CRE Debt Might Not Be Much More Affordable in 2025
CRE owners expecting cheaper loans this year will likely be disappointed.
Jordan B. & Han-Gwon Lung
January 17, 2025
In partnership with
Good morning. Expect another tough year for CRE debt as inflation, policy uncertainty, and maturing loans keep costs elevated.
On a brighter note…check out Market Reports—your one-stop shop for the largest commercial real estate research database.
Don’t keep us a secret: You currently have 0 referrals, only 1 away from receiving B.O.T.N Multifamily Deal Screener .
Market Snapshot
|
|
||||
|
|
*Data as of 01/16/2024 market close.
RATE EXPECTATIONS
A "New Normal" for CRE Borrowing Costs
CRE owners hoping for relief in borrowing costs this year may be disappointed. Higher rates persist, and there is little hope for quick debt relief.
By the numbers: The 10-year Treasury yield, a key CRE debt benchmark, rose 100 basis points since the Fed began easing in September 2024. Experts warn only a recession could bring significant relief. The Fed projects just two 25-basis-point cuts in 2025, far fewer than markets expected.
Loan extensions hitting a wall: With $1.5 trillion in loans maturing this year—including $5.4 billion in CMBS in October—borrowers who delayed refinancing face mounting pressure. High-leverage projects are especially vulnerable, and some owners are locking in today’s rates to avoid further risk.
Inflation risks loom: Donald Trump’s return to the White House, coupled with potential tax cuts and tariffs, could fuel inflation. While markets have priced in some risk, unexpected policy shifts could drive even more volatility.
➥ THE TAKEAWAY
Looking ahead: Ultra-low rates from past crises are gone.Experts now view current rates as a return to historical norms, urging investors to adjust expectations accordingly. As one analyst put it, "The dream of a sub-3% mortgage is over—time to face reality."
TOGETHER WITH HUBSPOT
Want to get the most out of ChatGPT?
ChatGPT is a superpower if you know how to use it correctly.
Discover how HubSpot's guide to AI can elevate both your productivity and creativity to get more things done.
Learn to automate tasks, enhance decision-making, and foster innovation with the power of AI.
✍️ Editor’s Picks
-
More headcount: As the sector recovers from previous downturns, more commercial real estate firms are ramping up hiring and salaries, focusing on mid-level and executive roles.
-
Changing directions: After slashing its at-risk CRE loans in 2024, M&T Bank (MTB) is poised to cautiously grow its CRE portfolio in 2025, depending on economic factors and market conditions.
-
Green light: The Doral City Council greenlit Trump’s plan to build up to 1.5K luxury condos and 142 KSF of commercial space at Trump National Doral Miami, with construction set to start in 2025.
-
Risk back on: After a rough patch, proptech is showing signs of revival, with major IPOs, acquisitions, and renewed investor confidence signaling the sector's comeback.
-
Delicious diversions: In January, Florida added 10 new Michelin Guide restaurants, with cities like Miami, Orlando, and Winter Park represented.
🏘️ MULTIFAMILY
-
Tenant protections: NY Governor Kathy Hochul is taking steps to ensure rent-stabilized tenants in New York City benefit from the same protections as others regarding security deposit returns.
-
Disaster relief: As wildfires continue to devastate LA, multifamily companies are stepping up relief efforts, as analysts estimate the potential rent and investment implications for the region’s housing.
-
Big partnership: A strategic recapitalization deal brings three major players—HGI, Garrett, and Telis—together to manage a growing multifamily portfolio across multiple states.
-
Financing secured: TDK Cos. locked in a $64M construction loan to fund the 2nd phase of The Reserve at Johnson City, a 288-unit market-rate project in Tennessee.
-
Changing tactics: Developers behind a recent office building purchase in Chicago's River North neighborhood are pivoting to propose a 23-story residential tower on an adjacent surface lot.
🏭 Industrial
-
Loan of the day: The BlackChamber Group secured over $1.2B in construction financing to develop 4 new data center campuses in Northern Virginia, expanding its sizeable footprint in the region.
-
Better than ever: New York City's industrial market had its busiest year since 2020, although signs of market pressure emerged in the final quarter of 2024.
-
Cooling down: The once-booming industrial market in South Florida showed signs of strain in 4Q24, as vacancies rose and rents dropped in some key counties.
🏬 RETAIL
-
Retail recovery: December retail sales surged 5.6% YoY, with e-commerce up 10.2%, capping off a stronger-than-expected holiday season despite cautious consumer spending.
-
To shop is human: Mountain’s Edge Marketplace, a 115 KSF shopping center in southwest Las Vegas, sold for $50.3M, with the buyer assuming a $33M CMBS loan at favorable terms.
🏢 OFFICE
-
Still Rome: Manhattan property sales saw a rise in dollar volume, hitting $3.3B in Q4, driven largely by strong office sector performance, while retail and multifamily showed mixed results.
-
Redemption arc: Wells Fargo’s (WFC) CRE loan balance dropped by nearly $35B in 2024, with growing charge-offs linked to distressed offices, though the bank is well-positioned to manage losses.
🏨 HOSPITALITY
-
Clogged pipeline: Hotel construction in the Bay Area and across California plummeted in 2024, with new openings down 75% and 39.5% statewide, as rising costs and interest rates stall projects.
📈 CHART OF THE DAY
According to a recent Redfin analysis, 37% of Miami-area homes purchased recently were bought with cash, compared to 29.2% nationally.
And as all-cash buyers snap up houses, many aspiring homeowners feel shut out by high mortgage rates and prices, plus low inventory.
You currently have 0 referrals, only 1 away from receiving B.O.T.N Multifamily Deal Screener .
What did you think of today's newsletter? |
