U.S. Commercial Mortgage Debt Hits $5 Trillion Amid Rising Rates and Lending Selectivity

The U.S. commercial mortgage market concluded 2025 with total outstanding debt reaching an all-time high of $4.99 trillion. Growth from the previous year represents an increase of 4.5%, and the last quarter saw a 1.5% rise, as lenders continued to remain active in the market.

Multifamily properties continued to drive growth in commercial real estate lending, according to a fourth quarter commercial mortgage banking survey. Multifamily loans increased by $57.3 billion in the quarter to a total of $2.29 trillion and rose 6.6 percent on an annualized basis, representing the primary growth engine in commercial lending.

Banks and thrifts hold the largest amount of this debt at approximately 37% or $1.9 trillion, followed by Agency and government-sponsored enterprise (GSE) portfolios comprised of 23% or $1.1 trillion of mortgage debt outstanding.

On a related note, there is a lot of capital tied up in the portfolios of agencies and government-sponsored entities, as multifamily real estate represents a large portion of outstanding loans to apartment properties, possibly exceeding 50%. Real estate investment trusts (REITs) also held a large portion of multifamily property and spent the majority of any category increasing their share of such properties.

However, interest rates have begun to rise and underwriting standards have tightened. Consequently, banks and other capital sources have become more selective in assessing potential borrowers and projects. There is a greater emphasis on asset quality and strong borrowers, and the market is no longer as cavalier as it was during the heady days of the early decade. Nonetheless, the climate for acquiring and structuring financing is still lively.

Practical Takeaways for Buyers & Investors:

1. For the multifamily investor, the various lending sources available will need to be monitored closely, as the agencies and the GSEs will remain the predominant sources of multifamily finance, and government policies and policies translation into securities will directly affect the supply of and pricing of capital.
2. Concentrate on quality assets – with lenders becoming much more selective in the wake of changing lender guidelines, a property with good inferences (location, high quality tenants and consistent cash flow) is generally easiest to finance and will have the highest value to buyers in the marketplace.
3. Watch the yield spread: As interest rates rise, the cost of keeping a property held in investment real estate constant increases and, therefore, higher capitalization rates or risk adjusted returns must be considered relative to rental growth.
4. Monitor REIT activity. While the bulk of multifamily mortgage sales have already occurred in 2012, the largest REITs continue to hunt for quality multifamily assets, according to several industry sources, and as a result may drive the most additional sales of multifamily mortgages this year. In fact, according to a recent report by research firm REAL Estimates, the largest REITs accounted for the majority of the multifamily mortgage sales in the sector, and the fastest growth in holdings indicates that institutional buyers will continue to drive the market.

A Final Angle to Consider:

Although total mortgage debt continues to grow strongly it is the selectiveness of lenders’ behaviour that may mark a significant turning point. While future price rises are less likely, the filtering out of low quality assets means that those seeking to add value will need to undertake far more rigorous due diligence, and choose sectors of the market that are performing well.