Mark Green, CIO and Managing Director of Cottonwood Group
After two years of dislocation and hesitation, the U.S. commercial real estate market has entered a new phase. It is neither exuberance nor distress, but rather a period of selective conviction. We are in, what I would call, a period of select conviction, where the paralysis of 2023 has given way to renewed activity, however the easy money of 2021 is not coming back.
Capital is starting to re-enter the market, transactions are increasing and bid-ask spreads are narrowing. We are now in a market that rewards execution, quality, and scale while punishing assets that lack a credible path to stability.
Implications of Policy and The Feds’ Rate Cuts
Policy remains one of the most powerful variables shaping today’s investment landscape. Ongoing tariffs and the “One Big Beautiful Bill” have meaningfully altered development economics, the latter benefiting some owners through targeted tax carve outs while removing the energy credits that once made many projects feasible. The result of that has been renewed uncertainty as well as uneven feasibility across asset classes.
The Federal Reserve has also held rates steady, while central banks have started easing, which is a divergence that has weakened the dollar and moved some capital flows away from real estate in the U.S. It isn’t that capital is expensive, but it is still not cheap enough to lift valuations on its own. In this environment, value creation depends on operational performance and execution rather than financial engineering.
The Fed’s recent twenty-five basis point reduction in rates is a welcome tailwind. It eases refinancing pressure and broadens the opportunity set, but it is not a thesis in itself. Lower rates help liquidity, yet they do not remove execution risk.
The most attractive equity opportunities are in healthcare, senior housing, and workforce multifamily recapitalizations. On the credit side, NAV loans, GP financings, and rescue mezzanine structures remain compelling. In public markets, hybrid instruments such as convertibles and REIT joint ventures continue to present attractive valuation arbitrage opportunities between private and public markets.
The Refinancing Wall and the Rise of Private Credit
The refinancing wall continues to define the current market. Roughly $1.5 trillion in CRE debt is maturing over the next several years and with higher base rates accompanied by lower valuations, many borrowers face equity gaps that traditional channels aren’t able to fill. In terms of property type, according to CREFC, multifamily accounts for the single largest share of maturities.
Banks have reduced exposure, especially to transitional multifamily and office, while debt funds, private lenders, and life companies step in to fill the void. CMBS delinquencies are now at their highest level since 2013.
By contrast, public REITs hold modest leverage, long maturities, and ample liquidity, allowing them to play offense. This divergence creates an arbitrage opportunity. For platforms such as Cottonwood, it reinforces a focus on complexity: structured credit, NAV loans, GP financings with equity participation, and distressed paper that enables a pivot from debt to equity at a reset basis. In this cycle, complexity is being rewarded, and Cottonwood is well positioned to capitalize.
Transactions, Pricing, and the Return of Discipline
Transaction volume reached approximately one hundred fifteen billion dollars in the second quarter, a four percent increase year over year. The number of deals fell seven percent, indicating that investors are writing fewer but larger checks and concentrating capital into higher-quality assets. Multifamily once again led the market, with nearly thirty-four billion dollars in sales, representing a forty percent annual increase. Office assets also surprised to the upside, with price gains exceeding 15% off cyclical lows.
Industrial has evolved into a story of power availability and micro-location rather than broad enthusiasm. Retail is quietly reinventing itself. Though transaction volume declined, pricing climbed nearly nineteen percent as investors targeted necessity-anchored and experiential centers. The message is consistent: sellers have adjusted, buyers have regained conviction, and deals are closing again.
Regional Divergence, Property Types and the Rise of Local Fundamentals
Geography now defines opportunity. Coastal markets like Los Angeles, Boston, as well as Miami are seeing renewed inflows of capital. In fact, CBRE’s 2025 U.S. Investor Intentions Survey ranked Miami #2 among U.S. metros for CRE investment attractiveness. New York and San Francisco, however, are struggling under regulatory constraints and volatility in the tech sector. The Sun Belt and Midwest remain capital magnets, benefiting from population growth and relative affordability.
Overall, commercial real estate in the U.S. is a national market as opposed to hyper-local. It is being shaped by infrastructure, policy, and submarket fundamentals so a good strategy today must be detailed and reviewed at the granular level.
In terms of property types, multifamily remains the structural winner. Supply peaks this year and begins to taper in 2026, creating a favorable setup for durable rent growth in workforce housing. Cottonwood continues to identify opportunities in recapitalizations where over-levered sponsors require liquidity, allowing entry at reset bases with upside as absorption improves.
Office tells a more complex story. According to CBRE’s midyear review, office deliveries are projected to hit a 13-year low in 2025 but the office market divide will widen in 2025 by both asset class and location. Trophy assets and properties adaptable to medical or life science uses continue to attract capital, while commodity stock remains impaired, often trading 40% to 60% percent below peak pricing. Adaptive reuse and medical offices will define the segment’s recovery, while speculative CBD exposure will continue to lag.
Retail has quietly become an outperformer. As a Cushman & Wakefield report puts it, it continues to show resilience and has steady consumer spending underpinning its performance. Necessity-anchored and service-oriented centers, combined with limited new supply, command premiums so it isn’t that we are in retail renaissance but more of a reinvention, and scarcity itself has become a source of value.
Industrial demand remains solid yet selective but industrial construction is set to build in 2026, according to JLL. Power capacity and proximity to ports or logistics infrastructure now matter more than broad exposure to e-commerce. Cottonwood’s focus is on power-enabled industrial assets adjacent to data center ecosystems. Limited-service hotels in growth markets are trading well, however the full-service properties are the ones struggling with margin compression. Conversions to workforce or student housing are also emerging as an attractive repositioning play.
Alternatives are expanding rapidly. Data-center ecosystems, healthcare facilities, and single-family rental communities represent the next frontier. The energy transition is also creating new forms of CRE demand, from substations and logistics hubs to EV-corridor infrastructure. Increasingly, the most compelling opportunities are not in the core assets themselves but in the ecosystems that surround them.
What to Avoid and Why Discipline Matters
Not all recoveries will be equal.
The avoid list is clear: generic CBD office, overbuilt luxury multifamily in certain markets, manufacturing-heavy industrial, unanchored retail, speculative development without committed capital, and sponsors without a meaningful equity stake or proven track record. Investment strategies that rely on rate cuts rather than fundamentals will underperform. Success in this market depends on underwriting to cash flow, not to hope.
History has shown that the smartest participants in any gold rush were those selling the picks and shovels rather than digging for gold. Our strategy follows that same principle. We invest in the infrastructure and ecosystems that enable others’ growth: housing for data center and logistics workers, staging yards supporting large-scale development, substations and water assets powering digital infrastructure, and healthcare facilities that serve shifting demographics.
In the end, liquidity is returning, and the next area for opportunity will be for the ones who get creative and find durable, defensible, and often overlooked sources of value.