Key Takeaways
- Rate normalization — not rate cuts — is defining the 2026 environment. Financing is more predictable than it's been in three years, which is more valuable than cheap money
- The distressed opportunity set from 2021–2022 vintage deals is real but selective. Not every distressed deal is a good deal — the ones worth buying have sound fundamentals at a reset basis, not just a discounted price
- Sector divergence continues: multifamily and industrial are structurally strong, office remains challenged, and NNN-leased commercial offers predictable income with credit tenant backing
Every year, the industry produces market outlooks. Most are wrong in the specifics and roughly correct in the direction. We're not in the prediction business. What we can do is share what we're seeing in the markets we operate in, what we're positioning for, and what we think matters most for investors evaluating new commitments.
Here's a sector-by-sector look at the CRE landscape heading into 2026.
The Rate Environment: Predictability Matters More Than Level
The defining feature of 2023 and 2024 was uncertainty. Not just high rates — uncertainty about where rates were going, when they might change, and what the Fed would do next. That uncertainty froze transaction volume because buyers and sellers couldn't agree on pricing when neither party knew what financing would cost in six months.
In 2026, rates are higher than the 2020–2021 lows — and they're not going back. But they're also more predictable. The market has accepted a 5.5 to 6.5 percent range for permanent commercial real estate financing as the new normal. That predictability is worth more than a lower rate in an uncertain environment.
When we can underwrite a deal knowing, within a reasonable band, what the refinance will cost in 18 months, the model becomes reliable. When the rate environment is volatile, even conservative underwriting can miss. The current stability — rates that are higher but steady — allows disciplined operators to price deals accurately and make commitments with confidence.
We don't need cheap money. We need predictable money. A 6% permanent loan that we can underwrite with confidence produces better long-term outcomes than a volatile rate environment where every deal is a bet on where rates land at maturity.
The Distressed Opportunity: 2021–2022 Vintage Deals
The most compelling acquisition opportunities in 2026 are coming from deals that were overleveraged in 2021 and 2022. Here's the pattern: an operator bought a property at peak pricing with a floating-rate bridge loan, expecting to refinance within 24 months at a 3.5 percent rate. Rates moved to 6.5 percent. The bridge loan matured. The property couldn't qualify for permanent financing at the higher rate because the NOI — even if operational performance was good — didn't cover the debt service at the new rate.
These operators now face a choice: invest additional capital to pay down the loan balance, accept a loan modification with unfavorable terms, or sell the property at a loss. Many are choosing to sell — and the properties hitting the market are not distressed in the traditional sense. The buildings are often well-located, partially renovated, and operationally functional. The distress is in the capital structure, not the real estate.
For operators who can step into these deals at a reset basis — lower price, realistic financing, and a clear execution plan — the vintage matters. An 80-unit multifamily building in South Florida that traded for $180,000 per unit in 2022 and is available for $135,000 per unit today is the same building. The location is the same. The rents are the same. The renovation opportunity is the same. But you're buying it at a basis that makes the financing work at today's rates.
Important caveat: not every distressed deal is a good deal. Some properties were overpriced in 2022 and are overpriced at a discount. Others have deferred maintenance issues the previous operator couldn't afford to address. Disciplined due diligence is more important now than during a normal market — because the reason the deal is available at all is usually bad news for someone.
Sector by Sector
Multifamily — workforce and garden-style. The strongest risk-adjusted fundamentals in CRE. Population-driven demand, constrained supply in the workforce segment, and structural support from demographics (household formation, homeownership affordability challenges, in-migration to sunbelt markets). New supply deliveries in 2025 and 2026 — concentrated in the luxury segment — are creating modest rent pressure in Class A. Class B and C properties — the value-add segment — are largely insulated because the new product serves a different market. We're actively acquiring in this segment.
Industrial — last-mile and logistics. Post-pandemic e-commerce demand normalized, but the structural shift toward logistics-heavy supply chains is permanent. Vacancy rates for modern industrial product remain below 5 percent in most strong markets. The Midwest industrial corridor — with lower land costs, proximity to distribution networks, and favorable tax environments — continues to offer compelling yields. We see the most opportunity in small-bay and light industrial where institutional capital hasn't compressed cap rates to the degree it has in large-format logistics.
NNN-leased commercial. Net-lease properties with credit tenants offer a different investment profile: lower returns but higher predictability. The tenant handles most operating expenses, and the long-term lease provides income visibility that multifamily and industrial can't replicate. We evaluate NNN opportunities selectively — primarily as portfolio stabilizers that provide consistent income between higher-return value-add acquisitions.
Office. We don't invest in office, and we don't see that changing. Remote and hybrid work have structurally reduced demand. National vacancy exceeds 20 percent. Even in markets where office is "recovering," the recovery is concentrated in trophy Class A buildings while Class B and C office continues to deteriorate. There may be opportunities for specialists in office-to-residential conversion, but that's a development play, not a value-add play, and it's outside our expertise.
What We're Doing About It
Smart positioning for 2026 comes down to three priorities.
Targeted acquisition of distressed-basis deals. We're actively sourcing properties where the seller's capital structure problems create buying opportunities. We're looking at bridge loan maturities, receiver sales, and directly negotiated purchases from operators who need liquidity.
Conservative financing on every new deal. Fixed-rate or stress-tested bridge debt. No floating-rate exposure without a clear rate environment. Minimum 1.40x DSCR. We'd rather win fewer deals than take financing risk that requires macro cooperation.
Operational focus over market timing. We're not trying to time the bottom. We're not waiting for rates to drop. We're underwriting deals that work at today's rates, executing business plans that create value through renovation and management improvement, and building a portfolio of assets that generate returns regardless of where the macro environment goes from here.
Market outlooks are snapshots. The operators who perform well over decades aren't the ones who predicted the market correctly — they're the ones who built a process that works in any market. That's what we're focused on in 2026, and it's what we'll be focused on in 2036.