Tag Archives: CREInsights

Why Data Centers and Cold Storage Are Gaining Institutional Momentum

by: Ivan Rubio

Investor interest in data centers and cold storage has accelerated in recent years. Once viewed as niche property types, they are increasingly becoming core components of institutional portfolios. Demand for digital infrastructure, supply chain modernization, and reliable long-term income has pushed these assets into the spotlight. Strong fundamentals, high barriers to entry, and resilient tenant demand position both sectors as attractive options for investors seeking durable returns amid continued volatility across traditional commercial real estate. Lever Capital Partners supports sponsors pursuing these opportunities by arranging flexible capital solutions for complex and specialized property types.

Digital Infrastructure and Modern Logistics: Twin Engines of Growth

Rapid growth in data usage, cloud computing, and ecommerce continues to drive demand for specialized real estate. Industry data highlights the strength of this trend. CBRE reports that average vacancy rates in primary data center markets fell to a record low 2.8 percent, while preleasing rates for new construction reached record highs in 2024.

Data centers underpin the digital economy, supporting everything from AI applications to streaming services. Cold storage facilities play a similarly critical role in logistics, serving grocery distribution, pharmaceuticals, and temperature-sensitive goods. In both cases, the underlying demand is structural rather than cyclical.

These asset classes share a key characteristic: they are mission critical. Tenants cannot tolerate disruptions in data processing or temperature control, making them more willing to sign long-term leases and absorb higher rents. At the same time, limited developer expertise and high capital requirements restrict new supply. This imbalance supports stable performance, predictable cash flow, and strong pricing power for experienced owners.

Diversification and Institutional Appeal

As office and certain retail segments continue to face headwinds, institutional investors are increasingly allocating capital to alternative property types. Deloitte notes that the value of alternative assets within commercial real estate portfolios has grown by approximately 10 percent annually since 2000, with expectations for continued acceleration.

Data centers and cold storage also offer differentiated risk profiles. Revenue is often supported by creditworthy tenants in essential industries such as technology, logistics, and healthcare. According to Newmark, average cold storage rents have increased more than 100 percent since 2020, prompting some occupiers to explore ownership to manage long-term costs. Sustained rent growth and limited supply continue to attract institutional capital.

Pension funds, REITs, and private equity firms increasingly view these assets as long-term, income-producing investments comparable to multifamily and industrial. Their consistent demand helps offset exposure to weaker sectors. Many investors also mitigate execution risk by partnering with experienced operators who bring technical and operational expertise.

For institutions prioritizing capital preservation and steady yield, these property types offer a compelling balance of resilience and growth.

Challenges and the Road Ahead

Despite strong fundamentals, data centers and cold storage present real challenges. High construction costs, energy intensity, and complex zoning requirements create meaningful barriers to development. Colliers notes that developers must manage power constraints, water usage concerns, regulatory approvals, and community opposition while maintaining tight project timelines. Rising costs for land, power infrastructure, and specialized equipment further complicate execution.

However, these challenges reinforce the scarcity value of existing assets. As technology adoption continues and global supply chains become more complex, demand for these facilities is expected to remain strong. Well-capitalized sponsors with sector experience are best positioned to benefit from continued growth. Over the coming decade, institutional allocations to these specialized assets are likely to increase.

How Lever Capital Partners Can Help

Lever Capital Partners works with experienced sponsors to secure financing for data centers, cold storage, and other specialized property types. In sectors where traditional lenders may be cautious, LCP provides creative debt and equity solutions aligned with project requirements.

By leveraging relationships with trusted lending partners, LCP supports efficient execution and flexible capital structures. Whether expanding digital infrastructure or developing new cold storage facilities, LCP helps sponsors access the capital needed to move projects forward.

Office Cap Rates Cool, Hinting at Value Bottom?

by: Yurick Lee

After two years of turbulence, the U.S. office market may be nearing a turning point. According to CBRE’s H1 2025 Cap Rate Survey, stronger income prospects, easing capital pressures, and improved investor sentiment are emerging across major metros. Cap rates, which peaked in 2024, have begun to ease, signaling that values may be stabilizing and optimism is returning, even for lower-tier assets.

While elevated financing costs continue to weigh on deal flow, these early signs suggest that pricing stability is setting in. Here at Lever Capital Partners, we’ve also seen a meaningful increase in interest across our office mandates, a sharp change from just a year ago. For investors, this period could mark the early stages of a reset, one where patient capital begins to reprice risk and position for recovery.

Cap Rate Trends Suggest Pricing Stability and Renewed Investor Confidence

Office cap rates are finally showing signs of leveling off. CBRE’s H1 2025 Cap Rate Survey notes that “cap rates have declined slightly and yields appear to be at (or beyond) their cyclical peak,” suggesting the market may have reached a turning point.

Investor sentiment is improving as values stabilize and income prospects strengthen. CBRE’s market brief indicates most participants believe cap rates have peaked, signaling growing confidence that the correction phase is largely behind us.

For lower-tier or value-add assets, once hit hardest by hybrid work and tighter lending, this shift could reopen opportunities as tenants return and pricing normalizes in select markets.

Elevated Financing Costs Continue to Shape Short-Term Strategies

Despite a more positive tone, financing costs remain a defining factor in the market’s next phase. Even as inflation cools, borrowing rates have not dropped meaningfully. According to CBRE’s market outlook, office cap rates rose “by at least 200 basis points” between early 2022 and late 2023 as higher interest rates pushed up borrowing costs and reduced proceeds from traditional lenders.

This environment has forced investors to rethink underwriting assumptions and deal structures. Rather than waiting for dramatic rate cuts, many are now building models around sustained higher-rate conditions, seeking predictability over perfection. As a result, investment strategies are evolving: shorter hold periods, lower leverage, and an increased emphasis on stable income are becoming the norm.

Meanwhile, the growth of private credit underscores how tighter liquidity and elevated rates have redefined the capital landscape. With banks maintaining conservative positions, private lenders and alternative credit platforms are stepping into the void, offering sponsors more creative, but often costlier, financing options.

Sponsors Are Turning to Alternative Capital to Bridge Until Markets Normalize

With traditional lending channels constrained, sponsors are increasingly turning to bridge loans, mezzanine debt, and preferred equity to keep projects funded and flexible. These layers of capital fill critical gaps between senior debt and sponsor equity, allowing transactions to proceed even when conventional financing is limited.

Citrin Cooperman’s 2025 Real Estate Financing Outlook highlights that mezzanine and preferred equity have become vital tools for bridging short-term funding needs. Similarly, Gibson Dunn’s 2025 Commercial Real Estate Insights notes that non-bank lenders and alternative capital providers are stepping up to supply liquidity, particularly in transitional and value-add office assets.

These flexible structures allow sponsors to refinance later into long-term, lower-cost debt once market conditions stabilize. In effect, they keep projects moving forward, preserving asset value and investor relationships during the recovery phase.

How Lever Capital Partners Can Help

As traditional lenders remain cautious, Lever Capital Partners (LCP) helps sponsors access the flexible capital they need to keep deals alive. By arranging structured financing solutions, including mezzanine and preferred equity layers, LCP helps bridge the gap between limited senior proceeds and total project cost.

This strategy enables sponsors to maintain project momentum today and refinance into lower-cost, long-term loans once the market fully normalizes. For assets in weaker office markets, such customized capital stacks are often the difference between stalled and successful outcomes.

With cap rates beginning to cool and investor sentiment improving, the bottom of the office market may already be in sight. Sponsors who act decisively, leveraging creative capital to stabilize assets now, will be best positioned to benefit when the recovery accelerates.he next cycle of innovation, partnership, and long-term value creation in commercial real estate.

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.