Commercial mortgage lenders may be shifting away from the defensive stance that has characterized the past several years. According to CBRE’s latest quarterly research, underwriting discipline in commercial real estate lending is showing signs of softening, as participants chase deal flow amid stabilizing costs and intense competition.
Key metrics from CBRE’s Q3 report reveal a subtle yet telling recalibration: the average loan-to-value ratio rose to 63.8%, up from 63.3% in the prior quarter. While by no means dramatic in isolation, this incremental rise signals a measured increase in risk tolerance among lenders—particularly against the backdrop of a market still marked by uncertainty and price discovery. The quarter also saw a 20-basis-point drop in loan constants and a 28-basis-point decline in mortgage interest rates, creating an environment where borrowers face less friction and the cost of capital is steadily declining.
In a statement accompanying the report, James Millon, president & co-head of capital markets in the U.S. & Canada, for CBRE, observed,
“Stabilizing financing costs, with the five-year Treasury in the 3.5% to 3.6% range, combined with tightening credit spreads and a shift toward floating-rate financings, are narrowing the bid-ask gap. This dynamic is fueling transactions and unlocking new opportunities.”
Millon also noted, “We’re seeing a broad recovery in investment sales across all major asset classes, led by high-conviction sectors like multifamily and industrial. Core capital is beginning to return selectively, shaping equity pricing in key markets and building momentum.”
But the subtle uptick in leverage is what draws attention in the current climate as it represents a nuanced change in lending posture—a move toward greater flexibility that could both respond to competitive pressure and reflect genuine stabilization in borrower fundamentals. The steady decline in conventional borrowing rates further supports the notion that competition, rather than underlying distress, is driving these trends.
Whether this shift is a sign of renewed confidence or evidence of relaxed risk controls merits scrutiny. The lending environment is more favorable than at any point since 2018, according to the CBRE Lending Momentum Index, which surged 112% year over year.
Tighter credit spreads and robust agency activity are closely linked to lenders’ willingness to be less conservative on some deals, but the index’s data also show that modest changes in underwriting standards can have outsized effects—particularly if capital flows remain fluid and pricing gaps continue to narrow.
Even as construction activity and sales volumes rise, especially in sectors such as build-to-core multifamily and data centers, market participants are left to gauge whether this environment will persist or whether caution will return if macroeconomic signals shift. For now, the data indicates that lenders are largely responding to market strength, not drifting into exuberance. Still, for those with long memories in real estate finance, the incremental increase in leverage remains a development to watch—one that could reshape competitive dynamics and lending discipline in the quarters ahead.
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