Mark Green, CIO and Managing Director of Cottonwood Group
Commercial real estate was once defined by free-flowing capital and broad, cyclical tailwinds, but that is no longer the case. We are now at a moment of transition, where stability is returning, but ease is not. In the following article, Cottonwood’s Mark Green, CIO and Managing Director, shares his perspective on what is changing, where real opportunity exists, and why the next phase of the cycle will reward the disciplined, structured, and those who have operational depth.
Commercial real estate sits at a genuine inflection point. This is not a clean reset or a recovery in the traditional sense. What we are experiencing now is a transition toward selective clarity instead of broad-based momentum.
Capital markets are functioning again, transactions are happening, and liquidity has returned to certain pockets. However, the assumptions that powered the last cycle are gone. Cheap leverage, abundant labor, and frictionless globalization are not coming back. The cycle now is about re-pricing, re-risking, and re-underwriting, forces we expect to continue to shape both outcomes and opportunities for the next several years.
The Macroeconomics Beneath the Headlines
The U.S. economy has slowed, but by no means has it collapsed. Growth is narrower and more uneven today, shaped by policy and not by organic expansion. On the consumer spending side, things are resilient but bifurcated. Higher-income households are still spending, but middle-income and lower-income consumers are far more constrained.
One of the most important changes, at least structurally for the U.S., is the labor market, which is no longer labor-abundant. Demographics, immigration policy, and workforce participation have tightened labor supply in ways that we don’t expect to see reversed.
Growth will continue, but it will rely on labor expansion as well as on automation, technology, and capital investment. That reliance will create stickier inflation, particularly in service-driven sectors.
Monetary policy is no longer a tailwind. Even if the Federal Reserve cuts short-term rates, long-term capital costs remain elevated. Fiscal deficits, heavy Treasury issuance, and global capital flows are anchoring long-duration yields higher and real estate investors will continue to have to underwrite against structurally higher capital costs.
Artificial intelligence is beginning to appear in productivity data, and, while not explosively or evenly, it is appearing in meaningful ways. This matters because productivity growth is one of the few ways economies can grow without reigniting inflation. AI is also widening the gap between capital-rich firms and smaller, labor-dependent businesses, a bifurcation that flows directly into tenant credit, as well as leasing behavior and overall real estate demand.
The takeaway here is straightforward and that is that macro stability does not mean macro ease.
Property Types Where Reality Has Replaced Narrative
There is also no longer a broad beta trade in commercial real estate where owning an asset class is enough. Returns will be driven by basis, structure, operational execution, and timing.
Office is the most misunderstood sector in the market today. The narrative has moved from denial to despair to realism. We are likely near a cyclical bottom in terms of the fundamentals, but that does not mean we will see a broad recovery. Office is becoming a smaller, higher-quality, and more polarized sector. Demand still exists but is concentrated in buildings that help tenants recruit, retain, and collaborate. Well-located and well-capitalized assets are leasing, but everything else is being repriced, recapitalized, or removed from inventory. The opportunity in this sector will be in acquiring assets on a reset basis, funding leasing and repositioning, and structuring capital to withstand longer timelines.
Demand for industrial is at a three-year high driven by absorption of modern class A logistics space, however, things are starting to normalize. Construction has slowed, demand is stabilizing, and markets are moving back toward balance. While healthy, it also means that returns will be moderate. Rent growth is no longer automatic, and tenant leverage has increased in submarkets that have an oversupply. Credit strategies remain attractive where refinancing pressure exists on otherwise durable assets.
On the retail front, it continues to outperform expectations through discipline rather than growth. Many retailers are anchoring strategies around customer centricity, financial prudence, operational excellence, adaptability, as well as years of underbuilding, which has created scarcity. Well-located centers with strong tenancy have been performing exceptionally well. The opportunity in this property type is in necessity-based retail, experiential formats, and redevelopment of obsolete centers. The sector’s story today is about curation and relevance, not scale.
Multifamily remains durable but is no longer easy. Supply has peaked in many markets, but pockets of oversupply remain. Operating costs are structurally higher, and operational execution matters more than ever. The most compelling opportunities are found in refinancing-driven distress, transitional assets, and middle-income housing where affordability constraints are acute. Credit strategies are particularly compelling in this environment.
Hospitality is currently at the intersection of consumer behavior, capital markets, and operations and the sector is sharply bifurcated. Luxury assets benefit from affluent travelers who now expect hyper-personalized experiences, while lower-tier assets compete aggressively on value. Structured credit can be attractive where temporary NOI pressure has stressed capital structures.
Data centers represent one of the strongest demand stories in real estate, driven by AI and cloud adoption. But this is not a frictionless growth story. Power, land entitlements, and community resistance are the real constraints, so the opportunity here lies less in speculative development and more in infrastructure-adjacent investments, power-secured land, and structured capital that mitigates execution risk.
Overall, geography matters more today than it has in over a decade. Population and job growth remain concentrated in select secondary markets driven by affordability, business-friendly policy, and quality of life. However, not all growth markets are equal. Some have overbuilt aggressively and are now digesting supply. Others remain structurally undersupplied. The key distinction is between good markets and good deals in challenged markets. Both can work, but they require very different structures and risk tolerances.
Capital Markets Are Open, but Not Loose
Liquidity has returned, but discipline has returned with it. CMBS and structured credit markets are functioning again, providing financing for cash-flowing assets while enforcing realistic underwriting. Cross-border capital is beginning to re-engage, attracted by reset pricing and relative U.S. stability. That capital is selective and demands clarity and downside protection.
Cap rate dispersion is increasing. Risk is being priced locally rather than generically. Loan maturities remain a significant overhang. Extensions buy time, but time is not a strategy. Assets that cannot refinance at sustainable leverage will trade or recapitalize.
This environment favors flexible capital. Preferred equity, rescue mezzanine, and bespoke structures are increasingly valuable.
Structural Shifts That Matter More Than the Next Rate Cut
We are entering a period where merchant banking returns to real estate. Talent, capital, and innovation are realigning toward platforms that combine catalytic capital with strategic guidance and long-term ownership.
Large institutional investors are rediscovering the middle market. Scale has reduced risk, but it has also compressed returns. Selective exposure to best-in-class operators is becoming more attractive.
The concept of sponsorship in real estate is evolving. The most sophisticated firms are no longer defined by individual deals, but by the strength of their platforms. Recurring revenue, operating capability, and institutional infrastructure increasingly matter as much as, if not more than, any single transaction’s performance.
We are not in a boom, and we are not in a bust. We are in a recalibration. The winners will not be those who predict the next rate cut, but those who understand capital structure, operational resilience, and downside risk.