Thoughts From The Market

Thoughts + Words On the Street…

The real estate investment landscape remains defined by a scarcity of actionable deals, elusive yields, and a transaction market caught in a prolonged state of price discovery. It feels like we’ve been here for 24 months. Buyers and sellers continue to stare each other down across a wide bid-ask spread, with borrowing costs hovering around 5.5% - 6.0% (Fixed products) and liquidity—while improving—not yet sufficient to bridge the pricing gap. Despite these constraints, property values have held up surprisingly well, defying expectations of a steeper correction (sort of like equities…). However, rampant re-trading, sellers pulling listings, and declining transaction volumes signal that softness is creeping into the market.

This landscape has shifted the composition of buyers. Many 2024 transactions have been driven by necessity rather than discretionary investment—fund mandates, 1031 exchanges, and forced sales from distressed or fatigued owners. The true opportunistic players are still largely waiting on the sidelines for price capitulation, which has yet to materialize in a meaningful way. Meanwhile, the financing environment has slightly improved. The ongoing volatility in interest rates continues to be a major factor influencing decision-making, keeping many transactions on hold. In response to these challenges, lenders are also adjusting their approach. While agency and life company lending spreads have seen compression to T+125-225, financing structures are evolving to provide greater flexibility while managing risk exposure. Bridge lenders and preferred equity providers are bracing for a wave of distress but are exercising extreme caution in selecting whom they will back.

While cap rates remain in the mid-to-high 4% range for top-tier properties and drift into the 5% range for older assets or secondary markets, the underlying math still doesn’t work for many investors. Negative leverage—once a temporary compromise in high-growth metros—is no longer tolerated in many deals outside of core, long-term conviction markets. The Sun Belt is now a market of bifurcated sentiment. Markets like Austin and Nashville still command 4-5% cap rates despite declining NOI, but few buyers are able to acquire. On the other hand, institutional and private appetite remains strong in suburban markets and infill coastal cities like Boston, where rent growth expectations are higher than recent historical trends. Many firms are restructuring their investment strategies, repositioning teams, and adjusting their focus to navigate the evolving market conditions effectively. Where are turning?