- Credit spreads, not benchmark rates, are now controlling CRE transaction activity.
- Wider spreads have raised borrowing costs despite steady Treasury yields.
- Loan-to-value ratios have seen modest increases, led by investor-driven lenders.
- Lender sentiment, not rate cuts, will be critical for future market recovery.
Credit Spreads Take Center Stage
Credit spreads have become the dominant factor influencing commercial real estate (CRE) deals, even as federal funds and Treasury rates remain stable, reports Globe St. Industry data from Colliers and Trepp highlights how the cost to borrow has climbed, with spreads widening across all major property types. This marks a change from typical cycles, where stable benchmark rates would normally boost transaction volumes.
Why It Matters for Borrowers
Lenders are now pricing in more risk, driving up all-in CRE borrowing costs. Average loan-to-value (LTV) ratios have increased—for example, overall CRE LTVs rose from 63.3% in 2024 to 65.2% in 2025, according to MSCI Real Capital Analytics. CMBS lending LTVs jumped notably, but this higher leverage hasn’t offset wider spreads or eased debt service constraints. Transactions continue to lag, held back more by debt economics than LTV hurdles.
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Selective Credit Easing Emerging
Early signs point to selective loosening within credit markets. Investor-driven lenders are leading this trend with higher LTVs, while banks and insurance companies have relaxed slightly. However, the limited increase in leverage hasn’t been enough to spur a broader resurgence in deal flow under current conditions. At the same time, elevated borrowing costs continue to weigh on underwriting, as higher rates and wider spreads keep financing conditions tight across much of the market.
What’s Next for CRE Recovery
Looking forward, recovery is set to depend less on the timing of rate cuts and more on a renewed lender appetite for risk that’s correctly priced. Until confidence returns, credit spreads will continue to set the pace for CRE transactions, outweighing any impacts from steady base rates.
