**CRE Investment and Lending Activity Improves in Q2**
Despite economic volatility due to tariff uncertainty in the second quarter of 2025, commercial real estate (CRE) financing activity experienced a marked upswing. The CBRE Lending Momentum Index posted a significant 45% year-over-year increase, indicating a strong recovery in capital markets and lender confidence.
Total investment volume for the quarter reached $96.9 billion. However, cross-border investment flows declined, totaling $3.9 billion.
Key insights from the report include:
– **Alternative lenders** comprised 34% of all non-agency loan closings, an increase of 32% compared to the year prior.
– **CMBS lenders** accounted for 19% of closed non-agency loans, up from 10% the previous year.
– **Banks** held a 24% share of non-agency loan activity, a 29% decrease year-over-year; despite this, their origination volume rose by 70%.
– **Life insurance companies** represented 23% of non-agency loan volume, a 29% decline from last year.
Jaeyoung Kim, Associate Director of Capital Research at CBRE, noted that while Q2 began amidst heightened economic and policy uncertainty, conditions improved as markets adjusted to trade negotiation developments.
“Credit spreads tightened to more balanced levels, which helped boost origination across all lender types,” said Kim. “As policy clarity improved and market participants adapted to economic conditions, all lender types were active. Notably, private credit lenders and CMBS saw the most significant uptick in volumes.”
Kim also acknowledged that while the early part of Q2 was clouded by unpredictability, the market ultimately landed in a stronger position than initially expected. “With the benefit of market observations, we weren’t particularly surprised at where we ended up.”
Highlights from the report include:
– **Private investors** made up 62% of Q2 investment volume, a 60% jump from the year before. In contrast, **institutional investment** dropped by 39%, largely due to the 2024 AIR Communities transaction.
– The **annualized NCREIF Property Index return** rose to 4.3% in Q2. Among asset classes, retail led with a 7.6% total return, followed by multifamily at 5.0%.
– The **average spread for multifamily mortgages** declined by 22 basis points year-over-year, settling at 150 basis points.
– **Underwriting standards** eased, with average loan-to-value (LTV) ratios rising to 63.3%, and debt service coverage ratios declining to 1.34.
Looking ahead, Kim emphasized that despite policy and economic challenges, market participants remain committed to capital deployment. CBRE expects continued investment and lending momentum through the rest of 2025.
“Although there are economic and policy-related headwinds, these challenges are unlikely to derail capital deployment or lending/investment activity,” Kim remarked. “With expected Federal Reserve rate cuts and a stable long end of the yield curve, borrowing costs should continue to support robust deal activity.”
