At CREFC Miami, Confidence in More Deal Activity in 2025

The warm weather that greeted leading commercial real estate financiers who attended the CRE Finance Council’s annual Miami conference served as a fitting metaphor for an industry anticipating plenty more deal sunshine in 2025.

The CREFC conference held at the Loews Miami Beach Hotel from Jan. 12 to Jan. 15 attracted a record crowd of more than 2,300 registered attendees. Many expressed confidence that the deal activity which began to pick up in the latter half of 2024 would gain more steam in the year ahead. Much of the confidence was spurred by the Federal Reserve cutting its benchmark interest rate in three straight meetings, moves that provided the market more clarity even as the central bank indicated fewer cuts in store for 2025.

And, while the 10-year Treasury remains stubbornly high amid fears the economic policies of the incoming Trump administration could potentially increase inflation, CRE professionals at CREFC still see plenty of upside. 

“I think transactions for a number of reasons are going to increase, with one being I think people are just motivated,” said John Darrow, principal and managing director at Slatt Capital. “There’s a lot of debt that needs to get refinanced, especially if you had 10-year paper in 2015 or five-year paper in 2020. Liquidity is good and the market is tight.”

Stephanie Wiggins, head of agency and Federal Housing Administration production at PGIM Real Estate, said she is “cautiously optimistic” there will be an active deal flow this year even if long-term interest rates head upward. She said one key for lenders in a higher-for-longer interest rate environment is to “manage borrower expectations” while also advising them on ways to fill gaps in the capital stack when needed. 

Wiggins, who has worked on underwriting multifamily deals for the past three decades, said experience closing deals amid much higher interest rates helps in navigating today’s conditions. 

“If you look at it historically, a 5 [percent interest rate] handle on the 10-year isn’t so bad,” Wiggins said. “People were committed to transacting at the end of the year and we took a ton of business, so I think borrowers are wrapping their heads around higher rates.” 

Matt Pestronk, co-founder and president of Post Brothers, said he is “very optimistic” about both transaction volume and financing activity this year picking up, especially given that many large banks are back to growing their balance sheets with loans to go along along with increasing their commercial mortgage-backed securities (CMBS) production. 

Pestronk, who has developed more than 30 multifamily properties in the mid-Atlantic region  since launching his Philadelphia-based firm in 2006, said even if the 10-year Treasury rises above 5 percent due to inflation concerns, CRE deals will still press ahead because of capital on the sidelines that is ready to deploy

“It feels like the market has priced in all the Treasury volatility into CMBS spreads that CMBS bond investors can live with,” Pestronk said. “It seems like nobody is feeling like the current movement of the Treasury, which I thought was going to be a very big risk to the market after all the other shocks in the last five years, just seems to have been absorbed, and nobody is really talking about it.”

Expectations for a bump in transaction volume in 2025 are rooted largely in increased demand for the CMBS market. It saw $104 billion of issuance last year compared with $39 billion in 2023, according to data firm CRED iQ. CMBS market experts anticipate volume will spike as high asl $150 billion in 2025 if interest rates remain stable and acquisition financings take off to supplement increased transaction volume.

A more active CMBS lending market also means modifications and extensions will be a lively niche in 2025, according to Bill Sexton, CEO of loan servicer Trimont. He also expects more defaults, particularly among Class B office properties along with some hotels and senior housing assets. 

“As markets start to recover, there are always assets which don’t make it,” said Sexton, whose company is in the process of acquiring Wells Fargo’s loan servicing business. “The good news is it’s not the entire market like it was in the [Global Financial Crisis] when everything went out. What we’re talking about here is pockets of distress, subsets of asset classes that have got difficulties.” 

Justin Quinn, a partner at Kramer Levin, also foresees more defaults in 2025, with a number of lenders less willing to extend loans after already incurring losses on their investments by writing down the assets on their books. 

“I have seen some lenders willing to give their sponsors a period of time to dispose of assets at the reduced valuations so they get the short-term extension to allow the sponsor to handle the sale that is below market,” Quinn said. “That is going to result in a haircut to the debt on top of the equity, but I’m not seeing lenders willing to give another year to try and figure it out.” 

While there is still distress in the CRE markets to iron out, many early signs point to an active year with deals continuing to price in January at a steady pace after closing 2024 on a high note once the Fed started cutting interest rates.

Zachary Streit, president of brokerage  Priority Capital Advisory, said he closed four loans during the first full week of January totaling north of $100 million. That marked the first time in several years he closed that many financings in a weeklong span. Streit noted that none of the deals in early January or in the fourth quarter encountered any issues with appraisals across multiple asset classes, indicating another positive sign for the CRE market during its recovery from the COVID-19 pandemic and higher interest rates. 

“Sponsors have largely adjusted to a new interest rate and a new cap rate environment,” Streit said. “I don’t think anybody thinks that the 10-year is going down to 2 or 1 or zero [percent] and so I think that there are enough marks now that people roughly know what things are worth.”

The year ahead is also poised to be an active one for Commercial Property Assessment Clean Energy (C-PACE) loans, according to Laura Rapaport, founder and CEO of North Bridge. Just before the CREFC conference, the lender closed a $108 million C-PACE construction loan that was paired with a $53 million senior loan from Acore Capital for Fisher Brothers’ expanded Area15 District in Las Vegas. The deal, according to Rapaport, speaks to the potential of the lending program to address a number of borrower needs.

Rapaport noted that the expansion of C-PACE in New York City, New Jersey, Georgia and Hawaii, along with an enhanced program in Florida, will create more momentum for the space. That momentum follows an active couple of years during which more sponsors sought extra layers of the capital stack in a higher interest rate environment.

“There’s so many ways that we can now really help advance the landscape in 2025, and going forward not only from the borrower’s perspective, but also from the lender’s, as an asset management tool for them to reduce their cost of capital and help either return capital to the lender,” Rapaport said. “We’re 30-year paper, but we can structure it so that you can get a prepay in year five or 10 at a rate that could be par.”

While some in the CRE space have voiced concerns about inflation rising due to some of Trump’s proposals — including universal tariffs, more tax cuts and mass deportations — much of those desired changes will theoretically take time to implement, according to David McCarthy, head of legislative affairs at CREFC.

McCarthy said a Republican plan to reform federal policies on taxes, immigration and energy in one bill carries some risks with little margin for error given the GOP’s narrow majority in the House of Representatives. He said Trump’s tariff push might be a “negotiating tactic” that results in more limited tariffs toward certain counties like China, but stressed that CRE stakeholders need to be prepared for all potential scenarios.

Much of the CRE industry, meanwhile, has cheered the potential for looser regulatory requirements expected under the Trump administration. McCarthy noted, though, that deregulation can take shape in many forms, and that CREFC will be monitoring closely to see if some rollbacks have “unintended consequences.” He said one regulation CREFC is lobbying to end is reporting requirements for multifamily lenders under the Home Mortgage Disclosure Act act due to the differing underwriting standards for CRE loans. 

One regulation that the CRE market won’t have to contend with anytime soon with Trump in power is the Federal Reserve’s Basel III proposal. That would have required the biggest banks to increase their capital requirements by around nine percent on average. 

“I imagine it is dead right now,” Sairah Burki, head of regulatory affairs and sustainability at CREFC, said of Basel III. “It will be reproposed in some fashion, and I think it will be much more palatable to the banks.”

In addition to featuring a diverse offering of sessions about the state of the CRE markets, the 2025 CREFC conference also delved deeper into potential geopolitical risks. Programs on Jan. 13 included remarks by retired Lt. Gen. H.R. McMaster, national security adviser in Trump’s first administration.

On a much lighter note, CREFC attendees were treated to a discussion Jan. 14 with Oscar-winning filmmaker Ron Howard that was moderated by Toby Cobb, managing partner at 3650 Capital. 

Howard even touched on CRE investments at one point while stressing that demand for soundstage space remains “largely at a premium” as shooting films on location becomes increasingly challenging. He stressed, though, that investing in Hollywood film assets carries some risks due to more studio facilities popping up in states like Georgia, New Jersey and New York with better tax incentives. 

The party scene was also quite active during the CREFC conference, with many banks, private lenders and brokerage firms hosting receptions around South Beach. One new addition to the conference this year was a recently opened Rao’s at the Loew’s hotel. Kramer Levin hosted a luncheon at the iconic Italian restaurant that originally started in Manhattan. The meal is now expected to be a CREFC tradition. 

Andrew Coen can be reached at acoen@commercialobserver.com 

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