Why Retail Is the Belle of the Ball and Office Is Thawing

Every week I talk with owners of retail and office properties who assume the debt markets have written them off. The headlines have spent years telling them so. Right now, that assumption is wrong for retail and only half right for office, and knowing the difference is worth real money at maturity.

Over the last 12 to 18 months, my team has closed approximately $150 million across six retail financings and approximately $100 million in office transactions. The two asset classes tell very different stories.

Retail: Lenders competing hard

Retail has become the belle of the ball. Each of our retail financings went to between 75 and 100 lenders, and the response was deep. We saw leverage up to 75 percent of cost on ground-up construction and permanent pricing as tight as SOFR + 150. Lenders that spent years avoiding the sector are now actively chasing it.

The reason is simple. Years of limited new construction and steady tenant demand have left well-located centers with strong occupancy and durable cash flow, and lenders have noticed. Banks, life insurance companies and debt funds are competing for the same quality retail deals, and that competition shows up in proceeds, pricing, and structure.

For retail owners, the risk isn’t a closed market. It’s leaving money on the table by refinancing with the first lender that says yes. When this many lenders want the deal, a real process pays for itself.

Office: thawing but selective

Office is a different market. Capital is coming back, but it’s selective and the math shows it. On a recent office deal, we canvassed over 100 lenders. Seven quoted. Two issued term sheets, and the winning lender sharpened its terms twice to win the deal.

That ratio is the story. There are lenders who will finance office today, but they’re a small slice of the market and they don’t advertise it. The bank that turned you down may simply be the wrong bank.

The lenders active in office are underwriting three things. First, basis: they want to see their loan as a well-covered position at today’s value, not a bet on recovery. A building underwritten to 2021 values won’t draw competition, no matter how good it is. Second, durable cash flow: in-place income, rollover, and the real cost of keeping the building leased matter more than projections. Third, sponsorship: a sponsor with liquidity, a track record, and a credible leasing plan will get terms a thinly capitalized owner won’t.

What owners should do now

Start early. Nine to 12 months before maturity is not too soon, especially in office, where finding the handful of right lenders takes time.

Know your real basis. Underwrite the property the way a lender sees it today, not the way it looked when you bought it.

Run a real process. Competition is what moves terms. In retail it drives proceeds and pricing. In office it can be the difference between a deal and no deal.

Tell the story. A clearly packaged account of the property, the leasing plan and the sponsor gives lenders a reason to lean in rather than look for reasons to pass.

Retail owners are negotiating from strength right now and should act like it. Office owners have a narrower path, but it’s a real one. In both cases, the owners who get hurt won’t be the ones who own the wrong asset class. They’ll be the ones who take the first answer as the final one.

Zack Streit is founder & president of Priority Capital Advisory, a Los Angeles-based commercial real estate debt and equity advisory firm.