The past year offered up a choppy cycle for commercial real estate finance, nationally and, by extension, throughout the Midwest markets. This translated into a hurry up and wait, hurry up and close pendulum in 2025.
The year started with a welcomed sense of optimism and burst of activity that quickly down shifted into hibernation as rate volatility returned across the better part of the second quarter into the third, putting the market at a relative standstill. Then momentum returned as we moved past August into September and the market came back to life in response to the Federal Funds rate cuts and improving treasury benchmarks.
Through it all, Midwest markets have stayed relatively healthy in terms of asset performance across the year. Lenders respect the consistency of the Heartland. So do investors. The improving rate climate has lifted the three major asset classes driving activity in the region, mainly multifamily, industrial, and retail, while providing some relief for hospitality and office projects in a more case-by-case basis.
For the most part, asset performance, and especially multifamily, in top Midwest MSAs – from Kansas City to St. Louis, Indianapolis to Minneapolis or Milwaukee to Cincinnati – remains solid. If current rate conditions hold, we should expect a strong start for transactional and refinance activity in 2026. If conditions continue to improve, which is a realistic hope, the coming year could represent a phenomenal breakthrough and a return to a more normalized pace for commercial real estate activity.
Looking towards 2026, conditions for fixed rate, permanent debt continue to improve with most of us involved in CRE sensing we have gotten past the wait and see hesitation season. Alternative lenders including the life companies and debt funds are more active than ever. Banks are making a return to active originations. Agencies are steadfast. And CMBS is a viable alternative again for many seeking max proceeds and debt service reach. Here’s some top of line considerations to look at as you plan your 2026 finance strategies.
Joe Monteleone (Photo courtesy of Gantry.)
10-Year Treasury Yield
We have seen a sustained drop in the 10-year treasury yield since Summer 2025, one of the key benchmarks for permanent commercial real estate debt. There has been similar but less dramatic improvement to the 5-year treasury. Spreads have come in a bit in tandem as lenders compete for loans on quality assets. Debt pricing has improved this year as a result.
For much of past year, borrowers sat on sidelines looking for the 10-year to drop near or below 4% with expectations that they could secure an all-in fixed rate in the low to mid 5% range when it did. Here we are, with indicators pointing to a sustained hold from 4% to 4.1%. This bodes well for borrowers previously struggling with debt service targets in a ‘higher for longer’ rate climate. For borrowers with amortizing loans, the shift from cash neutral to cash out refinance options should put some more capital to work in the investment markets, and now that valuations are aligning with the current cycle’s cost of capital, expect to see more assets trade into permanent loans with fixed rates supporting stable performance and enhanced cash flows.
Abundant Debt Liquidity
Unlike previous challenging cycles, access to debt liquidity has never been more abundant than in the current cycle. Most hesitation or consternation is rate related, excluding but also including office as valuations begin to align with performance reality. This wealth of options makes it more important than ever to do a thorough survey of ready lenders and viable loan programs to tailor outcomes that can optimize returns.
For Midwest borrowers most comfortable with traditional bank or agency relationships, the time to survey alternatives has never been more compelling, even if the exercise ultimately leads you back to the relationship where you started.
Life companies are a strong competitor for banks in this phase of the cycle, starting with their non-recourse terms, relatively streamlined underwriting and often with a rate that can be anywhere from 30-50 bps lower all-in. That being said, life companies can be a bit more conservative than banks on LTV, but not significantly. Most banks have dropped their additional deposit requirements and are moving more aggressively in pursuit of new loans than at any time in recent years but remain tied to recourse requirements.
For multifamily borrowers, the GSE’s remain highly competitive on rate and proceeds for qualifying loans, particularly on assets that meet their affordability criteria. Life companies are competing favorably with their streamlined underwriting, advanced rate lock, and servicing experience when leverage is aligned, as are banks with variable rate options.
CMBS, with its heavy lift underwriting, potential B piece interruptions, long lead closing timeline, and rigid servicing reputation can still offer a non-recourse option at maximum proceeds worth exploring, as a consideration or as potentially the only fixed rate, non-recourse option available given underlying metrics or targeted proceeds. Institutional debt funds and REITs have also stepped up their fixed rate lending programs to compete as an alternative source for permanent debt in an effort to secure stronger returns against other vehicles (corporate bonds, etc.) that softened during this current cycle. Options abound.
New Development
The challenges for new development are not necessarily in the access to ready debt liquidity. More so the rising costs of land, approvals, labor, and materials. However, as demand builds and benchmarks come in, both treasuries and SOFR, we may see a return in 2026 of an active development pipeline as new project starts in the past two years have dropped to cycle lows. The main alternatives to bank construction financing are debt funds and life companies. Life companies will focus on fixed rate construction-to-permanent loans pricing off the five- or 10-year treasuries with an equity requirement at 35%. Debt funds are coming in at a 25% equity requirement, with most pricing their loans at a floating rate 200-500 bps above SOFR, also an improving benchmark.
One of the other significant challenges for many developers will be in the equity piece. Experienced developers with a strong balance sheet and demand driven business plan will find they have access to a myriad of sources for preferred equity and joint venture partners, including family offices, not just institutional sources. In this structure, we expect to see more merchant build plays. Build it, sell it, and target a substantial return. Don’t expect to see many of these opportunistic equity partners going long term with their deployments.
Borrower Momentum
Confidence is back as more borrowers respond to improving rate conditions by committing to new acquisitions, refinancing extended debt, or locking in for a legacy hold. Many Midwestern sponsors most comfortable in permanent debt structures have durability in their platform with ample cash on hand and strong banking relationships helping to ease pressure on maturing debt. However, as rates continue to come down, refinancing into new loans and acquiring assets is becoming a compelling action agenda again. When the 10-year dips near 4% or below, my phone starts ringing. With forward rate lock as an option for Gantry’s roster of life company correspondents, I expect to see an active first quarter in 2026, and potentially into the year beyond.
As many lenders have already closed their 2025 book to work through their pending loans before year end, the time to look at your 2026 maturities and transactions begins now. The earlier you address known maturities, the better the outcome will be in this improved rate climate. This is also a great time to begin pricing new deals and get them under contract as improving debt costs will ultimately work their way back to valuations and competition.
Joe Monteleone is principal with Gantry, leading the firm’s St. Louis operations.
