Monday Market Moves | Week of 11 August 2025

Welcome to Monday Market Moves, the weekly series from Essex Capital Markets briefing you on Chicago commercial real estate capital markets. We cover key trends in CRE debt, refinancing, and capital structures to help investors, borrowers, and lenders navigate today’s evolving environment.

This Week: Chicago Multifamily Capital Markets Update

CRE Lending Rebounds Strongly in Q2 2025
Commercial real estate (CRE) lending activity surged in the second quarter of 2025, rebounding despite a brief spring slowdown. According to CBRE, the firm’s Lending Momentum Index jumped 45% year-over-year in Q2. This robust annual gain came even after a 6% dip from Q1, when tariff announcements and policy uncertainty in April and May temporarily cooled borrowing. By June, however, confidence returned – tighter credit spreads and clarity around policy helped lending rebound sharply.

Loan Activity Accelerates After Spring Lull
Lending momentum picked up considerable speed in Q2. The above-mentioned CBRE index (which tracks loan closings) underscores how financing volumes have recovered. The spring lull – attributed to uncertainty over tariffs and other policies – proved short-lived. Investors and lenders seem to have re-entered the market. June saw a notable uptick in deal flow as investor confidence improved and credit spreads tightened, restoring a more typical pace of lending. Overall, the data suggests that capital availability in CRE loans has strengthened significantly from a year ago.

Shifting Lender Landscape
The mix of lenders in the CRE finance market continued to shift in Q2. Non-bank lenders (such as debt funds and mortgage REITs) now occupy the largest share of new loan originations, reflecting a growing role for alternative capital. Key highlights include:

• Alternative lenders – Accounted for 34% of non-agency CRE loan closings, up from ~32% a year earlier. Debt funds drove much of this activity, with lending volumes jumping 89% quarter-over-quarter (and about 52% year-over-year) as these lenders filled financing demand.
• Banks – Captured about 24% of new loan volume, down from 29% in Q2 2024 as some banks remained cautious. However, banks’ actual CRE loan volumes rose 17% year-over-year, indicating many banks re-engaged in lending even if their overall market share fell.
• Life insurance companies – Contributed roughly 23% of non-agency loan volume, a slightly smaller share than a year ago (when it was ~29%). Life insurers’ lending activity was roughly on par with last year in absolute terms (up just 2% year-to-date per other reports).
• CMBS lenders – Doubled their market share to 19% (from about 9% a year prior) amid a resurgence in CMBS issuance. Securitized lending volumes tripled year-over-year, fueled by a thaw in the private-label CMBS market and several large deals reaching the market. In short, the CMBS market roared back in Q2, providing much-needed liquidity for certain deals.

This shifting landscape underscores that alternative lenders and revived CMBS channels picked up slack where some traditional lenders pulled back. Banks and life companies still increased their lending volumes, but at a slower pace, allowing aggressive debt funds and the rebounding CMBS conduit market to take a larger slice of the pie.

Pricing Levels Ease Amid Competition
The competitive lending environment in Q2 led to more borrower-friendly pricing terms across the market. Lenders generally became more competitive as financing conditions improved:

• Interest-Only Uptick: Lenders also increased the availability of interest-only structures. In Q2, a larger share of loans had partial or full interest-only terms (nearly 78% of originations, up from about 75% in Q1), meaning borrowers could defer principal payments and lower their initial debt service. This flexibility in amortization suggests competition pushed lenders to offer easier payment terms to win business.
• Lower Rates and Spreads: The cost of CRE debt improved modestly quarter-over-quarter. The average mortgage coupon fell to around 6.0%, down ~16 basis points from Q1. Likewise, loan constants (the annual payment as a percentage of loan amount) dropped by ~21 bps in Q2, easing the debt burden on borrowers. Importantly, credit spreads were mixed: for multifamily loans, spreads tightened by about 22 bps to roughly 150 bps over Treasuries, thanks to especially strong pricing from agency lenders. In contrast, commercial asset spreads (for office, industrial, etc.) averaged ~193 bps, which is about 10 bps wider than a year ago. Still, spreads in most segments were relatively stable, and the slight widening in commercial sectors likely reflects perceived risk in certain property types.

Overall, these trends show a more borrower-favorable lending climate: more interest-only loans, and marginally lower rates/spreads than earlier in the year. Lenders appear confident enough in asset performance to compete on terms, especially for low-risk deals, as capital flows back into the market.

Agencies Spur a Multifamily Lending Surge
One of the standout areas in Q2 was multifamily lending, propelled by government-sponsored enterprises (the GSEs, Fannie Mae and Freddie Mac). Agency lenders stepped up in a big way, making multifamily the cheapest debt option available:

• Agency Volume Jumps: Multifamily loan production by the GSEs reached $28.9 billion in Q2, up 31% from Q1 and 43% year-over-year, as agencies seized the opportunity to finance more apartment deals. This surge significantly boosted overall lending volume, given the weight of multifamily in total CRE lending.
• Lower Rates: Agency lending was aided by a decline in agency mortgage rates. CBRE’s Agency Fixed-Rate Index fell to an average of 5.7% for 7–10 year loans in Q2. These lower rates (down ~0.28% from a year ago) made multifamily financing very attractive for borrowers, tightening multifamily loan spreads and drawing more demand. By comparison, many other property types faced rates closer to 6% or higher.

With agencies actively quoting aggressive rates and terms, multifamily borrowers found abundant and cheap credit for strong transactions. This contributed to multifamily assets outperforming other sectors in lending activity. It’s clear that the GSEs are prioritizing volume (within their caps) and using their pricing advantage to capture deals – a boon for apartment owners/refinancers in Q2.

Takeaway – Capital Returns, but Selectively

Big picture: The CRE credit markets in mid-2025 are much healthier than a year ago. Debt capital is flowing again into real estate – a welcome sign of stabilization – but it’s also choosier than in the go-go days of the past. Non-bank lenders and a rejuvenated CMBS market are readily funding deals “that pencil out” (i.e. solid fundamentals and underwriting metrics), while the agencies have made multifamily financing the best game in town cost-wise. If you own properties with durable cash flows or assets priced below replacement cost, now may be opportune window to lock in longer-term financing. Current spreads and rates have improved enough to be enticing, but this window may not last indefinitely. Looking ahead to Q3, borrowers might consider moving quickly – potential policy shifts or rate volatility later in the year could lead to wider spreads or tighter terms again, especially if economic uncertainty resurfaces. In short, the lending market’s doors are open in Q2–Q3, but it’s favoring those who come with quality deals and prudent strategies to take advantage of the welcome tailwind in CRE finance.

Sources:
MBA Newslink – CBRE Lending Rebound
CBRE Capital Markets Report – Q2 2025
Commercial Observer – CRE Lending Activity
CRE Daily – Lending Momentum Soars