CRE Lending Shifts: SOFR Stabilization & Bridge Loan Outlook

By Majid Radaei, RadCRE · · Market Updates

Commercial real estate financing finds a new equilibrium as SOFR stabilizes around 4.31%. Bridge lending, though tighter, still represents 20% of new originations for specific asset classes.

Commercial Real Estate Financing Navigates SOFR Stabilization and Evolving Lender Appetites

The commercial real estate (CRE) financing landscape continues to evolve, marked by a stabilizing, albeit elevated, interest rate environment and a more selective approach from lenders. As of Q1 2026, the Secured Overnight Financing Rate (SOFR) has largely stabilized around the 4.31% mark, providing a degree of predictability after the volatility of the past two years. This stabilization is beginning to influence loan structuring and borrower expectations across various asset classes.

Bridge Lending Maintains Niche, CMBS Spreads Tighten Slightly

While the broader lending market remains cautious, bridge financing continues to play a critical role, particularly for value-add and transitional assets. Data from the Mortgage Bankers Association (MBA) indicates that bridge loans, though down from their 2021 peak, still represented approximately 20% of new debt originations in Q4 2025 for specific property types like hospitality and opportunistic multifamily. Lenders in this space, typically private debt funds and some non-bank originators, are now requiring lower leverage points and larger equity checks, with spreads generally seen at SOFR + 300-600 basis points (bps).

Concurrently, the Commercial Mortgage-Backed Securities (CMBS) market has seen some marginal tightening of spreads, particularly for high-quality, stabilized assets. Recent CMBS issuances for core industrial and trophy multifamily properties have priced at T + 175-250 bps, a modest improvement from the T + 250-300 bps seen six months prior. However, this tightening is not uniformly distributed, with office and retail CMBS still facing significant headwinds and wider spreads due to structural challenges.

Agency Lending Remains Strong for Multifamily, SBA Rates Reflect Prime

Agency lenders (Fannie Mae & Freddie Mac) continue to be a dominant force in the multifamily sector, offering competitive terms for stabilized assets. Their spreads over the swap rate have remained relatively stable, providing a consistent source of capital for qualified borrowers. For smaller owner-user commercial properties, SBA 7(a) loans remain a crucial option, with rates reflecting a Prime + 2.25-2.75% structure. Given the current Prime Rate of 8.50%, this translates to rates in the 10.75-11.25% range, making the long-term, low-down-payment nature of SBA financing attractive despite the higher coupon.

RadCRE Perspective

"The current financing environment is a fascinating study in risk repricing and strategic capital deployment. While SOFR has stabilized, the 'easy money' days are firmly behind us. Lenders are disciplined, demanding more equity, tighter covenants, and a clearer path to value creation. We're seeing a bifurcation: prime, stabilized assets still attract competitive pricing, often through agency or CMBS channels, while the value-add and transitional space is dominated by a smaller pool of sophisticated bridge lenders. For our clients, particularly in the hotel investment sales sector where capital stacks can be complex, understanding the nuances between bridge, agency, and CMBS is paramount. We often structure deals that might blend senior debt with mezzanine or preferred equity, which is currently seeing rates in the 12-18% range, to optimize the cost of capital while achieving leverage targets. The key metric for lenders today isn't just the overall interest rate, but sustained cash flow coverage and realistic exit strategies. Don't be fooled by slightly tighter CMBS spreads; the due diligence is more stringent than ever."

-- Majid Radaei, Founder of RAD Commercial Realty

Strategic Considerations for Borrowers

In this environment, borrowers must prioritize robust underwriting, demonstrable property performance, and a clear business plan. Lenders are scrutinizing debt service coverage ratios (DSCRs) and loan-to-value (LTV) ratios with heightened caution. The ability to articulate a credible exit strategy, whether through re-positioning, sale, or refinancing, is becoming a non-negotiable aspect of securing financing. RadCRE continues to advise clients on navigating these complexities, leveraging our deep relationships with a diverse pool of capital providers to structure optimal financing solutions across all asset classes.

Tags: commercial real estate financing, interest rate impact, SOFR, bridge lending, CMBS spreads, SBA 7(a), multifamily financing, hotel investment sales, CRE capital markets

Sources: Mortgage Bankers Association (MBA), Commercial Observer, CoStar, Trepp, Real Capital Analytics