As agencies increase caps, investors ready for more activity in 2026

KeyBank Real Estate Capital Senior Vice President Cullen O’Grady moderated the panel of industry experts, which included perspective from both lenders and investors. Guided by O’Grady, the group of experts talked about changes to real estate strategies in response to the challenges of the last few years, the increase in available debt, and potential obstacles to closing deals in 2026. 

Investors adjust real estate strategies

The last few years have been characterized by a challenging capital markets environment. High and rising interest rates tightened access to capital and increased lending costs. As a result, investors have been shifting their real estate strategies. O’Grady probed the panelists to find out how investors are successfully securing the right capital stack and modifying their investment criteria.

One panelist, head of a private multifamily investment firm, said that his company is focused on rate buydowns to achieve more deal liquidity. Another panelist, who focused on East Coast acquisitions at a vertically integrated real estate investment management and development firm, said that her firm is investing across the county in a variety ways, focusing on value-add and ground-up development and leveraging agency loans. This particular company has also been actively pursuing joint venture partnerships with institutional investors as a development partner, offering local expertise.

On the private equity side, one panelist said that his firm has shifted to a Class A core and core-plus strategy in the last few years, focusing on high-growth markets in the Sun Belt.

O’Grady also dug into these firms’ innovative approaches to deal structure and financing strategies. Two of the firms, for example, have a discretionary fund, while another has discretionary capital and partners with an LP to round out the equity side of the capital stack, leaning into its strong sponsorship.

Agency lending caps increase

In 2026, Fannie Mae and Freddie Mac are increasing their lending caps to $88 billion each, for a total of $176 billion in lending capacity. The increase is a significant 20% bump from the $76 billion cap each agency had in 2025 and the $70 billion each agency had in 2024.¹ The increase shows that the agencies are looking to provide more liquidity to the market, a promising sign of optimism. All of the panelists were assured by the increased lending capacity, saying that it allows for more room to be creative and think outside of the box, and it gives the agencies more opportunity to create new products that can help address gaps in the market. 

Fannie and Freddie are increasing the caps at a time when there is ample debt available. Deichmann noted that there is a lot of competition, particularly from private capital and debt funds. So, there will be no shortage of opportunities.

Despite the increased lending caps, there is some concern about both agencies’ ability to handle increased volume with limited personnel. Following mass layoffs and a hiring freeze at the federal government level, many of these agencies are operating with a reduced staff. “Staffing is huge, especially if you’re trying to rush for an early rate lock or index lock,” said O’Grady. “I’m hoping that both agencies will adjust to handle the volume of business.” Some panelists reported that, currently, it can take three weeks to get a response on a quote.

Borrowers need to be diligent, overly prepared, and able to provide all information on the first ask to reduce the timeline. There is no room for back and forth.

Rising operational costs could create challenges

There are ample reasons to be excited about the lending environment in 2026, but operators continue to face some challenges that can affect financing. In particular, operational costs are rising quickly, and in some cases, outpacing income growth. “It is definitely submarket-specific,” said O’Grady. “You could have a deal that sizes without any proceeds constraints, but when you run the revised exit refinance tests, you might see that income will grow at 1%, while expenses are growing at much higher amounts.”

Trepp data reports that operational costs have increased up to 7% in some metros, but standard underwriting typically only accounts for 3% to 5% growth in operational costs.² With this dynamic, a lot of deals are facing this challenge. “In all markets where you are investing, it is important to run those tests to make sure the deal pencils out,” adds O’Grady.

Despite some of these lingering challenges, all of the players on the panel were ready and excited to take on 2026, with optimism that we will see higher deal volume, more favorable interest rates, and stronger economic fundamentals.

Connect With Us

To discuss the current market environment and building the right capital stack on your next deal, connect with Cullen O’Grady or reach out to your KeyBank mortgage banker directly.

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