In today’s commercial real estate climate, no asset class has faced more skepticism than office. Headlines paint a dire picture: hybrid work is here to stay, urban cores are struggling to rebound, and vacancy rates have surged in some markets. But, while these trends have certainly complicated the underwriting process, they have not closed the door on office financing. There is liquidity out there—just not for every deal.

Since last year, I’ve closed four office financings totaling about $75 million, each in a different market and under different circumstances. What they had in common was a thoughtful story, credible sponsorship, and a lender that understood nuance. In each case, the borrower had a vision backed by capital and a strong business plan. Despite the broader macro narrative, these deals got done.

Where Lenders Are Leaning In

The current office financing market is highly bifurcated. Commodity, undifferentiated office in markets with weak fundamentals? Nearly unfinanceable. But a reset basis, strong leasing velocity, perhaps some credit tenants, mixed-use repositioning, and medical office in undersupplied suburban submarkets? That’s where many lenders are still playing – albeit with caution.

Local and regional banks remain active, especially in markets they know well. In several of my recent transactions, regional banks provided the most competitive terms, driven by deposit relationships or confidence in the sponsor’s track record. While loan-to-value ratios have come down to between 50% and 60% and debt yields are mid-teens and up, pricing can be sub 7%, depending on the deal’s strength and the leverage profile.

Private debt funds are also stepping in, often where banks have pulled back. For deals with some hair—such as lease-up risk, transitional business plans, or mixed credit tenancy—these lenders are offering creative structures with flexible prepayment and structured reserves. They’re pricing risk appropriately, generally spreads of 400 over and up, but they’re still quoting.

The New Rules of Engagement

The underwriting bar is higher across the board. Lenders today are asking harder questions:

• What’s the current and projected occupancy?
• What’s the leasing velocity?
• How creditworthy are the tenants?
• What is the cost basis relative to market comps?
• Is there a clear, believable path to stabilization or exit?

Deals are getting sized to in-place cash flow and rents cannot be trended. Appraisals are being heavily scrutinized. And most lenders are now underwriting vacancy for even the strongest tenants once lease rollover comes into view.

That said, execution is possible when borrowers approach the market with realism and transparency. Overpromising rent growth or underestimating TIs and downtime is a surefire way to lose lender interest. What’s working instead is conservative underwriting, experienced sponsorship, and demonstrating a deep understanding of the local market dynamics.

What’s Getting Financed

Here’s what we’re seeing capital for:

• Lease-Up Plays: Buildings that are partially stabilized but have momentum and a realistic lease-up trajectory.
• Strong Credit Tenancy: Even in older product, if the income stream is predictable and backed by a reliable tenant, debt is available.
• Medical Office: Especially in growing suburban nodes with proximity to hospital systems or major healthcare employers.
• Conversions or Repositions: Office-to-medical or office-to-lab plays in top-tier metros or submarkets with real demand.

Lenders are less concerned about the term “office” than they are about the specifics. A well-located, stabilized office building in a healthy submarket with durable cash flow can still command competitive debt quotes.

The Bottom Line

It’s fashionable to declare that “office is dead,” but that’s a lazy generalization. Yes, there are serious headwinds—and they’re not going away anytime soon. But capital is still available for the right office assets, especially those that are operationally sound or strategically positioned to evolve.

For borrowers with well-located product, institutional discipline, and a compelling story, now is not the time to sit on the sidelines. The office capital markets may be thinner, but they’re not closed.

Priority Capital Advisory is a premier boutique debt and equity capital advisor for middle market and institutional commercial real estate sponsors and investors. PCA arranges highly structured and innovative finance solutions up and down the capital stack, with a focus on transactions with a total capitalization of $20 million to $200 million. PCA leverages debt and equity solutions for all property types including capital from debt funds, life insurance companies, commercial and investment banks, agency financing, CMBS, mortgage REITs, and pension funds. To learn more about PCA visit www.prioritycapitaladvisory.com.

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