As the commercial real estate industry approaches the halfway mark of the year, there’s been considerable evolution in the macroeconomic environment. The implications of that evolution will be part of the conversation when BH Properties president Jim Brooks and other industry leaders gather for the ninth annual “View from the Top” discussion at Connect Los Angeles 2025 on June 18. Connect CRE spoke with Brooks in advance of the live event to help set the stage: 

Q: We’re headed toward the midpoint of 2025. How has the macroeconomic outlook evolved over the past six months as far as commercial real estate fundamentals are concerned? 

A: We have seen a number of impacts over the past six months.  Cost of capital remains high.  The Federal Reserve’s cautious approach of maintaining benchmark rates between 5.25% – 5.50% has kept capital expensive and has contributed to a 15% year-over-year drop in loan originations and with nearly $1 trillion in CRE and multifamily debt maturing later this year, there is significant refinancing risk.   

Money center banks, traditional lending sources, largely remain on the sidelines; however, private capital and debt funds are providing alternatives. Buyers looking to enhance their returns with leverage are finding that difficult and for those that do, they are paying a premium.   

In addition to capital, we are left to navigate the risks and complexities of tariffs and their impact on foreign investment, along with considering investment decisions due to rising import costs for construction materials. A number of projects have hit pause until there is more clarity. Despite it all, transactions are getting done and have shown improvement over the same period in 2024 driven by improved lending conditions, narrowing bid-ask spreads and renewed investor confidence. 

Q: Where do you see challenges and where do you see opportunities when it comes to getting transactions done? 

A: It depends on where you sit. As an investor, there continues to be opportunities for private capital investment as institutional capital remains largely on the sidelines, reducing competition for those distressed sellers looking for an exit whether unwilling or unable to reinvest additional capital or refinance to remain afloat. Those acquisitions allow for a reset in basis, resulting in a more economically competitive property, and it’s not just in office. Re-purposing vacant retail anchors, typically standalone boxes, has proven to be a winning formula capitalizing on retails strength.   

As a lender, with traditional banks working through legacy assets and continued hesitancy to lend, debt solutions with private capital and debt funds are creating flexible (but more expensive) financing alternatives and there are office-to-residential conversions presenting redevelopment opportunities especially where zoning supports mixed use conversions.   

Challenges: Cost of capital—many assets are trapped with 2020 – 2021-era debt terms.  Refinancing now often triggers equity dilution or forced sales. The bid-ask spread delays deals as sellers are anchored to pre-2022 valuations and buyers demanding higher cap rates. Fewer comps are complicating the appraisal process integral to the financing process. 

Q: How might further rate reductions by the Federal Reserve stimulate the business climate? 

A: Lower cost of capital; borrowers with floating or maturing debt are able to refinance at better terms; developers are more likely to launch or re-start projects currently on hold. 

On June 18, join industry-leading experts when they explore the most important topics in today’s CRE markets. Register to attend and hear expert insights first-hand, network with the best in the industry, and sit in on discussions you won’t hear anywhere else. The 9th Annual Connect Los Angeles 2025, June 18 at the Intercontinental Los Angeles Downtown.