- A $3.5B refinancing deal for Rockefeller Center showcases renewed lender confidence, even as the broader market faces hurdles.
- Loan volumes increased by 26% in 2024, with shorter-term debt offering a lifeline to borrowers amid rising borrowing costs.
- Analysts believe 2025 will present rare opportunities for investment, with yields and valuations at their most attractive levels in over a decade.
CRE enters 2025 with persistent challenges, but a return on financing and historically low valuations fuel investor optimism.
MarketWatch also believes that the recent $3.5B refinancing of New York’s Rockefeller Center in October has set a positive tone for commercial real estate heading into 2025.
Deal Details
Led by Bank of America and Wells Fargo, the 5-year deal replaced a maturing 20-year loan for the iconic mixed-use property. The financing highlighted investor appetites for high-quality assets, despite the broader sector’s struggles.
“This was a critical moment,” noted Christopher Battistini of Thornburg Investment Management, emphasizing the significance of securing financing for such a large and diversified property.
Resilient But Shifting Market
Debt funds and alternative lenders have stepped in to fill financing gaps, helping stabilize the market. According to the Mortgage Bankers Association, loan volumes reached $539B in 2024, up 26% YoY.
Yet, the focus has shifted toward shorter-term loans, offering flexibility for borrowers navigating higher rates and uncertain valuations.
“Five years or less is still very, very popular,” said Trey Morsbach of JLL, reflecting lenders’ cautious approach to long-term commitments.
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Office Sector Struggles
The overall market remains strained, particularly for older office buildings in central business districts. According to MSCI’s RCA index, property values in this segment have fallen 50.7% from 2021 levels.
Conversely, trophy assets continue to command premium rents, with rates exceeding $100 PSF nationally and hitting $247 in top-tier properties.
Opportunity Amid Turmoil
Despite ongoing challenges, analysts see 2025 as an unprecedented opportunity for investors. Commercial property values, adjusted for inflation, are now lower than during the 2008 financial crisis, offering very attractive entry points.
Michael Acton of AEW Capital Management emphasized these unique conditions, stating, “Yields are the highest they’ve been in over a decade, and values are significantly below pre-COVID levels.”
What Lies Ahead
The CRE market faces a pivotal period as $1T in debt matures over the next two years. While temporary financing provides relief, the sector’s recovery will depend on sustained access to capital and favorable economic conditions.
The current environment presents a rare opportunity for investors with patience and capital to acquire high-quality assets at a discount.
