Key Takeaways
The commercial real estate debt market faces a significant maturity wall, with over $2.1T in debt expiring between 2024 and 2025. Traditional bank retrenchment has created opportunities for private credit providers, particularly in specialized sectors like multifamily and healthcare.Private credit markets have demonstrated remarkable growth, expanding from $1T in 2020 to approximately $1.5T in early 2024, with projections reaching $2.8T by 2028. This growth has been accelerated by bank failures in 2023 and subsequent regulatory pressures. Demographics are driving compelling opportunities in both healthcare and multifamily sectors. The 85+ population is projected to more than double by 2040, creating substantial demand for senior housing and healthcare facilities, while strong renter demand from younger generations supports multifamily fundamentals. Despite a challenging rate environment, multifamily remains the preferred asset class for commercial real estate investors heading into 2025, with vacancy rates projected to stabilize at 4.9% and average annual rent growth at 2.6%.
Lending Amidst Changing Rates
As we transition into 2025, the U.S. commercial real estate market finds itself at a pivotal juncture, shaped by the interplay of monetary policy adjustments and evolving credit dynamics. In December 2024, the Federal Reserve enacted a rate reduction of 25 basis points, providing some expected relief while also signaling and stating that it expects rate cuts in 2025 to proceed at a slower pace than originally expected. These actions further solidify the “higher-for-longer” interest rate environment that has become a defining characteristic of the current economic landscape. The Federal Reserve’s statement reinforced the notion that the commercial real estate market is fundamentally different than before the 2022 rate hikes. This reality, marked by sustained higher rates, will continue to exert pressure on both assets and borrowers, prompting traditional lenders to continue limiting their activity. In this context, bridge lending has proven particularly valuable as borrowers navigate the prolonged period of elevated rates. As banks continue to manage the repercussions of distressed assets, private credit, remains flexible, paving a clear path forward. Private credit, though not a new phenomenon, has grown exponentially in the past few years due to flexibility to meet borrower’s needs. Private debt assets under management have nearly doubled since 2018, reaching $1.54 trillion in 2024 (Exhibit 1). The private credit space is expected to become a $2.8 trillion market by 2028. 1
Exhibit 1: Private Debt Fund AUM Growth ($)
The Impending Wall of Maturities
The U.S. commercial real estate market is bracing for an unprecedented volume of maturing debt, with over $2.1 trillion set to come due between 2024 and 2025. This “wall of maturities” represents a formidable stress test for the sector, particularly for multifamily assets, which comprise 40% of this impending wave (Exhibit 2). 2 Many of these loans, underwritten during the pandemic’s low-rate environment, were predicated on floating-rate mechanisms aimed at maximizing financing flexibility. Yet, the dramatic rise in interest rates has rendered refinancing significantly more onerous, compounding the financial strain on borrowers.
Exhibit 2: Upcoming Global Loan Maturities by Asset Class
The systemic risks inherent in this maturity wall are exacerbated by the retrenchment of traditional lenders. Banks, a major player in the space, have curtailed their activities in response to heightened regulatory constraints and liquidity challenges. This contraction has created a funding gap that underscores the urgent need for alternative financing mechanisms to prevent widespread financial dislocation.
Preparing to Capitalize on 2025
While the past few years have been hard on real estate markets, several key indicators suggest 2025 will be transformative in the road to recovery. Despite market turmoil, supply-demand forces remain strong. As markets begin to recover, the performance of different asset classes will shape the future of commercial real estate. Multifamily rental demand has remained remarkably strong despite market turmoil, underpinned by a robust job market in the United States. Multifamily housing absorption in the first half of 2024 reached one of its strongest levels in a decade. 3 By the end of 2025, vacancy rates are projected to stabilize at 4.9%, while annual rent growth is expected to average 2.6%. 4 The interest rate environment has forced a fundamental shift in investment strategy. Rather than relying on cap rate compression to drive returns, successful operators and lenders have begun to focus more on income growth and operational excellence to create value. Value is now being driven by efficiency, strategic management, and tenant satisfaction to ensure sustained profitability in this challenging market.
Growth in the Construction Space
In the upcoming years, developers are expected to construct more U.S. multifamily units than any other period since the 1970s. As we approach this period, it is important to consider the markets, project types, and demographics that will be affected most. This wave of development is predicted to impact high growth markets, many of which are in the Sun Belt and Mountain regions (Exhibit 2). Of these markets, markets expected to see peak deliveries in early to mid 2025 include Charlotte, Fort Lauderdale, Raleigh, San Antonio, and Phoenix. 5
Exhibit 2: Markets with Largest Supply Pipelines
The structural challenges facing the office sector have begun to spur a rise in adaptive reuse projects which are expected to grow in 2025. Shifts to remote work during and after the pandemic have left many office spaces vacant, leaving space for office to multi conversions. By the end of November 2024, 73 conversion projects had been completed in the U.S, up from 63 projects in 2023. A CBRE study projects that there are another 309 office conversion projects planned or currently underway, in all contributing to 38,000 new multifamily units. 6
Analyzing the Pipeline
Multifamily appears to remain the most preferred asset class for 2025. While high interest rates present short-term challenges, the sector’s strong fundamentals—anchored by renter demand—are driving improvements in occupancy rates and rent growth. Younger generations, including Gen Z and millennials, are shaping demand for both singlefamily and multifamily rental properties. These trends are expected to support increased multifamily investment activity in the coming year. Within the multifamily sector, demand for efficient and sustainable buildings has grown significantly. Segments of the tenant population, the investment community, and government entities have all called for properties that prioritize environmental responsibility. These sustainable, energy-efficient buildings often command premium rents and, in some cases, lower the cost of capital. A notable example is the HUD Green MIP program, which offers a discounted mortgage insurance premium to incentivize environmentally conscious development. The demographic outlook for senior housing and healthcare needs coupled with acute supply constraints present compelling opportunities in healthcare marketplaces. The U.S. population aged 85 and older is projected to double from 6.5 million in 2020 to 13.7 million by 2040, driven largely by the aging baby boomer generation. With approximately 70% of individuals turning 65 expected to require long-term care services at some point, demand for senior housing remains stable and growing. To meet the needs of this aging population, an estimated 755,000 additional senior housing units will be required by 2030. 7
Exhibit 4: U.S. Population Age 65 and Older
Construction starts in this sector are currently lagging behind demand, exacerbating the supply-demand imbalance. This undersupply, combined with favorable demographic trends, positions senior housing as a cornerstone for sustained investment. Successfully financing these projects, however, requires navigating a complex landscape of operational, financial, and regulatory challenges. Developers must account for occupancy projections, navigate Medicaid and Medicare reimbursement frameworks, and adhere to state-specific regulatory requirements—all while ensuring projects achieve stabilization within planned timelines. Private credit has emerged as a critical financing partner in this space, addressing the nuanced needs of this sector where traditional banks often fall short. By offering tailored and flexible financing solutions, private credit lenders are uniquely positioned to support projects through their development and stabilization phases. These alternative lenders bring not only capital but also specialized knowledge of healthcare facility operations, enabling borrowers to overcome key hurdles. Even as interest rates decline and traditional banks gradually re-enter the space, private credit is expected to maintain its prominence. Borrowers value the bespoke solutions, speed, and adaptability offered by private lenders, which are crucial in a sector defined by dynamic regulatory and operational demands. Private credit’s role as a reliable and innovative financing source will continue to shape the trajectory of multifamily and healthcare development, ensuring these sectors remains well-positioned to meet the needs of a growing population.
About Bravo Capital
Bravo Capital is a leading privately held lender specializing in real estate lending, with a focus on multifamily and healthcare properties across the nation. With a national footprint and headquarters in New York City, Bravo Capital offers a wide range of financing solutions, including HUD, mezzanine, and bridge financing, enabling clients to achieve their real estate goals. Additional information is available at: https://bravocapital.com/
Aaron Krawitz is the Founder and Chief Executive Officer of Bravo Capital and Bravo Property Trust. He sits on its Management Committee and its Credit Committee.
Disclosure
This document is for informational purposes only and does not constitute an offer or solicitation of any kind by Bravo Capital or its affiliates. It may not be relied upon for any business or financial decisions. This document is not an advertisement, nor does it provide investment, legal, or tax advice or recommendations. It should not serve as the basis for any investment decision The information contained herein is current as of the date of publication, and Bravo Capital assumes no obligation to update or correct it for any reason, including new developments, results, or subsequent events. Certain information included in this document may have been obtained from or derived from third-party sources. Bravo Capital has not independently verified the accuracy of such third-party information and makes no representations or warranties, express or implied, regarding its fairness, accuracy, reasonableness, or completeness. Any statements contained herein that reflect opinions or views are subjective and should not be interpreted as statements of material fact.
- Source: Morgan Stanley
- Source: Bloomberg “Landlords face a 1.5 Trillion Commercial Real Estate Maturity Wall” August, 31, 2024
- Source: Pensions and Investments
- Source: CBRE Research
- Source: CBRE Research
- Source: The Wall Street Journal “Office Conversions Find New Life After Property Values Plunge” November 26,2024
- Source: Preqin
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