The headlines suggested that there wasn’t a lot of capital available in 2024, but for PGIM Real Estate and the broader capital markets, that fundamentally wasn’t true. The lack of transactions was driven much more by a borrower’s unwillingness to accept current rates than it was about lack of capital. This affected how the year played out, but transactions did become more active as the year progressed, especially when the Federal Reserve cut rates in September. Banks and CMBS lenders cleaned up some of their deals and with spreads tightening in the corporate bond market, it made the real estate market more attractive.

Borrowers remained hesitant, but looking ahead to 2025, we believe the market will be very active and borrowers will also be ready. We’re bracing for a very busy 2025.

Q: What will be some of the largest areas for growth in 2025?

We see opportunity in the transitional lending space, specifically short-term bridge, construction or renovation loans. There’re uncompleted projects in the market, causing banks and debt funds to back out, and they are getting refinanced to other lenders. I think that’s further supported by the banks’ aggressive approach to third-party borrowing for back leverage. Lenders are lending at 250 to 350 basis points, but then add back leverage and we’re quickly seeing double digit returns.

More broadly, nonbank lenders will continue to gain market share in 2025 and through this next cycle. Private credit entering the real estate ecosystem over the past several years has been very healthy for the market overall, and the dynamic of private credit is not going to end anytime soon. There’s much more room for growth and, in fact, we’re closer to the beginning of that growth than to the end of it.

Q: How should commercial real estate professionals prepare themselves to thrive in the coming year?

They need to be focused and they need to have speed. This is a market where CRE professionals have to operate very quickly and get things done. I also think lenders need to be convinced on what they want to do and also operate swiftly. If they waffle, they’ll be left behind.

They also need to be prepared to do follow-on deals, which can be challenging. If a borrower can approach a lender with a deal – and then have two or three or more right behind it – the lenders who react quickest to service it will be further ahead. Additionally, I also think that the private credit heyday isn’t over and that it will continue to grow its market share. Lastly, there is pent-up demand. Business plans have been held up since COVID and now that rates have landed, you will see these projects unlocked. But it’s nothing the market can’t handle.

It’s amazing how fast we’re back into a competitive environment and it’s really important for lenders to have that discipline in understanding that not all markets are the same – and figure out how to play that out.