Borrowers are seeking out more creative debt solutions as a wave of US-based commercial real estate debt reaches maturity this year.
According to data from the Mortgage Bankers Association, $957bn (£760bn) of commercial real estate loans are due this year – a three per cent increase on the $929bn that matured in 2024.
This has led to an opening up of the funding markets, as GPs and borrowers get ahead of the maturity wall by implementing new strategies to reduce the risk of defaults.
Read more: Wellington poaches Pimco team to launch private RE credit platform
The most popular strategy is the ‘extend and pretend’ approach, where borrowers negotiate with lenders to push back repayment deadlines, buying time while they wait for better market conditions. For those in need of more timely solutions, mezzanine financing and preferred equity have become lifelines.
“The funding markets have opened up broadly,” says Charles Sorrentino, head of investments at Rithm Capital. “This is evidenced in financing available through issuing commercial mortgage-backed securities (CMBS) and tightening spreads of new issues.”
Read more: KKR closes opportunistic real estate credit strategy with $850m
Sorrentino adds that he has also seen growing demand for residential transitional loans (RTLs) both in the private asset-based finance sector and in the public securitisation markets. RTLs are short-term, high-yield loans similar to bridging loans, which can offer flexibility for borrowers who need quick liquidity without long-term commitment.
“The structural demand, from the lack of lenders, for construction and renovation financing is high,” he says. “The short duration, high yielding nature of these loans appeals to both private and institutional public investors.”
Marcello Cricco-Lizza, managing director, portfolio manager at Balbec Capital, has also seen a rise in the use of bridging solutions.
“Many banks have pivoted from loan origination into financing bridge lenders via warehouse lines or A-notes, drastically cutting down on warehouse spreads and fees while increasing advance rates,” Cricco-Lizza adds.
“This equates to cheaper financing for bridge lenders, with some of the savings finding their way to end borrowers for high-quality properties. “For any loan with nuance or need for additional structure, the lender pool shrinks dramatically and additional spread can be earned.
“The market should expect the continued proliferation of mezzanine and preferred lenders, who we think will step in on multifamily transactions to plug the gap in proceeds from existing debt down to where a senior loan is today,” adds Cricco-Lizza.
Read more: Atland creates new real estate private debt business
The refinancing wave has also led to a recovery in the CMBS markets, with lower pricing and favourable conditions making them a good tool for refinancing.
“We have already seen several CMBS transactions in Europe this year and I think given the lower pricing seen both here and in the US, we will see a significant bounce back in CMBS volumes in 2025,” notes Chris Gow, head of debt advisory, Europe at CBRE.
Despite these strategic shifts, and wider concerns about the higher rate environment, Gow says that sentiment in the real estate debt market remains “very positive”.
“Bar a small number of situations, distress levels are isolated and lenders of all types remain keen to deploy,” he says.
“We expect borrowers across most asset classes to continue looking for creative solutions for their upcoming debt maturities,” adds Sorrentino.
