Smaller Banks Drive CRE Lending Growth as Large Banks Retreat From Construction Article originally posted on Globe St. on July 23, 2026 Bank lending for commercial real estate is beginning to expand again after two years of tighter credit conditions, but the recovery looks markedly different depending on the type of loan and the size of the lender, according to an analysis of first-quarter 2026 Call Report data by Trepp. Owner-occupied and income-producing CRE loan balances grew both across the banking industry and at the typical institution over the past year. Construction lending was the notable exception: Large banks continued reducing their exposure enough to pull aggregate balances lower, although the median bank increased its construction lending. The contrast underscores the difference between aggregate loan growth, which is heavily influenced by the largest lenders and median growth, which provides a broader view of how banks generally are behaving. Owner-occupied CRE balances grew 4.4% year-over-year in the aggregate, closely matching the 4.5% increase at the median bank. The median large bank — defined by Trepp as an institution with at least $100 billion in total assets — recorded growth of just 1.4%. Because owner-occupied loans are less concentrated among the largest institutions, their slower growth had relatively little effect on the industry-wide total. Income-producing CRE lending also expanded across all three measures, though the gap was wider. Aggregate balances increased 4.1%, compared with 6% growth at the median bank and 3.1% at the median large bank. The figures suggest demand and credit availability are improving broadly for stabilized properties, with smaller institutions growing their portfolios more quickly. Construction lending presented a dramatically different picture. Aggregate construction and land development balances fell 5.6% from a year earlier, while the median bank increased its balances by 7%. The median large bank cut its construction exposure by 9.2%. Large banks hold enough construction debt that their retrenchment outweighed growth among the rest of the industry, producing an aggregate decline that masks the continued expansion occurring at many banks. First-quarter trends indicate the construction split is persisting rather than merely reflecting reductions made earlier in the year-long period. Large banks again lowered their construction balances during the quarter, while the median bank continued adding loans. That distinction matters for developers seeking financing as the lending environment gradually improves. Credit availability for stabilized owner-occupied and income-producing assets appears to be broadening, but access to construction capital may continue to depend heavily on lender size and relationships with regional or community banks. The direction of large-bank construction lending will be a key measure of CRE credit conditions through the remainder of 2026, Trepp said. Until those institutions begin rebuilding exposure, aggregate data is likely to portray a weaker construction lending market than the experience of the typical bank would suggest.