Meanwhile, shifting demand from office space and traditional multifamily to mix-use development heralds a new wave of opportunity in commercial real estate.

As 2025 kicks off, commercial real estate (CRE) is buzzing with opportunities and trends worth exploring. According to one Deloitte report, the market size is tracking to be $412 billion. If you’ve been keeping an eye on the market, you’ve probably noticed that things are shifting, with several large capital and REIT providers retracting from the market as new entrants see an opportunity to capitalize. With federal interest rates hitting their ceiling and then starting to decline in the fourth quarter of 2024, capital availability is becoming volatile again.

CRE Trends

With the Federal Reserve adjusting interest rates downward, borrowing base costs have become a hot topic. Rates hit highs for the first three quarters of 2024 and then trended down by 0.75%. following two interest rate cuts in September and November. How did that impact CRE? The longer life cycle of loan approvals and terms in CRE lending insulated it from major fluctuations, with average interest rates from private lenders remaining relatively stable at around 11.82%, experiencing only a modest swing of +/- 11 basis points.

Probably the most interesting phenomenon is the shrinking of available capital for CRE. A couple of major capital providers withdrew from the market and sold a couple of hundred million of their multifamily portfolio and commercial assets, in some cases at a loss to offload it. Those sales events pointed out the lack of rigor and loose underwriting practices for approving loans. In the second and third quarters of 2024, several smaller lenders relying on selling their assets found themselves without a capital source and outlet.

Other asset classes suffered another constraint in November and December. One of the major institutional capital providers exceeded their capital allocations and expectations for 2024, causing them to run out of allocated capital and freeze loan buyouts for the last six weeks of the year. This development created other capital constraints in the market and affected private lending overall, including the CRE class.

Although CRE private lenders enjoyed long-term stability, lenders need to stay on top of the changes because they can impact deals and how borrowers view financing options. Some projects that seemed straightforward a year ago might look different now, especially if the rates keep creeping up due to demand exceeding supply.

Are you re-evaluating your criteria for new loans? It might be time to do just that.

Speaking of projects, have you noticed how the demand for certain property and asset classes is changing? Although office spaces are still experiencing a bit of an identity crisis after the pandemic, multifamily and industrial properties are stabilizing. The estimated 4.5-million-unit shortage in 2020 has been reduced by almost half. Although the demand for multifamily still exists, multifamily is becoming more of a multifamily/mixed-use combination. Suburbs are seeing a resurgence as people seek more space and a different lifestyle. This shift opens fresh avenues and opportunities for private lenders. Ground-up construction for complete subdivisions dedicated to rental properties and larger developments are thriving.

We can’t ignore the role technology plays in this landscape. Analytics and AI are becoming the norm. The rise of remote work has led to a significant transformation in how we view office spaces. Many businesses are downsizing or reconsidering their need for traditional office layouts—a trend that’s likely here to stay. As a lender, you may want to ask yourself how this shift affects your existing investments and what opportunities could arise from this evolving landscape.

Steady Opportunities for Private Lenders

In today’s market, developers found stability and the highest reliable asset in the CRE class. Lenders and borrowers never have to rush into projects, professional firms often complete the feasibility studies, and the medium length of the project makes it attractive for larger institutional capital backers. The primary concerns in the market are fraud, arm’s-length transactions, and  lenders seeking greater product flexibility. Institutional capital wants partners that can think creatively, which opens an opportunity for private lenders. Offering creative financing options—like bridge loans or even taking a chance on unique projects—can set you apart from the crowd. With traditional lenders tightening their belts, there’s a real opportunity for private lenders to fill the gaps and provide the solutions developers need.

Consider looking into mixed-use developments. These projects are gaining traction as communities embrace more walkable, integrated living spaces. As more people move to the suburbs, projects that combine residential, retail, and office space are becoming increasingly desirable. Your insight into local markets can help you spot those golden opportunities before others see them. Remember, being the first to act can often lead to the best returns.

Risk Factors to Consider

Fraud is becoming more sophisticated. Third-party arm’s-length transactions and risky underwriting plagued the industry last year. A couple of well-known large capital providers hastily exited the market investments and what opportunities could arise from this evolving landscape.

Steady Opportunities for Private Lenders

In today’s market, developers found stability and the highest reliable asset in the CRE class. Lenders and borrowers never have to rush into projects, professional firms often complete the feasibility studies, and the medium length of the project makes it attractive for larger institutional capital backers. The primary concerns in the market are fraud, arm’s-length transactions, and  lenders seeking greater product flexibility. Institutional capital wants partners that can think creatively, which opens an opportunity for private lenders. Offering creative financing options—like bridge loans or even taking a chance on unique projects—can set you apart from the crowd. With traditional lenders tightening their belts, there’s a real opportunity for private lenders to fill the gaps and provide the solutions developers need.

Consider looking into mixed-use developments. These projects are gaining traction as communities embrace more walkable, integrated living spaces. As more people move to the suburbs, projects that combine residential, retail, and office space are becoming increasingly desirable. Your insight into local markets can help you spot those golden opportunities before others see them. Remember, being the first to act can often lead to the best returns.

Risk Factors to Consider

Fraud is becoming more sophisticated. Third-party arm’s-length transactions and risky underwriting plagued the industry last year. A couple of well-known large capital providers hastily exited the market can provide valuable insights into their reliability and commitment as well as the true market demand, ultimately helping you assess the risks and soundness of CRE investments. If you notice any red flags, you can address them early, potentially saving you from future headaches. Remember, the private lending landscape is all about partnerships and rich local market knowledge. If you foster those connections, you’ll enrich your local market knowledge and create a network that benefits everyone.

Staying informed is your best weapon in this game. Although overall market characteristics appear to be stable, the local market is always changing. With the right underwriting mindset, you can navigate these shifts like a pro. Look for trends, focus on sound due diligence, and don’t shy away from calculated risks. The possibilities are endless for flexible, knowledgeable private lenders.