By Patrick McGlohn, senior managing director, Berkadia
After two years of caution and recalibration, capital is flowing back into commercial real estate. The bid-ask gap between buyers and sellers is narrowing, underwriting assumptions are stabilizing and both equity and debt investors are once again finding common ground. At Berkadia, we’re seeing equity move from the sidelines to the playing field, selectively, but decisively.
Equity’s Comeback: Selective, but Strong
Private equity and institutional investors are increasingly re-entering the market, with activity strongest in the “Smile States,” stretching from Northern Virginia to the western states and extending into major cities like Chicago. Much of the capital is chasing value-add and opportunistic plays rather than core, stabilized assets.
Over the past couple of years, many equity investors would only touch preferred equity because of valuation uncertainty, but now we’re seeing common equity return in a meaningful way. The change reflects both greater pricing clarity and a collective sense that the bottom of the market cycle has passed.
Navigating the Wall of Maturities
The looming wall of debt maturities remains a defining storyline for 2025 and beyond. Nearly $950 billion in commercial mortgages matured in 2025 — roughly 20 percent of all outstanding commercial real estate debt — with another $625 billion scheduled for 2026. Many of those loans were extended or modified during the last two years, simply pushing the challenge forward.
“Act early” has become our mantra. Sponsors waiting until the eleventh hour to refinance are finding limited options. Fortunately, this is where creative capital stack solutions are delivering the most value. For example, we recently closed two deals layering preferred equity behind agency loans to deliver both a lower blended cost of capital and a cleaner structure. For these transactions, the preferred tranches were priced between 8.5 and 11.25 percent, reaching the 80 percent loan-to-value (LTV) range. In another instance involving a client with a high balance floating-rate loan on a value-add asset, we were able to use a tax abatement strategy to bridge the valuation gap so we can refinance the existing balance at better terms next year.
The Rise of the Tax-Abatement Play
Tax-incentive programs, once viewed as peripheral, are becoming more mainstream as more states and counties offer incentives to create and preserve affordable housing. Beyond Texas’s well-known Housing Finance Corporation model, states such as North Carolina, South Carolina and Florida are offering tax breaks in exchange for low- or moderate-income housing.
These programs are doing what they were designed to do: preserve workforce housing and boost NOI. But each one is different, and lenders underwrite them differently. Agencies tend to be most comfortable with rent-restricted deals, while banks and life companies still evaluate such programs cautiously. Nonetheless, abatements are helping many sponsors increase cash flow, and therefore financing proceeds, in an otherwise high-rate environment.
Debt Market Dynamics: Borrower’s Market Returns
Despite headlines about rate volatility, 2025 has turned out to be surprisingly favorable for borrowers. There’s an abundance of debt capital chasing quality assets, with agencies, debt funds and life companies, all very active.
A pleasant surprise this year was the return of the money center banks chasing cash-flowing assets. Banks are quoting spreads in the 150-165 basis point range over the Secured Overnight Financing Rate (SOFR) for five-year loans at 65 percent LTV, while agencies are offering their tightest spreads in years, typically in the low 100s over Treasuries. The return of agency floating-rate options has also provided borrowers with new flexibility for long-term holds. Life companies, meanwhile, are competing aggressively in industrial, retail and self-storage, and taking on more lease-up or construction risk in multifamily to capture yield.
With SOFR declining and multiple Fed cuts expected in 2026, debt funds and commercial real estate collateralized loan obligations (CLOs) are poised for even stronger volume. We believe 2026 will be one of the busiest transactional years in recent memory. The bid-ask spread is converging, equity is plentiful and $625 billion of debt maturities will force action.
Discipline and Selectivity Define This Cycle
If the previous cycle was marked by excess liquidity, today’s is defined by discipline. Sponsors are more selective, capital is more discerning and underwriting rigor has returned. There’s no shortage of equity for the right deals. But investors are chasing higher-conviction opportunities — value-add or opportunistic plays in major markets, newer-vintage assets and multifamily developments with clear fundamentals.
Among niche sectors, build-to-rent (BTR) continues to command strong attention from both lenders and investors. The format — single-family-style homes operated as rental communities — offers yield stability but introduces underwriting wrinkles around expenses, site layout and long-term maintenance. Berkadia has financed a number of BTR assets using both agency executions and Berkadia’s own balance sheet. As data matures, confidence is growing and we anticipate this sector’s momentum to carry into 2026 and beyond.
Looking Ahead: Strategy for the Current Cycle
The resurgence of activity in 2025 marks a turning point from the defensive posture of 2023. As the market pivots from survival to strategy, borrowers have an opportunity to position themselves for the next phase of growth.
Three principles stand out:
1. Act early. With $625 billion in commercial real estate debt maturing in 2026, proactive refinancing is essential. Creative capital solutions — preferred equity, tax abatements and stretch-senior structures — can bridge valuation gaps and preserve flexibility, but only for sponsors who move before maturities become urgent.
2. Understand your incentives. Tax abatement programs are evolving rapidly and can significantly enhance project economics. However, their structures vary widely and often require nonprofit partnerships and/or regulatory agreements. Engaging an advisor early can ensure compliance and unlock their full potential.
3. Move when the deal makes sense. In a market defined by volatility, hesitation can be costly. When an opportunity aligns with your strategy, act decisively — but with precision. Beyond headline spreads, scrutinize the mechanics: SOFR floors, extension tests, trigger events and cash-management hurdles often determine a deal’s long-term success.
With equity back in motion, debt capital in abundance and borrowers sharpening their approach, the next cycle is shaping up not as a repeat of the last boom, but as something more deliberate — and more durable.
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