One CRE lender notes a few hundred billion dollars’ worth of transactions on the way
Despite mortgage market turmoil and elevated interest rates, the commercial real estate (CRE) market is heating up. Originations increased in the first quarter of 2025, and one industry expert believes part of the surge is caused by many loans coming due soon.
The Mortgage Bankers Association (MBA) released its quarterly commercial/multifamily survey last week. The survey showed a 42% increase in commercial and multifamily mortgage loan originations year over year.
Danny Llorente (pictured top), chief lending officer with KDM Financial, said there are two main causes of the increase. One is that investors are tired of sitting on the sidelines and waiting for rates to drop, and the other is that many CRE loans are coming due soon.
“A lot of borrowers and investors were sitting on their hands during the last few quarters of 2024, even the first quarter of 2025,” Llorente told Mortgage Professional America. “Now there's a renewed sense of confidence that people want to do a refi, cash out to finish fixing their multi-family or retail strip or doctor's office, whatever the case may be.
“Also, a large number of commercial loans are coming due this year. That is going to force the market's hands. That's going to force liquidity to hit the market, because there's a lot of good paper out there that is maturing this year.”
Llorente notes that many well-qualified borrowers can find decent rates for refinances even in this challenging market.
“There’s going to be a need for new funds and programs to keep those properties going,” he said. “If you own a 500-unit apartment complex, and you’ve made your monthly mortgage payments on time and never gone above, let’s say a 5% vacancy, you deserve to be able to refi and get a somewhat competitive rate. Investors are now in play to provide that.”
Large loans make small rate changes more impactful
The commercial real estate market hasn’t escaped elevated interest rates, which have held steady thanks to the market turmoil caused by the ongoing international trade wars.
However, even small rate drops can make a big difference when talking about large CRE loans.
“Rates have gone down a little bit, but not like the good old days when we saw those one- or two-point drops,” Llorente said. “When you’re talking about a $20 million to $40 million loan, if rates go down by 0.1%, that’s a big number. When someone buys a house for $800,000, 0.1% doesn’t even cover a trip to Disney.”
Llorente notes some of the surges in applications have occurred in retail strip malls and medical offices.
“I’m seeing a lot of applications now with your mom-and-pop strip malls, and even some of your bigger name brand anchored malls,” he said. “Those are starting to come to market a lot more now. I’m a strong believer in the neighborhood strip mall that’s had the same hairdresser and whatever since 1995. I wish more investors believed in those strip malls as much as I do.
“And just today, I got three applications for medical offices. That’s taking up a lot more, as well as light industrial. There’s quite a few businesses taking off that need warehouse bays.”
One type of business that is expanding: ghost kitchens, or restaurants that prepare and deliver food without having a traditional dine-in element. They often allow people to order food from famous restaurants in areas where there is no established location.
“One deal I’m working on right now is one customer who has carved out a niche for himself,” Llorente said. “All he does is buy these light industrial properties and set up ghost kitchens, just for people who strictly sell food on Uber EATS, and he’s making money hand over fist.”
Office space is still struggling
Llorente, based in Miami, Florida, notes that his immediate market did not see the same damage to the office market as other major cities during the pandemic. But since he works on mortgages nationwide, he knows it’s still a challenging sector.
“We never took the jab to the ribs that Washington DC got,” he said. “But since I’m a national lender, we saw markets that were affected more than others. As of right now, neither I nor our investors really have an appetite for it.”
He said that one of the challenges with purchasing office space is that lenders receive multiple conflicting appraisal values for the same property. Some are using comps that don’t make geographic sense, and so many lenders are just steering clear.
Alex Horn of BridgeInvest sees opportunity in class A and B office properties despite a tough commercial real estate climate. He points to tenant demand for collaboration-ready, amenity-rich spaces as a key rebound driver in 2025.https://t.co/gcIeCg1oNT
— Mortgage Professional America Magazine (@MPAMagazineUS) May 1, 2025
“The issue offices still have right now is that if you have four different appraisals, you might get four distinct valuations,” Llorente said. “So, we’re probably still a few months away before I would seriously entertain any type of office transaction.”
Despite the challenges in the office space, Llorente is optimistic about both the current state and the future prospects of the CRE market.
“I believe we are trending in the right direction,” he said. “The fact that so many loans are coming to maturity this year, I’m hoping the uptick continues. Just the units that need to be refinanced, I believe, at last check, we’re going into a few hundred billion dollars’ worth of transactions. Even if 20% of them get modified, that’s still a lot of money, and a lot of deals that need to get done.”
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