cre-news
Aug 6, 2025
Office Lending in 2025: Selective, Structured, but Still Standing
Don Pavlov is Head of Capital Markets at Lev
In a commercial real estate market defined by volatility, perhaps no asset class has faced as sharp a re-pricing as office. With headlines declaring the "death of office" and transaction volume down across gateway cities, many borrowers have assumed that debt capital has all but evaporated from the sector.
That's not the view from Lev's capital markets desk.
The numbers tell a different story. Through the first part of 2025, we've launched 107 office deals totaling $1.3 billion across our platform. That's real capital seeking real deals (65% permanent financing, 35% transitional), proving that while the market has fundamentally shifted, it hasn't shut down.
Current market data reinforces this reality. The overall availability rate for U.S. office space stood at 23.2% at the close of the second quarter¹, yet office sales volume surged 69% over the past four quarters¹. Meanwhile, national office fundamentals show signs of gradual improvement, with 36 of 92 U.S. markets experiencing positive absorption in Q2², and modest negative net absorption of -2 million square feet representing improvement from -7 million square feet in Q1³. Premium assets continue attracting institutional capital, with trophy and Class A assets accounting for more than 71% of transactions¹, and trophy buildings across major markets capturing all-time high rents³.
Deals are still getting done. Office loans are closing every week, but the terms have shifted, the lender pool has narrowed, and the bar is significantly higher. Office today is not unfinanceable, but it is unforgiving.
This quarter's Vantage Point breaks down what's working, who's lending, and how sponsors are navigating the narrow path to execution.
Lender Participation: Conditional, Not Canceled
Contrary to popular narrative, most lender types are still quoting office loans. The difference in 2025 is selectivity, and our deal flow reflects this reality.
The lending environment has shifted significantly. Banks are requiring higher debt service coverage ratios and lower loan-to-value requirements, with most lenders now demanding a minimum DSCR of 1.20x-1.25x for office properties.
CMBS lenders are pursuing stabilized suburban refis with clean cash flow and tight lease rollover structure. One recent conduit quote cleared at T+274, with a buydown option to T+166. That deal featured full interest-only, 65% LTV, and carefully engineered cash sweep triggers tied to anchor renewals. These lenders represent roughly 25% of our successful office closings, but they're laser-focused on cash-flowing suburban assets.
Credit unions and regional banks remain active in suburban and medical office, particularly when the sponsor is local and conservative. A recent acquisition of a dental-anchored property saw multiple quotes on the strength of its 1.5x DSCR and 13%+ debt yield. This segment has been surprisingly resilient, accounting for nearly 40% of our permanent finance closings.
Bridge lenders are still showing up for value-add plays, but only when the plan is tight and the equity is real. A Southern California office campus with a 2.15x IO DSCR and 15% stabilized yield received multiple floating-rate offers based on basis strength and timeline certainty. Bridge deals now require 30-35% equity minimums, a significant shift from the 20-25% norm of prior years.
Across the board, lenders are looking for clear alignment of story, structure, and sponsor credibility. The deals that work tend to share those traits. The deals that don't work typically fail on one of three fronts: weak sponsorship, unclear business plan, or unrealistic execution timeline.
What's Financeable: A Breakdown by Office Type
The market is no longer asking "is it office?" but rather "which kind?" and "under what terms?" Based on our $1.3 billion in deal activity, a clear hierarchy has emerged:
Most Financeable:
Medical and professional office: These assets continue to receive strong lender interest, particularly when anchored by long-term users. Recent term sheets have offered 75% LTV, 25-year amortizations, and rates in the mid-6% range—with recourse. Medical office represents 35% of our successful permanent deals, with average loan sizes of $8-15 million.
The performance differential is clear: medical office properties consistently outperform traditional office across key metrics, with stronger occupancy rates and more stable tenant profiles.
Low-rise suburban campuses: If the NOI is proven and the story is tight, bridge capital remains accessible. One recent deal with national-credit tenants and modern finishes received multiple quotes despite partial vacancy. These deals typically pencil at 60-65% LTV with 18-24 month terms.
Flex and executive parks: Financeable when backed by strong sponsors and clear partial release strategies. A recent transaction with a 1.56x DSCR cleared with multiple lender options. The key is demonstrating multiple exit strategies and conservative underwriting.
Moderately Financeable:
Class A suburban with strong tenancy: Properties with investment-grade tenants or government leases can still attract competitive quotes, though terms are notably tighter than 24 months ago.
Owner-user scenarios: When 50%+ of the building is owner-occupied, lenders view the risk profile differently. These deals often close at higher leverage but require significant personal guarantees.
Least Financeable:
Urban Class B/C or large CBD towers: Unless there's an owner-user component or an anchor tenant with a long-term lease, these assets remain largely out of reach for conventional financing. We've seen exactly three successful CBD deals over $50 million close this year—all with exceptional circumstances.
Speculative development or major repositioning: The capital for transformative office plays has effectively disappeared from traditional lending channels.
In short, needs-based, low-density, and income-stable office product remains in the lending conversation. Trophy towers with occupancy questions do not.
Terms, Spreads, and Structures: Office vs. the Field
Compared to other core asset classes, office spreads are meaningfully wider and lender protections are more stringent. Our deal data shows the gap has widened significantly over the past 12 months.
Current market observations:
Fixed rates ranging from 6.25% to 7.75% (vs. 5.75%-6.50% for comparable multifamily)
LTVs typically capped at 65%; some quotes limited to 55% unless additional credit support is provided
Debt yields of 11–13% as the new underwriting norm (up from 8-10% pre-2023)
Full recourse increasingly standard at higher leverage levels
Step-down prepay structures common (5/4/3/2/1), though a few lenders are offering flexibility on longer-dated fixed product
The spread penalty is real. Relative to multifamily or industrial, spreads on office are generally 75-150 basis points wider. More telling is what's happening with structure: escrow reserves, sweep mechanisms, and partial release requirements are appearing more frequently, especially on multi-tenant or multi-building deals.
We're seeing average closing costs increase by 40-50 basis points due to additional due diligence, environmental assessments, and legal structuring requirements. With historical office loan performance challenges, lenders are engineering every possible protection into their deals.
Structure as Risk Management
Lenders active in office are engineering downside protection into their term sheets. The most common structures we're seeing include:
Partial releases tied to DSCR hurdles or sale pricing thresholds, now standard on 70% of multi-building deals
Cash sweeps triggered by tenant rollover events or sponsor performance covenants, appearing in 60% of transitional deals
Deposit relationship requirements in exchange for pricing flexibility or access to interest-only periods
Enhanced reporting requirements, including monthly financials and quarterly rent rolls (vs. annual reporting on other asset classes)
Even cash-out refinance requests are being quoted in some cases, but only at sub-60% leverage and with conservative structure around repayment mechanics.
The message is clear: lenders are open to office, but they want maximum optionality if conditions soften further.
Looking Forward: Three Trends to Watch
Based on our deal flow and lender conversations, three trends are shaping the next 12 months:
The "flight to medical" accelerates. Medical office is becoming the safe harbor for capital seeking office exposure, with some lenders creating dedicated medical office programs. The tenant stability and essential nature of medical services make these properties increasingly attractive to conservative lenders.
Bridge-to-perm structures gain traction. More sponsors are accepting 18-24 month bridge terms with conversion options, giving lenders time to assess stabilization before committing to permanent terms. This reflects the reality that traditional refinancing timelines may not accommodate current market conditions.
Partial release mechanisms become standard. Multi-building deals without clear partial release strategies are increasingly difficult to finance, regardless of asset quality. Lenders want maximum optionality for portfolio management given the elevated risk environment.
Final Word: Not Dead, Just Disciplined
The office lending market has not disappeared. It has become more story-driven, more sponsor-sensitive, and more structured.
Deals are closing when:
The business plan is credible and time-bound
The sponsorship is experienced and well-capitalized
The asset generates current cash flow or serves tenants insulated from remote work risk
The equity contribution reflects current market realities (typically 30-40% for transitional, 25-35% for permanent)
Our $1.3 billion in office transaction volume proves the capital markets aren't saying "no" to office. They're saying: show us why this sponsor, why this tenancy, and why this deal is worth doing today.
The broader market reinforces this message. Despite ongoing challenges with hybrid work patterns and elevated vacancy rates, premium assets continue commanding institutional capital. U.S. office leasing activity totaled 138 million square feet in the first half of 2025¹, while CBRE reports that prime buildings saw vacancy decrease by 30 basis points to 14.5% in Q2⁴. Sales activity surged with strong investor interest in trophy and Class A properties¹. The margin for error may be gone, but for disciplined borrowers and thoughtful structures, the path to financing remains open.
The key is understanding that today's office lending market rewards preparation, penalizes speculation, and demands that every deal tell a compelling story backed by conservative underwriting. As one major bank executive recently noted, while the office sector faces headwinds, patient capital is finding opportunities in well-positioned assets at attractive basis points.
The deals are out there. The capital is available. The question is whether borrowers are ready to meet the market where it stands today.
Sources:
Avison Young, "US Office Market Reports" - Q2 2025 office availability rate, sales volume surge, and asset class composition
Cushman & Wakefield, "U.S. Office MarketBeat Reports" - Q2 2025 positive absorption in 36 of 92 markets
JLL, "U.S. Office Market Dynamics" - Q2 2025 net absorption data and trophy building performance
CBRE, "Q2 2025 U.S. Office Figures" - Prime buildings vacancy rate data
