Tag Archives: CREInvesting

Why Lower Rates Alone Won’t Revive Commercial Real Estate

by: Cole Cornett

For much of the past year, the commercial real estate (CRE) market has looked to the Federal Reserve for long anticipated rate cuts, hoping lower rates would reduce borrowing costs, lift asset values, and restart transaction activity. Yet the CRE market is far too large, interconnected, and dependent on lender behavior for policy shifts alone to drive a meaningful recovery. According to Clarion Partners, the U.S. CRE ecosystem totals $26.8 trillion in value, with roughly $11.7 trillion considered institutionally investable and nearly $6 trillion in outstanding debt. At this scale, monetary policy cannot quickly realign liquidity, narrow credit spreads, or repair asset level fundamentals. Rate cuts may support sentiment, but real recovery depends on three forces moving together, lender confidence, spread compression, and asset performance. Until these align, lower policy rates will not generate a sustainable rebound, and Lever Capital Partners helps clients understand these dynamics so they can make decisions based on real market drivers, not policy headlines.

Financing Assumptions Are Misaligned

Many investors underwrote acquisitions and developments assuming multiple Fed cuts would materially lower the cost of capital. However, even as policy rates ease, borrowing conditions remain tight.

PGIM reports that average spreads for stabilized office and industrial loans in Q3 2025 hovered around +197 bps over benchmarks, compared with spreads 50 to 100 bps tighter in 2018 to 2019. These wider spreads have absorbed much of the benefit of a lower base rate. As a result, all in loan coupons remain elevated. According to DRK Realty, core CRE loans in 2024 generally priced between 5.3 percent and 5.5 percent, up from roughly 4 percent the prior year, reflecting risk premiums rather than monetary policy.

Underwriting standards have also tightened. EisnerAmper reports that average office LTVs declined from roughly 65 percent in 2021 to about 47 percent by 2023, materially reducing loan proceeds. Higher DSCR requirements further constrain leverage, causing many previously feasible deals to no longer pencil. Investor assumptions from 2022 to 2023 have therefore diverged sharply from lender realities, with spreads and credit discipline, not Fed actions, determining loan terms.

The Buyer and Seller Disconnect Persists

Even with modest rate relief, buyers and sellers remain divided on valuation. Altus Group reports that U.S. CRE transaction volume reached $369.8 billion in 2024, only slightly below 2023 levels. While Q4 2024 delivered $108.5 billion in trades, a 33.6 percent increase from Q3, pricing expectations remain far apart.

Many sellers interpret early rate cuts as support for firm or higher valuations. Buyers, however, continue to wait for clearer evidence of stabilized financing markets, narrowing spreads, and reduced rate volatility. As a result, cap rates remain sticky and price discovery lags, with perceived liquidity and macro uncertainty influencing negotiations as much as projected income growth.

Liquidity, Not Policy, Drives Recovery

While rate cuts can support momentum, liquidity ultimately drives the CRE market. The Mortgage Bankers Association reports that total CRE borrowing and lending increased 16 percent in 2024 to approximately $498 billion, yet activity remains well below peak levels. Meanwhile, the St. Louis Fed notes that delinquency rates climbed to 1.57 percent, the highest level in more than a decade, representing over $47 billion in stressed loans.

An even greater challenge is the 2025 maturity wall. Kaplan Collection Agency estimates that $957 billion in CRE loans will mature in 2025, nearly three times the long term average. This refinancing pressure keeps lenders cautious regardless of Fed policy direction. Until lenders regain confidence in asset performance and valuation stability, lower rates will not automatically translate into higher leverage or tighter spreads. Rate cuts may help sentiment, but recovery begins only when lenders believe cash flows are durable and valuations predictable, allowing liquidity to return and spreads to compress.

How Lever Capital Partners Supports Clients

In a market where optimism often moves faster than fundamentals, Lever Capital Partners provides a grounded perspective. With relationships across banks, life companies, debt funds, private credit providers, and alternative capital sources, Lever helps clients navigate real time credit conditions. By assessing spreads, liquidity trends, maturity risk, and lender appetite, Lever structures capital solutions aligned with the true cost and availability of debt today.

Sources:

https://www.kaplancollectionagency.com/business-advice/is-commercial-real-estate-at-a-breaking-point-in-2025

https://www.clarionpartners.com/insights/us-cre-investable-universe

https://www.stlouisfed.org/on-the-economy/2024/may/commercial-real-estate-in-focus

https://www.mba.org/news-and-research/newsroom/news/2025/04/24/total-commercial-real-estate-borrowing-and-lending-increased-16-percent-in-2024

https://drk-realty.com/commercial-real-estate-news-articles/commercial-real-estate-loan-rates-in-2024

https://www.cbre.com/press-releases/commercial-real-estate-lending-momentum-reaches-highest-level-since-2018-cbre

https://www.pgim.com/us/en/institutional/insights/asset-class/real-estate/u.s.-cre-debt-now-time-to-invest-amid-historically-high-spreads

https://www.eisneramper.com/insights/real-estate/commercial-real-estate-outlook-0124

https://www.altusgroup.com/insights/us-cre-transactions-q4-2024

https://agorareal.com/blog/commercial-real-estate-lending-trends

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.

$2 Trillion Maturity Wall: Navigating the Coming Refinancing Wave

by: Adam Horowitz

Over the next 18 months, nearly $2 trillion in CRE loans are scheduled to mature across the country. What’s emerging is a defining challenge, and opportunity, for both borrowers and lenders: a refinancing wall that demands creative capital solutions.

Many of these loans were originated during the low-rate era between 2019 and 2021, when abundant liquidity and compressed cap rates fueled aggressive underwriting. Today, high interest rates, lower valuations, and cautious lending have converged to make refinancing increasingly difficult. The result is a market-wide repricing cycle that’s testing every part of the capital stack.

A Market at a Crossroads

Rising rates have eroded property values and debt service coverage ratios across most major asset classes. In certain markets, valuations are down 20-40% from peak levels, making full refinancing at par nearly impossible.

Traditional lenders, particularly regional and community banks, are tightening exposure and prioritizing renewals over new originations. Meanwhile, private credit and debt funds are stepping in to capture market share, often providing flexible bridge or structured debt where banks have pulled back.

This shift has turned the capital markets landscape into a dual-track system: institutional lenders remain selective, while private capital is driving most of the transaction flow. For borrowers, this means navigating a more fragmented market, one where relationships, credibility, and creative structuring matter more than ever.

The Borrower’s Challenge

For many owners, the refinancing wall represents a squeeze between valuations and debt capacity. Properties with stable income but lower appraised values can’t support their existing loan balances under today’s higher rates.

Lenders are increasingly offering short-term extensions, partial paydowns, or structured modifications to buy time, but these solutions often come with tighter loan covenants and higher pricing. For others, the answer lies in bringing new capital to the table through pref equity, mezz, or JV recaps.

From Crisis to Opportunity

Behind the headlines of distress lies a more dynamic reality, a market flush with capital seeking yield and structure. Opportunistic investors and funds are actively targeting recapitalization opportunities rather than foreclosures.

Sponsors willing to engage early and restructure intelligently can position their assets for long-term stability, or even expansion. Creative refinancing strategies, executed with the right capital partner, can transform a maturity problem into a value creation moment.

How Lever Capital Partners Can Help

At Lever Capital Partners, we specialize in helping clients navigate complex refinancing and recapitalization scenarios through a combination of market insight, capital relationships, and structuring expertise.

  • Creative Refinancing Solutions – We arrange bridge loans, mezzanine financing, and preferred equity to help borrowers close the refinancing gap without losing control of their assets.
  • Access to Active Capital Sources – Our relationships span private credit funds, institutional lenders, and family offices seeking exposure to well-structured CRE debt opportunities.
  • Strategic Advisory on Extensions & Recaps – We guide sponsors through loan modifications, extensions, and partial paydowns, preserving flexibility and ownership.
  • Capital Stack Optimization – From senior debt to equity, we design tailored capital stacks that align with each project’s cash flow, risk profile, and long-term vision.
  • Market Intelligence & Positioning – Our team provides real-time insight into lender sentiment, spreads, and underwriting criteria, ensuring each client’s financing package stands out.

Turning the Wall into a Window

The coming refinancing wave will separate reactive borrowers from strategic ones. Those who act early, communicate transparently with lenders, and engage experienced capital advisors can transform pressure into opportunity.

For Lever Capital Partners and our clients, this $2 trillion maturity wall represents not a dead end, but a window into the next cycle of innovation, partnership, and long-term value creation in commercial real estate.