Key Insights
Debt originations up 49% year-over-year, led by office, senior housing, and hotels.
$2 trillion maturity wall looms, refinancing risk is acute.
Small deals under $100M dominate but larger transactions are reemerging.
Banks are lending again, alongside CMBS, funds, and agencies.
Cap rates stabilizing, but market still demands careful underwriting.
Sharp Rebound in CRE Debt Originations for H1 2025
Commercial real estate debt origination surged in the first half of 2025, marking one of the sharpest rebounds since the pandemic. According to various capital markets reports, origination volumes climbed 49% year-over-year, surpassing pre-2020 norms. Office, senior housing, and hotel deals fueled most of the growth, signaling renewed investor appetite in segments that had been under pressure.
Still, the number of active lenders remains well below prior cycles, keeping competition for capital tight and creating both risks and opportunities for borrowers.
Debt Market Dynamics: Refinancing Challenges Ahead
Banks stepped back into the market in early 2025, pushing lending volumes 1% above 2017–2019 averages. This uptick comes as the industry braces for a historic wave of maturities. Nearly $2 trillion in CRE debt is set to mature by 2027, with 37% of those loans originated during the near-zero rate era.
With the federal funds rate now at 4.33%, refinancing costs have climbed dramatically. Some sources estimate as much as $591 billion in loans could be “potentially troubled,” with office debt carrying the heaviest exposure.
This refinancing squeeze creates an inflection point: borrowers must either inject fresh equity, restructure debt, or explore non-bank lending solutions.
Equity Market Shifts: Smaller Deals Take the Lead
On the investment side, sales volumes rose 16% year-over-year, though activity remains 16% below pre-pandemic levels. Sector highlights:
Office sales jumped 26%.
Multifamily transactions rose 6%.
Sub-$100 million trades dominated 63% of all activity.
Notably, institutional capital is regaining ground (up 9% vs. 2024), while private and owner-user buyers set record market share. This bifurcation underscores two themes: small and mid-sized deals are carrying the market, but larger transactions are beginning to stage a comeback.
Capital and Pricing Trends: Dry Powder Remains
Private equity remains a critical driver, though selective. Closed-end funds hold $327 billion in dry powder, down 18% from late 2022. Much of this capital is allocated to residential and industrial assets, consistent with investor preference for sectors with stable demand drivers.
Cap rates have begun to stabilize, yet remain historically compressed. Investors appear to be positioning for longer-term recovery in values and fundamentals.
Small-Balance CRE Deals Show Renewed Strength
Momentum is most visible in transactions under $25 million. According to Green Street, small-cap sales totaled $45.2 billion in H1 2025, up 3.5% over 2024.
While still below the $62.3 billion high of 2022, deal flow is improving. Asset breakdown for small deals in early 2025:
Multifamily: 26%
Industrial: 24%
Retail: 21%
Office: 18%
Hotels: 8%
Other (self-storage, data centers, niche): 3%
This distribution mirrors recent years, with multifamily and industrial leading the way.
Banks and Alternative Lenders Step Back In
Financing activity is stabilizing as regional banks return to lending, especially on smaller, cash-flowing properties. Even certain office assets are receiving funding if they demonstrate strong tenancy and location fundamentals.
Other capital sources such as CMBS, debt funds, and government-backed lenders are filling gaps, ensuring liquidity across deal sizes. Additionally, higher debt yields in today’s rate environment are drawing investor interest in income-driven lending strategies.
Outlook: Strength With Caution
By mid-2025, all property sectors posted positive total returns, with office surprisingly improving across 93% of tracked markets. Debt availability is expanding, but spreads remain sticky.
Without further normalization, transaction volumes will likely remain below pre-pandemic highs. For borrowers and investors, the window is open, but execution discipline, lender relationships, and creative capital structuring remain essential.
Navigating Today’s Market
The expert capital advisors at INSIGNIA Financial Services 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.
