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Credit Conditions Improve, With a Caveat
Non-performing loans made up approximately 1.2% of total unpaid principal balance at quarter end, a notable improvement from the prior quarter. However, much of that decline reflects newly added historical data from new index participants, which expanded the index and diluted the weight of existing problem loans — not necessarily a broad-based credit recovery.
Office Loans Remain Under Pressure
Office properties continued to account for the largest share of troubled loans and carried meaningfully lower valuations than other property types. Industrial and multifamily loans, by contrast, stayed resilient, with low credit distress and values holding near par.
Capital Continued to Flow In
Net capital flow into high-yield commercial real estate debt — new loan fundings minus principal repayments — stayed positive for the quarter, extending a trend of ongoing lender deployment into the sector.
Looking Ahead
The report described the quarter’s broader environment as relatively stable: the Federal Reserve held a restrictive policy stance, but expectations for further near-term rate hikes eased, and credit spreads stayed contained even as transaction volumes remained below long-term averages. “First-quarter results reinforce the view that high-yield real estate debt continues to demonstrate resilience,” the report concluded, “although... underwriting discipline remains critical as the cycle evolves.”
About the G-L 2 Index
The Giliberto-Levy 2 (G-L 2) Index tracks the performance of high-yield commercial real estate debt investments, including mezzanine loans, B-notes, leveraged whole loans, and other subordinate debt positions. The index is maintained by S. Michael Giliberto & Co., Inc. and John B. Levy & Company, Inc.
© 2026 S. Michael Giliberto & Co., Inc. and John B. Levy & Company, Inc.
Media Contact
Julia Grant | 804-500-9026 | jgrant@jblevyco.com
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