As we noted in August, declining originations in the commercial real estate (“CRE”) debt space by banks allowed non-traditional lenders such as debt funds, mortgage real estate investment trusts (mREITs), and other alternative lenders to increase their share of such originations in recent years. However, banks seem poised to reverse this trend after increasing their share of new CRE originations from 27% in 2024 to 33% in 2025.[1] But originations by non-bank lenders are not tapering off either.
Debt funds focused on North American real estate raised $30 billion in 2025 to support new commercial real estate loan originations.[2] Additionally, Fannie Mae and Freddie Mac recently raised their 2026 annual loan purchase caps by a combined $30 billion, or about 21% above 2025 levels, to $88 billion each for a total of $176 billion.[3] Lenders are building additional capacity in anticipation of roughly $936 billion in loan maturities expected in 2026, a 19% increase from the previous estimate of $789 billion.[4] We expect this continued and revived CRE loan activity to result in increased lender competition and loosening credit fundamentals.
Why Lenders Should Stay Selective
As lenders compete to deploy more capital, credit quality oftentimes suffers due to relaxed underwriting standards combined with pressure to deploy cash. CRE Collateralized Loan Obligations (“CLOs”), which are typically issued on pools of bridge or transitional loans, illustrate this dynamic. Approximately 82% of the loan balances from CRE CLOs issued in 2021, the highest year on record, reported debt service coverage ratios (“DSCRs”) below 1.00x by 2025.[5]
Graph shows the dollar value of outstanding CRE CLOs based on origination year. Loans are bucketed based on current debt service coverage ratios. Source: Trepp CRE CLO Issuance in 2025: A Rebound in Volume; A Repricing of Risk
The Agency Advantage
Not all CRE loans perform equally, as demonstrated through the resiliency of agency-backed programs. Commercial Mortgage Back Securities (“CMBS”) issuers currently report an overall delinquency rate of 7.47% through January of 2026.[6] By contrast, the Government Sponsored Entities (“GSEs”), Freddie Mac and Fannie Mae, reported delinquency rates of 0.4% over that same time period.6 GSEs typically lend on stabilized, seasoned assets backed by experienced sponsors and maintain a disciplined underwriting framework.
In Conclusion
We believe 2026 represents an inflection point for CRE financing, as significant maturities are met with increased CRE lender appetite. Many of these maturities represent extensions from prior maturity defaults and require capital providers to maintain their credit discipline.
Against this backdrop, it is our view that funds like Prospect Credit REIT LLC (“PCRED”), who have an established GSE borrowing history and approval to issue debt-like preferred equity behind Freddie Mac, can originate attractive credit.
For more information, contact PCRED Investor Services at: investorservices@pcredreit.com
Sources:
1 CRE Daily – Interest Rates Drop as CRE Lenders Boost Activity
2 PERE Credit 2025 Fundraising Report
3 National Apartment Association as of 11/25/25
4 S&P Global Research
5 Trepp CRE CLO Issuance in 2025: A Rebound in Volume; A Repricing of Risk
6 Trepp – January 2026 Market Pulse Webinar
Definitions:
Mortgage Real Estate Investment Trusts – company that provides financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities (MBS) and earning income from the interest on these investments.
Commercial Real Estate Collateralized Loan Obligations – structured financial securities backed by a pool of short-term, floating-rate bridge loans on transitional commercial properties (e.g., renovating or leasing up)
Bridge Loan – a short-term, temporary financing tool (typically 6 months to 3 years) used by investors to “bridge” the gap between purchasing or renovating a property and securing long-term, permanent financing
Debt Service Coverage Ratio – measures a company’s or property’s ability to cover its debt obligations with its operating income
Commercial Mortgage-Backed Securities – are fixed-income investment products, or bonds, backed by pools of loans on commercial properties. These are typically non-recourse, fixed-rate, and secured by stabilized properties.
Disclosures:
This material is educational in nature and does not constitute an offer to sell or the solicitation of an offer to buy any securities. All statements, assumptions and opinions included in this material are based upon current market conditions as of the date of the material and are subject to change. This material does not purport to be all-inclusive or otherwise contain all of the information that a prospective investor may need or desire concerning an investment. Prospective investors should read the Confidential Private Placement Memorandum of PCRED in its entirety before making a decision to invest. Investment in PCRED is for Accredited Investors only. There is no guarantee that PCRED’s objectives will be met or that PCRED will qualify as a REIT. NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF ANY OFFERING AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Neither PCRED nor Prospect is adopting, making a recommendation for or endorsing any investment strategy or particular security. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. All investing is subject to risk, including the possible loss of principal. Prospect cannot guarantee that the information herein is accurate, complete or timely. We make no representation or warranty in respect of any information derived from the third-party sources which has not been independently verified.
Investing in the Fund during a private placement is speculative and involves a high degree of risk, including the risk that you may receive little or no return on your investment or that you may lose part or all of your investment. A private placement has a relative lack of liquidity and is suitable only for persons of substantial financial means who have no need for liquidity. There can be no assurance that PCRED’s investment objectives will be met. An investor should carefully consider the fees and expenses, and other information found in the PPM, including the “Risk Factors” section, before making an investment decision.
Ultimus Fund Distributors (Member FINRA/SIPC) is the Dealer Manager for Prospect Credit REIT, LLC.