CMBS rebounds: a market on the move

Why borrowers still hesitate despite soaring issuance and tightening spreads

Searching for yield

Over the past 24 months, the Commercial Mortgage-Backed Securities (CMBS) market has staged a remarkable comeback. Issuance volumes surged 163% in 2024 over 2023 volumes with 2025 issuance up 15% year over year, AAA spreads have tightened by 50 basis points from January 2024, and office owners once thought to be stranded have found a lifeline through CMBS refinancing. Even office acquisitions and recapitalizations, once considered nearly unfinanceable, are now being funded through CMBS loans.

So why, despite this resurgence, do many borrowers still view CMBS as a lender of last resort?

Market momentum: CMBS by the numbers

Total issuance

CMBS issuance reached $92.5 billion through September 30, 2025 — an increase of 27.1% over the first 9 months of 2024.

AAA spread trends

AAA spreads have tightened from its peak in April 2023 at over 200 basis points to 77 basis points for the week ended November 12, 2025.

Office sector resurgence

Office-backed SASB deals have surpassed $22 billion in 2025 (as compared to $6.1 billion in all of 2024).

Office loan performance

Office loans represent 16% of conduit issuance and office loans over $100 million are being successfully exited through multiple conduit deals.

Before diving in: Key distinctions

The ecosystem: A complex web of stakeholders

CMBS is often perceived as a black box. Borrowers, their attorneys, and brokers rarely understand the roles of the originations team, underwriters, closers, capital markets groups, rating agencies, B-piece buyers, and servicers. Each participant operates within its own silo, with distinct incentives and processes. This fragmentation creates confusion and frustration for borrowers.

Conduit vs. SASB: A quick primer

Conduit loans — the focus of this article — are pooled with others to form a securitization. These differ from Single Asset Single Borrower (SASB) deals, which involve securitizing a single large loan. SASB deals are typically agented, with banks running the securitization and sales process on behalf of borrowers, rather than acting as lenders.

U.S. MONTHLY CMBS ISSUANCE (NON-AGENCY ISSUANCE VOLUME IN $BILLIONS)

Source: Commercial Mortgage Alert

Execution risk: Getting to the closing table

Term sheets: From reliable to aspirational

Historically, CMBS term sheets were treated almost like commitment letters by borrowers and lenders alike, despite the language contained within the term sheets that made it very clear that they were anything but commitments. Lenders did the best they could to issue term sheets that were realistic and could be closed on, and were reluctant to make any material changes to the term sheets during the closing process unless such changes were deemed absolutely necessary.

Today, by contrast, term sheets often serve as placeholders or guidelines of what a final loan might look like. Some reflect good faith estimates, while others are aspirational, based on aggressive assumptions designed simply to win the deal. Regardless of intent, borrowers frequently bear the cost of poor underwriting, deal structure or market shifts often just before closing.

The CMBS process is inherently complex and seems to become more complicated by the day. There are many things CMBS lenders need to take into consideration to provide a term sheet that will accurately reflect the final loan terms and not all of this is within their control.

Rating agencies and B-piece buyers: The gatekeepers

Lenders must first anticipate how rating agencies, especially Fitch — the agency with an outsized share of the CMBS conduit market today — will evaluate each loan. This should include an understanding of how agencies will underwrite Net Cash Flow, what cap rate they will use (which is based on their own proprietary models which often bear no relationship to current market cap rates), and the existence or absence of loan structures they believe are needed to protect bondholders. Important components of rating agency underwriting, such as market rents and re-tenanting costs, may be greatly influenced by the appraisal obtained during the closing process, particularly if the appraiser views these inputs more negatively than the rating agencies anticipated.

CMBS lenders also need buy-in from B-piece buyers. These are investors who purchase the riskiest tranches in the trust, which exposes them to the first losses generated by every loan within the trust. As a result of this risk, not only do B-piece buyers require high yields to buy these bonds, they also have the power to reject loans, demand structural changes (e.g., introduce additional reserves) or, in rare cases, insist on an up-front fee to accept a loan within the CMBS trust. Importantly, borrowers have no say in who the B-piece buyer is, as lenders must prioritize the trust-wide execution over individual loan or borrower preferences.

Spread risk: A one-sided dynamic

Loan pricing is tied to projected bond spreads. In today’s market, if spreads widen before closing, borrowers absorb the cost. And credit spreads can change for any number of reasons, including due to changes in Treasurys, concerns about the economy, or basic supply and demand. Indirect factors can also make spreads change rapidly and materially at times. None of these changes are within the control of CMBS lenders — they are driven by market, economic, or political forces. While CMBS lenders will be quick to pass on any spread increases to their borrowers, they often do not pass on the benefits of any spread tightening thereby creating a one-sided risk profile.

two business professionals sitting down at a table negotiating in an office

So when can a borrower rest easy?

Until a CMBS loan has closed, nothing is final. Between the time the term sheet is signed and the loan closing, there are important milestones that can help give the borrower some comfort, such as: receipt of acceptable third-party reports, receipt of final rating agency feedback, and approval from the B-piece buyer. However, much of this is going on behind the scenes and borrowers are often left in the dark. Even with clear and consistent feedback from the lender, any or all of this information may be received very close to closing and sometimes post-closing. On top of all of that, the market never stops moving. So until the loan has closed, the borrower continues to be subject to any such market movements.

A final challenge after the close

Once closed, CMBS loans are serviced by third parties who may have no economic stake in the loan and no knowledge of prior negotiations. Borrowers must navigate a maze of master and special servicers, often facing delays in lease approvals, assumptions, or modifications. While some lenders advocate for their clients post-closing, servicers are not obligated to listen. Dealings with servicers can therefore be frustrating to borrowers and result in costs and delays in executing a borrower’s business plan.

CMBS is a valuable tool — but not a cure-all

CMBS remains a vital financing option, especially for out-of-favor asset classes in the current environment. But the complexity, opacity, and execution risk make it a difficult product for many borrowers to deal with. It is vital that borrowers know what they are getting into, and work with experts who understand how to best mitigate risks, before deciding to borrow from a CMBS lender.

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Carl Quesinberry

- Senior Director, Industrial Corporate Services
- Consulting & Advisory
- Strategic Consulting

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