By Andrea Zander
Institutional investors are re-entering the real estate market as denominator-effect pressures ease and portfolio allocations begin to normalize. According to Cottonwood Group CIO Mark Green, in an interview with IREI, the most meaningful capital today is gravitating toward structured and opportunistic strategies, where complexity is rewarded and underwriting is grounded in operational realities. Investors are prioritizing execution, scale and essential-demand themes — such as housing affordability, healthcare, logistics and digital infrastructure — while favoring deeper partnerships over traditional fund commitments. In a market defined by selective liquidity and narrower bid-ask spreads, the ability to structure risk thoughtfully and deliver on business plans is becoming the true differentiator.
How have institutional allocations to real estate evolved in response to macroeconomic uncertainty, and are investors tilting toward core, value-added, or opportunistic strategies?
Institutional allocations to real estate have begun to normalize after two volatile years. During 2023 and much of 2024, many investors paused new commitments because the denominator effect made their real estate exposure look elevated. That pressure has now eased considerably. Most large institutions again are sitting slightly under their target allocations, rather than over them.
In terms of strategy, the market shows a barbell. Core and core-plus capital is returning selectively to high-quality, income-producing assets where pricing has adjusted and redemption activity in large open-end core funds has stabilized. The more meaningful flow, in my view, is moving toward the structured and opportunistic end of the spectrum; credit-oriented investments, recaps and transitional assets where complexity is rewarded. The middle ground – the traditional value-add space – is thinner right now because those deals often require construction or leasing risk without offering enough spread. The real appetite is either for stabilized income with modest growth or for complexity that can produce double-digit, risk-adjusted returns.
To what extent is the “denominator effect” still limiting institutional commitments to real estate, and when do you expect those portfolio imbalances to normalize?
The denominator effect has not disappeared entirely, but it’s no longer the dominant constraint it once was. Redemption across the large open end core funds peaked last year and have been trending lower through 2025. Equity and bond markets have recovered, which pulled real estate weights closer to policy targets.
We expect normalization to continue through 2026. Most investors are still cautious, but many are now re-engaging with new commitments, particularly through separate accounts or joint ventures rather than commingled funds. The other nuance is that some institutions have quietly trimmed their long-term real estate targets by a few basis points, reflecting both higher base rates and the recognition that real estate now competes with credit and infrastructure for yield.
From your vantage point, what factors are driving this renewed flow of capital, and where are investors showing the most conviction?
The renewed flow of capital back into real estate is being driven by three forces. First, price discovery; the bid-ask spread that slowed transactions in 2022 and 2023 has narrowed significantly. Sellers have reset expectations, and buyers finally feel underwriting is defensible.
Second, selective liquidity; while traditional bank lending remains constrained, non-banks, life companies and private lenders have stepped in aggressively. Capital is available, but it’s highly structure driven. Strong sponsorship and credible business plans get financed; weak ones do not.
And third, secular demand themes; housing affordability, healthcare, logistics and digital infrastructure continue to attract institutional conviction. Investors have grown comfortable underwriting these themes across cycles because they represent need-based demand, not cyclical optimism.
You’ve said that “execution” is becoming a key differentiator in this environment. What does strong execution look like today — in terms of sourcing, underwriting and closing — and how has that changed from previous cycles?
In this environment, execution is what separates the good from the great. A few years ago, execution meant speed and capital access. Today, it means depth of understanding, being able to source, underwrite and structure a deal with precision when every variable matters.
On sourcing, it’s no longer about auctions; it’s about relationships and knowing where capital is needed before a process starts. On underwriting, it’s about cash flow, not comps. We’re dissecting business plans line by line and we are underwriting actual operating realities, not theoretical cap-rate compression.
On closing, it’s about discipline with speed: having third-party diligence pre-wired, documentation templates ready, and authority internally to move decisively when conviction is high. Today, strong execution involves more operational engineering than financial engineering and delivering on the business plan.
How are you seeing scale — whether through portfolio platforms, partnerships, or co-investments — shape opportunities for institutional investors and operators?
Scale has become a decisive advantage. Institutions increasingly prefer to deploy through platforms, programmatic partnerships, and co-investments rather than one-off fund commitments. The reasons are clear: Larger partners can absorb complexity, move faster and align governance with the institution’s own processes.
By scaling, friction costs are lowered, procurement and data capabilities are improved, and hybrid solutions such as public-private partnerships and cross-capital stack financings are facilitated. In a higher-cost environment, scale translates into better procurement, data and cost control, resulting in higher NOI and margins.
The most sophisticated investors today want fewer, deeper relationships with managers who can execute across cycles, not dozens of small exposures to narrow mandates.
What key indicators of operational strength should investors be prioritizing when selecting managers or partners?
Investors are prioritizing evidence that a manager consistently delivers on the business plan. The most persuasive indicators include a high hit rate on NOI ramps and leasing milestones, transparent asset-level reporting, and conservative exit assumptions that still work under stress.
Balance sheet strength and liquidity tools are also key. Having the ability to warehouse assets, bridge financings, or provide structured capital internally demonstrates sophistication and stability. Another factor that differentiates firms is governance. Investors are paying close attention to how firms handle conflicts, report transparency and oversee risk.
Lastly, there is the question of edge. The best managers today are not chasing the same crowded assets as everyone else. They are focusing on adjacencies and ecosystems that sit just upstream or downstream from the obvious trades. That can mean controlling well-located land with critical infrastructure, owning the logistics and distribution nodes that support large manufacturing or infrastructure projects, or assembling healthcare and service-oriented assets that naturally benefit from population growth and institutional expansion.
Our edge sits in that space. We look for situations where real estate is mission critical to a larger economic engine, but where competition is thinner and pricing is less emotional. By combining structured capital with these adjacencies, we can protect the downside through income and collateral, while preserving meaningful upside as the underlying ecosystem grows. Those are the quiet, durable sources of alpha that compound over time and do not depend on being the highest bidder in a crowded auction.
Any other comments?
Denominator pressures are easing, capital is rotating back, and underwriting discipline has returned. The most durable opportunities sit where fundamentals are driven by essential demand and where structure can protect the downside. In this environment execution is the edge. Own the operating plan, structure the risk thoughtfully, and let NOI do the heavy lifting rather than relying on multiple expansion.