Commercial real estate debt issued by banks is up 85% compared to last year, reaching $227B, roughly in line with 2019.

The resurgence of bank lending marks a turning point after a slow couple of years, during which alternative lenders have stepped in to finance CRE projects. Banks made up about 38% of all CRE lending so far this year, the most of any lender category, according to Newmark's third-quarter capital markets report.

Banks have spent the last year cleaning underperforming debt off their books, making room for new loans.

Private capital sources developed a taste for CRE lending in the last two years during banks' pullback and are now serving up stiff competition and pushing up the average size of loans, according to Newmark.

Originations in general increased by 48% annually from $395B to $587B this year as interest rate drops have brought down the cost of capital, enticing players back to the market.

Banks are still the most common source of CRE financing, but they did lose some market share to other types of lenders, Newmark found. Debt funds and the CMBS market have scooped up some of banks’ leftovers and are “steadily gaining ground,” according to the report.

Apartments, industrial and office are the biggest targets for loan origination of all kinds, but the fastest-growing segment is data centers, for which $28B has been borrowed so far this year. That is a 720% increase from last year.

Data center debt is only accelerating, with Blackstone lining up a $3.5B CMBS loan for 10 QTS data centers — a sum that alone outpaces the $3B lent to the computing hubs in 2024.

Lending is expected to continue picking up, as there are approximately $2T in debt maturities coming due by 2027, setting up demand for refinancing or sales. About $573B of those loans are considered at risk of distress, according to Newmark.

Distress is generally rising, with hot spots in office and multifamily especially. Office delinquency was up 1.6 percentage points in the third quarter, and multifamily’s rate remained “flat but elevated,” Newmark reported.

Molly Armbrister contributed to this story.