4 Key Trends in a Borrower’s Market 

After a long stretch of gridlock, capital markets are showing renewed signs of life—and not just in the safe bets. Even the once “unfinanceable” office sector is seeing a surprising comeback. In fact, across asset classes, lending conditions have improved to a point that would have seemed improbable just a year ago. The message is clear: Capital is flowing, and for those positioned correctly, it’s a borrower’s market.

Below are four key trends I am seeing now in the lending world:

Office deals are happening again

Perhaps the most surprising signal of this shift is in the office sector. Just months ago, office was widely considered radioactive and nearly impossible to finance due to rising vacancy, stubborn sublease inventory and shifting tenant demand. Now, sentiment is changing. Recent quotes for office financing have tightened into the low-400 basis point range, with capital gravitating toward deals that have a reset basis and demonstrate strong leasing velocity. Investors and lenders alike are taking a harder look at opportunities that seemed untouchable not long ago.

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Bridge financing is back and flexible

Bridge debt has come back, particularly in the multifamily sector, which continues to serve as the bellwether for broader asset class trends. Spreads that were in the mid-300s just a year ago have now compressed into the mid-200s. What’s more, lenders that once required hard minimums of $30 to $40 million are now entertaining smaller transactions.

The appetite for creative and flexible deal structures is real. Multiple lenders have been quoting “aspirational 7” debt yields on multifamily assets, suggesting confidence in the rent trending and the underlying fundamentals. Stabilized, untrended debt yields in the mid-6s would have been a tough sell not long ago. Today, they’re viable—and getting done.

Permanent debt is more attractive

For those looking to lock in long-term financing, conditions have improved significantly. Even with index rates remaining relatively elevated, spreads have compressed and lenders are competing more aggressively for stabilized deals.

Takeouts are sizing better, too. A year ago, borrowers needed to underwrite to an 8 percent debt yield to get permanent capital to engage. Today, that figure has dropped to 7 percent. One recent example: A retail permanent financing closed at a fixed swapped rate of just 5.5 percent—a level many thought was off the table in a high-rate environment.

Equity is critical

While debt markets are loosening, equity remains the critical piece. For acquisitions, the right capital stack can unlock leverage, and sellers are finally adjusting to today’s cap rate environment, opening the door for more transactable deals.

Syndicated equity is a tougher sell in this environment. Lenders and partners are placing greater emphasis on sponsor alignment and meaningful skin in the game is no longer optional—it’s required.

What’s driving all this activity? Necessity. After a long period of capital inertia, there’s simply too much undeployed money on the sidelines. Lenders are eager to place capital. That means borrowers are seeing more favorable spreads, higher leverage and increased structural flexibility.

We are now in a unique window of opportunity. Capital is being put to work in sectors and structures that were virtually shut down a year ago. Office and transitional assets are no longer untouchable. Bridge lenders are writing smaller checks. And while equity remains the lever that unlocks everything else, thoughtful structuring can make even complex deals pencil.

In short, it’s a borrower’s market. If you’ve been waiting on the sidelines for the right time to transact, that time may be now.

Zachary Streit is founder & president of Priority Capital Advisory.

Priority Capital Advisory is a premier boutique debt and equity capital advisor for middle market and institutional commercial real estate sponsors and investors. PCA arranges highly structured and innovative finance solutions up and down the capital stack, with a focus on transactions with a total capitalization of $20 million to $200 million. PCA leverages debt and equity solutions for all property types including capital from debt funds, life insurance companies, commercial and investment banks, agency financing, CMBS, mortgage REITs, and pension funds. To learn more about PCA visit www.prioritycapitaladvisory.com.