July 15, 2025 - As we have written about extensively, the capital stack is changing. We have also witnessed new, non-real estate investors moving into the industry, and it has opened up a new field of funding from non-traditional sources. What are those sources? Where are real estate companies now getting their financing?

To find out, we surveyed 440 commercial real estate leaders in conjunction with the Commercial Observer. This article examines how real estate leaders feel about the current market and where they are finding their capital. It also examines ways that a finance, accounting, and tax advisor can help your firm choose the best and most tax-advantaged vehicles.

Access the full survey results.

Real Estate Leaders Are Optimistic

Respondents told us they are feeling more positive about the economy, interest rates, and the commercial real estate market than they have in the past two years. That said, their optimism is qualified. Many are watching the $1.8 trillion of commercial loans due before the end of 2026 and expect some disruption:

• 54% expect more defaults and foreclosures
• 52% expect more loan extensions
• 43% expect more properties to enter the market

Meanwhile, about half of respondents expect cap rates to remain unchanged across classes. Most expect the ongoing real estate recovery, to play out regionally and by asset class. Investors say they are most excited about the sunbelt region, for all asset classes. They are broadly concerned about rising costs such as labor (60%), liquidity (49%), and rental limits (41%).

Many real estate sectors are seeing strong fundamentals including multifamily and industrial while sectors such as office and retail which have, in recent years, experienced a period of transition and adjustment, exhibit signs of increasing stabilization. Importantly, there generally is an increasing desire to transact as bid-ask spreads narrow. However, all of this is tempered by a fear of rising costs and general market concerns over uncertainty caused by federal trade policies and geopolitical risks as well as lingering pandemic impacts (i.e., return to office). The result is a capital market where firms are looking to get particularly clever and inventive.

Where Investors Are Getting Capital

Just as asset supply lags behind construction, capital trends lag two years behind market conditions. The present financing strategy is a product of the tight market conditions of the past few years, defined by unpredictable inflation and high interest rates. Investors in our survey say they have gotten more creative about where they seek capital. They continue to rely on regional banks as their primary source but are considering a more diverse mix including more non-bank institutions.

Investors say their most important sources of financing over the next 12 months are:

• Regional banks - 28%
• Debt funds - 24%
• Non-bank financial institutions - 20%
• Insurance companies - 18%
• CMBS - 16%
• Fannie Mae / Freddie Mac / FHA - 11%
• Money center banks - 10%
• Pension funds - 6%
• REITs - 6%
• Other - 5%
• None of the above — will not need financing - 23%

In addition, investors said they would use the following types of financing:

• Balance sheet lending - 39%
• Preferred equity - 31%
• Common equity - 28%
• Mezzanine financing - 22%
• C-PACE financing - 16%
• Crowdfunding - 5%
• Other - 5%
• None of the above - 36%

Notable here is the sudden rise over these past few years in financing from the middle of the capital stack — preferred equity and mezzanine financing. This is an outgrowth of the market conditions we have seen recently where uncertainty and lack of available credit were consistent themes. From an investor’s perspective, preferred equity and mezzanine financing provide higher returns with stable cash flows and less risk as compared to a common equity investment, while borrowers enjoy the ability of this type of financing to be flexible and bridge funding gaps between senior debt and equity financing while accessing capital without diluting ownership or control.

What Commercial Leaders Can Learn from This

Volatility is back in a big way with the new administration’s trade policies. It is difficult for us to imagine things settling back down soon. Trade wars impact interest rates which have already stayed the hand of the Federal Reserve which will not drop interest rates further until later in the year, at the earliest. In this type of turbulent environment, it is useful to plan for multiple scenarios — especially from a financing perspective.

For example, has your team considered your full flight of alternative funding options? Or surveyed the dozens of office conversion programs, and all their various terms? Citrin Cooperman's Real Estate Industry Practice works with organizations of all sizes and has a thorough appreciation for the challenges and nuances present in the marketplace. In addition to attest and tax compliance services, our team has an established reputation for providing insight on areas ranging from transaction structuring, advising on the availability of federal state and local tax credits, internal controls, IT advisory services to ensure organizations are resilient and capable of making use of new AI commercial real estate technologies, and more. Our team is available to help you explore what is available to you.

If your team has questions about what types of financing to pursue, and the regional and local tax laws concerning your investment, reach out to Bill Saya.