In commercial real estate (CRE), owners and decision-makers must balance operational costs, maximize cashflow, and position their portfolios for future growth. One often underutilized resource in achieving these objectives is the debt advisor. These professionals offer expertise in optimizing debt structures, negotiating favorable terms with lenders, and matching cashflow with the most optimal debt. This blog explores the value debt advisors bring to CRE firms, highlighting their role in lender negotiations, debt structuring, risk management, and ongoing portfolio oversight.
The Strategic Role of Debt Advisors
At its core, a debt advisor’s role is to provide expert guidance in structuring, managing, and optimizing debt to align with an owner or decision-maker’s goals. In today’s complex market, securing optimal financing terms requires deep knowledge of debt instruments, financial modeling, and market dynamics. CRE professionals, particularly those with small- to mid-sized portfolios, often lack the internal resources to navigate these challenges efficiently. Debt advisors bridge this gap by designing and implementing strategic debt solutions tailored to the portfolio’s short- and long-term financial strategy.
Beyond securing initial financing, debt advisors play a key role in ongoing debt management, ensuring that portfolios remain financially resilient in the face of shifting market conditions. Whether monitoring leverage ratios, such as loan-to-value (LTV) or debt-service coverage ratio (DSCR), or analyzing refinancing or sale opportunities, these professionals offer insights that can materially impact an asset’s returns.
Navigating Lender Negotiations
Loan terms can significantly impact an asset’s profitability. Debt advisors are skilled in structuring favorable financing terms through lender negotiations, leveraging their market knowledge and lender relationships to achieve optimal outcomes. An experienced debt advisor can negotiate lower interest rates by identifying alternative financing sources and structuring competitive loan packages. They can also work with their network to help secure flexible repayment structures —such as extended amortization schedules or interest-only (I/O) periods—to improve near-term cashflow.
Example: A multifamily owner with properties in high-growth markets faced rising interest rates. A debt advisor facilitated refinancing by negotiating a fixed-rate loan, protecting the owner from further rate hikes. Additionally, by securing an improved LTV ratio, the owner freed up equity to reinvest in new acquisitions. The ability to capitalize on lender competition allowed the owner to secure more favorable terms than initially anticipated, improving long-term financial stability.
Optimizing Debt Structures for Cashflow and Liquidity
Debt plays a pivotal role in cashflow management. Misaligned debt structures can strain liquidity, while optimized financing enhances operational flexibility and profitability. Debt advisors assess existing debt positions, identify inefficiencies, and implement solutions that maximize cashflow. They can identify favorable market conditions to refinance at lower rates, implement I/O periods to temporarily reduce principal payments and free up capital, and extend loan terms to improve annual cashflow by stretching out amortization periods.
Example: A commercial office operator struggled with declining cashflow due to increasing debt service costs. A debt advisor identified the opportunity to restructure the loan to include a five-year I/O period, providing liquidity to fund property improvements, which subsequently increased rental revenue and asset valuation. This strategic move enabled the firm to enhance tenant attraction efforts and secure higher lease rates, leading to a stronger overall portfolio performance.
Aligning Debt with Growth Objectives
As owners expand their portfolios or reposition assets, aligning debt structures with their long-term strategy is critical. Debt advisors help owners determine optimal leverage levels and structure financing to support growth while maintaining financial resilience. They ensure a sustainable capital stack for acquisitions and developments, evaluate mezzanine financing or preferred equity to enhance capital efficiency while managing risk, and lock in long-term financing at strategic moments to take advantage of favorable rate environments before market conditions shift.
Example: A mixed-use developer relied on short-term financing that did not align with their long-term strategy. By working with a debt advisor, the firm restructured its capital stack, securing long-term financing that stabilized cashflow and provided additional mezzanine financing for new acquisitions. This provided flexibility to phase development timelines based on market demand rather than financing constraints, ultimately improving project profitability.
Managing Risk and Economic Uncertainty
CRE owners and decision-makers must proactively manage debt risk, especially in volatile economic conditions. Debt advisors provide critical insights into hedging strategies, portfolio diversification, and interest rate risk management. They help mitigate interest rate fluctuations by utilizing swaps, caps, or collars. They also run financial models under different market scenarios to assess resilience and recommend diversification strategies to reduce exposure to a single lender or financing product.
Example: A retail property owner concerned about rising interest rates worked with a debt advisor to implement an interest rate swap, locking in a favorable fixed rate for five years. This protected cashflow and provided stability in debt service obligations. Without this proactive risk management strategy, the owner would have faced significant cashflow disruptions due to fluctuating market conditions.
Ongoing Portfolio Management
Debt optimization is not a one-time event; it requires continuous monitoring. Debt advisors provide ongoing oversight, tracking market shifts and refinancing opportunities to ensure that debt structures remain optimal. Regular portfolio reviews help owners and decision-makers identify refinancing opportunities based on market trends, adjust debt structures in response to changing cashflow needs, and maintain compliance with loan covenants to avoid penalties or defaults.
Example: An industrial portfolio owner engaged a debt advisor for quarterly portfolio reviews. The advisor identified an opportunity to refinance properties at lower rates due to shifting market conditions, reducing debt service costs and freeing up capital for expansion. The ability to act swiftly in response to rate movements allowed the owner to reinvest in higher-yielding assets and expand their industrial holdings without straining liquidity.
Unlock Value Today
Debt advisors are invaluable partners in CRE, providing expertise in financing negotiations, debt structuring, and risk management. Their strategic guidance helps owners and decision-makers optimize cashflow, manage risk, and align debt with growth objectives. By leveraging a debt advisor’s insights, CRE professionals can enhance portfolio performance, increase financial flexibility, and position themselves for long-term success.
The greatest risk in debt optimization is inaction. Missed refinancing opportunities and inefficient debt structures can erode value over time. At Defease With Ease | Thirty Capital, our debt analysts can help you take a proactive approach and ensure your financing strategy aligns with market opportunities. Schedule your complimentary strategy session today.
