Most regional banks have not stopped lending on office. But understanding regional banks office lending criteria has become one of the more time-consuming routing problems in the current market. The broad statement that regional banks pulled back from office lending significantly in 2022 and 2023 is accurate. What most teams miss is that the reason varies by institution, and the reason matters for routing.
A bank that pulled back because it accumulated too much office on its balance sheet during the low-rate cycle is in a different position than a bank that never had significant office positions and is now being selectively cautious. Those two lenders require completely different conversations.
Why Balance Sheet History Drives Regional Banks Office Lending
How do regional banks decide whether to lend on office in 2026? The primary driver is not the quality of the new deal. It is the size of the existing portfolio.
Regional banks that built large office portfolios between 2018 and 2022 are sitting on loans underwritten at cap rates and occupancy assumptions that no longer reflect the market. Some of those loans are performing. Some are not. Either way, the credit committee is aware of how much office it already holds and is not eager to add more.
These institutions are managing their overall position, not making deal-by-deal credit decisions. A well-structured office refinance from a strong sponsor with a stable rent roll may still get passed simply because the bank has already decided it does not want more office on their books regardless of deal quality. Routing to these lenders wastes time the sponsor does not have.
The banks selectively engaging on office are the ones that came into the current cycle with relatively light office positions. They have room on the balance sheet and the appetite to be selective. But selective means something specific: long remaining lease terms, strong tenant credit, low leverage, and no near-term capital requirements. They are not looking for office deals. They are looking for the subset of office deals that look nothing like the problems the rest of the market is managing.
Balance sheet position is the routing filter. Not the credit quality of the deal.
What the Credit Committee Is Actually Stress-Testing on Office Deals
For any bank that does engage on office, the underwriting conversation starts in a different place than it did five years ago.
The income calculation gets adjusted before any approval decision is made. Tenant improvement costs and leasing commissions for any lease rolling within the loan term get modeled as a direct expense against cash flow. If three tenants have leases expiring in the next four years, the committee wants to see the cost of re-leasing that space reflected in the numbers, not assumed away. That adjustment alone can take a deal from 1.25x DSCR to below 1.10x, which ends the conversation at most traditional lenders.
Leverage is the other major constraint. The banks still willing to do office are not doing it at the leverage levels that were standard in the prior cycle. Most active regional bank lenders are capping office loans at 55 to 60 percent LTV, sometimes lower for assets with any lease rollover risk. Sponsors who planned their exit at 65 or 70 percent LTV are going to face a gap that needs to be addressed before the deal can close through a traditional lender.
The credit test is not more subjective than it used to be. It is more specific.
Where Office Deals That Do Not Fit Are Actually Going
Regional banks office lending capacity is not uniform, and office assets that cannot clear the traditional bank screen are not sitting unsolved. Private credit has moved into this space deliberately. These lenders are structured to handle transitional situations, near-term rollover risk, and capital requirements that traditional lenders will not underwrite. The pricing reflects the risk. Rates are higher and structures are more complex, but the capital is available for deals that have a credible path to stabilization.
The routing logic for office in 2026 runs on one question asked before anything else: does this asset qualify for the subset of traditional bank lenders who are selectively active, or does it route directly to private credit? Answering that question wrong costs three to four weeks minimum. By the time a traditional bank passes on a deal that should have gone to private credit, the sponsor has lost runway they cannot get back.
The qualifying criteria for the traditional bank lane are narrow. Long weighted average lease term, strong tenant credit, no significant near-term capital requirements, and leverage well below what was standard in the prior cycle. If the asset checks all of those, a traditional bank conversation makes sense. If it misses on any of them, the first call should be to a private credit lender who prices for the complexity.
The Practical Move: Set the Expectation Early, Not After the First Round of Passes
- Have the lender landscape conversation at the beginning of the engagement. Most sponsors with office assets remember closing at competitive bank rates with standard leverage in 2019 or 2021 and expect a similar process. The gap between that expectation and the current reality needs to be covered in the first conversation, not after the first round of rejections.
- Use the balance sheet filter before building the lender list. Before any submission goes out, confirm whether the lenders on the list are carrying significant office positions from prior cycles. Banks managing existing exposure are not making credit decisions on new deals the same way banks with light office positions are.
- Route to private credit without apology when the deal requires it. A sponsor who learns at T-90 that their office asset does not qualify for traditional bank pricing is in a different position than a sponsor who learns that at T-180. The first situation is a rescue. The second is a decision.
- Set the expectation as a service, not bad news. Telling a sponsor at the start of the process that their asset will route to private credit and here is why is not delivering bad news. It is protecting their timeline and giving them the ability to make an informed choice about how to proceed.
