Impact Growth Capital Newsletter

 This week at IGC:
Liquidity in the Lending Market - Lender Landscape Shifts

Real Time Market Snapshot

Data as of 4/16/2025

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Lending Climate

Liquidity In the Lending Market

Throughout 2023, CRE lending momentum began to stabilize — a notable shift following years of rapid tightening. The Federal Reserve’s most recent Senior Loan Officer Opinion Survey shows that while lenders continue to tighten underwriting standards for commercial properties, the pace has eased significantly. In Q1 2025, only 8.1% more lenders reported tightening versus easing — a stark contrast to the aggressive rate of change seen just 18 months ago.

This deceleration in tightening is significant. It signals that lenders are becoming more comfortable with current risk levels, which supports healthier transaction volume and stabilizes pricing in many property sectors.

A critical outcome of this moderating trend is the return of more lenders to the market. Since early 2024, we’ve seen a steady rise in the number of active capital sources. This is a meaningful development: When only a few lenders are willing to fund deals, terms tend to be rigid and expensive. But as competition increases, borrowers benefit from better pricing, more favorable covenants, and greater optionality in capital stack structuring.

This shift is already playing out in real time. All property sectors have seen an uptick in debt liquidity, including sectors traditionally deemed higher risk.

Perhaps the most unexpected bright spot is the central business district (CBD) office market. Long plagued by work-from-home trends and occupancy declines, this sector has struggled to find its footing — yet lenders are showing renewed confidence. In Q4 2024, the number of unique lenders originating loans for CBD office properties surged by 27% compared to the prior year.

While this doesn’t suggest a full recovery, it does indicate a critical step forward: lender sentiment is improving, and that bodes well for pricing stability and capital access, even in harder-hit asset classes.

Debt & Liquidity

Lender Landscape Shifts: Non-Bank Players Take the Lead

CMBS lenders came roaring back in 2024, capturing a 22% share of the total commercial lending market — a dramatic rise fueled by a 143% year-over-year increase in loan volume. Their dominance was especially pronounced in the large-loan segment, where they originated nearly half (46%) of all loans exceeding $50 million.

Importantly, this wasn’t just growth for growth’s sake. CMBS lenders demonstrated discipline, favoring higher-quality assets. The average loan-to-value (LTV) ratio dropped to 61.3%, the second-lowest among lender types, signaling a risk-conscious approach. Meanwhile, the average cap rate on newly originated CMBS loans fell to 6.9%, down from 7.2% in 2023 — another indicator of improving asset quality in CMBS-financed deals.

Alongside CMBS, investor-driven sources such as debt funds also saw a significant upswing. These lenders — typically more agile and opportunistic — posted a 47% year-over-year jump in volume. Their increased activity reflects a broader appetite for yield in a market where risk-adjusted returns are increasingly being found outside traditional bank channels.

This growing presence adds important diversity to the lending ecosystem. Debt funds, in particular, offer flexible capital structures that can support transitional assets, value-add plays, and hybrid debt-equity strategies — all valuable tools in today’s competitive acquisition landscape.

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