Financing Strategies for CRE Investors in Today’s Rate Environment
With interest rates expected to remain elevated in 2025, commercial real estate investors are adjusting their financing strategies to maintain deal flow and safeguard returns. The cost of capital has shifted, and creative structuring is now essential.
Key Strategies to Consider
Interest-Only Loans: Temporarily reduce debt service to improve cash flow and maintain acceptable DSCR levels during the early years of a loan.
Shorter-Term Debt: Utilize bridge or transitional financing to weather rate volatility, with plans to refinance when conditions improve.
Fixed-Rate Structures: Lock in rates to avoid future increases and gain predictability in underwriting and cash flow projections.
Alternative Lenders: Explore debt funds and private capital sources that offer more flexible terms, especially for transitional or value-add assets.
Preferred Equity and Mezzanine Financing: Fill capital stack gaps when senior lenders reduce proceeds due to DSCR constraints or valuation pressure.
Lease-Up and NOI Growth: Focus on operational improvements and rent increases to enhance net operating income and support higher loan-to-value ratios.
Market Selection: Target markets with strong fundamentals and rising rents to help offset the impact of higher interest rates.
In today’s rate environment, success depends on flexibility, precision, and a deep understanding of capital markets. Investors who adapt their financing approach can continue to unlock value even as borrowing costs remain elevated.
Looking to evaluate your financing options? Contact SF Capital Group to discuss strategies tailored to your portfolio.
