Executive Summary
Policy noise contained: A brief federal shutdown and upcoming DHS funding deadline created headline risk, but markets treated these events as transitory rather than systemic.
Fed leadership clarity: The nomination of Kevin Warsh to succeed Chair Powell reduced uncertainty and reinforced expectations of monetary policy continuity.
Capital availability: Liquidity remains abundant across agencies, banks, CMBS, and private credit, with competition increasing, particularly among alternative lenders.
Quiet leverage expansion: While loan spreads remain stable, leverage is gradually increasing in select channels, raising future refinancing sensitivity if volatility persists.
Actionable insight: This is a market defined by opportunity and discipline. Borrowers who lead with conservative assumptions and clean execution plans are benefiting from competition; marginal deals are still being rationed.
Macro & Monetary Policy Context
Congress passed a five-bill funding package that ended a brief partial government shutdown and funds most federal agencies through September. The Department of Homeland Security, however, is funded only through February 13, introducing another near-term funding deadline. While the shutdown delayed several BLS releases, including the January employment report, markets largely dismissed the interruption as administrative rather than economically meaningful.
The more consequential development was President Trump’s nomination of former Federal Reserve Governor Kevin Warsh to succeed Jerome Powell as Chair in May. The significance of this announcement lies less in anticipated policy changes and more in the reaffirmation of Federal Reserve independence, removing a lingering source of uncertainty for fixed income markets. Assuming confirmation, Warsh’s first meeting as Chair will occur on June 17.
Rate expectations remain largely unchanged from January. Futures markets continue to price:
One 25 bps cut mid-2026
A 72% probability of a second 25 bps cut
No expectation of a third cut
This stands in contrast to more hawkish institutional forecasts, including JP Morgan’s view of no cuts in 2026 and a potential hike in 2027.
Why this matters for CRE debt:
Policy continuity is helping contain credit spreads even as benchmark volatility persists. For lenders, confidence in governance and independence reduces duration risk and supports capital deployment. The result is a market where borrowing costs fluctuate with benchmarks, but underwriting standards remain anchored.
Comparative Pricing Table: December 2025 vs. January 2026 vs. February 2026
This table isolates all-in coupons and spreads as provided, so you can see what actually moved. Net: benchmarks were the swing factor, while spreads largely held, with incremental month-to-month drift by channel.
| Capital Source | December 2025 | January 2026 | February 2026 | Q1 Directional Read |
|---|---|---|---|---|
| Agencies | 4.95%–5.45% (buydowns 4.65%–5.15%) | 5.00%–5.50% (buydowns 4.70%–5.20%) | 4.90%–5.40% (buydowns 4.60%–5.10%) | Flat to slightly lower by Feb; demand shifted to 6–10 yr |
| Life Companies | 5.00%–6.15% (spreads ~130–225 bps) | 5.15%–6.25% (spreads ~130–210 bps) | 5.05%–6.15% (spreads ~130–210 bps) | Spreads stable; minor coupon drift with benchmarks |
| Banks (Fixed) | 5.40%–6.25% | 5.50%–6.40% | 5.40%–6.30% | Stable; modest tightening by Feb at the margin |
| Banks (Floating) | 180–300 bps + SOFR (≈5.75%–7.00%) | 180–300 bps + SOFR (≈5.50%–6.70%) | 180–300 bps + SOFR (≈5.50%–6.70%) | Spreads stable; all-in improved vs Dec due to SOFR |
| Debt Funds | 225–350 bps + SOFR | 225–350 bps + SOFR | 225–350 bps + SOFR | Flat spreads; competition increased, leverage more available |
| CMBS | 5.75%–6.75% | 5.75%–6.75% | 5.75%–6.75% | Exceptionally stable; consistent leverage/IO execution |
Interpretation: Across the quarter, the market did not experience a broad credit spread shock. The movement borrowers felt was primarily benchmark-driven, while the execution edge came from matching the asset to the right capital source and structuring for volatility.
Capital Source Activity
Agencies (Fannie Mae and Freddie Mac)
Market momentum: Rate lock activity accelerated late in the month, with $400+ million of new Fannie Mae DUS originations in a single week and $760 million for the week overall.
Yield dynamics: Bear steepening has shifted investor demand further out the curve, with strongest appetite now in 6- to 10-year loan terms.
Secondary market: Elevated trading activity continues as investor spreads tighten, with demand consistently outpacing supply.
Pricing: Highly competitive at ~4.90% to 5.40%, with rate buydowns producing effective rates as low as ~4.60% to 5.10%.
Positioning: Agencies remain the most reliable liquidity source for stabilized multifamily assets.
Life Companies
Spread environment: Corporate bond spreads remain stable year-to-date, down approximately 4 to 7 bps, supporting consistent execution.
Pricing: 5.05% to 6.15% for 65% leverage or less, with best execution still concentrated around ~60% LTV or below.
Posture: Life companies remain disciplined, favoring durability, sponsor quality, and long-term risk-adjusted returns over incremental yield.
Banks
Appetite: Yield curve normalization continues to support increased participation, particularly for core assets with strong tenant profiles.
Pricing:
Fixed-rate: 5.40% to 6.30%
Floating-rate: 180 to 300 bps over SOFR, approximately 5.50% to 6.70%
Structure: Standard 3-, 5-, and 7-year fixed programs with step-down prepayment.
Underwriting: Banks remain selective, with heightened focus on in-place cash flow, tenant quality, and relationship depth.
Debt Funds and Private Credit
Liquidity: Best described as frothy, with private capital aggressively competing on leverage and structure.
Leverage: ~65% to 75% loan-to-cost, with increasing willingness to underwrite lease-up risk and office exposure.
Pricing: 225 to 350 bps over SOFR.
Trends:
Active preferred equity behind agency senior loans in multifamily
Increasing selectivity as multifamily and industrial fundamentals soften
Some of the most competitive terms in the market are currently appearing in office transactions that clear institutional thresholds
Risk note: Underwriting dispersion by sponsor quality is widening, even as headline liquidity improves.
CMBS Conduit & CRE CLOs
Spreads: Relatively contained across new issue and secondary markets.
Pricing: 5.75% to 6.75%, dependent on loan size, property type, and debt yield.
Structure: 5- to 10-year fixed-rate, up to 75% LTV, often with full-term interest-only.
Role: CMBS remains a critical execution outlet for leverage-oriented strategies, particularly in office and mixed-use assets.
Asset Class & Buyer/Seller Sentiment
Multifamily
Liquidity remains deep, anchored by agency execution, but underwriting has tightened as rent growth moderates and operating expenses remain elevated. Capital is available, though lenders are prioritizing in-place performance over forward projections.
Industrial
Still favored, but no longer treated as riskless. Tenant rollover, functional relevance, and market depth are receiving increased scrutiny, especially outside primary metros.
Office
The office market is no longer frozen, but it is permanently segmented. Liquidity is returning to a narrower band of well-located, institutional-quality assets, while commodity office remains structurally capital constrained. CMBS and private credit continue to lead for financeable opportunities.
Retail
Activity remains selective and concentrated in necessity-based and service-oriented assets with durable cash flow.
Investment & Lending Activity Trends
Q4 investment volume: $172B, up 29% year-over-year
Full-year volume: $499B, a 22% increase over 2024
Buyer mix: Private investors led activity ($92B), followed by institutional investors ($27B)
Cross-border investment: Down 37% YoY to $6.4B
Lending mix: Alternative lenders led Q4 loan closings (40%), followed by banks (35%) and life companies (19%)
Credit metrics: Loan spreads unchanged from Q3; LTVs rose modestly year-over-year
What this tells us:
Lenders are competing harder for clean deals, not loosening standards broadly. Strong sponsorship and clear execution plans are being rewarded with better structures and leverage.
Market Dynamics & Execution Environment
Liquidity: Broad and competitive, particularly in private credit
Risk premiums: Stable, increasingly asset- and sponsor-specific
Underwriting: Debt yield and in-place cash flow remain the primary gating metrics
Execution risk: Volatility and timing matter more than at any point in the past several months
What This Means If You’re…
Refinancing in 2026: Liquidity is available, but assume conservative leverage and tighter scrutiny on cash flow durability.
Acquiring office: Financing exists for quality assets, but only within a narrower, institutional-grade subset.
Using private credit: Terms are attractive today, but refinancing risk in 24–36 months must be underwritten now.
Outlook & Forward Signals
Near-term: Expect stable spreads with episodic volatility tied to fiscal deadlines and delayed economic data normalization.
Key risks:
Renewed DHS funding uncertainty
Data volatility as postponed releases resume
Asset-level stress in weaker multifamily and industrial submarkets
Borrower posture: Conservative leverage, flexible structures, and proactive execution planning remain essential.
Concluding Observations
February confirmed that the CRE debt market is no longer constrained by access to capital, but by judgment and execution. Leadership clarity, stable spreads, and rising transaction activity have created opportunity, yet underwriting remains disciplined and increasingly selective. In this phase of the cycle, success belongs to borrowers who prioritize durability, structure, and certainty over marginal pricing advantages.
Navigating Today’s Market
John Morelli and his team of expert capital advisors are dedicated to guiding you through evolving market dynamics with expert insight, deep capabilities, and tailored financing solutions. Whether you’re exploring options with banks, agencies such as Fannie Mae, Freddie Mac, and HUD, or debt funds, our team is here to help you secure the best possible terms for your commercial real estate financing.
Ready to discuss your next financing opportunity? Contact us or schedule a consultation today for expert guidance.
