By Taylor Williams
Sometimes, you just know when it’s time.
For all the number crunching, quantitative analysis and formulaic modeling that their job demands, commercial real estate lenders are harnessing the qualitative and intangible factors as they prepare to boost deal volume in 2025.
Vibe, sentiment, intuition — call it what you want, but there’s an emerging sense within the commercial lending community that the new year holds strong opportunity to deploy capital and deliver financing solutions. And that’s great news for an industry that has spent the last two years wallowing in a sort of interest-rate purgatory.
Recent reports from the CRE Finance Council (CREFC) and Mortgage Bankers Association (MBA) substantiate this notion. Earlier this year, CREFC released its Fourth-Quarter 2024 Board of Governors Sentiment Index survey results, which found that “while higher-for-longer interest rates remain the primary concern, the industry appears to be adapting to this new environment.”
In addition, the report stated that “an overwhelming 95 percent of respondents expect CRE transaction volume to increase by at least 10 percent in 2025, suggesting growing confidence in market activity despite rate challenges.”
The MBA released a statement on Feb. 10 that forecasts total commercial and multifamily mortgage lending to rise from $503 billion in 2024 to $583 billion in 2025, an increase of about 16 percent. Expectations for 2026 are even brighter, with the total volume of commercial loan production pegged at $709 billion in that year, per the MBA.
Almost all sources interviewed for this story attended either the CREFC or National Multifamily Housing Council (NMHC) conferences that took place in January in Miami and Las Vegas, respectively. And all stated unequivocally that both shows were characterized by optimistic business outlooks for the new year that were noticeably absent in previous years.
“The CREFC conference had a strong energy and excitement about going into 2025. There was an impression that there’s a lot of powder available and interested capital that wants to go to work in private debt, preferred equity and mezzanine markets,” says Ross Pemmerl, chief credit officer at UC Funds, a Boston-based debt fund.
“When you have an environment in which capital wants to be deployed and significant rolling maturities, that creates a lot of optimism despite the fact that there is some current dislocation with rates,” he continues.
Andrew Lucca, head of the income property group at KeyBank Real Estate Capital’s Phoenix office, had a similar takeaway from the NMHC show.
“This was probably the best NMHC show we’ve been to in several years,” he says. “The sentiment was good, and expectations are there for a strong year. It’s still nowhere near 2021-2022 levels, which is a function of the interest rate environment, and there’s still some hesitation in terms of making sure that deals make sense. It will take a while, but business is starting to unlock slowly but surely.”
Ian Monk, deputy chief production officer for conventional multifamily at national lender Lument, says that renewed optimism about acquisitions activity stood out at the NMHC show.
“The most significant difference from last year to this year is that people want to start buying again,” says Monk. “Last year was one of hesitation and feeling the market out. This year, people are actively looking for sellers, and not just distressed assets. Borrowers are also asking us for guidance on equity sources, and we expect equity placement to also be a strong variable in boosting deal volume this year.”
Monk believes that borrowers looking to buy will still be selective about the markets and asset classes they target. But he points to elevated volumes of agency acquisition debt from both Fannie Mae and Freddie Mac in the fourth quarter of 2024 as an indication that buying activity — at least for multifamily deals — is on the verge of rebounding.
Tom Fish, managing director at Walker & Dunlop’s Houston office, says his team is more than ready to turn the page on the new year and is equally optimistic about the prospects of commercial real estate acquisitions in 2025. However, he cautions that bid-ask spreads still need to tighten before that comes to fruition.
“We fully expect 2025 to be a better year because there’s even more capital entering the market,” explains Fish. “However, it doesn’t change the disconnect that still exists between buyer and seller expectations, even though those expectations are much closer than they were in 2024. You still have buyers that want to buy at levels that preclude sellers from making any money.”
Fish adds that liquidity in the market is also not an issue.
“Money has been formed to buy and finance deals. There’s no shortage of capital on the buy side or the lending side — or the equity side for that matter,” he says. “It’s simply a shortage of deals that meet return requirements. So overall, 2025 should be a year of greater capitulation in capital that just says, ‘We have to move on.’”
These largely uplifting perspectives are prevailing despite several X factors hitting the market in the first month of the new year. These variables include exceptional volatility in the 10-year Treasury yield, a strong December jobs report that has seemingly put interest rate cuts on hold, and the swearing in of a new president who embraces tariffs as part of his economic policy and seeks to drastically shake up the structure of the federal government.
Any of those variables alone — not to mention in conjunction with one another — could conceivably be cause for concern, a readymade excuse for debt and equity providers to continue hunkering down. But in this case, these factors represent acceptance as opposed to rejection — an understanding that a return to perfect market conditions is out of the question, so it’s best to roll with the present parameters, come off the sidelines and get deals done.
Current Conditions Work
Although the last few months of 2024 appeared to set the table for a sustained campaign of interest rate cuts, the U.S. Federal Reserve left the target range for the federal funds rate unchanged at 4.25 to 4.5 percent at its meeting on Jan. 26-27. That decision coincided with a sharp drop in the 10-year Treasury yield, which had peaked at about 4.8 percent earlier in the month.
Many commercial banks price their loans off the 10-year, a security in which investors can park their money without risk. The higher the yield on those notes, the less incentive there is for investors to undertake riskier ventures like commercial real estate deals. And yet, while volatility and soaring yields on the government-issued notes might normally be a deterrent to commercial real estate lending, some industry professionals see the opposite unfolding.
“Bond market investors are in the process of assessing the implications of the new administration on what it means for inflation (thereby the path of interest rate cuts) and deficit spending — all of which influences both the short and long end of the yield curve,” says Abby Corbett, senior economist and global head of investor insights at Cushman & Wakefield. “With a fair amount of volatility in the bond markets to kick off the year, it’s been compelling to see the traction upheld in the commercial real estate debt markets.”
Marcus & Millichap Capital Corp. recently arranged $89.6 million in construction financing for Bennett Apartments and Harlow Apartments in Chanhassen, Minnesota. This rendering shows plans for Harlow Apartments, which will feature 126 units and retail space.
Corbett similarly endorsed the positive outlook at CREFC, noting that “nearly all lenders there were forecasting tighter spreads and increased issuance versus where we were in 2024.”
In explaining the lending community’s somewhat contradictory response to volatility in 10-year Treasuries, Corbett says that it’s a function of the industry acknowledging strong underlying fundamentals for most asset classes. In addition, debt and equity providers are just plain tired of sitting idle.
“The 10-year [yield] started out the year swinging high. But instead of the presumption that it would kill positive momentum, the market seems to be sending a different message,” observes Corbett.
“That message is ‘We know there’s going to be volatility in the 10-year because major bond market investors are recalibrating to the new administration.’ So, there’s a renewed focus on fundamentals and the desire to deploy capital regardless of what is happening in base rates or 10-year Treasuries,” explains Corbett.
Maturities-Based Movement
According to Trepp LLC, the New York City-based data and analytics firm that serves the real estate capital markets industry, the figure for both 2025 and 2026 maturities is approximately $600 billion across the spectrum of lenders: banks, agencies, life companies and CMBS issuers. The 2027 volume is slightly higher at $629 billion, according to Trepp.
Assuming that most owners of the properties that collateralize this debt don’t want and won’t be forced to sell, that’s quite a hefty load of loans that will need to be refinanced or recapitalized with fresh equity.
“The wall of maturities is daunting, but it’s an impetus for movement in the market,” says Corbett. “If you were a lender in 2023-2024 with a good sponsor and asset, you were probably seeking to modify or extend the loan. Now, those extensions are turning, but the debt markets are broadening, so there’s expanding opportunities and avenues to refinance or recapitalize.”
The “looming wall” of maturities includes scores of loans that have been subject to the “extend and pretend” approach that many lenders have applied in the face of skyrocketing rates.
Loan modifications became more commonplace during the pandemic as business operators dealt with global disruption, and many lenders have subsequently embraced the practice for a variety of reasons that include:
• minimizing defaults and liabilities on their balance sheets
• preserving credit of longtime borrowers who are otherwise in good standing
• avoiding taking back the keys to properties they are ill-equipped to service and operate.
Bridge Burning
Yet there is one piece of the maturities stack — bridge loans that were originated during the trough of the rate cycle in 2021 and early 2022 and are now approaching maturity — that might deserve special attention.
“The focus and decision-making that we’re currently seeing is centered on deals that were bought in 2021 and 2022 with floating-rate bridge money that are priced above SOFR,” says Zach Shope, senior vice president at BWE, the commercial finance firm formerly known as Bellwether Enterprise Real Estate Capital.
“They’re approaching maturity and either need to be extended via another bridge loan or fixed via a life company or CMBS or agency debt, if it’s multifamily.” (SOFR is the acronym for Secured Overnight Financing Rate and represents another index by which certain loans, including construction, are priced).
Shope adds that borrowers seeking debt-based solutions are typically seeking shorter-term refinancings due to lingering uncertainty about where short-term interest rates are headed. And above all else, they want flexibility.
“Whether borrowers float or fix, they want prepayment flexibility on the back end of those loans so that if they catch a Fed [interest rate cycle] that’s easing, they can refinance or sell without having to come out of pocket too much,” explains Shope.
“A lot of business plans for deals bought late in the cycle have not come to fruition as expected, so providing the extra two- to three-year runway for those deals is a big part of the focus. But borrowers want the flexibility, if possible, to take advantage of a better rate environment down the line,” he adds.
“Many borrowers with impending maturities are coming to the realization that they have to move quickly,” agrees Monk. “These mandatory refinancings are increasingly looking at variable-rate structures that offer greater flexibility in terms of prepayment. This strategy buys some time to navigate the next few years and take advantage of any potential rate decreases.”
Earlier this year, BWE arranged a $76 million loan for the refinancing of Carlisle Naples, a 257-unit seniors housing community in South Florida. The borrower was a joint venture between Harbert Management Co. and SRG.
Sources generally concur that 2025 will see fewer bridge-to-bridge deals as more borrowers rip the bandage off. For those borrowers that are adamant about obtaining such a structure, scrutiny will be high, says Monk, speaking primarily about the multifamily sector.
“Lenders will be cautious about bridge-to-bridge, and that structure will likely be reserved for deals with extenuating circumstances,” he says. “There still has to be a story. Since bridge-to-bridge is sometimes a form of extending and pretending, these deals get looked at a lot more closely than value-add or construction coming out of lease-up that might not fit into the agency bucket just yet.”
End of The Line?
Regardless of how a loan became part of the “looming wall,” impending maturities theoretically represent deployment opportunities for debt and equity providers. But strictly speaking, on the debt side, the extent to which lenders looks to be aggressive on those opportunities may be a function of what type of debt provider they are.
“There is a bifurcation between deals done by debt funds and those by banks; sometimes banks get thrown into the issue of maturities,” notes Lucca.
“Banks don’t always have that luxury [to extend and pretend] since they’re heavily regulated. And as a bank, our loans have substantially more cushion, which is why in 2021-2022 we weren’t winning those deals, which is a good thing in hindsight. And most of our long-term extensions have come with structural enhancements from the borrower or cash in the deal,” adds Lucca.
Pemmerl of UC Funds expects that his firm will be very active in pursuing deals that may require alternative solutions.
“There will be some additional extending and pretending [when maturities hit], but the other side of that coin is that you can’t extend and pretend forever,” he says. “It just depends what banking institution that borrowers are dealing with, because not all [institutions] will have that flexibility to just continue to carry those assets on the books.”
Other sources, however, aren’t convinced that these distressed loans are actually at the end of the line, maturities notwithstanding.
“A lot of people think 2025 will be the year that banks really clamp down and start kicking a lot of these deals out of their portfolios, but that may not be the case for two reasons,” notes Fish.
“If they kick these loans out, where is the loan growth going to come from? They’re a lot less sure about putting new money out than they were a few years ago, so those loans may be stickier than people think. Also, we’re seemingly headed into less of a regulatory environment with the new administration,” adds Fish.
Lucca points out that the narrative of massive impending debt maturities has been around for a couple years now and has yet to generate major turmoil, at least in his shop.
“Deals that were originated in 2021-2022 were underwritten with a large cushion, not to actual rates, which is common among banks, which is why the distress there is less pronounced than people might think,” he explains.
Will Equity Follow Suit?
There’s no question that commercial debt providers are ready to go to work in 2025 and see some market conditions working in their favor. But what about the equity side of the market?
For much of the past two years, equity providers have had the luxury of being able to be patient and selective. They have let the deals come to them, but sources say that too is starting to shift.
“On the equity side, groups that have raised funds to deploy into real estate are still sitting on a lot of dry powder but choosing investment wisely,” says Shope of BWE. “There’s a lot of opportunity to be picky, and many top-tier equity players are choosing the best opportunities and deferring the weaker ones to the rest of the market.”
“A lot of smart people started stockpiling equity because they foresaw a need, which is ever-apparent today,” notes Pemmerl of UC Funds. “But the dry powder has been sitting on the sidelines and wants to go to work and transact. The private equity funds that grease commercial transactions can’t and won’t sit idle forever.”
Corbett of Cushman & Wakefield points out that debt providers and arrangers would not feel so confident about their 2025 prospects if equity sources were showing a desire to cautiously re-engage.
“It’s tough to imagine that debt markets can feel positive if there’s not a counterpart — the equity side. So that [positive sentiment on the debt side] must be emblematic of similar traction on the equity side,” she reasons. “We’re also starting to see an easing in fund flow pressure, which is a driving force in an equity market that already has a lot of dry powder.”
Regarding the capital markets as a whole, Corbett is hesitant to anoint 2025 as a hockey stick-type recovery (almost no growth to rapid growth). Like other sources, she acknowledges that issues with seller motivation and bid-ask spreads are not fully resolved with regard to greasing the skids in the acquisitions market.
In addition, she sees a continued bifurcation of liquidity and demand among the core asset classes of commercial real estate, with multifamily and industrial deals once again likely to command the most attention.
— This article originally appeared in the February 2025 issue of Texas Real Estate Business magazine and the January/February 2025 issue of Northeast Real Estate Business magazine.