We asked some leaders in the industry to tell us what they foresee for the commercial real estate market in 2025. Here they give some insights on predictions for subordinate debt, the hotel market, the multifamily market, C-PACE lending and real estate investing in 2025.
Ray Cleeman, head of capital markets & lending, Pensam
We anticipate that 2025 will be a dynamic year for Pensam and expect a high demand for preferred equity, mezzanine capital and higher-leverage whole loans. The confluence of several billion dollars in loans maturing in 2024, combined with additional loans coming due in 2025, underscores a growing need for refinancing in a market defined by significantly higher interest rates. These elevated rates result in reduced senior loan proceeds, creating a critical demand for incremental capital to bridge financing gaps and achieve “cash-neutral” positions. Our team has been busy providing preferred equity behind fixed-rate agency loans, collaborating with sponsors to refinance maturing debt, financing the lease-up of newly delivered assets and supporting deals that require new interest rate caps or the replenishment of depleted escrow accounts. We are incredibly optimistic about the opportunities and challenges ahead and look forward to a busy and productive 2025.
Jeffrey Eliason, principal, Highland Realty Capital
The hotel market remains very disjointed. Some hotels are very underwater (loan amounts above current values) with many in foreclosure, while others have reached beyond pre-pandemic metrics and are thriving. In the middle are a lot of hotels that are either struggling with low occupancies, or higher occupancies coupled with lower ADRs. So, financing in 2025 will reflect this reality — most lenders, especially life companies and banks are being very selective about which hotels they finance, and most are not even quoting. CMBS remains the go-to source, willing to consider a broader range of situations, with higher potential leverage, but at pricing levels 125 to 200 basis points above life company rates.
Jeff Pirhalla, EVP, commercial lending, BankFinancial
The multifamily property market in 2025 is poised for continued growth, driven by strong demand for rental housing amidst elevated homeownership costs and limited housing inventory. Urban areas may see renewed interest as hybrid work stabilizes and younger renters return to cities, while suburban markets are expected to grow, appealing to affordability and lifestyle preferences. Investors will likely focus on properties offering modern amenities, energy efficiency and proximity to transit.
However, challenges such as rising construction costs, regulatory pressures around rent control and economic uncertainties could influence rent growth. While growth markets are expected to see modest rental increases, new developments may face slower absorption rates, potentially necessitating lease-up concessions as supply dynamics shift.
Joshua Scoville, head of global research, Hines
As we close the door on 2024 and look ahead to 2025, our data finds that the global real estate market presents a promising, but complex, landscape. It’s our conviction that the year ahead will bring stability, clarity and potential opportunity for global real estate investors as the dust settles and the asset class turns a corner into recovery.
Glenn Silva, COO, Lone Star PACE
The can will stop being kicked down the road in 2025. Loans going into default will increase substantially, but fear not, this is not a bad thing. The market has to incur cycles, both good and bad. The loans being purchased at discounts will provide opportunities for funds that have been waiting on the sidelines to deploy capital. This will allow asset values to reset and therefore begin the process of a new business cycle. Given this, banks will be hesitant to re-enter the lending environment until the dust has settled. This will continue to provide alternative funding sources like C-PACE opportunities to fill voids in the capital stack in 2025 and beyond.
David Steinbach, global chief investment officer, Hines
As we enter 2025, we remain in the midst of a massive transition in the investment landscape. The dynamics of the previous cycle — where unusually low interest rates propelled growth and easy leverage — have faded and are being replaced by a higher-for-longer interest rate environment where investors will need to focus on alpha generation. We will likely look back on 2025 as a pivotal moment of recovery in many areas of the commercial real estate sector — now is the time for investors to put capital to work and reposition their portfolios.
