What will be the big trends in commercial real estate in 2025 related to financing and capital markets?

SUSAN GRAHAM, REAL ESTATE PARTNER

“Real estate lending will continue to be impacted by elevated interest rates, limited borrowing capacities, and slow transaction volumes. Floating-rate debt will likely be the chosen option by borrowers. Additionally, borrowers with strong banking and other lending relationships may opt to finance with short-term debt, holding off on obtaining longer-term loans until interest rates stabilize. I also anticipate special servicers to continue to play a prominent role, managing distressed loans and facilitating loan modifications for borrowers facing refinancing challenges.”

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MARK NICOLETTI, REAL ESTATE PARTNER

“We are seeing many lenders choosing to sell non-performing office loans – whether as individual loans or as a portfolio of loans. Depending on the status of the property and the nature of the default, many of these loans are being sold at deep discounts, which provides the opportunistic purchaser a significantly lower basis and the ability to rehab the property and reduce rents in order to stabilize the property.”

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STEPHEN LIESKE, REAL ESTATE PARTNER

“The industrial sector will remain relatively solid, especially for the best-in-class sponsors with leases with credit tenants (or near-credit tenants). Lenders may, however, pull back somewhat from construction lending as demand is re-evaluated. That being said, the needs of modern logistics operators require state-of-the-art facilities which may often mean new buildings rather than the renovation of existing structures. Pre-leasing may be a requirement. The multifamily sector is a bit of a wild card, especially after the fires in Southern California. Vacancies remain low, but because of interest rate increases, even with inflation, rents are probably not sufficient to enable borrowers to refinance the amount of debt that currently encumbers their buildings. Look for some combination of short-term extensions with a principal paydown or bridge loans.”

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