CRE lending is now setting the pace for transaction activity, even as traditional benchmarks like the Federal Reserve's federal funds rate and Treasury yields play a diminished role. In a typical market cycle, those rates anchor borrowing costs and help determine when deals pencil. Today, that relationship has fractured.
A volatile backdrop—marked by tariffs, war in Iran, surging oil prices, questions around AI investment, a shaky employment picture, and broader uncertainty—has altered how capital moves through the market. Colliers Senior National Director of Research Steig Seaward says financing is one of the clearest examples of this shift.
What is increasingly driving transaction activity is the combination of credit spreads and lender risk pricing, according to Seaward. Treasury yields, by contrast, have held within a "relatively narrow range in recent months," removing what would normally be a key catalyst for increased deal volume.
Under more typical conditions, that kind of rate stability would support stronger transaction activity. Instead, borrowing has become more expensive. Colliers, citing Trepp data, found that CRE credit spreads have widened across major property types, pushing up all-in borrowing costs even as base rates remain steady.
Lenders are pricing in greater risk across the board. The result is a market where stability in benchmark rates offers little relief to borrowers, as wider spreads continue to weigh on deal economics.
There are, however, early signs of credit loosening at the margins. Loan-to-value ratios have ticked up modestly, suggesting what MSCI Real Capital Analytics data describes as a "selective reopening of credit markets," rather than a broad easing of conditions.
That increase in leverage is uneven. Investor-driven lenders are leading the shift, while banks and insurance companies have only marginally loosened underwriting standards.
Across the market, average LTV ratios rose from 63.3% in 2024 to 65.2% in 2025, a 190-basis-point increase. CMBS lending saw one of the largest jumps, climbing from 61.6% to 64.6%, while investor-driven lenders moved from 67.0% to 68.7%. Other lender categories posted smaller gains, including government agencies, regional and national banks, international banks and insurance companies.
Even so, slightly higher leverage has not been enough to counterbalance wider credit spreads. Borrowers continue to face elevated all-in costs and tighter debt service constraints, limiting proceeds and suppressing transaction volume. Deals are less likely to stall over LTV thresholds and more often falter because current debt economics cannot support legacy pricing expectations.
Looking ahead, Seaward suggests that recovery will hinge less on the timing of interest rate cuts and more on lender sentiment. According to Seaward, market recovery will depend more on lenders regaining confidence in adequately priced risk, not on the timing of rate cuts.
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