Underwriting Standards Tighten for 2026 Refinancings

2026 underwriting will be highly selective, focusing on assets with strong cash flow and sponsorship.
Lenders are recalibrating debt service tests to reflect higher interest rates and stricter assumptions.
Sponsors able to provide fresh equity have a better chance at refinancing or modifying loans.
Capex runway and credible business plans are critical for transitional and value-add deals, especially in office.

Key Takeaways

Lender Scrutiny Increases

According to Globe St, commercial real estate lending in 2026 is shaping up as a ‘sorting year,’ with banks, CMBS, and private credit outlets applying far tougher underwriting standards. The backdrop: higher-for-longer rates, mounting maturities, and a thirst for strong sponsorship and financeable assets.

According to Trepp’s research, deals supported by robust cash flow and experienced sponsors are passing the new underwriting hurdles. Marginal assets, particularly those with optimistic past assumptions, face stricter debt service coverage requirements and heightened scrutiny.

Debt Service Coverage Takes Center Stage

The prime question for refinancing is whether an asset can service current debt with today’s rate coupons, not those from prior years. Loan originations from the 2021 boom are particularly at risk, as lenders test resilience against negative or flat rent assumptions.

Banks and CMBS shops have raised DSCR benchmarks and are less likely to accept future rent growth as part of any deal’s viability. Private credit funds are applying similarly rigorous standards, often demanding stronger sponsor engagement or pursuing loan-to-own scenarios on weaker assets.

The Importance of Sponsorship and Fresh Equity

2026 puts heavy emphasis on real sponsorship strength. Borrowers with a proven track record and the ability to inject new equity are likely to find more flexible refinancing options. Both traditional and private lenders are making fresh cash infusions a prerequisite for modifications, principal paydowns, or capital expenditures.

Those unable or unwilling to recapitalize may face discounted sales or even turn properties over to the lender, especially in distressed situations.

Capex, Business Plans, and Asset Types

Lenders are focusing on remaining capital expenditure and business plan certainty, especially for properties financed through bridge loans or CRE CLOs. Most underwriters will only consider assets with credible, funded renovation or leasing plans as financeable.

In the office sector, lenders want detailed projections for leasing costs and tenant improvements before offering new term debt. Multifamily and industrial assets still attract investors, but only when sponsors can cover construction and lease-up risks with actual funding.

Sharper Lines Among Lenders

Banks are modestly increasing CRE lending, but only for top-tier credits, with shorter terms and tighter covenants. CMBS volumes are driven by trophy refinancings and strict standards on location, tenant quality, and long-term viability. Private debt funds still pursue complex stories but now demand more control, higher yields, and clear remedies if performance falters.

Recent lending activity in niche asset classes like self storage has shown some resilience, even as broader credit standards tighten, highlighting the nuanced approach lenders are taking across property types.

As 2026 progresses, underwriting standards will decide which assets stay bankable and which face liquidation or modification. Careful preparation and strong sponsorship are more crucial than ever for CRE borrowers.