Commercial Real Estate Loan (CRE)

A commercial real estate loan (CRE) is a debt instrument secured by non-residential real property, including office buildings, retail centers, industrial facilities, multifamily housing (5+ units), and mixed-use developments. Unlike commercial and industrial (C&I) loans, where collateral consists of business assets like equipment or receivables, CRE loans use the underlying real property as the primary security interest.

The Federal Reserve tracks CRE lending as a distinct category in its regulatory reporting, separating it from farmland and C&I portfolios. Banks report CRE delinquency through the FFIEC Call Reports, and the Fed publishes these figures quarterly through the Charge-Off and Delinquency Rates statistical release (FRED series DRCRELEXFACBS, excluding farmland). This separate tracking reflects the fundamentally different risk profile CRE carries compared to operating-business credit.

CRE loans represent one of the largest asset classes in commercial lending, and understanding their mechanics directly affects your financing cost and risk exposure. A typical commercial real estate loan involves a down payment of 15% to 35% depending on property type and loan program, meaning a $2 million acquisition could require $300,000 to $700,000 in equity. Misjudging loan-to-value requirements or debt service coverage thresholds can derail an acquisition timeline by months.

CRE loans also carry structural features that differ sharply from standard business credit. Balloon payments, yield maintenance provisions, and defeasance clauses create exit costs that many borrowers fail to anticipate. If you plan to sell or refinance within 5 to 7 years, the loan type you choose at origination determines whether that exit costs you a modest fee or a six-figure penalty.

Market conditions add another layer. As of Q4 2025, CRE delinquency stood at 1.58%, more than double the pre-pandemic baseline of approximately 0.67%. This stress is concentrated in the office sector, where remote work has driven vacancy rates above 20% in many metros. Lenders are tightening underwriting on office and certain retail properties while remaining competitive on industrial and multifamily, so the property type you are financing shapes both your approval odds and your rate.

Treating CRE like a residential mortgage. Residential mortgages use fully amortizing 30-year structures with standardized underwriting. CRE loans typically feature shorter terms (5 to 25 years), balloon payments, and lender-specific covenants. Expecting residential-style simplicity leads to missed provisions that become expensive surprises.

Ignoring the distinction between LTV and DSCR. Lenders evaluate CRE deals on both loan-to-value and debt service coverage ratio. A property can meet the LTV threshold but fail DSCR if net operating income is insufficient, and vice versa. Both must clear independently.

Overlooking exit costs in the original term sheet. Yield maintenance and defeasance clauses can produce prepayment penalties ranging from 1% to the full remaining interest on the loan. Borrowers who plan to refinance or sell should negotiate prepayment terms at origination, not discover them at exit.

Assuming all CRE property types face the same underwriting. Post-2023, lenders apply materially different standards to office versus industrial versus multifamily. An office acquisition at 75% LTV may be rejected by the same lender that approves a multifamily deal at 80% LTV. Property type drives credit appetite as much as borrower strength.

Confusing CRE loans with C&I loans. Both are commercial credit, but the collateral, risk profile, and regulatory treatment are entirely different. A C&I loan secured by equipment and receivables follows operating-business underwriting. A CRE loan is underwritten primarily on property fundamentals: net operating income, cap rate, comparable sales, and tenant quality.