Lenders 2024: What Stayin’ Alive Amid Distress Will Look Like in 2025

The Bee Gees song “Stayin’ Alive” must have been stuck in multiple heads during the past 12 months as “Stay alive through `25” was the catchphrase du jour, ringing out through office hallways, Zoom calls and event panels. 

The end goal for survival may be a wee bit further down the line now. (“It’ll be heaven in `27” is what we’ve been hearing recently. Cue the Bryan Adams song piano intro!) And, while there’s plenty of hope around next year’s groovy uptick in transaction volume, there’s no doubt that 2025 will also include plenty of challenges that the CRE industry will have to surmount. 

With that in mind, we asked our lenders what distress might look like next year, and how they’re protecting themselves in transactions. 

Madison Realty Capital’s Josh Zegen gave it to us straight: “Liquidity comes at a premium — equal parts debt and equity,” he said. “We’ll continue to see distress play out whereby equity and debt participants run out of it. That is where you’ll see distress and/or consolidation on both sides. Lenders can protect themselves by being hypervigilant in asset management to create liquidity for themselves and their clients.” 

Wells Fargo’s A.J. Sfarra said that even with predicted rate cuts, “distress in certain asset classes such as office and pockets of multifamily will persist in 2025. Proactive and intense asset management allows lenders to look around corners and uncover issues that can impact occupancy and cash flow.” 

Specifically, “early action by lenders through paydowns, modifications and extensions will reduce risk of loss. We believe the big banks have a handle on their distressed assets, but lenders will continue to work with borrowers to trade capital for time, or possibly to increase sales of distressed loans.” 

BankUnited’s Carina Kalaw also said proactivity is key, with her team focused on “anticipating any issues and addressing them early with the borrowers.” She gave a shoutout to her portfolio management team, which is studiously tracking the bank’s loan portfolio. 

Speaking of upfront defense, “It is important to the development that the deal is underwritten with adequate cushions to help address unexpected costs or changes that occur as the project is built,” Bank of America’s Maria Barry noted. 

Black swans aside, Goldman’s Siddharth Shrivastava expects a more active market in 2025, with “a need to deploy and recycle capital which, coupled with a lower rate  environment, will drive a pickup in sales activity when compared with 2024,” all driving action. That said, he expects lenders to continue to exercise caution, especially with hairier loans such as construction and heavy transitional loans. 

“From a structure perspective, the focus from lenders will remain along the lines of what we saw in 2024 which include reasonable leverage/debt yield, fully capitalized financings — particularly for office — tight triggers, and a robust guaranty structure for construction loans,” he said.

Nailah Flake said her firm is sticking to what works in Brookfield’s deal kitchen: “How we protect ourselves doesn’t change: local market expertise, hands-on asset management and thorough due diligence. That recipe works in all markets.”

Our lenders are a mix of bank, nonbank and C-PACE lenders this year, and Tom Whitesell is one who has the benefit of experiencing both the bank and nonbank lender perspective, having led his team at Pacific Western Bank prior to Kennedy Wilson. 

“Distress always takes time to get through the system,” Whitesell said. “I think the regulators will put more pressure on banks to properly mark their loans, after having given them post-pandemic leeway to somewhat extend and pretend. This will help in price discovery, largely in the office sector, as assets and loan portfolios come to market.”

While CRE’s Bee Gees may be in business suits under LED lights rather than flare-legged pants and platforms under disco balls (in public at least), the industry has a lot to sing about. In the words of Robin, Barry and Maurice Gibb, “Feel the city breakin’ and everybody shakin’, and we’re stayin’ alive, stayin’ alive.”