What the Debt Markets are Telling Us Now

The Pulse of the Debt Markets — with Orest Mandzy, CRE Direct

Capital market confidence is cautiously returning, but undercurrents of risk remain. In my wide-ranging conversation with Orest Mandzy, Managing Editor of Commercial Real Estate Direct, we discuss what recent CMBS issuance tells us about liquidity, why delinquency headlines may be misleading, and how sponsors can position themselves amid policy shocks and structural market shifts.

 

Liquidity Is Back — But Driven by Giants

CMBS issuance jumped 110% in Q1 2025, totaling nearly $37 billion. While that headline suggests a resurgence of confidence, Orest clarifies that most of that growth comes from SASB (Single Asset, Single Borrower) deals – large trophy assets being financed and securitized by institutional players. These are not indicative of broad-based confidence in middle-market real estate.

 

To gauge true liquidity, he says, focus on conduit deals – pools of smaller $10M–$25M loans originated by banks and institutional lenders and repackaged into +/- $1B bond offerings. Robust conduit activity reflects a healthier market for everyday sponsors.

 

“If you’ve got solid conduit issuance,” says Orest, “that tells you there’s liquidity in the market – not just for trophy deals.”

 

Rising Delinquencies: Real or a Red Herring?

Recent headlines warned that CMBS delinquency rates exceeded 7%, the highest since 2021. But Orest has looked deeper into the data and sees it is far from being systemic. A handful of large, troubled multifamily loans, such as the $1.5B Park Merced in San Francisco and a floating-rate New York portfolio, together make up nearly 60% of those delinquencies.

The common thread? These loans were made pre-COVID or in 2021 with floating-rate debt and now can’t refinance in today’s rate environment. But they’re outliers, not bellwethers.

Fannie and Freddie multifamily delinquencies remain under 1%, and even in CMBS, the average LTVs have been conservative.

 

“Multifamily looks worse than it is. Strip out the outliers and the market’s still performing.”

 

CLOs, Banks, and the Competitive Landscape

CMBS is just one lane in the broader lending freeway. Orest distinguishes it from CLOs, which are floating-rate, short-term loans used by debt funds for leverage, and from agencies like Fannie and Freddie, which underwrite more conservatively.

 

In 2024:

• Agencies originated ~$60B each
• CMBS did ~$40B
• CLOs only ~$8B – down sharply from peak years

Debt funds relying on CLOs are now facing stiff competition from banks, which are back in the market after a cautious 2023. With banks accounting for 40% of CRE loan volume annually, this shift matters.

 

For sponsors, it means a broader set of options but also a new underwriting reality. Orest notes that while leverage is available, it's on tighter terms: LTVs in the low 60s and debt service coverage ratios near 2.0x are now standard for institutional-quality debt.

 

The Tariff Shock and Bond Market Jitters

One of the most important takeaways: macro events like tariffs are now exerting real-time pressure on the capital stack.

 

In early April, CMBS bond spreads spiked from 80bps to 108bps over Treasuries as the market braced for a new round of tariffs. That spread spike pushed borrowing costs up and froze CMBS issuance for nearly 10 days – a signal of how fragile the system remains to policy volatility.  Although bond spreads have since tightened, Orest warns that risk repricing is now a function of policy headlines, not just economic fundamentals.

 

“Uncertainty is risk. And when investors sense more of it, they demand more yield. That makes loans more expensive and deal volume drops.”

 

Positive Leverage or No Leverage: Sponsor Guidance

Asked what CRE sponsors and investors should be doing in the next 3–12 months, Orest’s answer is clear:

• Seek positive leverage from Day One – don’t rely on NOI lifts growth to bail you out.
• Consider no leverage at all if you’re sitting on cash and don’t want to risk default.
• Underwrite conservatively and turn over every rock. The deal you don’t do may save you.

“If you buy with positive leverage, great. If not, maybe don’t borrow at all.”

 

Special Servicing > Delinquencies

For investors and borrowers watching for cracks in the market, Orest recommends a lesser-known but more reliable signal: the special servicing rate in CMBS.

Loans enter special servicing before they go delinquent, usually triggered by pending lease expirations, tenant loss, or anticipated refinance trouble. This metric has been rising and, unlike delinquencies, tends to stay elevated longer. Sponsors should watch this closely.

 

Local Policy Risk: The Property Tax Squeeze

Orest flags an emerging risk with local governments under fiscal stress. Cities like San Francisco, where office values have cratered, still rely on CRE for a large share of tax revenue. If values fall but municipalities resist cutting spending, expect tax rates to rise, eroding asset value further.

 

“Where do cities go when they need money? To the deep pockets. And that’s commercial real estate.”

 

Industrial and Insurance: Still in the Crosshairs

While multifamily has absorbed most of the press, Orest highlights risk building in other sectors:

• Industrial may face headwinds from tariffs disrupting trade flows and warehouse demand.
• Insurance costs, especially in hurricane-prone areas, continue to rise, sometimes outpacing rent growth.

In one example, he cited an apartment property in Tampa where gross revenue rose 50% in five years, but expenses outpaced it, limiting refinance options.

 

Geopolitics, De-Dollarization, and Exorbitant Privilege

One of my concerns is about broader macro risks – de-dollarization, loss of U.S. financial credibility, and capital flight from Treasuries. Orest acknowledged these as tail risks but noted they’re not front of mind for most market participants… yet.

 

Still, if foreign buyers ever pull back on U.S. Treasuries, that could cause a spike in long-term rates, forcing CRE valuations down and capital costs up. It’s not imminent, but it’s worth tracking.

 

“If China and Japan stop buying Treasuries, we’ve got a real problem. All bets are off.”

 

Final Thought

The key insight from this episode: the market is functioning but only just. Liquidity is back, but it’s conditional. Optimism exists, but it’s fragile. And sponsors must walk a tightrope between opportunity and overextension.

 

Orest’s advice? Borrow smart. Underwrite for today’s risks – not yesterday’s assumptions. And remember: your best defense in uncertain times is positive leverage and deep diligence.

 

***

In this series, I cut through the noise to examine how shifting macroeconomic forces and rising geopolitical risk are reshaping real estate investing.

 

With insights from economists, academics, and seasoned professionals, this show helps investors respond to market uncertainty with clarity, discipline, and a focus on downside protection. 

 

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