After years of pandemic-induced turmoil and mounting pressure on commercial real estate lending, banks are cautiously returning to the market—but the path back is anything but straightforward. The landscape they left behind has shifted dramatically, and the question now is whether banks can reclaim their former dominance and how long that recovery might take.
The retreat began as COVID-19 swept across the globe, forcing banks to pull back through reduced lending and tighter credit standards. As Institutional Real Estate, Inc. (IREI) reported, the industry was rocked by a perfect storm: rising interest rates, a surge in loan maturities, heightened regulatory scrutiny, widespread refinancing challenges, and the shockwaves from high-profile bank failures in 2023. These factors combined to reshape the CRE lending environment, leaving banks with little choice but to adopt a more conservative stance.
By the end of 2024, outstanding commercial mortgages totaled $4.79 trillion, according to the Mortgage Bankers Association of America. Of this, commercial banks and thrifts held 37.6%, a noticeable drop from 39% at the close of 2019. Agency and GSE portfolios, life insurance companies, and structured finance vehicles like CMBS and CDOs all saw slight shifts in their market shares, reflecting the broader realignment. IREI noted that banks’ share of CRE lending activity, once reliably between 37% and 40%, has fallen to about 33%—a decline of roughly 17%.
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Federal Reserve data paints a vivid picture of this volatility. Bank CRE lending, which grew from $7.9 billion in 2014 to a record $75.5 billion in December 2022, plummeted in the following months. By March 2025, lending had swung to -$4.1 billion before rebounding slightly to $3.2 billion in April. The April 2025 Senior Loan Officer Opinion Survey indicated that banks continued to tighten standards for nonfarm nonresidential properties, though multifamily loan standards remained mostly unchanged.
Michael Fratantoni, chief economist and senior vice president of research and business development at the Mortgage Bankers Association, told IREI, “When you overlay those bank failures with the challenging fundamentals in office and multifamily, it’s no surprise that bankers were being conservative and battening down the hatches. I’m hearing a different tone now.”
The mood among lenders is indeed shifting. Ty Gerschick, head of debt capital markets for the Americas at CBRE Investment Management, explained to IREI that banks are eager to re-enter the lending arena, but the rules have changed. “What they’re struggling with is the world has changed very significantly since they pulled away, and they’re really working hard to find their seat at the table,” he said.
Banks are now walking a tightrope, balancing the need to mitigate losses from legacy loans with the pressure to generate new business. Some have bundled troubled CRE loans for sale to investors, accepting losses to clear their books, while holding on to performing assets. Institutional and private capital are showing growing interest in these loans, even those considered riskier, as long as they continue to generate cash flow.
The recovery is underway, but it is uneven. The latest research from CBRE shows a strong rebound in lending activity, with the percentage of non-agency loan closings for banks rising sharply in late 2024. Yet, the industry remains vigilant. As Fratantoni noted, the tone is changing, but the lessons of the past few years linger, and banks are keenly aware that the CRE landscape may never fully return to its pre-pandemic state.
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