Originally published in WealthManagement.com 2025 midyear market outlook
Despite the turmoil in the capital markets in recent years, shaped by macroeconomic uncertainty, persistent inflationary pressures, and evolving monetary policy, an abundance of capital is available to lend on commercial properties across a broad spectrum of asset classes —more so now than any time in the past three years. Lenders have substantial capital to deploy (many having increased annual allocations for 2025) and are being aggressive in those efforts.
Comparing the current capital market landscape to a year ago, the 10-year treasury is nearly on top of where it was with similar-to-lower interest rate spreads. The cost of borrowing is virtually the same, if not better, with even more opportunities offered by lenders. The “higher- for-longer” interest rate environment persists, so the timing is opportune for securing new loans rather than waiting, as was common in the past. This diversified lending landscape presents ample possibilities for imaginative wealth managers seeking to assist their clients invest in commercial real estate.
Banks, traditionally a major source of CRE debt, have been constrained by both regulatory capital requirements and liquidity concerns in recent years. As a result, many borrowers are seeking alternative sources of debt, which is where mortgage bankers can provide immense value by utilizing their lending relationships to provide a menu of options across various capital sources, including life insurance companies, CMBS, debt funds, and government agencies (FNMA, Freddie & HUD). In addition, these sources are non-recourse which lessens personal wealth risk and, in many cases, can provide excess proceeds for investment capital (AUM).
Generally, the most sought-after asset classes this year and historically are multifamily, industrial, and grocery-anchored retail properties. Multifamily is the perennial favorite— everybody needs housing, the nationwide shortage persists, and purchase prices have risen substantially. Industrial properties, too, are in favor thanks to long-term e-commerce and domestic manufacturing trends. Retail centers, especially ones anchored by grocers, continue to perform well.
If you were to poll lenders about their least favorite asset class, the majority would likely answer office. Despite the heavy scrutiny (or downright refusal) to lend for office properties, such loans are still being placed. Lately, we’ve found that life insurance companies and CMBS are increasingly lending on office properties. More specifically, Class A office buildings with premier amenities and granular tenant rosters (more than just one or two big tenants that could materially affect the vacancy rate if they pulled out), medical offices, and even well-located, transit- oriented Class B offices are the most compelling.
Savvy investors continue to find the commercial real estate industry ripe with opportunity. Yet assembling a capital stack these days is not an easy task. It can sometimes feel like threading a needle to source favorable capital solutions. However, by partnering up with a seasoned mortgage banking team that has established strong industry connections, investors can tap into a wider lender network for their transactions while gaining a trusted advisor to guide their capital needs.
As the wider economy navigates continued uncertainty, rest assured that there will be those who are making the best of our “new normal” by making smart investment decisions here and now. Procuring debt in today’s capital markets requires a nuanced, team approach. Flexibility, transparency, and a well-articulated business plan will be key to success in the second half of 2025 and beyond.