As debt offerings dwindle, equity investors are discovering fresh avenues within the CRE sector. With lenders imposing stricter conditions, the landscape is evolving, necessitating a shift in deal structuring and financing approaches. Notably, MSCI data reveals a consistent decline in loan-to-value (LTV) ratios, with CMBS providers reducing LTVs by 14% between 2015 and 2023. This adjustment emphasizes the need for greater equity participation in deals. According to John Vavas, a shareholder at Polsinelli, this recalibration reflects the market’s focus on achieving lower-leverage deals amidst rising interest rates and carrying costs. The surge in average loan sizes for CMBS lenders, reaching nearly $22M in 2023 from $10M in 2015, underscores this strategic shift toward lower LTVs, a trend predating the pandemic but intensifying with recent interest rate hikes.

Blog by Robert Withers