The Evolution of CRE Funding in 2025—What Smart Sponsors Are Doing

Let’s be honest: the capital-raising process in commercial real estate (CRE) isn’t broken — it’s just fractured. Only the most astute operators are adapting quickly enough to seize the opportunities that arise.

Interest rates have shifted, and lenders’ appetites for risk have changed significantly. What worked in 2021? That approach is not only outdated — it could actively undermine your current deals.

Here’s a closer look at what’s changing and how savvy sponsors are recalibrating their capital strategies to thrive:

The Myth of Easy Perm Debt Is Over

In the past, you could walk into a bank with a stabilized asset and easily secure 70–75% loan-to-value (LTV). Those days are gone.

Consider one of my clients — a seasoned multifamily sponsor with two stabilized assets in Texas. He was caught off guard when the best offer he received was just 61% LTV, coupled with hefty reserve requirements. Despite a pristine rent roll and a debt service coverage ratio (DSCR) over 1.4x, the lender’s model had evolved.

Why the shift? Credit committees are now evaluating downside scenarios, weighing broader local and national data, and factoring in cap rate uncertainty.

Our solution? We brought in a credit union for the senior debt and added a mezzanine tranche from a debt fund with a soft pay feature. The result? A solid 75% leverage, no prepayment lockout, and a quick 45-day closing.

Bridge Debt: Creative but Costly Discipline

Bridge financing is often labeled as the “most creative” capital option. In 2025, it’s also one of the most expensive — and requires real discipline.

I worked with a sponsor repositioning a boutique hotel. Bridge lenders offered 65% loan-to-cost (LTC) with interest rates between 11.5%–12.5%, plus heavy reserves. Why such tough terms? Lack of a clear exit strategy.

How we improved it: We reframed the proposal with confirmed event contracts post-renovation, local tourism data, and a 9-month stabilization-to-sale roadmap. The updated package led the lender to increase the offer to 70% LTC at 10.4%, with a recourse burnoff and stepdown prepay.

Takeaway: Bridge lenders want compelling, data-backed stories — not speculation.

Navigating the Construction Financing Gauntlet

Construction financing has slowed dramatically.

One client in Florida had a mixed-use project with a signed GMP, 30% presales, and all permits in hand — yet couldn’t secure more than 60% LTC from traditional banks. Regional lenders are tightening or consolidating risk.

Our strategy? We used a bifurcated capital stack: senior debt from a bank and preferred equity from a family office experienced in the submarket. This added $7 million in leverage without diluting the developer’s ownership.

Lesson: Achieving 70–75% LTC from one source is no longer easy. Get creative.

Equity Partners Want Income, Not Just Ideas

Gone are the days when you could get funding based solely on vision.

A developer pitched a suburban mixed-use concept to dozens of equity groups. Only one stayed interested — and here’s why: his plan featured a modular design, a master lease option, and a phased approach aimed at fast stabilization.

In 2025, equity partners are seeking:

• Immediate or near-term income
• Strong local economic indicators
• Demonstrated sponsor commitment
• A clear path to distributions within 24–36 months

If you can’t deliver on these? Expect rejection.

The Capital Game Is Now a Data Game

Here’s the shift: your deal isn’t just judged by potential returns, but by how you present those returns.

I helped one client upload their package to a digital CRE lending marketplace — clean rent roll, trailing 12s, and market comps in one place. Lenders responded within hours.

Another sponsor submitted a 43-page PDF with no summary. The response? Crickets.

Takeaway: Presentation shapes perception. You only get one first impression — make it count.

What’s Working for Top Sponsors in 2025

The best sponsors are succeeding because they’re doing the following:

• Align capital structure with your exit strategy. Don’t just chase cheap debt — chase fit.
• Explore multiple capital pathways. Senior + mezz, bank + preferred equity — investigate early.
• Control the narrative. Your capital stack is a story. Tell it well.
• Centralize your communications. Work with a seasoned debt advisor who controls the process. Lenders value clarity and execution.
• Diversify lender relationships. Always have backup options ready.
• Foster lender competition. Frame your deal to attract capital — don’t pitch from desperation.

The Bottom Line

The CRE capital market isn’t broken — it has evolved. If you’re still pitching like it’s 2017, brace for rejection.

But if you adapt, refine your presentation, and build a smarter capital strategy, you’ll be the one closing deals others call “impossible.”

Want to learn more? Submit your deal to one of our mortgage bankers here or fill out a deal submission form here for feedback from one of our advisors.