As CRE market is poised to make moderate gains in 2025, the impact of the debt market and corresponding loan maturity remains to be seen. An estimated $998 billion in CRE loans are projected to mature this year, and with an interest rate potentially 200 basis points higher, some borrowers have negotiated extending the maturity date on their current loan to avoid the higher rates.
According to Marc Kulick, CEO and founder of real estate investment firm, Vesta Capital, a “massive collective maturity date that would rock the industry” is unlikely. He is optimistic that, despite a relationship between borrowers and lenders that’s more strained than in previous years, the CRE market will continue to improve.
Debt Market Reckoning Brings Opportunity
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Nearly a third of investors are expected to have CRE debt maturing in 2025, causing them to either refinance at higher rates or dispose of assets. Kulick also believes it will affect individual, smaller syndication firms more as they might not survive loan maturations. He points out that they may not be in a position to extend the maturity date with lenders.
Kulick adds that the “extend and pretend” strategy will actually affect the debt market and borrowers much more this year than last.
“Borrowers will receive more pushback from the debt market as lenders are becoming more aggressive in demanding principal paydowns in return to granting loan extensions,” he says. And while he’s unsure of how much the Federal Reserve monitors this type of activity, he thinks they could eventually play a role if the amount of foreclosures increases significantly.
However, Kulick says that as maturities run out of extensions or capital and the Fed continues to soften rates, it creates a significant buying opportunity for investors.
“The lender-borrower relation is much more tense this year in comparison to 2024. The pressure on borrowers will amount to increased sales activity,” notes Kulick.
A Focus on Interest Rate Stability
Kulick says that the slowdown of the Federal Reserve’s interest rate cuts could have a positive effect on the overall CRE debt market as well, but he sees the 10-year Treasury yield as the main grounding metric for real estate.
“If the Federal Reserve didn’t cut rates once this year, but we saw some softening in the 10-year Treasury yield, you’d see a lot more stability in the commercial real estate world, as all of our refinances are predicated off of the 5- or 10-year Treasury yield.”
While Vesta Capital’s success isn’t dependent on rate cuts, Kulick wouldn’t mind if interest rates stabilized, citing rapidly fluctuating basis points as harming the market. Kulick also says that cap rate compression is critical and will be key to increasing values for existing property owners, and signaling a growing CRE market.
“If we see stability in the debt markets, it would create stability overall. Then you’d see transaction volume increase which would obviously be good for the economy.”
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