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 At the same time, transitional assets like outdated office buildings or value-add multifamily still offer strong upside if sponsors can unlock the capital to execute.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.