Office real estate has become the poster child for commercial property skepticism in today’s market. Headlines often paint a grim picture: hybrid work models have become entrenched, urban office districts are slow to recover, and vacancies have reached record highs in some cities. Still, despite these formidable headwinds and the increased difficulty of underwriting office deals, financing for new office projects has not vanished entirely. Capital remains available—but only for select deals.
Over the past year, I successfully closed four office financings totaling approximately $75 million. Each transaction took place in a different market, involving varying strategies and challenges. Yet, all shared essential ingredients: a compelling narrative, credible and experienced sponsorship, and a lender with a nuanced perspective. In every case, the borrower presented a clear vision, sufficient capital, and a robust business plan. Despite the prevailing pessimism surrounding the sector, these deals made it across the finish line.
The current environment for office financing is distinctly bifurcated. Generic, undifferentiated offices in weak markets are proving nearly impossible to finance. However, where there is a compelling reset on basis, healthy leasing activity, the presence of credit tenants, plans for mixed-use repositioning, or medical office developments in supply-starved suburban areas, lenders are still showing interest—though with heightened caution.
Local and regional banks continue to issue loans, especially in markets where they have established relationships and knowledge. In several recent cases, these lenders offered the best terms, motivated either by existing deposit relationships or confidence in an operator’s proven track record. Typical loan-to-value ratios have dropped to the 50–60% range, and debt yields are in the mid-teens or higher, although interest rates can dip below 7% for well-structured deals with moderate leverage.
Private debt funds have become more visible, especially where traditional banks have grown hesitant. They are stepping in to finance properties with transitional business plans, lease-up risk, or non-traditional tenancy arrangements. These lenders are offering creative structures—including flexible prepayment options and structured reserves—and are pricing risk accordingly, often quoting spreads of 400 basis points and above. Despite the turbulence, they remain active.
Lending standards are universally stricter. Underwriters now ask detailed questions about current and future occupancy, leasing momentum, tenant creditworthiness, and whether the cost basis aligns with market comparables. They seek evidence of a credible path to stabilization or exit. Underwriting now relies on actual cash flow, with no allowances for speculative rent increases. Appraisals face intense scrutiny, and even the most stable tenants are underwritten with future vacancy risk in mind once lease rollovers approach.
All of this means successful execution demands honesty and discipline from borrowers. Overly optimistic projections about rent growth or underestimating tenant improvements and potential vacancy can quickly deter lenders. What succeeds now is conservative underwriting, experienced sponsorship, and a deep grasp of local market trends.
Financing is materializing for certain deal types:
- Properties with solid leasing momentum and believable lease-up trajectories.
- Older buildings with stable, creditworthy tenants offering predictable income.
- Medical office space in expanding suburban markets near hospitals and major employers.
- Conversions or redevelopments, especially shifting office space to medical or laboratory use in high-demand areas.
For lenders, the term “office” is less important than the specifics of the asset: its location, performance, and ability to generate durable cash flow. Strong, stabilized properties in healthy submarkets are still securing attractive financing terms.
The prevailing narrative may suggest that “office is dead,” but that oversimplifies reality. Substantial challenges remain, and they are unlikely to dissipate soon. Yet, capital is available for sound assets, particularly those able to adapt or reposition successfully. For borrowers with well-situated properties, institutional discipline, and a strong business case, this is not a time for inaction. The office capital markets may be less robust than before, but they remain open to the right opportunities.
Zachary Streit is the founder and president of Priority Capital Advisory.
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