The Evolution of CRE Funding in 2025—What Smart Sponsors Are Doing
Let’s be honest: the capital stack in commercial real estate (CRE) isn't broken—it's just fractured. Only the most astute operators are adapting quickly enough to seize the opportunities that arise.
Interest rates have shifted, and lenders' appetites for risk have changed significantly. What worked in 2021? That approach is not only outdated; it could actively undermine your current deals.
Here's a closer look at what's changing and how savvy sponsors are recalibrating their capital strategies to thrive.
The Myth of Easy Perm Debt is Over
In the past, you could stroll into a bank with a stabilized asset and easily secure 70–75% loan-to-value (LTV). Those days are gone.
Consider one of my clients—a seasoned multifamily sponsor with two stabilized assets in Texas. He was caught off guard when the best offer he received was just 61% LTV, coupled with hefty reserve requirements. Despite a pristine rent roll and a debt service coverage ratio (DSCR) over 1.4x, the lender's model had evolved.
Why the shift? Credit committees are now looking beyond your current net operating income (NOI), evaluating downside scenarios that consider less optimistic local market data, national trends, and cap rate uncertainty.
What did we do? We brought in a credit union for the senior debt and added a mezzanine tranche from a debt fund, complete with a soft pay feature. The result? A solid 75% leverage, no prepayment lockout, and a quick 45-day closing.
Bridge Debt: Creative but Costly Discipline
People often brag that bridge financing is the most “creative” capital option. However, in 2025, it’s also one of the most expensive—and requires a disciplined approach.
I worked with a sponsor looking to reposition a boutique hotel. The bridge lenders he consulted offered 65% loan-to-cost (LTC) with interest rates between 11.5% and 12.5%, along with heavy reserves. Why such tough terms? There was a lack of clarity regarding exit strategies.
Here’s what turned the tide: We reframed the proposal, emphasizing confirmed event contracts post-renovation, incorporating local tourism statistics, and outlining a 9-month stabilization-to-sale roadmap. This prompted the lender to increase the offer to 70% LTC at 10.4%, with a recourse burnoff and declining prepayment feature.
Takeaway: Bridge lenders want compelling stories, not mere speculation.
Navigating the Construction Financing Gauntlet
Construction financing has slowed down significantly.
A client with a mixed-use development in Florida, who had a signed guaranteed maximum price (GMP), 30% presales, and all necessary permits, struggled to secure more than 60% LTC from traditional banks. Why? Regional banks are either hesitant or consolidating their risk.
Our solution? We devised a bifurcated financing structure—combining senior debt from a bank with preferred equity from a family office experienced in the submarket. This strategy added $7 million in leverage while preserving the developer’s ownership stake.
Lesson: Achieving 70–75% construction leverage from a single source is no longer easily attainable.
Equity Partners Seek Income, Not Just Ideas
The days of securing funding for a raw site based solely on a grand vision are over.
One developer I know pitched a suburban industrial park concept to three equity partners. Only one remained interested. Why? He had a lease option from a major e-commerce tenant and a phased development plan aimed at quick stabilization.
In today’s market, equity partners are looking for:
Immediate revenue prospects
A commitment from the developer
A credible path to distributions within 24-36 months
If you can’t offer this? Expect a flurry of rejection emails.
The Capital Game is Now a Data Game
Here’s a subtle yet profound shift: deals are not only assessed based on returns—they’re also evaluated on how those returns are presented.
I assisted a client in uploading his acquisition package to a data-driven CRE lending marketplace. With a clean rent roll, trailing 12-month data, and a market comp map all in one digital space, lenders responded within hours—not weeks.
In contrast, another sponsor submitted a 43-page PDF without a concise deal summary. The response? Silence.
Moral of the story: Presentation shapes perception, and perception opens doors. You only get one first impression.
What’s Working for Top Sponsors in 2025?
Here’s how the most successful sponsors are navigating the landscape:
Align your capital structure with your exit strategy: Don’t just chase the cheapest debt; ensure the terms match your long-term goals.
Explore multiple capital pathways: The right structure might be bank + preferred equity, senior + mezzanine, or even a hybrid approach. Investigate early.
Control the narrative: Treat your capital stack like a pitch, not just paperwork.
One point of contact: Hire an expert debt advisory team with proven track record and lender relationships. Lenders appreciate working through reputable brokers who have exclusive control. This increases execution alignment and prevents fatigue for all stakeholders. Yourself included.
Diversify your lender relationships: If one lender pulls back, have several others ready to step in. (See previous bullet 😄)
Foster competition: Frame your deal in a way that attracts capital rather than relying on desperation. Don’t procrastinate.
The Bottom Line
The CRE capital market isn’t broken—it has simply evolved. If you’re still pitching as if it’s 2017, you should brace yourself for rejection.
However, if you adapt your thinking, refine your pitch, and construct a smarter capital strategy, you’ll be the one closing deals that others deem “impossible.”
Want to learn more? Download the Capital Matchmaker’s Playbook—the exact system I use to help developers and sponsors create stronger, more flexible financing strategies
