Today’s post is written by Michael Green, Senior Commercial Loan Originator with Counsel Mortgage Group, LLC. Mike writes monthly on the commercial mortgage market. Check back each month for his commentary.
CRE mortgage lenders appear to be shifting away from the defensive stance that has characterized the past several years. Industry data shows underwriting discipline in CRE lending is showing signs of softening amid dynamic deal flow, stabilizing costs, and intense competition. These changes may not be readily observable in your market.
Key metrics from CBRE’s Q3-25 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 – a 50 bps (1/2%) improvement. While not particularly dramatic as a standalone statistic, this incremental rise signals a measured increase in risk tolerance among lenders, particularly in a market still marked by uncertainty and price discovery. The quarter also saw a 28 bp (.28%) decline in mortgage interest rates, creating an environment where borrowers face less friction and the cost of capital is steadily declining.
Other observable data show tightening credit spreads, a shift toward floating-rate financings, and a narrowing of the bid-ask gap. These dynamics are fueling transactions and unlocking new opportunities.
The data shows a broad recovery in investment sales across major asset classes led by multifamily and industrial. Core capital is returning selectively, influencing equity pricing in key markets and CRE segments.
But the uptick in leverage shows a nuanced change in lending posture: a move toward greater flexibility that can respond to competitive pressure as well as 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.
Tighter credit spreads and robust agency activity are closely linked to lenders’ willingness to be more aggressive on some deals, but the 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.
As CRE construction activity and sales volumes continue to rise, market participants are left to gauge whether this environment will persist, or will caution return if macroeconomic signals shift. For now, the data indicates that lenders are largely responding to market strength. Still, for those with long memories in real estate finance, the incremental increase in leverage (LTV) stands out as the canary in the coal mine, a relatively easy indicator to follow that could reshape competitive dynamics and lending discipline in ‘26.
THIS JUST IN!
Headline News: Adobe reported Black Friday online sales were $11.7 billion, a 9.1% increase over ’24. In-store sales will be coming in the next few days/weeks.
With the collective consumer credit card balance of $1.233 trillion and an average interest rate of 21.98%, we wonder where they (we) get the money? We’re reminded that about 70% of our national GDP is consumer spending. Do we have one foot on the banana peel? Hum-m-m?
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