ORIX USA’s Dean Dulchinos discusses commercial real estate finance trends in 2025
As the commercial real estate sector navigates a shifting economic landscape in 2025, industry leaders are facing a complex mix of cautious optimism and persistent structural challenges. In this interview, Dean Dulchinos, head of real estate debt at ORIX Corporation USA, shares his perspective on current lending trends, the rising role of private lenders, ongoing concerns around interest rate volatility, and how both banks and nonbank lenders are adapting to geopolitical uncertainty and legacy debt issues. From identifying attractive property types to mitigating risk in transitional assets, Dulchinos offers a comprehensive view of where the commercial real estate lending market stands today — and where it’s headed.
What is your current outlook for the commercial real estate lending market in 2025?
The first half of the year began with cautious optimism that was dampened by concerns over geopolitical uncertainty, including potential broad impacts of tariff strategy. As we kick off the second half of the year, deal flow has picked up, and we appear to be in for a busy summer with a steady flow of bridge lending opportunities across multiple property types.
What risks are lenders most concerned about in 2025, and how are they managing those risks?
Interest rate volatility and the potential for an economic slowdown driven by geopolitical risks are primary concerns. Additionally, legacy over-levered capital structures persist throughout commercial and residential loan portfolios for all types of lenders, and these over-levered assets are collectively increasing risk for lenders’ balance sheets. Strategies to mitigate risk for new loan production include focus on lower loan-to-value (LTV) exposures, especially for banks, which are transitioning CRE lending programs to warehouse products with lower last-dollar LTV exposures and away from direct lending products. In legacy portfolios, continued focus on asset management targets incremental reduction of risk over time through partial paydowns, extensions where warranted, and readjustments of loan structure and covenants to match the current reality. The legacy portfolios are a ground game that is being won by lending platforms with capable equity asset management resources.
How has the structure of the commercial real estate lending market evolved in response to recent market volatility?
The biggest structural change has been seen in how participants are engaging with the market. There has been a substantial increase in private lending platforms that are positioned to provide flexible products without the limitations imposed by bank regulatory regimes. Banks have shifted into a more symbiotic relationship with private lenders, providing the senior tranche of the capital structure via warehouse and other loan facility structures.
What role do traditional banks currently play in commercial real estate lending compared to previous economic cycles?
In the current market, banks play two roles. They are holders of large legacy portfolios of direct loans, many of which are distressed. These legacy loan portfolios are creating a drag on bank profitability and demanding asset management and workout resources to manage. In addition, banks are participating in the current market by adjusting to lower-LTV products, such as warehouse lines, that fit better within bank regulatory capital framework. All said, many banks have pulled away from direct mortgage lending.
What types of commercial properties are considered most attractive to lenders right now?
Multifamily and logistics/industrial have topped the target list for some time for many lenders, but as we saw geopolitics come to a head in the first half of the year, concerns about logistics and industrial caused some investors to reduce focus in that sector. Many lenders have been exploring specialty property types such as self-storage, healthcare, hospitality, data centers and student housing in the hopes of increasing cash flow stability and creating diversification.
How are private lenders filling the gaps left by more cautious bank lending practices in the commercial real estate market?
Private lenders are enjoying the opportunities that the shifting market has provided to them. They are lending at lower LTVs with better loan structure and credit quality and at higher yields due to base rates, which is resulting in a higher total return profile relative to risk than has been available historically. Many of these lenders offer flexible capital structures and quick closing times that enable them to capture business with more entrepreneurial sponsors who are able to take advantage of distress in the market.
What factors are influencing banks to tighten or loosen their commercial real estate lending standards in today’s environment?
The two primary factors influencing the availability of bank capital are (1) impacts of regulatory regimes on the profitability of bank loan products, which are making direct lending less profitable and warehouse lending more profitable, and (2) legacy loan portfolios continue to limit bank capital availability because as older loans fail to pay off, recycling of capital for new loans is challenged.
In what ways are private lenders structuring their loans differently than traditional banks to stay competitive or mitigate risk?
Private lenders, as a whole, tend to have greater flexibility in their loan products. This enables them to tailor each deal to match the specific risks and business plan of each asset. Banks, on the other hand, tend to develop specific loan products that are more standardized. This standardization limits their ability to adjust to the unique needs of each asset, which makes them less competitive in the market.
How might economic factors like inflation or a potential recession impact the commercial real estate lending landscape in the near future?
The impacts of broader economic factors and events, such as inflation and recession, will typically flow through real estate markets on the demand side first. Economic pressure on end-users reduces overall demand, rents fall, and ultimately supply is impacted when the market responds. While we have seen significant negative impacts in the commercial real estate market as a result of higher interest rates, current levels of inflation and lower recessionary risk indicate lower volatility in the near to medium term for real estate. This does not mean that an unexpected systemic shock, such as a geopolitical surprise event, cannot have far-reaching impact, but current conditions seem to indicate that the real estate market will continue to recover from the recent shock to interest rate and may benefit from falling rates as the Fed and other market participants get comfortable with what appears to be a lower-risk environment.
How important is loan flexibility (e.g., interest-only periods, covenants) in today’s lending environment?
These tools are very important for lenders and borrowers designing a bridge loan to fit the specific needs of assets that are undergoing transitional business plans. In a bridge loan, the lender is providing a dynamic financing solution for a borrower who is creating value at an asset through the execution of a business plan. This often entails financing the asset through periods where cash flows are temporarily reduced. The ability to structure creative payment solutions while also ensuring maintenance of strong credit profiles through enhancements such as covenants and rebalancing provisions enables the lender to invest into these transitional scenarios without sacrificing the credit quality of the loan cash flows they are developing across their portfolio.
Could a wave of CRE loan maturities trigger more distressed asset sales or refinancing challenges this year?
While legacy loan portfolios continue to experience rolling maturities, the threat of a massive wave of unfunded maturities seems less likely than it did last year. As the market has ground forward, lenders and borrowers have continued to work through problem loans, through modifications and extensions in many cases, and through foreclosures in the more extreme cases. This does not mean there isn’t pent-up distress that can create risk and pockets of opportunity across the market, but the idea that a flood of maturities will upend the market is less prevalent.