2026 Underwriting Will Be Ruthless About Who Gets Refinanced Article originally posted on Globe St. on January 5, 2026 Commercial real estate is entering what Trepp’s research team has called a “sorting year,” one in which lenders are still open for business but increasingly selective about who gets to participate in any upside. The dividing line is no longer simply property type or market; it is a battery of underwriting tests that determine whether an asset can clear the bar of “financeable” in a higher‑for‑longer rate environment. On a recent episode of The TreppWire Podcast, the firm’s analysts described 2026 as a period of “measured momentum” marked by more resolutions—but not necessarily less stress—as maturities, workouts and liquidations accelerate. In that framework, loans backed by durable cash flow, strong sponsorship and realistic capital structures are expected to refinance or transact, while the rest confront extensions with strings attached, discounted sales or outright “jingle mail.” Debt Service Under Today’s Rates The first filter in that sorting process is a back‑to‑basics question: can the asset support debt service at current coupons, not yesterday’s? Trepp’s team emphasized that many of the loans now facing maturity, particularly those originated around the peak of 2021 optimism, were underwritten with low base rates and aggressive rent growth assumptions that do not match the conditions of 2026. As a result, lenders across the stack are recalibrating minimum debt service coverage ratios to reflect wider spreads and stickier long‑term yields. Bank and CMBS lenders are scrutinizing underwritten DSCRs against stress scenarios that assume flatter or even negative rent growth, rather than relying on pro forma uplifts to address coverage. Private credit, which often operates at higher leverage and pricing, applies similar DSCR tests but is more willing to pair them with active asset management or loan‑to‑own strategies when coverage falls short. Sponsorship and Fresh Equity Even for assets that narrowly miss today’s coverage metrics, sponsorship can tip a deal into the financeable camp. Trepp’s commentators noted that 2026 is likely to be a year when lenders “work very eagerly with the haves,” defined as borrowers with meaningful skin in the game, institutional track records and the capacity to inject new capital when needed. That shift is showing up as explicit tests around fresh equity and basis reset at maturity or modification. Bank lenders that were “pencils down” earlier in the cycle are re‑entering the market, using equity infusions as proof that sponsors are aligned with the new valuation level. In CMBS and large‑loan executions, special servicers are conditioning extensions and restructurings on additional cash in, either to pay down principal or fund capex. Private debt funds, meanwhile, are using equity requirements as a sorting mechanism: sponsors willing and able to re‑up may receive flexible capital; those who cannot may negotiate deed‑in‑lieu transfers with investors who have already modeled a loan‑to‑own outcome. Capex Runway and Business Plans A third dividing line is capital expenditure runway, particularly for transitional and value‑add business plans that were initially financed with bridge loans or CRE CLO executions. Trepp’s analysts highlighted the surge in CRE CLO issuance in 2025—north of $30 billion, up from high single‑digit billions in prior years—as evidence that lenders see opportunity in “story” assets, but only where the capex path is credible and funded. In practice, that means underwriters are probing how much work remains, whether reserves and guarantees are adequate, and how long it will take to reach stabilized cash flow under more conservative leasing and rent assumptions. For office, where reported delinquency has lagged perceived distress, this capex runway test is particularly harsh. Lenders want clarity on leasing costs, TI packages and re‑tenanting risk before committing new term debt. Multifamily and industrial assets with remaining value‑add stories can still attract capital, but only when sponsors can demonstrate that construction risk, lease‑up risk and capex inflation are ring‑fenced by real dollars rather than optimism. Different Lenders, Sharper Lines The result is an ecosystem in which banks, CMBS lenders and private debt are all drawing sharper lines, but in different ways. Trepp’s research has pointed to a modest but meaningful expected increase in bank CRE lending volumes in 2026, as regulatory pressure abates and competition for high‑quality loans intensifies. At the same time, bankers are using tighter structures—shorter terms, stronger covenants and stricter recourse—to ensure that marginal assets do not drift into their “financeable” bucket by default. In the CMBS market, the push toward another year of $100‑billion‑plus issuance is being driven by a mix of plain‑vanilla refinancings and large, single‑borrower deals secured by what the market views as trophy or near‑trophy assets. Those transactions pass the new underwriting tests not just on DSCR and sponsorship but on location, tenant quality and long‑term relevance, allowing them to secure five or ten‑year paper even as more challenged properties remain in workout. Private credit, by contrast, is prepared to take on weaker coverage and more complex stories, but at the cost of higher coupons, tighter control rights and a clearer path to taking title if performance does not improve. All of this speaks to the underlying theme Trepp’s analysts have stressed going into 2026. This is a year of more resolution, not less stress. With a heavy load of maturities across banks and the CMBS universe and a rolling rather than cliff‑like “maturity wall,” more loans are going to be forced through the sort—refinanced, modified or liquidated.