Commercial Real Estate Financing in 2026: Trends and the Importance of Being Prepared
Commercial real estate financing has experienced significant changes over the last several years. Factors including rising interest rates, fluctuating property values, tighter underwriting standards, and higher operating costs have all affected how deals are financed and evaluated. These factors have placed additional pressure on net operating income, as well as the amount of debt a property can support. While some of these costs have begun to stabilize, the financing environment remains materially different from the historically low-rate period of the early 2020s.
While interest rates and capital markets are uncertain, real estate owners, investors, and developers should recognize that preparation can be one of the greatest mitigators of that uncertainty.
To provide additional perspective on current lending conditions, we spoke with Chase Schmidt, Baldwin County President of Community Bank. Chase brings more than 11 years of commercial lending experience. His observations help illustrate how lenders are evaluating commercial real estate transactions today, and what borrowers can do to better prepare for the financing process.
Lending Activity Has Improved
Commercial real estate lending activity has recovered significantly from the slowdown experienced in 2023 and 2024. According to the Mortgage Bankers Association, total commercial real estate mortgage borrowing and lending reached $706 billion in 2025, an increase of 40% from 2024, and 65% from 2023. While this remains below the peak reached earlier in the decade, the increase reflects a meaningful return of capital to the commercial real estate market.
That momentum continued into 2026. The Mortgage Bankers Association reported that commercial and multi-family mortgage originations increased 16% in the second quarter of 2026 compared with the same period of 2025, and increased 12% compared with the first quarter of 2026. These numbers suggest that capital is available and lenders are actively making real estate loans.
Rates Remain An Important Variable
Interest rates continue to influence real estate transactions, valuations, and refinancing decisions. On September 16, 2026, the Federal Reserve increased its target range for the federal funds rate by 25 basis points to 3.75% – 4.00%, with continued elevated inflation cited as part of the decision.
While the federal funds rate does not directly determine the interest rate on every commercial and real estate loan, changes in monetary policy impact the broader interest-rate environment in which lenders operate.
For investors in the space, financing assumptions should leave room for uncertainty. A deal that only works in a declining rate environment carries more risk than one that maintains viability across a range of borrowing costs.
Lending Standards Remain Disciplined
While it is clear that lending activity has increased, lenders continue to pay close attention to credit quality. The Federal Reserve’s July 2026 Senior Loan Officer Opinion Survey on Bank Lending Practices reported that banks eased standards somewhat for certain categories of commercial real estate lending during the second quarter of 2026. However, lending standards generally remained toward the tighter end of their historical ranges, particularly for construction and land development loans.
In short, lenders may be more willing to deploy capital, but underwriting still matters.
Property cash flow, debt-service coverage, loan-to-value, borrower liquidity, guarantor strength, and equity contributions can all influence a lender’s willingness to finance a deal. That analysis may also extend well beyond the property being financed. According to Chase Schmidt, banks have become “more interested in understanding a borrower’s global income and debt picture, beyond the metrics of the deal at hand…we are conscious of how the recent fluctuations in interest rates might affect their ability to repay us if those rates adjust during the term of our loan.”
Operating costs in particular should be scrutinized. As noted earlier, insurance, property taxes, repairs, and other expenses can materially affect net operating income. Schmidt notes that during initial conversations, many borrowers “over-focus on a property’s gross income potential and under-focus on expenses. Expenses are often expressed in generalities, left to be fleshed out later in the process. Ultimately, rising expenses can have a direct impact on net operating income, which can directly affect an income-producing property’s value.” The takeaway is that borrowers should evaluate deals using realistic current or expected expenses, rather than relying solely on historical operating results.
Preparation Makes A Difference
Considering the current economic environment, borrowers can improve the process by coming to the table prepared. Preparation involves more than simply providing documents when requested. A strong borrower should understand the economics of the property or project, know the key assumptions supporting the request, and be prepared to explain both the opportunities and risks associated with the transaction.
Before seeking financing, owners should have a clear understanding of the property’s cash flow and how much debt that cash flow can reasonably support. Important metrics to understand include net operating income, debt-service coverage, loan-to-value, occupancy, and available liquidity. For development projects, borrowers should also understand total project cost, expected equity contribution, construction timelines, and contingencies. From a lender’s perspective, those metrics are central to evaluating the strength of a financing request. Schmidt noted that a strong commercial real estate financing request generally begins with a reliable primary source of repayment and adequate debt-service coverage, supported by strong guarantor liquidity and a reasonable loan-to-value.
Consideration should also be given to how the transaction performs if conditions deteriorate from expectations. What happens if interest rates are higher than anticipated? What if insurance or property taxes increase? What if occupancy declines, or construction costs exceed the original budget? Building projections that acknowledge these possibilities can provide a more useful picture for both owners and lenders.
Depending on the transaction, lenders may request:
- Current and historical financial statements
- Property operating statements and rent rolls
- Business and personal tax returns
- Personal financial statements for guarantors
- Existing debt schedules
- Project budgets and sources-and-uses schedules
- Cash flow projections
- Information regarding available liquidity
- Ownership and entity information
The quality of the information matters just as much as availability. Schmidt emphasized, “the bank wants to know that it is reviewing reliable information. Generally speaking, the higher the financing amount requested (or overall lending exposure that a borrower has, or will have, with a lender), the more likely the lender will require higher quality financials. The timeliness of the financial reporting is of equal weight. We like to see interim financials no more than 90 days old.” In discussing CPA-provided financials versus internally generated financials, he added that “when a borrower has high quality financials (CPA-prepared, compiled, reviewed, or audited), there is generally less confusion and cause for delay. Conversely, when the financials are generated from a bookkeeping software, uncategorized or unreconciled income/expenses can create delays in the underwriting process. Further, underwriting questions arise when relevant operating expenses are baked into Cost of Goods Sold without adequate explanation.” The takeaway for borrowers is straightforward: financial information should be accurate, timely, and consistent. A rent roll should reconcile to reported rental income, financial statements should be current, and projections should be supported by assumptions that can be clearly explained.
Borrowers should also be prepared to explain the strength of the transaction beyond the property itself. Lenders may consider guarantor liquidity, existing leverage, the amount of borrower equity invested in the deal, and the ability to withstand unexpected costs. Having a clear understanding of these factors in advance can help identify potential issues on the front end, before the financing process is well underway.
Most importantly, financing conversations should begin early. “The best piece of advice I would give a real estate owner/investor would be to develop a relationship with a banker – ideally, prior to the need for financing. Aligning the project scope and financing need to a bank’s appetite is important, as is having the ability to ask questions and understand the bank’s underwriting approach,” says Schmidt. There is a familiar saying in transaction circles that “time kills deals,” and the principle applies to real estate financing as well. Waiting can limit available options or expose a deal to changing interest rates, shifting lender requirements, documentation gaps, appraisal issues, or simply a compressed closing timeline. If the proposed financing does not support the economics of the transaction, beginning early provides time to consider additional equity, a different financing structure, or changes to the project itself.
The strongest financing request is not necessarily the one with the most optimistic projections. It is one in which the borrower understands the numbers, has organized and reliable financial information, can explain key assumptions supporting the transaction, and has allowed enough time to address questions before financing becomes urgent.
Focus On What Can Be Controlled
Borrowers cannot control Federal Reserve policy, market interest rates, or broader capital-market conditions. What borrowers can control is the quality of their financial information, the assumptions used in their projections, their liquidity planning, and how early they begin the financing process.
Commercial real estate lending activity in 2026 shows encouraging signs of improvement, but the marketplace remains disciplined and interest-rate uncertainty remains. For owners, investors, and developers considering a transaction or approaching a loan maturity, being prepared before financing is needed can provide the greatest flexibility when opportunities arise.
Disclaimer
The information provided in this article is for general informational purposes only and should not be construed as accounting, tax, or legal advice. Every business and tax situation is unique. We encourage you to consult with a qualified professional regarding your specific circumstances.