A Reality Check for Family Offices

Over the last two years, the ground beneath real estate finance has shifted. For family offices with significant holdings or investments in commercial real estate, the cost of capital is no longer a line item easily forecasted or controlled. It has become a dynamic variable – one that demands fresh perspective, proactive repositioning, and a willingness to engage differently with debt.

Rates that once provided attractive leverage are now eroding margins. Lending relationships that felt reliable are becoming less predictable. This is not a short-term cycle to wait out, it is a new phase, one that family offices must actively manage if they are to preserve both liquidity and long-term value.

The Margin Squeeze: What Higher Debt Costs Mean Now

Construction and bridge loans, once reliably priced in the 4 to 5 percent range, are now being offered at 7 to 9 percent or more. In some cases, even higher. What does that actually mean?

It means that projects once modeled with a 150 to 200 basis point spread over cost are now struggling to pencil. It means that holding periods must be longer to achieve the same IRR. It means that contingency buffers are no longer optional. And for those working with third-party operators, it means a sharper eye on who is managing debt risk in the capital stack.

This is not an abstract threat. It is playing out in real time across active developments. Financing costs are eating into equity returns, even as asset values soften under the pressure of higher cap rates.

For family offices with a patient capital orientation, this environment still holds opportunity, but it requires a recalibrated lens. Low-leverage deals, off-market assets, or direct participation in operating platforms may provide better control over debt structuring. But that comes with new demands on due diligence, sponsor oversight, and capital planning.

Loan Maturity Risk Is No Longer Theoretical

Properties financed between 2018 and 2021 were often underwritten at historically low interest rates. Floating-rate debt was commonplace, as short-term financing appeared cheap and manageable.

Now, many of those same properties are reaching loan maturity or are approaching rate resets. And the new financing landscape is far less forgiving.

Refinancing a loan that was issued at 3.5 percent with a new rate of 7.5 percent or more has dramatic implications. Even if property fundamentals remain strong, debt service coverage ratios may no longer meet lender thresholds. That creates pressure on both equity and liquidity.

For family offices holding real estate directly, this means reevaluating the debt maturity schedule across the portfolio. For those invested through funds or co-investments, it means asking sharper questions about how those risks are being mitigated.

What’s the plan if refinancing is not available? Will there be a need for equity infusions or capital calls? Is the sponsor aligned and adequately capitalized? These questions cannot wait until six months before maturity. They need to be asked now while time and options still exist.

Lenders Are Pulling Back, Changing the Game

Perhaps one of the least talked-about but most important trends today is lender retrenchment. Regional banks, once a reliable source of financing for construction, value-add, and smaller assets, are pulling back. In many cases, they simply are not lending on real estate at all.

Traditional institutional lenders are also tightening. Loan-to-value ratios are falling. Interest reserves are being required. Sponsors are being asked to put in more equity up front. In other words, capital is harder to get – and more expensive when you find it.

For family offices, this has direct implications. One option is to pursue private credit. Another is to participate more actively through joint ventures where capital structure and financing terms can be more directly influenced. Both paths require greater engagement. Both carry added complexity. But in many cases, they also present new opportunity.

Private lenders are often willing to move quickly and creatively, but at a premium. Family offices with ready liquidity can sometimes fill that role themselves, earning attractive risk-adjusted returns on collateralized investments. The key is structuring deals prudently and ensuring downside protection.

On the joint venture side, aligning with best-in-class operating partners can create long-term value. But it takes more than capital. It requires clarity around roles, expectations, and exit planning.

A Call for Proactive Positioning

The shifts we are seeing are not temporary dislocations. They are signs of a changed financial ecosystem – one in which debt is more expensive, risk is more concentrated, and flexibility is more valuable than ever.

Family offices are uniquely positioned to adapt. You are not beholden to quarterly earnings, you can be patient when others are forced to be reactive. But that advantage only holds if you are willing to engage directly and thoughtfully.

This is a time to revisit portfolio debt schedules. To assess refinancing exposure. To build relationships with nontraditional lenders. To explore joint ventures with operators who are both capable and conservatively positioned.

It is also a time to prepare for opportunity. Dislocation always brings it. But it comes to those who are ready, not just financially, but structurally.

Financing used to be a back-office detail. Today, it is a front-and-center driver of investment outcomes. Treat it that way. Look ahead. Ask the difficult questions early. And lean into the kind of strategic thinking that turns risk into resilience.