, up from 1.2 in Q4 2025 and 0.3 a year earlier. The reading marks its strongest level since 2021, reflecting a steady recovery in transaction activity and lender risk appetite.
Average loan sizes increased 14% year over year, underscoring a gradual reopening of financing channels for larger asset trades and recapitalizations after two years of constrained liquidity.
“Commercial real estate lending continues to normalize into a more disciplined, yet increasingly healthy environment,” said James Millon. He added that rising acquisition activity is accelerating price discovery, while fresh equity inflows are helping rebalance lender and securitized portfolios.
He noted that recapitalizations–particularly for larger assets and portfolios–remain a key source of deal flow, with structured financings increasingly serving as the foundation for joint ventures rather than traditional outright sales.
Alternative lenders drive shift in market share
Non-agency lending continued to tilt decisively toward alternative capital providers. Debt funds and mortgage REITs accounted for 53% of total non-agency loan closings in Q1 2026, a sharp increase from 19% a year earlier.
Debt funds were the dominant driver of growth, with lending volume surging 280% year over year, reflecting both opportunistic deployment of capital and reduced bank competition in certain risk tranches.
Traditional lenders lost share in the mix: banks accounted for 22% of non-agency volume, down from 34% a year earlier, while life insurance companies declined to 17% from 21%. CMBS lenders saw the steepest contraction, falling to 8% from 26% over the same period.
Spreads stable as borrowing costs ease
Pricing trends showed modest easing alongside stable risk premiums. Commercial mortgage spreads narrowed 2 basis points year over year to an average of 181 basis points, while multifamily spreads compressed more meaningfully by 13 basis points to 136 basis points.
These figures reflect fixed-rate, 7- to 10-year loans typically underwritten at 55% to 65% loan-to-value ratios.
Underwriting metrics remained broadly steady. Loan constants declined 10 basis points quarter over quarter to 6.7%, while average mortgage rates fell 110 basis points to 5.7%. Debt yields held within a tight range at 9.5%, compared with 9.8% in the prior quarter and 10.3% a year earlier.
Average loan-to-value ratios ticked higher to 61.5%, up from roughly 59% a year earlier, while multifamily LTVs rose to 67.2% from 65%, indicating a modest shift toward more aggressive–but still controlled–lending structures.
Agency lending remains a stabilizing force
Government-sponsored lending activity continued to provide a floor for multifamily financing. Origination volume from Fannie Mae and Freddie Mac rose 35% year over year to $29.9 billion in Q1 2026.
CBRE’s Agency Pricing Index, which tracks average fixed-rate agency mortgages for 7- to 10-year terms, declined 42 basis points year over year to 5.4%, reinforcing the gradual easing in long-term financing costs.
Taken together, the data points to a market transitioning out of the acute liquidity stress of prior years into a more balanced phase–defined less by abundant capital and more by selective underwriting, diversified lender participation, and a slow re-establishment of price discovery across commercial real estate sectors.
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