U.S. banks are slowly returning to commercial real estate lending, growing their portfolios in 2025 at a rate nearly double that of the previous year.
Along with the boost in loans came a dramatic slowdown in delinquencies. Both signs are widely seen as positive for property markets nationwide as lending drives valuations, development pipelines and deal velocity. But with the growth, evidence also emerged that stress remains prevalent.
Banks increased their loan totals by 2.3% on an annual basis, according to Federal Deposit Insurance Corp. data released last week. The jump was nearly double that of 2024, but well off the 10.7% pace in 2022. Loan holdings totaled $2.93 trillion.
In 2024, the combined delinquent and nonaccrual balance rose at 35.8% year over year — a pace that, if sustained, would have pointed toward systemic credit distress.
However, that rate fell to 4.4% last year. The aggregate delinquent-and-nonaccrual rate edged up three basis points, from 1.52% to 1.55% — a number that projects stability.
The FDIC data supports lending outlooks issued last month by real estate services firm CBRE and the Mortgage Bankers Association.
“We are seeing a bifurcated but increasingly healthy commercial real estate lending market. While we see rising delinquencies and legacy loan sales in the secondary markets, these are being easily absorbed by a deep pool of capital,” James Millon, president and co-head of capital markets for CBRE, said in a statement.
Banks’ loan origination volume increased 73% in the fourth quarter, reflecting continued reengagement in the market, Millon added.
Reggie Booker, an MBA associate vice president of research, reported that higher origination volumes pointed to improving conditions in commercial mortgage markets, though activity remains uneven across property types.
“2025 represented a strong rebound from 2024, as lending volumes increased across most investor categories amid greater rate stability and clearer pricing expectations,” Booker said in a statement.
Multifamily leads gains
Multifamily residential loans added $31 billion in 2025, a 4.9% gain, while owner-occupied and nonfarm nonresidential properties increased by $64.5 billion, a 3.5% growth rate, according to the FDIC data.
Construction and land development lending moved sharply in the opposite direction. Balances fell $29.4 billion — a 7.5% contraction, and the steepest decline in the FDIC dataset. The reason, industry analysts have said, is that higher-for-longer interest rates are discouraging developers from breaking ground on new projects.
The multifamily sector accounted for the largest share of total commercial real estate loan holdings, at 22.6%, according to FDIC data. But with the growth came a spike in troubled loans, particularly among smaller institutions.
Banks are expanding their multifamily exposure precisely as multifamily nonaccruals — nonperforming debt where the lender stops taking in interest income — rose faster than any other commercial property loan category.
Multifamily residential nonaccruals rose 17.1%, or $961 million, to $6.57 billion — even as banks simultaneously grew multifamily lending to $661.9 billion. And multifamily bank-owned properties taken through foreclosure surged 64%.
Perhaps the most revealing signal in the FDIC data is the vast gap between nonaccrual loans and actual foreclosures. Banks hold roughly $34 billion in nonaccrual commercial property loans. Yet properties actually taken back through foreclosure totaled just $3 billion systemwide.
That $31 billion gap suggests a deliberate, widespread strategy of loan modification and extension. Rather than foreclose, banks can restructure troubled loans, extend maturities and modify terms, thus deferring losses and keeping distressed assets off their balance sheets.
Banks simultaneously grew unfunded commercial property commitments — a leading indicator of future loan volume — by $32.6 billion, or 6.7%, to $516 billion at year-end. That pipeline points toward continued loan growth in 2026.