A significant amount of debt is maturing in a high-interest rate environment, creating refinancing challenges for borrowers. Many are now in a tough position: some will be forced to surrender their properties to lenders, while others may raise new capital to repay existing lenders and refinance with new ones. Although this is not ideal for most investors, it reflects a typical phase in the real estate cycle, where borrowers must navigate resets and make difficult decisions about their assets and lenders.  

Paul Rahimian, Founder and CEO of Parkview Financial, a Los Angeles-based bridge and construction lender for residential and commercial developments, recently shared his insights with Connect on how the current interest rate environment is influencing real estate lending strategies, the refinancing challenges faced by commercial real estate borrowers, and his expectations for the remainder of the year. 

How do you see the current interest rate environment shaping the real estate landscape right now?   

PR: The current interest rate environment gives the real estate industry more clarity in that the hope for lower rates has dissipated. For sectors and assets that are troubled, the days of “extend and pretend” are now past us. Although disappointing to many in the industry, it clears the pathway for owners to take action and make necessary, yet difficult, decisions on next steps with their assets.  

At a clear crossroads, where many equity owners are under water with no hope for lower rates in the near future, real estate operators must either sell assets – at whatever price they can get – or let the property go by way of a foreclosure or deed in lieu to the bank. This is clearly not the favorable outcome for investors, but we recognize that tough decisions will need to be made in 2025 and 2026.  

This will ultimately lead to more transaction volume as many exit their current position and allow others to take control of assets at a much lower basis than in the last real estate cycle (2010-2023).  Although painful in the short term, this type of transaction activity will allow for a reset of the market and the beginning of a new commercial real estate cycle. 

CM: How does this environment affect lending strategies and opportunities for firms like Parkview?   

PR: The current environment across real estate markets will allow private lenders including Parkview to provide bridge financing for new owners to acquire assets at a lower basis and allow lenders to provide loan dollars at a lower number – all accretive to a new real estate cycle that is well under way.  

The low-rate environment of the last real estate cycle is now a distant memory and all real estate players – both on the debt and equity side – will reshape their commitment to real estate at a lower basis. This new higher rate environment where banks are scaling back commitments provide a new opportunity for private lenders like Parkview to originate new loans – in a new environment – all while entering a new real estate cycle, where values should be at a lower basis. 

CM: How concerned are you about the refinancing needs of CRE borrowers?   

PR: There is a significant volume of maturing debt, which poses a refinancing challenge, especially in a high-interest rate environment. A significant portion of borrowers are in a difficult spot – where many will have no choice but to hand over keys to lenders, while others will be able to raise fresh capital to pay down existing lenders and refinance them out with new lenders. Although not ideal for most investors, this is typical in a real estate cycle where many borrowers are due for a reset and need to make difficult decisions on what to do with their assets and their lenders.  

We believe it will be challenging for many borrowers to refinance assets, but if they have lower leverage (less than 60% LTV in the past cycle) or an equity partner that can write a check, they have more avenues to refinance their current debt. Unfortunately, lenders are getting impatient, and defaults are compounding. Most deals are hitting the inflection point for a borrower to either sell or hand over the property to their lender. 

CM: Multifamily has been a big focus in real estate. What’s your take on its current state?   

PR: Multifamily continues to be the darling of the real estate world. Despite some geographies that have experienced rental rates heading south, the valuations on multifamily assets remain strong. Lower rents are deemed temporary, and cap rates stay attractive, all leading to more demand for multifamily assets. The saying goes – “everyone has to live somewhere” and this remains true with multifamily where the long-term strength remains, and it continues to be the safest asset class. As such, we intend to focus on multifamily in the current market environment and will try to originate mostly multifamily for our portfolio. 

CM: Looking into your crystal ball, how do you see the remainder of the year playing out in CRE?   

PR: In the year ahead, we believe the industry will endure more distress given the higher rate environment and lower property values, and as a result, many real estate owners need to make difficult decisions on their assets. The level of distress this year versus next year remains to be seen, but we are starting to see cracks and know it’s forthcoming. We will see more transaction volume as owners will need to either sell assets or bring in fresh equity to bridge the gap between the value of their asset and a take-out lender – that will most likely come in at a lower loan amount than their current lender.   

Although a difficult predicament for borrowers, this will lead to the trading of more loans, more assets and overall, more transactions. And ultimately, there will be a greater number of opportunities for private lenders to support the market through bridge lending or rescue capital and originate new loans at the start of the new cycle.