Borrowers' Outdated Rate Expectations Create Market Friction, Says Capital Markets Expert

Culby Culbertson, founder of Culbertson Holdings and a capital markets broker with close to $550 million in closed loans since late 2018, identifies persistent borrower misconceptions as the primary obstacle in today's lending market. The fundamental error, according to Culbertson, is borrowers treating the historically low rates of 2021 as a benchmark rather than recognizing them as an anomaly. "The biggest misconception is that the rates we once saw in 2021 are something we're supposed to hold onto," Culbertson says. "If you look historically, those rates never existed in our lifetime, not even our grandparents' lifetime." This outdated mindset creates friction in deals that should otherwise proceed, as borrowers delay decisions waiting for a return to conditions that are unlikely to recur.

Culbertson uses a tool analogy to reframe how capital should be viewed: as an instrument deployed for a specific purpose and returned at a cost, not carried indefinitely. The investors currently struggling are those who forgot that cost was always integral to the equation. Beyond rates, a second critical misconception involves leverage availability. Banks have significantly de-risked their portfolios, with most offering around 70% loan-to-value, and even strong borrowers with clean presentations might only reach 75%. The 80% leverage common in the prior cycle has largely disappeared. "Banks have de-risked their credit profile," Culbertson explains. "Unless you're taking a real step forward in how you're presenting the utilization of those funds and your path to repayment, you have a very low likelihood of getting approved."

This tightened lending landscape creates opportunity for disciplined borrowers. With sellers gradually adjusting from prior-cycle prices and buyers applying more rigorous underwriting, the market is approaching equilibrium rather than collapsing into distress. For current deals, the math must stand on fundamental metrics without relying on speculative rate drops. "You can't buy into the future when it comes to rates," Culbertson warns. "If you're buying a stabilized operation at a higher price on the expectation that rates drop, that is not a good business decision." Successful underwriting now requires cap rates that clear the cost of capital, with debt yield, yield on cost, and debt service coverage ratios all within acceptable ranges before making assumptions about future rate movements.

The borrowers succeeding today have abandoned hope for a return to 2021 conditions and instead structure deals around current market realities. This involves accepting tighter equity requirements, employing creative capital stacks when necessary, and evaluating property performance at today's rates rather than projected future rates. Various financial tools exist specifically for higher-rate environments, including preferred equity, mezzanine debt, seller carry structures, and bridge products. Borrowers who understand how and when to utilize these instruments are successfully moving capital from the sidelines into productive assets. The market offers viable pathways for transactions, but success requires operating within its actual parameters rather than those of a bygone era.