'Properties Budgeted for 3% Rates Now Face 5.5%:' CityView VP Warns of Coming Development Crisis

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Date:

25 Jul 2025

A wave of distressed commercial properties could soon hit the market as developers grapple with dramatically higher refinancing costs, according to Charlie Friedler, Vice President of Leasing at CityView Commercial.

“They budget out at 3% interest…and then at this time we’re looking at commercial interest rates at 5.5%,” Friedler says, highlighting the severe impact of rate increases on development economics.

The Mid-Development Danger Zone

While many analysts have focused on struggling existing properties, Friedler points to a different potential crisis: projects caught mid-development when rates spiked.

“I wouldn’t say new development is going to go into distress, because I think those will get occupied pretty fast. I think it’s going to be more mid-development,” he explains. “Anyone in middle of the development which is dealing with financial stress because of the rates and the debt that they’re going to have, I think those are the ones that are going to become a market.”

Multiple Pressure Points

According to Friedler, rising rates aren’t the only challenge facing developers. He points to several compounding factors:
– Construction cost inflation
– Supply chain disruptions
– Volatile materials prices
– Uncertainty around tariffs

“Construction projects have been difficult in general,” Friedler notes. “With the tariffs, expenses are increasing, materials increasing, everything’s increasing.”

Signs of Stress Already Emerging

The pressure is already showing in some markets. Friedler cites examples of dramatic value declines: “In Minneapolis, we’re seeing the same thing where the Wells Fargo [building] sold for nearly half the price that they purchased it for.”

His firm is tracking a $120 million office building that went into foreclosure and is now entertaining offers around $60 million, a 50% value reduction.

For well-capitalized investors, this distress could create rare buying opportunities. “We haven’t bought a property in three years, which is our longest period of time,” Friedler says. “We are cash heavy throughout the years, and we want to be cash invent and cash investors when the time comes.”

Looking Ahead

Friedler suggests the coming months could see more projects hit the market as developers face refinancing deadlines with much higher rates than originally planned for.

“People have to get ready for that crash. Some people don’t see it coming,” he warns. However, he sees this as a potential opportunity for strong buyers to acquire quality assets at significant discounts.

Interest Rate Impact

Refinancing Challenges

Development Stress

Debt Refinancing

Construction Cost Inflation

Acquisition Strategy