Five CRE Debt Plays to Watch in 2025

In 2025, the commercial real estate (CRE) debt market is undergoing a fundamental recalibration. A wall of maturities, sustained rate volatility, and shifting lender appetites have created both stress and opportunity. According to the Mortgage Bankers Association (MBA), roughly $957 billion in CRE loans are scheduled to mature this year — the largest volume since 2008. With liquidity tight and valuations adjusting, this is a cycle defined not by distress alone, but by innovation in how capital is structured.

For borrowers, lenders, and institutional allocators, the key question is clear: which debt strategies will drive returns and protect downside in a market still finding equilibrium? Below are five CRE debt plays commanding attention in 2025.

Stretch Senior and Unitranche Financing

Traditional bank lending remains constrained, with regional and money-center institutions limiting CRE exposure due to regulatory pressure and higher capital costs. This has accelerated the growth of stretch senior and unitranche structures — hybrid solutions that blend senior and subordinate capital into a single layer.

A stretch senior loan provides incremental leverage above traditional senior thresholds, typically up to 75–80 % of cost, while maintaining a single-note execution. A unitranche loan merges senior and mezzanine risk into a unified facility priced as a blended yield.

For borrowers, these structures simplify intercreditor dynamics and deliver execution speed. For lenders, they offer premium returns with structured downside protection through tight covenants and built-in step-ups. In 2025, institutional debt funds and insurance companies are increasingly deploying capital through these formats, particularly in multifamily, logistics, and hospitality repositioning plays.

Mezzanine and Preferred Equity Hybrids

As senior leverage compresses — often maxing out at 60–65 % loan-to-cost — mezzanine and preferred equity capital have become indispensable. These layers fill the gap between senior debt and common equity, allowing projects to maintain viability without overextending sponsor equity.

Mezzanine lenders are commanding spreads of 800–1200 basis points over base rates, while preferred equity investors are targeting 12–16 % preferred returns, often with accrued or PIK (payment-in-kind) flexibility during early stabilization.

In 2025, mezzanine and preferred equity are especially relevant in transitional assets: office-to-residential conversions, mixed-use redevelopments, and hospitality-to-multifamily conversions. These structures allow investors to participate in upside without direct ownership risk, while providing sponsors with crucial leverage solutions in an otherwise restrictive lending climate.

Bridge and “Rescue” Capital

With nearly a trillion dollars in CRE loans maturing and a valuation gap between buyers and lenders, bridge financing has reemerged as a lifeline. Borrowers facing loan maturities, delayed lease-ups, or pending refinancing are turning to short-term, flexible capital to stabilize assets.

These rescue bridge structures often feature 12–24-month terms with extension options, interest reserves, and detailed business-plan covenants. The most active providers are non-bank lenders, mortgage REITs, and private credit funds capable of underwriting quickly and absorbing transitional risk.

For lenders, this is an attractive risk-adjusted play — pricing spreads remain wide, and underlying collateral is often high-quality real estate temporarily impaired by capital market dysfunction. For sponsors, bridge financing provides time to execute — to re-tenant, refinance, or sell — rather than being forced into distressed outcomes.

PIK Toggles and Preferred Return Structures

As cash flow volatility persists, PIK toggle features — allowing interest to accrue rather than pay current — are becoming more common in construction, redevelopment, and transitional loans. These structures give sponsors flexibility during value-creation phases while aligning incentives between borrower and lender.

A related structure, the preferred return, offers lenders a fixed priority yield plus limited upside participation. It’s especially appealing in projects where long-term appreciation potential is clear but near-term income is constrained, such as urban multifamily conversions or large adaptive reuse projects.

The tradeoff: pricing is higher, and deferred payments amplify risk if stabilization timelines slip. Still, these flexible payment mechanics are a key differentiator for private lenders seeking to win deals while balancing cash flow realities.

NAV and Portfolio-Level Lending

A less visible but increasingly powerful strategy in 2025 is NAV (Net Asset Value) lending and portfolio-level credit. Instead of underwriting individual properties, lenders extend credit against the net value of an entire portfolio or the equity of a real estate fund.

These structures provide liquidity to sponsors who may need working capital, redemption management, or opportunistic acquisition dry powder. Portfolio-level lending also allows for cross-collateralization, reducing risk concentration and enabling efficient balance-sheet leverage.

For institutional investors, NAV credit offers yield with diversified collateral exposure — a defensive play amid uncertain property-level valuations. For sponsors, it provides flexibility to manage maturities, pursue acquisitions, or recapitalize assets without selling core holdings.

Strategic Implications for 2025

The common thread among these strategies is capital agility. In a market where traditional bank credit remains selective and valuations are under revision, creative structuring will separate the opportunistic from the overexposed.

• Debt complexity is opportunity. Sponsors who can navigate intercreditor dynamics and layered capital stacks can unlock liquidity others can’t.
• Credit risk will be well-compensated. Spreads remain elevated across bridge, mezz, and preferred tranches, offering attractive yields relative to historical norms.
• ESG and asset quality remain underwriting priorities. Energy efficiency, location resilience, and tenant credit will continue to influence lending terms and pricing.
• Relationship capital matters more than ever. Experienced sponsors with transparent reporting and strong track records will command better leverage and pricing.

The F2H Capital View

At F2H Capital Group, we see 2025 as the year when disciplined capital structures — not speculative equity — define success in CRE investing. Our platform focuses on originating and participating in debt strategies that combine yield, protection, and flexibility.

• Stretch Senior and Unitranche Debt: Competitive leverage with structured downside control.
• Mezzanine and Preferred Equity: Hybrid instruments bridging the gap between senior and common equity.
• Bridge and Rescue Financing: Transitional solutions for repositioning or recapitalization.
• PIK and Preferred Return Structures: Cash-flow flexibility in early-stage or adaptive-reuse projects.
• NAV and Portfolio-Level Loans: Institutional liquidity solutions for sponsors managing multi-asset platforms.

In this cycle, success depends not only on where capital is placed, but how it’s structured. As the debt markets evolve, F2H Capital remains committed to delivering tailored financing that advances value creation, protects investor capital, and adapts to an ever-changing CRE landscape.

Sources

• Mortgage Bankers Association: CREF Outlook 2025 – Maturing Loan Volume and Origination Forecast
• CBRE Capital Markets: U.S. Lending Momentum Index – Q2 2025 Update
• Cushman & Wakefield: Midpoint Economic and CRE Debt Market Outlook 2025
• Colliers Capital Markets: Debt Advisory Insights – 2025 Outlook
• Alternative Credit Investor: Borrowers Get Creative as $957B of CRE Debt Matures in 2025
• Commercial Mortgage Alert: Subordinate Debt and Preferred Equity Activity Report – Spring 2025
• MSCI Real Assets: Real Estate in Focus – 2025 Trends to Watch
• Hall Structured Finance: The State of CRE Lending and Private Capital’s Role in 2025
• The Wall Street Journal: Private Credit Steps Into CRE as Banks Pull Back
• Bloomberg Real Estate Finance: Rising Private Credit Funds Bridge the CRE Liquidity Gap

‍