How Banks Are Addressing CRE Risks

If you’re watching commercial real estate in 2026 and thinking, “Why does it feel like the banks changed the rules overnight?”—you’re not imagining it. Banks are still in the business of lending. They’re just re-pricing uncertainty. How banks are addressing CRE risks is an important thing to consider when going into real estate investing in 2026.

Regulators and bank risk teams are pushing for tighter discipline, especially on refinance risk and collateral values. The FDIC’s 2025 Risk Review looks at 2024 conditions. It highlights office underperformance, slow growth in CRE loans, and refinancing challenges. These issues arose as borrowing costs increased and cash flows weakened.  

Meanwhile, maturities have stacked up. The Mortgage Bankers Association estimated that 20% ($957B) of $4.8T in commercial mortgages will mature in 2025. They also noted that many loans were extended as the market tried to wait for better rates.   That “extend the runway” dynamic is one reason the pressure still matters in 2026.

So what are banks actually doing about it?

Tightening underwriting (but not uniformly)

In 2026, “banks are conservative” doesn’t mean “banks don’t lend.” It means they’re selectively conservative:

• Higher DSCR requirements (and DSCR tested at stressed rates, not best-case rates).

• Lower leverage on transitional assets (especially heavy value-add or weak submarkets).

• More scrutiny on rent growth assumptions and expense growth (insurance, taxes, payroll, repairs).

• Shorter interest-only periods and more amortization to force paydown.

• Bigger liquidity requirements for sponsors (and more attention to post-close reserves).

Translation: if your deal only works in a perfect scenario, it’s not getting a “yes.”

Running better stress tests and using them to reshape portfolios

A huge shift is happening inside the banks: they’re not just underwriting deals; they’re actively managing concentrations and scenario outcomes.

Regulators have been explicit that banks should understand “severe but plausible” downside paths, and that stress testing helps quantify exposure. For example, the OCC has highlighted how stress testing supports better understanding of a bank’s exposure. 

What this looks like in the real world:

• CRE concentration limits by property type and geography

• Reduced appetite for office exposure (even “good” office can be a hard sell)

• More participations/syndications or portfolio trimming in certain categories

• Faster “no” decisions on deals that increase concentration risk

Getting proactive on workouts and extensions (and doing it “by the book”)

Here’s the part most investors misunderstand: banks can work with borrowers—regulators are not telling banks to torch every problem loan.

The Federal Reserve (with other agencies) has an interagency policy statement that emphasizes working constructively with creditworthy CRE borrowers through accommodations/workouts, and says examiners should take a balanced approach when banks apply prudent risk management. 

It also calls out common workout tools like renewals/extensions and restructurings, while emphasizing documentation, borrower analysis, tracking, internal controls, and proper risk grading. 

So yes—extensions still happen. But they’re increasingly paired with conditions like:

• fresh equity

• principal curtailments

• additional reserves

• tighter covenants/reporting

• faster timelines to stabilization

Becoming more conservative on collateral values and cash flow durability

In 2026, banks care less about what your broker says the cap rate “should be,” and more about:

• what the property’s actual NOI supports today,

• how stable that NOI is under higher expenses,

• and whether the sponsor has the liquidity to survive volatility.

Office remains the most obvious pressure point. The OCC has flagged ongoing issues in office and retail and noted that office vacancy rates in major metros are projected to rise into 2026. 

Building loss-absorption capacity and staying inside capital guardrails

Banks don’t lend in a vacuum—they lend inside a capital and liquidity box. Even when regulators tweak capital rules (for example, the banking agencies’ final rule modifying certain leverage capital standards, effective April 1, 2026), banks still have to manage risk-based capital constraints and internal risk limits. 

This matters for CRE because when bank leadership gets nervous about portfolio loss potential, they typically respond by:

• tightening credit (especially on transitional CRE),

• demanding more equity and reserves,

• and limiting new exposure where existing exposure is already heavy.

What this means for multifamily investors in 2026

If you invest in multifamily, this is the key takeaway:

Banks are funding certainty and execution, not hype.

The deals that get financed tend to have:

• realistic rent growth (or none)

• conservative expenses

• clear operational upside (not “hope” upside)

• strong DSCR under stress

• sponsor liquidity and track record

• clear takeout/refi path that doesn’t rely on miracle rates

And if you’re wondering whether lending activity improves at all: MBA’s CREF forecast projected higher total CRE lending volume in 2026 vs. 2025 (their model showed $873B in 2026 vs. $647B in 2025), with multifamily lending also rising. 

That doesn’t mean “easy money.” It means capital flows to stronger deals and stronger sponsors.

How to get a bank “yes” in 2026

If I were packaging a deal for bank financing right now, I’d over-deliver on what makes a credit committee relax:

• Clean T-12 + trailing 3 months (not just a pro forma)

• Rent roll that matches the deposits (banks catch sloppiness fast)

• Stressed DSCR (show it at higher rates and lower NOI)

• Detailed capex plan with bids, timelines, and contingency

• Insurance and tax assumptions updated to today’s reality

• Sponsor liquidity statement (post-close liquidity matters)

• Exit plan that works even if rates stay “rangebound” longer than people want 

Because the truth is: banks aren’t “anti-CRE.” They’re anti-surprises.

FAQ: How Banks Are Addressing CRE Risks (2026)

Are banks still lending on commercial real estate in 2026?

Yes, banks are lending, but they’re doing it with tighter guardrails. In 2026, the “no” usually isn’t about CRE in general; it’s about refinance risk, cash-flow durability, and concentration. If a deal relies on perfect rent growth, low expenses, or a quick rate drop to pencil, it’s going to struggle.

What’s the biggest CRE risk banks are worried about right now?

Refinancing. A lot of loans that were originated in a lower-rate environment are coming due or being reworked. Banks are focused on whether the property can support today’s debt cost and whether the borrower has the liquidity to bridge gaps if NOI is soft or expenses jump.

Why are DSCR requirements higher in 2026?

Because banks are underwriting downside scenarios more seriously. Higher DSCR isn’t just a hoop—it’s how the bank protects itself if occupancy dips, concessions rise, payroll costs climb, or insurance and taxes spike. Many banks also test DSCR at stressed rates, not just the initial note rate.

Are banks treating all property types the same?

Not even close. Multifamily and industrial generally underwrite cleaner than office. Office is still the hardest conversation in most credit committees due to structural demand uncertainty and valuation risk. Retail can be very deal- and location-specific. The property type matters, but so does the submarket, tenant quality, and lease structure.

What are banks doing differently in underwriting compared to a few years ago?

Expect more conservative assumptions: lower leverage, more reserves, more scrutiny on expense growth, shorter interest-only periods, and more sensitivity analysis. Banks are also more likely to require clearer documentation—clean financials, matching rent rolls, verified deposits, and a realistic capex plan with bids and contingency.

What does “stress testing” mean in practical terms for an investor?

It means the bank is looking at “what if” outcomes and making decisions based on the deal’s ability to survive them. Examples: what if NOI drops 5–10%? What if rates are higher at refi? What if vacancy takes longer? What if expenses run hot? If your deal can’t handle those, the bank may reduce proceeds, require more equity, or pass.

Are banks offering extensions or workouts in 2026?

They can, and many do—but it’s more structured. Extensions are often paired with conditions like additional reserves, principal paydowns, fresh equity, tighter reporting, or covenants tied to performance. The bank wants a plan, a timeline, and proof the borrower can execute—not just “let’s wait for rates.”

Why do banks care so much about liquidity now?

Because liquidity buys time and options. In 2026, banks know NOI can get pinched quickly (insurance, taxes, repairs, payroll, renewals). Liquidity tells the credit committee you can handle surprises without immediately turning a manageable issue into a default.

What’s “concentration risk,” and why does it affect my loan?

Concentration risk is when a bank has too much exposure to a single category—like CRE overall, office specifically, or a certain metro. Even if your deal is solid, the bank may slow down lending in that category if it’s already overweight. That’s why the same deal can get a “yes” at one bank and a “no” at another.

What documents do I need to make a lender comfortable in 2026?

At minimum: a clean trailing T-12, current rent roll, bank statements/operating statements that support collections, a realistic capex budget with bids, insurance quotes, tax assumptions based on today (or post-sale), sponsor financial statement, and a clear business plan. If it’s value-add, include a timeline and proof you’ve executed similar scope before.

What’s the biggest mistake borrowers make when approaching banks right now?

Over-selling the pro forma and under-explaining the risk controls. Banks don’t get paid to believe your upside story—they get paid to believe you can survive the downside. If you lead with hype instead of risk management, you lose credibility fast.

How can I improve my chances of getting a “yes” from a bank in 2026?

Bring a conservative package: show stressed DSCR, assume realistic expenses, include reserves, and be transparent about the plan and timeline. If the deal needs a bridge, make it known and show your takeout path without assuming a perfect rate environment. In this market, clarity and discipline beat optimism every time.

Disclaimer: This article was written with the help of AI and reviewed by Rod and his team.