The commercial real estate distress cycle that began in 2022 has reached the point where forced sellers are meeting buyers with patient capital. The next 24 months will produce the best entry prices for commercial real estate in a generation.
The commercial real estate distress cycle that began in 2022 has reached the point where forced sellers are meeting buyers with patient capital. The next 24 months will produce the best entry prices for commercial real estate in a generation.
The Distress Anatomy
The commercial real estate crisis is the product of three forces converging simultaneously: elevated interest rates that have made refinancing expensive or impossible for properties acquired at low-rate-era prices; structural demand shifts in office space driven by hybrid work adoption that show no sign of reversing; and a wall of maturities — approximately $2 trillion in commercial mortgages coming due between 2024 and 2027 — that requires either refinancing at significantly higher rates or property sales at significantly lower prices.
Where the Opportunity Lives
The most compelling opportunities are not uniform across commercial real estate. Office in major markets is structurally impaired and will require deep discounts and adaptive reuse strategies to generate acceptable returns. Retail has been sorting itself for a decade — experiential and grocery-anchored retail is performing, while commodity retail remains challenged. The genuine distress opportunities are in multifamily properties acquired at 2021 cap rates by operators who relied on rent growth projections that have not materialized, and in regional bank portfolios that are seeking to reduce commercial real estate exposure to meet regulatory capital requirements.
The Multifamily Thesis
Multifamily housing in high-demand markets remains structurally undersupplied relative to household formation. The operators who bought at compressed cap rates in 2021-2022 are the problem; the underlying assets — apartments in markets with strong employment and population growth — are not. Buyers who can acquire these assets at distressed prices from motivated sellers are entering at yields that work at current interest rates, with the additional upside of potential refinancing improvement if rates decline.
