As cap rate expansion continues across secondary and tertiary markets, sponsors who underwrote 2022 vintage deals face a structural reckoning. The combination of elevated interest rates, compressed NOI growth, and maturing debt stacks has created a valuation gap that is now forcing difficult decisions across the industry.
The Valuation Gap
Loans originated at 4.5–5.5% cap rates in 2021–2022 now face effective valuations 15–25% below original underwriting. In gateway markets where transaction data is most reliable, this is already reflected in trades. In secondary markets — Tampa, Charlotte, Nashville, Austin — the adjustment is still unfolding, constrained by a thin transaction market that obscures true mark-to-market exposure.
The refinancing challenge is acute. Many 2022 vintage bridge loans were structured with 12–18 month terms and 65–70% LTV assumptions. Those same assets may now support only 55–60% LTV at current values, creating a gap that sponsor equity alone cannot bridge.
## Where Asymmetric Opportunity Exists
Disciplined capital is finding its clearest entry points in situations where: - The sponsor has exhausted mezzanine capacity and needs a creative debt solution - Operating assets have stabilized but need bridge capital to a permanent financing window - Portfolio companies are consolidating positions across overlapping positions
The spread between what distressed sellers need to achieve and what the market can support at current valuations creates a window for buyers with available capital and deal structuring expertise.
Implications for Deal Structuring
New deal origination in this environment requires more sophisticated capital stacks. We are seeing increased use of preferred equity, mezzanine tranches, and structured equity to bridge the gap between senior debt capacity and acquisition price. These instruments carry higher cost but provide the flexibility needed in a market with fewer clean financing options.
Borrowers who can demonstrate strong operating fundamentals, sponsor credibility, and a credible exit story will find lenders willing to provide constructive capital — but at pricing and structures that reflect today's risk environment rather than 2021 norms.
