Three trends shaping the CRE lending landscape in 2026

At the recent Bisnow New York Investment & Lending Conference, KeyBank Real Estate Capital East Coast Regional Executive Alan Isenstadt joined a panel discussion on how commercial real estate (CRE) lenders are pricing risk, structuring deals, and navigating the capital stack in the current environment. Read on for Alan’s insights, including:

• The growing prominence of debt funds in commercial real estate lending
• Why relationship banking is a differentiator in the CRE lending space
• How the political climate affects lenders’ outlook on the multifamily asset class
   

The universe of capital providers is expanding

Panelists at the Bisnow event observed that credit availability is unequivocally higher in 2026 than it was in 2025, but not to the point of being “frothy” or “euphoric.” Banks, life insurance companies, CMBS lenders, debt funds, and the CLO market are all open. Meanwhile, CBRE reports that commercial lending momentum reached a five-year high in Q1 of 2026, with loan origination volume, average loan sizes, and non-agency loans all on the rise. Additionally, relatively stable spreads and improved LTV ratios have contributed to favorable lending conditions in 2026.²

Among the capital providers currently active in the CRE lending space, private capital — specifically debt funds — continue to grow its market share. As these debt funds bring significant capital to the market, they are increasingly competing with more traditional lenders, leading to margin compression.

As debt funds become more prominent, Isenstadt emphasizes the importance of diversification. “Having all your eggs in one basket probably isn’t a smart idea. You’ve got to ask your debt fund, how do they handle situations like forbearance? How do they handle it when you trip a covenant? Their lens to how they’ll act is very different to a bank.” Banks can also offer competitive pricing for certain kinds of deals, like bridge to agency execution.

At the same time, Isenstadt notes that borrowers’ top priority is certainty of execution. “With rate volatility, with difficulty placing debt through the capital markets, whether it be the GSEs or CMBS, at the end of the day, they need a backstop,” he says. “That’s where a balance sheet comes in, and banks provide a very cost-efficient backstop to some of the volatility you’re seeing in the capital markets.”
 

Relationship-driven banks are better equipped to compete

While the universe of different capital providers expands, the number of traditional bank lenders has contracted. According to the St. Louis Fed, the number of commercial banks in the U.S. decreased by 70% between 1984 and 2020.³ While these figures reflect some bank failures in the context of events like the 2008 financial crisis, they’re also the product of the high degree of consolidation within the financial services industry during that period.

Despite their dwindling numbers, banks remain an important centerpiece of the U.S. economy and capital markets, as well as a key player in the commercial real estate lending space. “In today’s competitive lending environment, banks that take a broader, more relationship-driven approach to their loan portfolios are better positioned to meet borrowers’ needs,” says Isenstadt.

“Smaller banks that have one traditional commercial lending platform plus deposits are going to find it harder to compete in the next several years as they will struggle to generate the return on their capital. Having a full capital markets platform, KeyBank is not beholden to just taking deposits and lending on balance sheet. We can differentiate ourselves with our suite of capital markets products that help solve for more client needs and offer a well-rounded value proposition,” he explains. “We’re very focused on relationship banking and trying to find where we can be meaningful across the capital stack.”
 

Rent regulation complicates the multifamily outlook

Among asset classes that play a key role in the CRE loan market, the multifamily category is both dynamic and nuanced. According to Isenstadt, multifamily projects are particularly attractive in the Southeast U.S., despite current issues with oversupply. “If you can wait out the oversupply, you’re probably going to be in a really good spot in a few years,” he says.

However, in the Northeast, ongoing discussions around rent regulation are complicating the picture. Isenstadt says that while the long-term effect of rent regulation’s impact on creating more affordability in places like New York City is yet to be seen, political risk is the industry’s biggest disruptor. At the same time, he cautions against getting caught up in the “hyperbole of the political climate.”

“It’s really important to live in the tangible and underwrite what’s actually in place,” he says. “In terms of other asset classes, we’re doing a ton of student housing, and manufactured housing is a growing segment of our business that we want to continue to support.”
 

Connect with us

To discuss the current market environment and building the right capital stack on your next deal, connect with Alan Isenstadt or reach out to your KeyBank Relationship Manager directly.
 

Learn more

Visit key.com/rec, where you can find our expertise in CRE market insights, affordable, senior housing, and more.