DebtX Market Snapshot

January 2026

While the primary commercial real estate financing market rebounded nicely in an apparent return to normalcy (dare we say even some frothiness?), the secondary market felt a bit like a grind it out kind of year. Our new origination friends and colleagues saw bank lending return in earnest, multifamily agency lending at full swing, and private credit dominating headlines with billions of dollars of dry powder flowing into credit markets.

However, despite persistent concerns around valuations, collateral level stress, and a higher-for-longer rate environment, anticipated waves of defaults and forced selling failed to materialize. Instead, lenders and their regulators and warehouse providers have largely coalesced around a modify and extend strategy to defer loss recognition while mixing in more strategic and selective loan sales rather than wholesale credit liquidations.

Market Activity and Volume

Notwithstanding the absence of broad based distress and liquidations, transaction activity remained steady. Pricing assignments reached into the billions, with broker opinions of value occurring daily and weekly. However, most sellers remained disciplined and methodical, opting to transact selectively rather than flood the market with supply. As a result, 2025 activity was dominated by one-off, CRE secured loan sales, with only a handful of large sellers across the market during the year. M&A driven sales once again proved an effective tool for portfolio balancing with one very large ($2B) sale, several moderate sized (~$100MM+) and numerous one-offs throughout the year.

By our count, approximately $19.4 billion of brokered CRE secured loans were offered for sale in 2025 by 22 separate loan sale advisors. Given the opaque nature of the secondary loan sale market characterized by limited disclosure and no centralized clearing mechanism, this figure is likely understated.

Even less visible is the direct market. This “shadow” market operates outside of traditional broker networks with loans on offer direct from lenders, often with limited participation and minimal public information. While anecdotal evidence suggests shadow market volume may rival or exceed brokered activity, investors consistently report that realized execution rates are materially lower than the brokered market. As always, investors and brokers need to remain vigilant, focusing efforts on transactions most likely to clear the market.

Buy-Side Conditions

From a buy-side perspective, conditions remained largely unchanged: significant capital continued to chase a finite universe of actionable opportunities. Both the primary and secondary markets remained highly liquid, with spreads compressing across most asset classes during 2025. Federal Reserve rate cuts provided additional tailwinds to leveraged investors, as SOFR tightened by approximately 75 basis points over the year. For many buyers, this translated into a material improvement in levered returns, materially boosting pricing for non-bankable credits, with well secured, criticized/substandard but cash-flowing loans frequently traded in the 90s to par.

The above stated, liquidity and investor demand is often unevenly distributed. Secondary market clearing levels continue to hinge on confidence around cash flow durability, asset level capital expenditure requirements, resolution timelines, and exit liquidity tied to the underlying collateral. For some assets, investor confidence is high; for others, it remains highly speculative or effectively nonexistent. Persistent pricing gaps reflect not a shortage of capital, but rather divergent views between buyers and sellers regarding real world collateral values, execution risk and timing.

We often find that lenders with experience navigating prior CRE downturns tend to be more closely aligned with investor perspectives. These institutions increasingly recognize that modeled recoveries and appraisal-based assumptions often do not comport with the lived experience managing distressed CRE assets, and vastly understate the time, distraction, and incremental capital required to achieve modeled recovery outcomes. As a result, more experienced sellers are far more likely to evaluate bids against a range of real world outcomes and enterprise level objectives (capital costs, reinvestments alternatives, etc.) rather than simply against appraised values.

Multifamily

Multifamily assets accounted for a growing share of loan pricing requests throughout 2025, though pull-through to marketed transactions remained low as loan modifications and extensions persisted at elevated levels. Buy-side demand remained very strong but highly segmented by geography, vintage, sponsor and asset quality, closely mirroring liquidity conditions in the primary equity and debt markets.

Class A assets benefited from deep national institutional and non-institutional demand, while operationally intensive Class B and C properties remained the domain of local and regional investors with specialized market and operational expertise. Traditional “broken capital stack” multifamily opportunities proved elusive, as much of the product reaching the secondary market consisted of older, capital-starved assets requiring significant time, capital, and operational precision in execution. Criticized and substandard, yet cash flowing multifamily loans continued to attract aggressive demand from entrepreneurial banks, debt funds, and family offices seeking yield and to augment new high yield origination activity.

Office

Office remains a challenging and highly bifurcated asset class. Valuations, resolution outcomes, and pricing are deeply case specific, requiring full re-underwriting at both the loan and asset levels. Although appraised values are slowly beginning to adjust to market, lenders testing foreclosure and REO strategies reported material gaps between appraisal values and executable real estate bids, often materially impairing projected recoveries.

Liquidity remains ample, often highly competitive for newer, smaller assets with predictable cash flow and experienced sponsorship. Conversely, older and larger assets in structurally challenged markets will find that liquidity comes at a price, very consistent with conditions in the primary equity markets. However, while sellers are unlikely to love pricing for highly challenged assets, loan sales are often the least-bad option, and an alternative to the long and uncertain timing of a short sale or resource and capital draining foreclosure and REO exercise.

Small and Micro-Balance Loan Sales

Small and micro-balance loan sales reemerged in 2025 as a reliable and repeatable portfolio management tool for numerous lenders. Selling nonperforming and substandard small balance credits can often deliver both balance sheet and operational benefits, including reserve release, RWA reduction, and redeployment of internal resources toward larger, higher recovery opportunities.

For regulated depositories in particular, the expense associated with managing dozens or hundreds of small and micro balance credits, time and expenses (servicing, legal oversight, workout staffing, and regulatory scrutiny) often represent a material drag on net recoveries. As a result, repeat sellers increasingly viewed these transactions not as loss events, but as proactive balance sheet maintenance.

Criticized and Substandard CRE

Sales of CRE secured, criticized yet cash flowing loans remained highly active throughout 2025, driven by attractive execution pricing and a pronounced supply – demand imbalance in the secondary market between available investor capital and product available for sale. Pricing in excess of book value was common, delivering both capital relief and operational efficiencies for sellers. Short term rate reductions further supported pricing, as did increased competition among primary market lenders seeking to augment origination pipelines through secondary acquisitions.

Idiosyncratic One-Off Sales

Business loans and leases, churches, schools, entertainment venues, warehouse lines, and other specialty credits continued to surface as opportunistic loan sale candidates, particularly in M&A contexts. These non-core assets are often overlooked internally yet consume disproportionate management attention. Liquidity for cash flowing loans was typically provided by small debt funds, private capital, and privately held banks with specific sector expertise with niche asset classes.