As co-founder of Prime Finance, Scott Douglass has been very active in the commercial real estate collateralized loan obligations market. And in at least one way, things are looking up for the lending type, he said.
These CRE CLOs have been cementing their role as preferred financing for properties not yet stabilized and undergoing major changes to reach net income goals, said Douglass. He is also relieved to say the market has passed a period of "extend and pretend." That's a strategy lenders use to extend maturity dates on distressed loans, giving borrowers more time to stabilize properties.
"The big theme in the market is that we've shifted away from extend and pretend," Douglass said. "You had sellers and lenders sitting on positions hoping that lower rates would bail out their capital structures. That didn't happen. Now we're seeing lenders look to clear their books and move on from legacy positions."
Prime has originated more than $26 billion in loans nationwide since its founding in 2014, and its second deal of the year is now in the market: Prime's PFP 2026-14, a $1.3 billion securitization backed by loans on 32 properties. As of April, Prime had reported no realized losses across 11 CRE CLO transactions issued since 2014.
Prior to forming Prime Finance, Douglass served as a managing director for Natixis, a global financial institution based in Paris, where he oversaw the pricing, structuring and execution of all commercial real estate loans intended for securitization. The Brown University graduate started his career at Nomura Securities as part of the CMBS group.
Douglass, who serves as co-chief investment officer of Prime, spoke with CoStar News about the capital markets, interest rates and where the next opportunities could emerge in commercial property lending. The following has been edited for clarity and length.
In terms of credit indicators, what do you watch on a regular basis, and what are they telling you about the lending market today?
The biggest macro driver for commercial real estate is interest rates — and really rate stability. Rate increases in 2022 and 2023 really shocked the commercial real estate market, but it seemed like the second half of 2025 and the start of this year were finding stability around a 4% 10-year [Treasury yield], and the market started to calibrate exit expectations. The start of the Iran war was definitely a bit of a setback for an overall improving market. But we still are seeing a lot better liquidity — and liquidity creates price discovery, and price discovery restarts transaction markets.
On the purely credit side, the biggest thing we watch is debt yield. That's where the [collateralized mortgage-backed securities] market is really interesting. Stabilized fixed-rate debt yields are materially higher than they've been in prior cycles. They were approximately 12.8% in 2025 versus 9% in 2007. That's a huge increase in lender protections, and we're finally seeing capitalization rates move up meaningfully as the market reaches equilibrium.
How long is the lending window open before it becomes overcrowded?
This is going to be a time for careful equity investment. Over the last 12 months, and really accelerating over the last six months, lenders are really looking at their 2021-2022 vintage loans and saying, 'It's time to move these things.' That is definitely creating opportunity.
Honestly, it is a much better business for bank lenders to lend to private lending platforms than it is to lend directly on real estate. That has really grown into a much stronger industry for them, whether that's lending on a warehouse line or allowing the private lender to originate a loan, where the bank will take a senior piece of it on large transactions. We are trying to provide the whole capital solution to borrowers.
As lenders that hadn't been doing securitized offerings before crowd the market, where are you getting wins that you had hoped to get and not getting deals you want to get?
No question, multifamily bridge lending is really competitive. It has been about half of our bridge business over the last few years. We've been doing this for 18 years with hundreds of borrower relationships. Almost half of our business is from repeat borrowers. Repeat borrowers and brokers value both certainty of execution and responsive in-house asset management. We don't outsource the asset management of our deals, and that should ultimately help borrowers effectuate their business plans.
A huge amount of our deals in the last couple of years has been cash-in or cash-neutral takeouts of construction loans — newer-built product that needs to lease up, where our basis is materially below replacement cost. We've been more active in markets where we see demand tailwinds, population growth, limited future supply, etc.
We would love to see more acquisitions. In the past year, it's been about 30% versus 2021, when it was about 90%.
A big area that maybe is a little underappreciated is the collapse in new supply across almost all asset classes. That sets up a really favorable medium-term backdrop for fundamentals. One place I'd like to see more opportunities is high-quality, Class A retail, where fundamentals are actually really compelling.