Tag Archives: CREFinancing

Credit Enhancement Strategies to Strengthen Your CRE Capital Stack in 2025

by: Adam Horowitz

In 2025, commercial real estate sponsors face a capital market shaped by cautious underwriting, selective lenders, and growing pressure across all asset classes. Debt is available, but it is harder to access. Equity is even more selective, especially for transitional and value-add projects. In this environment, credit enhancement has shifted from a supplemental tactic to a strategic requirement. It is no longer just about managing risk, it is about improving leverage, reducing pricing, and increasing the likelihood of closing.

Lever Capital Partners Helps Turn Strategy Into Execution

At Lever Capital Partners, credit enhancement is more than a checklist item, it is a core part of the deal strategy. Lever works with sponsors to design and structure enhancements tailored to each project’s profile, including preferred equity layers, corporate guarantees, or interest reserves.

With direct insight into what capital providers expect today, Lever helps align sponsor needs with lender requirements. Whether you are raising mezzanine capital, improving bridge loan terms, or securing equity for a repositioning play, Lever offers full-cycle support. The result is better terms, faster approvals, and fewer surprises from term sheet to close.

Strategic Use of Credit Enhancement in Today’s Market

Today’s capital providers demand clarity, alignment, and a credible path to execution. Enhancements allow sponsors to deliver those elements, especially on deals where asset performance, tenancy, or the business plan introduces complexity. Whether you are underwriting a lease-up, recapitalizing a distressed property, or managing construction risk, enhancement strategies can bridge the gap between lender caution and sponsor execution.

Unlike prior cycles, where enhancement was often limited to third-party guarantees, 2025 calls for a more strategic, deal-specific approach. Enhancements today are structured to reflect the actual risk and to strengthen the weakest parts of the capital stack. In a competitive market, even a small advantage can help sponsors secure capital that others cannot.

Why Credit Enhancement Matters in 2025

Credit enhancement matters because lenders and investors are more cautious. Traditional financing sources have lowered loan-to-value thresholds, raised debt service coverage minimums, and added more scrutiny before issuing approvals. At the same time, transitional assets like outdated office buildings or value-add multifamily still offer strong upside if sponsors can unlock the capital to execute.

Credit enhancements help improve the deal narrative. They solve for weaknesses in underwriting, such as unproven post-renovation values or lease-up projections. They offer lenders downside protection and give investors more confidence to move forward. In short, they help turn hesitation into commitment.

Common Credit Enhancement Tools in CRE

Here are the most common credit enhancement tools used in commercial real estate:

  • Personal Guarantees
    A sponsor or principal personally backs the loan, providing a fallback in case the property underperforms.
  • Corporate Guarantees
    A related company supports repayment, giving lenders more comfort in the borrower’s financial strength.
  • Letters of Credit (LOCs)
    A bank issues a letter of credit on the borrower’s behalf, guaranteeing payment to the lender in the event of default.
  • Cash Collateral
     Cash reserves are placed in escrow, typically for interest or operating shortfalls.
  • Mezzanine Debt or Preferred Equity
    These fill gaps in the capital stack and are structured to protect senior lenders while allowing the project to move forward.

Final Thoughts

In today’s market, credit enhancement is no longer optional. It is the edge that allows sponsors to win deals in a competitive, cautious capital environment. In a cycle defined by complexity, timelines, and tighter underwriting, the sponsors who succeed will be those who come prepared and structured.

With the right enhancement strategy and the right advisor, sponsors can turn complexity into opportunity, and gain access to capital others cannot. Position your deal for approval in today’s market, talk to us about credit enhancement solutions.

Why Slower Rent Growth Doesn’t Mean the End of Multifamily Investing

by: Adam Horowitz

The U.S. multifamily market, once the golden child of commercial real estate, is entering a new phase in 2025. After years of rapid rent growth, the pace has slowed. National averages show rents flattening or even declining in some overbuilt markets. The culprits are clear, a surge of new supply in key metros, rising affordability pressures for renters, and more cautious household formation in the face of economic uncertainty. For value-add investors, who often rely on rent increases to power returns, this shift requires a recalibration. The opportunity is still there, but success now demands sharper strategy, disciplined underwriting, and creative capital solutions.

Capital markets have also turned more challenging. Debt is more expensive, lenders are cautious, and equity partners are scrutinizing deals with greater intensity. Sponsors pursuing value-add plays are finding capital stacks harder to assemble, especially when projected rent growth is modest. This is precisely where Lever Capital Partners can provide an edge. Lever specializes in helping sponsors structure financing solutions tailored to today’s environment, including senior loans, preferred equity, rescue capital, and bridge debt. With deep relationships across private credit funds, non-bank lenders, and institutional investors, Lever delivers not just capital access but also strategic guidance on structuring deals that align with the current risk climate. Whether it is filling a capital gap on a repositioning deal or securing equity for a complex turnaround, Lever helps sponsors navigate today’s more selective and sophisticated capital landscape.

Despite the slowdown in rent growth, opportunities remain, but they are more market and asset specific than ever. Sunbelt markets like Austin, Phoenix, and Atlanta, which absorbed a flood of new deliveries in recent years, are seeing softening rents. In contrast, Midwest cities and certain urban infill locations with limited new supply are holding up better. For value-add investors, the key is to shift focus from relying purely on rental upside to identifying properties where operational improvements, repositioning, or expense management can drive value. Upgrading amenities, improving tenant retention, and enhancing management efficiency are strategies that can deliver returns even when rents are stable. In today’s environment, true value-add means more than riding market momentum, it requires hands-on execution.

Winning capital and closing deals in 2025 will depend on how well sponsors adapt to these new realities. Lenders and investors are demanding conservative underwriting assumptions. Rent growth projections must be realistic, exit cap rates stress tested, and business plans credible. Sponsors who can demonstrate a clear, operational path to improving net operating income (NOI) rather than simply banking on market appreciation will stand out. Moreover, capital providers are looking for meaningful sponsor equity and a track record of execution, not just financial engineering. Deals must be structured with alignment between sponsor and capital partner, and offers must come with certainty of closing. In this environment, having a vetted network of capital partners and an advisor like Lever Capital can make the difference between winning and losing competitive or distressed bids.

The multifamily sector remains a cornerstone of CRE investment, but the playbook has shifted. For value-add investors, the path to returns is now through disciplined underwriting, selective asset and market targeting, and creative, well-structured capital stacks. Lever Capital Partners stands ready to help sponsors meet this moment, providing not only access to capital but also the strategic structuring expertise required in today’s slower growth market. Those who adjust their strategies to the current landscape and partner with the right capital advisors will find that opportunity still exists, even amid the cooling rents. In fact, for those prepared to adapt, this period may prove to be the foundation for the next cycle of outperformance.

The Keys to Unlocking CRE Loan Opportunities in the 2nd half of 2024 and beyond

by: Ashton Zakariaie

The commercial real estate (CRE) lending landscape is undergoing significant shifts, influenced by rising economic uncertainties and heightened caution among lenders. As we move into the second half of 2024, obtaining a CRE loan will remain a challenge, and only the most qualified sponsors will be able to secure financing.

The difficulty in securing CRE loans will persist through the end of 2024 and into 2025 due to increased lender caution and economic uncertainty. The stringent requirements set by lenders will significantly impact the acquisition, development, and refinancing of CRE projects, as fewer will meet the qualifications for funding. Developers will find it harder to start new projects, expand existing ones, or refinance current loans. However, there are strategic ways to navigate these economic constraints and meet the new, stricter requirements being implemented by lenders across the board.

New Requirements for CRE Loans

  1. Stronger Guarantors: Lenders now prefer sponsors who can provide robust guarantees. This additional security assures lenders of the repayment capabilities, thus reducing their risk.
  2. Experienced Sponsors: Sponsors with a proven track record and substantial experience in managing CRE projects are favored. Their experience suggests they are less likely to encounter insurmountable problems and are better equipped to handle and resolve issues if they arise.
  3. Better Financial Economics: The financial requirements for CRE loans have become more stringent. Higher debt service coverage ratios (DSCR) and lower loan-to-value (LTV) ratios are now the norm. This means sponsors must demonstrate stronger cash flow capabilities and provide more equity upfront, further ensuring lenders of the project’s viability and that interests are aligned. 

Impacts on Owners and Developers

The tightening of lending criteria has several critical implications for owners and developers:

  1. Stronger Sponsors for Construction Loans: Only the most financially robust and experienced sponsors will secure construction loans. This limits the pool of potential developers and may slow the pace of new construction projects and therefore the delivery of new product for the next few years.
  2. Reduced Construction and Acquisition Loans: Compared to previous years, the volume of construction and acquisition loans will likely remain low. This is a direct consequence of the stricter lending standards and the economic environment that is stymieing overall transaction volume.
  3. Challenges in Refinancing: As property values drop and loan terms become more stringent, refinancing existing loans will remain increasingly difficult. Falling property values reduce the equity available for refinance, and the stricter loan terms make it harder to qualify for new loans. Sponsors may find themselves unable to refinance with favorable terms, which could lead to financial strain and potentially forced sales.

Strategies to Secure Loans in 2024-2025

Given the challenging lending environment, sponsors can adopt several strategies to improve their chances of securing a CRE loan:

  1. Credit Enhancement: Enhancing the credit profile of the guarantor can make a significant difference. This might involve improving financial statements or finding additional guarantors to bolster the overall financial backing of the loan.
  2. Raising Additional Equity: With lower LTV/LTC ratios, sponsors will need to raise more equity to fill the financing gap. This additional equity reduces the lender’s risk and makes the project more attractive for financing.
  3. Higher Leverage, Higher Cost Debt: In some cases, taking on higher leverage, higher cost debt may be necessary to bridge financing gaps. While this increases the cost of capital, it can make it possible to move forward with projects that might otherwise be stalled due to equity shortfalls.
  4. Leveraging Relationships: A large network and strong relationships with lenders can help sponsors find more favorable loan terms. Sponsors should leverage their connections and work closely with financial advisors to identify the best financing options that are tailored to their project and overall business plan.
  5. Strategic Credit Enhancements: Finding credit enhancements that address both capital needs and credibility can be a game-changer. This might involve securing mezzanine financing, preferred equity, or other forms of credit support that can improve the overall financing package.

The CRE lending landscape in the second half of 2024 is characterized by heightened caution and stringent requirements. Only the most qualified and experienced sponsors with robust financial backing will succeed in securing loans. By understanding the new requirements and strategically enhancing their financial positions, sponsors can navigate this challenging environment and continue to pursue CRE opportunities. Lever Capital Partners’s knowledge and experience in times like these, matched with a well-connected network of capital providers with significant dry powder will be an invaluable asset for sponsors looking to secure the most favorable loan terms in this new era of CRE financing.