Dear Colleagues and Friends,
The commercial real estate market is undergoing a profound structural reset — one driven not by systemic distress but by fundamentals, interest rate normalization, and heightened performance dispersion across sectors and geographies. As someone who has spent over a decade deploying capital across multiple property types and economic cycles, I see this moment as less about broad market predictions and more about surgical, localized execution. The winners in this environment will be lenders and investors who can move quickly on smaller transactions in alternative asset classes, where pricing inefficiencies and limited competition create outsized risk-adjusted returns.
Understanding this structural transformation is not merely academic — it directly shapes where we deploy capital, how we underwrite risk, and which borrowers we partner with in the months ahead.
Asset values nationwide have declined approximately 18% from their 2021 peaks — a correction driven almost entirely by higher risk-free rates rather than deteriorating property fundamentals. Despite these price declines, net operating income (NOI) has grown across most property types, and cap rate spreads (the incremental yield above the 10-year Treasury) have actually compressed. Put simply: absent income growth and tightening cap rate spreads, values would have fallen even more dramatically.
While this environment certainly demonstrates a challenged real estate market, it stands in sharp contrast to the Global Financial Crisis. Today, fundamentals for existing CRE stock remain generally solid. Replacement costs are elevated due to higher cost of capital, rising construction expenses, labor shortages, and increased insurance premiums. These factors have curtailed new supply across most markets and property types, creating a supply-constrained environment that supports pricing power for well-located, well-operated assets.
The implication for lenders is clear: this is not a market where broad brush distress creates indiscriminate opportunity. Rather, it rewards granular market knowledge, differentiated property types, and the ability to move decisively on smaller, off-the-radar transactions that larger capital sources overlook.
One of the most striking features of the current cycle is the unprecedented dispersion of performance across property sectors and geographies. Traditional sector-level analysis — treating all multifamily or all industrial as homogenous categories — no longer applies. The variance within sectors now exceeds the variance between them.
Consider the data: from 2012 through 2024, sector performance rankings have shifted dramatically year-over-year. Industrial dominated from 2019–2021, multifamily led in certain years, while office and retail faced secular headwinds. Yet within each sector, top-quartile assets in supply-constrained markets with strong tenant demand vastly outperformed bottom-quartile properties in oversupplied or declining markets.
This dispersion creates opportunity for nimble lenders operating at the local level. National aggregates obscure the reality that certain submarkets — particularly in alternative sectors like medical office, self-storage, senior housing, and student housing — are experiencing robust fundamentals driven by demographic tailwinds, limited new supply, and operational complexity that deters less sophisticated capital.
For our lending platform, this means focusing on sectors and markets where we possess deep expertise, local boots-on-the-ground relationships, and the ability to underwrite operational nuances that commodity lenders cannot. The $5 million to $15 million loan size range is particularly attractive — large enough to generate meaningful returns, yet small enough to avoid intense competition from institutional debt funds constrained by minimum check sizes.
Alternative property sectors — those outside the traditional “big four” of office, retail, industrial, and multifamily — represent some of the most compelling risk-adjusted opportunities in today’s market. These sectors are characterized by large addressable markets, favorable supply-demand dynamics, and operational complexity that creates barriers to entry.
Senior Housing: With 11,000 Americans turning 65 every day and the 85+ population expected to triple by 2050, demand for senior housing far outpaces supply. Average length of stay is just 22 months, creating a high-velocity operational business rather than a long-duration net lease asset. This operational intensity deters passive capital but rewards lenders and operators with specialized expertise.
Medical Office: Physician practices are consolidating, healthcare delivery is shifting toward outpatient settings, and aging demographics ensure sustained demand. Medical office buildings near hospital campuses or in underserved markets offer stable cashflows and essential-use profiles that withstand economic volatility.
Self-Storage: This sector benefits from population mobility, housing turnover, and limited land availability in urban infill locations. Self-storage has demonstrated recession resilience, with occupancy and rent growth remaining relatively stable through prior downturns.
Student Housing: Purpose-built student housing near major universities with growing enrollment provides countercyclical demand characteristics. Students need housing regardless of broader economic conditions, and supply constraints near campus create pricing power for well-located assets.
Manufactured Housing Communities: With single-family home affordability at historic lows and apartment rents elevated, manufactured housing communities provide essential workforce housing. Land-lease models create recurring revenue streams with limited capital expenditure requirements.
These sectors share common characteristics: large addressable markets, structural demand drivers, limited institutional capital penetration, and operational requirements that reward specialized knowledge. For family offices and private lenders willing to develop expertise in these areas, the opportunity set is substantial.
Conventional wisdom suggests that higher cap rate environments — typically associated with elevated interest rates and tighter credit conditions — are negative for real estate returns. Historical data tells a more nuanced story.
Analysis of cap rate spreads and subsequent rent growth from 1965 through 2023 reveals a counterintuitive pattern: periods of higher cap rates have historically coincided with stronger average rent growth over the following five to seven years. This makes intuitive sense when we consider the dynamics at play.
When cap rates rise and asset prices decline, new construction becomes economically unviable. Developers cannot underwrite projects that would sell or stabilize below replacement cost. This supply curtailment, combined with steady or growing demand, creates the conditions for accelerating rent growth as existing inventory absorbs new demand without meaningful new supply competition.
For lenders, this dynamic reinforces the importance of underwriting to current in-place rents and debt service coverage ratios rather than relying on aggressive rent growth assumptions. Properties that can service debt at today’s rents, in today’s rate environment, with margin for operational volatility, are positioned to generate outsized returns as supply-demand imbalances tighten over the next several years.
This is precisely the environment where patient, disciplined capital — focused on cashflow rather than speculative appreciation — earns its premium. We are not chasing pro forma projections or betting on rate cuts. We are underwriting real income streams from real tenants in real markets, with the optionality that improving fundamentals provide upside rather than serving as a required assumption for deal viability.
In prior cycles characterized by abundant liquidity and homogeneous underwriting standards, national lending platforms could deploy capital efficiently through centralized processes and standardized credit boxes. Today’s market rewards something different: localized expertise, relationship-driven deal sourcing, and the ability to underwrite micro-market dynamics that drive property performance.
As Garett Bjorkman of PEG Companies observes, “There are more disparities in markets now than I’ve ever seen. You have to know each market intimately because there are so many layers and nuances that contribute to performance.”
This observation aligns precisely with our investment approach. We focus on markets where we have established relationships with brokers, operators, and sponsors who bring us opportunities before they reach broader market distribution. We underwrite properties at the submarket level — analyzing competitive supply, tenant demand drivers, employment trends, and demographic shifts — rather than relying on MSA-level generalities.
This granular, localized approach creates several competitive advantages:
First, differentiated deal flow. Sponsors with $5 million to $15 million refinancing or acquisition needs often struggle to secure financing from larger institutional sources constrained by minimum transaction sizes. These borrowers value speed, flexibility, and relationship continuity — attributes more easily delivered by nimble private capital than by committee-driven bank processes or fund structures with rigid investment mandates.
Second, better risk assessment. Understanding local supply pipelines, zoning dynamics, and tenant migration patterns allows us to distinguish markets with genuine supply constraints from those where apparent strength masks impending oversupply. National data cannot capture these micro-market realities.
Third, superior workout positioning. When loans require modifications or workouts, local market knowledge and established operator relationships facilitate solutions that preserve value for all stakeholders. Lenders who understand a property’s specific challenges and opportunities can structure forbearance, extension, or equity injection terms that avoid unnecessary foreclosure and capital destruction.
The recent maturity wall discussion highlighted how private credit platforms with flexible capital structures and local execution capabilities are stepping into refinancing gaps left by retreating banks. That same dynamic applies here: borrowers need lenders who understand their markets, can close quickly, and will partner through cycles rather than simply underwrite to a formula.
Given this market context, our capital deployment strategy emphasizes several key themes:
The CRE structural reset underway represents both challenge and opportunity. Asset prices have reset, fundamentals remain solid, and performance dispersion has created a market where localized expertise and nimble execution generate alpha.
For lenders and investors willing to develop deep knowledge in alternative sectors, maintain discipline around underwriting standards, and prioritize smaller transactions in supply-constrained markets, the current environment offers compelling risk-adjusted returns. The winners will not be those chasing the largest transactions or the highest leverage, but rather those who understand their markets intimately, move decisively when opportunities arise, and structure capital solutions that align interests across the stack.
As I wrote in my recent discussion of the maturity wall, markets are ultimately about people — the operators who manage properties, the tenants who occupy them, and the communities they serve. By combining analytical rigor with local market knowledge, patient capital with flexible structures, and discipline with opportunism, we position ourselves to navigate this cycle successfully and deliver attractive returns to our investors.
The structural reset is real, but it is not a crisis. It is an opportunity for those prepared to execute with precision.
Respectfully,
Max Ozkural Chief Investment Officer