U.S. Commercial Real Estate Capital Markets Outlook (Q3–Q4 2025)
Introduction: U.S. commercial real estate (CRE) capital markets are at a pivotal juncture heading into the second half of 2025. Macroeconomic crosswinds – from an anticipated shift in Federal Reserve policy to persistent inflation – are shaping investor sentiment and the cost of capital. Meanwhile, credit conditions and capital flows are being redefined by regulatory changes and the rise of private debt capital. Pricing and liquidity are cautiously improving after a period of repricing, though trends vary widely by market and asset class. This report provides a deep-dive outlook for Q3–Q4 2025, with special focus on Miami, New York City (NYC), Dallas, and Chicago. We examine macroeconomic drivers, capital availability, pricing dynamics, and market-specific fundamentals, and we assess the looming refinancing wave of 2025–2026 – especially for office and transitional assets – and how sponsors are recalibrating their capital stacks. Finally, we distill key takeaways for sponsors, family offices, and REIT/public market participants.
Macroeconomic Trends: Fed Pivot, Inflation and Term-Premium Risks
Fed Policy and Interest Rates: After an aggressive tightening cycle in 2022–2024, the Federal Reserve has transitioned to a holding pattern in early 2025, and markets are increasingly pricing in the start of a rate-cutting cycle by late 2025 kpmg.com. Indeed, a tentative Fed pivot is expected to begin as soon as the September 2025 FOMC meeting, with a 25 basis point cut under consideration kpmg.com. By Q4 2025, institutional forecasts suggest the Fed could deliver a total of 2–3 quarter-point rate reductions, barring any resurgence of inflation. These prospective rate cuts reflect greater confidence that policy has moved into restrictive territory, as well as the desire to support growth amid flagging economic momentum. Importantly, however, Federal Reserve officials remain data-dependent and cautious – any cuts are likely to be gradual and potentially punctuated by dissent within the Fed if inflation proves sticky kpmg.com.
Inflation Outlook: Inflation has moderated from the post-pandemic highs but is not yet back to the Fed’s 2% target. Core PCE inflation is projected to hover around 3.0% by year-end 2025 and remain in that vicinity for much of 2026 kpmg.com. This level is far below the “searing” inflation of 2022, but still uncomfortably above target kpmg.com. There is concern among policymakers that the memory of recent high inflation could lead to unmoored inflation expectations, making it easier for firms to raise prices and workers to demand higher wages kpmg.com,kpmg.com. In other words, the risk of lingering inflation is on the Fed’s radar, and it tempers how aggressively they can cut rates. For CRE investors, this means the interest-rate relief in late 2025 may be modest and gradual – not a return to the ultra-low rate environment of the 2010s kpmg.com. Indeed, analysts caution that long-term interest rates are unlikely to fall back to pre-2022 levels absent a major recession or crisis kpmg.com.
Term-Premium and Long-Term Yields: A critical macro risk for real estate capital markets in H2 2025 is the elevated term premium in long-term bond yields. Even as the Fed begins easing, long-term U.S. Treasury yields may remain stubbornly high due to investors demanding extra return for long-duration exposure amid policy uncertainty and fiscal risks. Vanguard’s fixed-income team notes that “term premia concerns may limit the decline in longer maturity yields, keeping steepening pressure on the curve” corporate.vanguard.com,corporate.vanguard.com. In practice, this implies the yield curve could steepen as short-term rates come down but 10-year and 30-year yields stay elevated. Heavy Treasury issuance to fund deficits, waning foreign demand for U.S. bonds, and inflation uncertainty are all contributing to a higher floor under long-term yields kpmg.com. For CRE markets, the implication is that cap rates tied to long-term benchmarks may not compress significantly even if the Fed cuts the overnight rate. Investors should be prepared for the 10-year Treasury yield to end 2025 around the mid-4% range, which is roughly where it stood in mid-year cbre.com,cbre.com. In sum, the macro outlook for late 2025 features easing monetary policy and cooling inflation, but also a cautious eye on term-premium and a “higher for longer” bias in long-term financing costs.
Capital Flows and Credit: Banks, Basel III Endgame, and Private Credit Dynamics
Bank Lending Conditions: The traditional backbone of CRE finance – U.S. banks – has been strained over the past 18 months, and that cautious stance will persist into late 2025. Tighter credit is the new reality as banks manage both economic uncertainty and upcoming regulatory capital rules. Many major banks began curtailing new CRE loans in 2023, especially to riskier sectors like office, and while 2025 has seen some stabilization, banks remain selective walterduke.com,walterduke.com. Crucially, U.S. regulators finalized the Basel III “Endgame” capital requirements in 2024, which will start phasing in from July 2025. These rules force banks over $100 billion in assets to boost their highest-quality capital by roughly 16% on average naiop.org. The impact on real estate lending is significant: higher capital charges for CRE loans mean lower ROE for banks, incentivizing them to scale back lending exposure. Industry experts warn the Basel Endgame could “spell tighter credit for commercial real estate owners at a time when many will need to refinance debt” naiop.org. In effect, the new rules act as a credit brake, reducing the capacity of major banks to lend and likely raising loan spreads to compensate for the extra capital cost naiop.org,naiop.org. While the requirements will be phased in through 2028, banks are already adjusting their portfolios now, preferring lower-risk, better-capitalized deals and leaving some borrowers (especially those with office exposure or heavy leverage) searching for alternatives naiop.org,naiop.org.
Adding to this, the Basel III Endgame coincides with a well-flagged wall of maturities. U.S. banks hold about half of the $6 trillion in outstanding CRE loans, and more than $1 trillion of that debt comes due in 2024–2025 naiop.org. Office properties – which banks are most wary of – face historically high vacancies and account for a disproportionate share of upcoming maturities (nearly one-quarter of 2025’s CRE loan maturities are office loans) fdic.gov. This confluence of regulatory tightening and refinancing demand has already led banks to bolster credit loss reserves and prioritize lending to existing relationships and strong sponsors. Regional and community banks (who hold a significant 29% of all bank-held CRE loans fdic.gov,fdic.gov) are under particular pressure given their high CRE concentrations. They remain active in smaller loans and local projects, but even these banks are carefully managing exposure and often requiring additional credit enhancements or recourse from borrowers. In sum, bank lending conditions in late 2025 remain tight – liquidity is available primarily for high-quality assets, multifamily and industrial deals, and well-capitalized sponsors, while less favored property types (older offices, speculative developments) face an acute credit crunch.
Basel III Endgame Impacts: As noted, the Basel III Endgame rules contribute to this conservative stance. By mandating roughly 16-19% higher capital for the largest U.S. banks naiop.org, regulators are effectively reducing the volume of loans those banks can carry for a given equity base. Industry advocacy groups have voiced concerns that these rules come at the worst time: “new regulations…would increase capital requirements on major banking institutions… The result could be less credit availability for businesses in general, higher financing costs for CRE and a dampening effect on economic growth” naiop.org,naiop.org. The phase-in starting mid-2025 means banks will incrementally pull back on CRE loan growth or even shrink portfolios to meet the stricter ratios naiop.org. For borrowers, this manifests as higher loan pricing, lower leverage, or outright “no quotes” for deals that would have easily financed a few years ago. It is worth noting that U.S. regulators are contemplating adjustments to mitigate unintended consequences (and banks are lobbying for flexibility), but for now institutional investors should assume bank CRE credit will remain scarce and costly through the outlook period. Borrowers are well-advised to diversify their capital sources and start refinancing discussions early, given this challenging bank landscape.
Rise of Private Credit and Alternative Lenders: The flip side of banks pulling back is the surge of private credit into CRE finance. Private debt funds, mortgage REITs, life insurers, and other non-bank lenders have stepped in aggressively to fill funding gaps. Private credit has grown from a niche to a $1.7 trillion global asset class by 2023, projected to reach $3 trillion by 2028 prea.org. This growth is rooted in the post-GFC era when banks retrenched and private lenders delivered capital with speed and flexibility. In 2025, private real estate debt funds are a “marginal price setter” for CRE credit prea.org, often funding deals that banks won’t – such as transitional properties, heavy lifts, and secondary sponsor refinancings prea.org,prea.org. In fact, real estate debt funds now account for roughly 24% of all real estate fundraising – a remarkable share that underscores how mainstream this capital source has become prea.org.
We are witnessing private credit dynamics playing out in real time: debt fund dry powder is high, and many funds view the current environment as an opportunity to lend at attractive yields with strong collateral. Interest rates on CRE loans are double their 5-year average nortonrosefulbright.com,nortonrosefulbright.com, meaning private lenders can command 8–12% rates for bridge loans or mezzanine pieces, a significant pickup over risk-free yields. Indeed, private lending terms have turned borrower-favorable in certain segments – market participants report multiple debt fund bids for quality multifamily or industrial bridge loans, even enabling some “cash-neutral” refinances on transitional assets (refinancing without new equity) which were hard to achieve a year ago essexcapitalmarkets.com,essexcapitalmarkets.com. This reflects competition among private lenders to deploy capital, tightening credit spreads slightly from their peak.
However, investors should remain discerning: not all private credit is created equal. Recent analyses warn that underwriting standards in parts of the private credit market have eroded (e.g., 90% of leveraged loans are now cov-lite, and payment-in-kind interest is rising) prea.org,prea.org. Within real estate credit, debt funds are often lending on “the leftovers” – deals banks and life companies pass on, including assets facing structural headwinds (think aging office buildings or out-of-favor retail) prea.org. This can mean higher default risk and a scenario where private lenders may need to “own the keys” and take over difficult properties prea.org. We have already seen office loan delinquencies climb to 7.2% by mid-2024 and many loans requiring extensions or workouts prea.org. Still, the overarching trend is that private credit and non-bank capital are crucial liquidity sources in late 2025. Life insurance companies, for instance, have maintained or increased their CRE lending targets and are actively stepping into deals that banks might shun essexcapitalmarkets.com,essexcapitalmarkets.com. Even CMBS markets, while not fully back to normal, have stabilized enough to contribute some flow for stabilized assets.
Capital Flow Summary: Overall capital flows into U.S. CRE for H2 2025 should improve modestly relative to the frozen market of late 2022/2023. Debt capital is available, but it is coming at a higher cost and from different channels. Banks lend selectively (preferring multifamily, necessities-based retail, and prime sponsors), while debt funds, private equity, and even private equity “opportunistic” vehicles are actively providing bridge loans, mezzanine financing, and preferred equity. The gap left by banks is being filled, but often at yields of 8-12% and lower leverage, which naturally affects project feasibility and returns. Borrowers are adjusting by accepting more expensive mezzanine or pref equity (often reluctantly) to achieve refinancing commercialsearch.com, or by bringing in rescue capital partners. As we discuss later, sponsors who recast their capital stacks proactively – for example, securing a pref equity tranche to avoid a cash crunch – are generally faring better than those who simply hope interest rate relief will bail them out. Investors, especially those managing family office capital or private funds, may find opportunities to deploy structured capital (gap financing) at favorable terms, essentially stepping into the space where banks used to operate.
Pricing and Liquidity: Volume Rebound, Cap Rates, and Pricing Recovery
Transaction Volume and Liquidity: After a steep downturn in 2023, transaction activity in 2025 has shown early signs of recovery. By Q2 2025, national CRE sales volume totaled about $115 billion, up 3.8% year-over-year – the first annual increase since the market peaked altusgroup.com,altusgroup.com. This rebound has been led by multifamily and selective office transactions, which saw volume gains of +39.5% and +11.8% respectively vs. a year prior altusgroup.com,altusgroup.com. Notably, this reflects buyers and sellers beginning to narrow the price gap and transact, especially in sectors where fundamentals are resilient (e.g., apartments) or where pricing has corrected enough to attract opportunistic capital (e.g., some office deals trading at deep discounts). In contrast, industrial and retail volumes remained down year-over-year in Q2 (–6.3% and –14.2%, respectively) altusgroup.com, as those sectors had seen less price capitulation and some investors continued to wait on the sidelines. By mid-2025, the pace of deals had improved from the near-standstill of late 2022: the average number of properties trading per day rose in Q2 across all property types, though still below pre-pandemic norms altusgroup.com,altusgroup.com. For full-year 2025, industry forecasts (e.g., CBRE) project investment volume to reach ~$437 billion, roughly a 10% increase from 2024, though still about 18% below the 2015–2019 annual average cbre.com. In short, liquidity is coming back, but it’s selective and the market is not fully “normalized”. Many deals are still lumpy and driven by specific catalysts – for instance, capital raising by stressed owners, or 1031 exchange buyers with capital to deploy – rather than a broad-based frenzy. The bid-ask spread in pricing has narrowed, but pricing discovery is ongoing. As Green Street Advisors commented, “high interest rates and economic uncertainty… have kept a lid on property pricing” in 2025 greenstreet.com, and deal-making often requires creativity and realistic expectations from sellers.
Cap Rate Trends: Cap rates have undergone a cyclical repricing upwards over the past two years, following the surge in interest rates. By early 2025, cap rates in most sectors had expanded 100–150 bps from their 2021 historic lows. The good news for sellers is that cap rates appear to have peaked in early 2025 and are now stabilizing, with a bias toward slight compression in the coming quarters cbre.com,cbre.com. CBRE’s midyear 2025 outlook notes that cap rates are likely to “slowly ease from their cyclical peak” as the investment market recovery continues cbre.com,cbre.com. This forecast is supported by the moderate decline in benchmark yields expected and the weight of capital sidelined since 2022 that could re-enter as confidence returns. Indeed, prime assets in certain markets are already seeing bidding competition drive cap rates down a bit from the highs. For example, well-leased industrial portfolios and grocery-anchored retail centers in growth markets have seen cap rates compress by ~25 bps since late 2024, according to brokerage feedback. However, cap rate movements will be very sector- and quality-specific. The “cap rate spread” between core, well-located assets and secondary assets has widened, and we expect it to stay wide. Investor demand is strongest for “flight-to-quality” acquisitions – those trophy assets with durable income streams – whereas properties with leasing risk or functional obsolescence may still struggle to find a bid without a steep discount.
Additionally, the term-premium risk discussed earlier implies that cap rates will likely stabilize at higher levels than the prior cycle’s trough. As one capital markets head observed, “cap rates are likely to decline slightly in 2025, but we expect them to stabilize at higher percentages compared to past cycles” commercialsearch.com,commercialsearch.com. In practical terms, that means we shouldn’t expect cap rates on average to revisit the ultra-low 4-5% range seen in 2019–2021. Many assets might pencil out in the high-5% to 7% cap rate range going forward, reflecting the new higher base rates and risk compensation. Term-premium and credit spreads in lending will keep a floor under cap rates. For context, Green Street’s Commercial Property Price Index (CPPI) – an indicator of CRE values – was essentially unchanged through the first half of 2025, and by July was up a modest 3.2% year-on-year greenstreet.com, indicating that pricing has firmed but not materially rebounded. The price declines of 2022–2023 (which averaged around -15% to -20% for all property types) have largely stopped, but meaningful price appreciation is not yet evident in most sectorsgreenstreet.com. In essence, the market has found its footing but is treading water.
Pricing Recovery and Outlook: The pricing recovery will likely unfold gradually over late 2025 into 2026. As financing costs abate slightly and NOI growth continues (notably in multifamily, industrial, and certain retail segments), we anticipate modest cap rate compression could yield price appreciation in the low-to-mid single digits for prime assets over the next year. However, assets with declining cash flows (e.g., older offices with rising vacancy or hotels in oversupplied markets) may still see further price capitulation to clear the market. There are also pockets of distress that could influence pricing metrics – for example, some CBD office buildings trading at steep discounts to replacement cost. Distressed sales have so far been limited (around 3% of volume in early 2025, per various market trackers), thanks to extend-and-pretend strategies and plentiful debt fund capital. But as loans mature (discussed below), distressed transactions could tick up, particularly for those office and retail assets that lenders decide not to keep extending. This could temporarily weigh on price indices.
In public markets, REIT stocks in 2025 have largely stabilized and even modestly outperformed the broader equity market year-to-date wealthmanagement.com. The REIT sector’s performance suggests equity investors see relative value – REITs were heavily discounted in 2022, and as of mid-2025 the FTSE Nareit All-Equity REIT index was slightly positive on the year wealthmanagement.com. Many REITs have fortified balance sheets, and some are poised to be net buyers if private values remain soft. This dynamic – public entities with lower cost of capital scooping up assets – could help put a floor under private market pricing for quality assets.
Bottom line: Liquidity conditions are improving and pricing appears to be past the worst, but the recovery is uneven. Investors still demand a higher risk premium, and thus pricing recovery will favor resilient sectors and markets. The next sections will delve into exactly those market-specific dynamics, focusing on Miami, NYC, Dallas, and Chicago, which each tell a different story of capital flows and pricing resilience or dislocation.
Market Spotlights: Miami, New York City, Dallas, and Chicago
Miami: Sun Belt Resilience and Capital Inflows
Capital Flows & Investment: Miami and greater South Florida remain a magnet for both domestic and global capital in late 2025. The region is benefitting from powerful secular tailwinds – population and wealth migration, a business-friendly climate, and enhanced status as a finance and tech hub. Investment flows into Florida CRE are surging: the state as a whole has seen a boom in commercial real estate investment, fueled by “deliberate and sustained migration of high-net-worth individuals, financial executives and tech leaders to South Florida” since the pandemic floridarealtors.org,floridarealtors.org. This influx of affluent residents and corporate expansions (e.g., hedge funds and private equity firms setting up in Miami) has translated into robust demand for real estate across sectors. A recent mid-2025 report noted that overall commercial sales volume in South Florida jumped 32% year-over-year in Q1 2025 walterduke.com. Notably, institutional capital is actively pursuing Miami office assets, flipping the narrative on the office sector. Office transaction volume in South Florida was up +185% in that period walterduke.com,walterduke.com, as investors targeted trophy buildings in premier submarkets (such as Brickell in Miami) – a stark contrast to the malaise in offices nationally walterduke.com. In essence, Miami is seeing a flight-to-quality trade: savvy investors are willing to bet on best-in-class office and mixed-use properties in South Florida, even as they shun commodity office buildings elsewhere.
Leasing and Fundamentals: On the fundamentals side, Miami’s property markets are among the strongest in the nation. The office market is a standout – Miami currently boasts the lowest office vacancy rate in the country and the highest rent growth among major metros walterduke.com. This is attributed to the influx of companies and talent; finance firms relocating from the Northeast and hedge funds from Chicago or overseas have buoyed Miami office demand. Prime office occupancy is so tight that landlords of newer buildings have regained pricing power. Meanwhile, retail in South Florida is exceptionally robust. Retail vacancy in the region is around 3.5%, a historic low and far below the U.S. average walterduke.com,walterduke.com. High consumer spending by new residents and limited new retail construction have created near-full occupancies, leading to rent growth and even bidding wars for prime retail spaces (e.g. luxury storefronts or well-located shopping center anchors). Industrial property around Miami remains in demand due to its role as a trade and e-commerce gateway, though that sector is absorbing a wave of new supply. And in multifamily, Miami’s rents have risen substantially in recent years; a large pipeline of new apartments is now moderating rent growth, but occupancy remains healthy as population inflows continue.
Pricing and Outlook: Miami’s CRE pricing has been resilient relative to many markets. Cap rates in Miami compressed to some of the lowest in the nation in 2021–22, and although they expanded in 2023, they remain comparatively low (reflecting strong growth prospects). Investors are effectively pricing Miami as a “growth market” on par with top-tier global cities. In 2025 we see little in the way of pricing dislocation for high-quality assets – if anything, bidding has been competitive for scarce offerings. For example, a core office tower in Brickell or Coral Gables might trade at a cap rate in the 5% range, only modestly above 2019 levels, thanks to the weight of capital eager to enter this market. Miami’s biggest challenge is not demand, but absorption of supply in certain sectors (multifamily, industrial) and infrastructure to keep pace with growth. One development on the horizon: Florida’s repeal of its state sales tax on commercial leases effective October 2025 walterduke.com,walterduke.com. Florida was the only state that taxed commercial rent, and eliminating this “rent tax” provides an immediate 2%–3% cost savings for tenants – effectively boosting net operating income for landlords walterduke.com,walterduke.com. This legislative tailwind should further strengthen Florida’s appeal to businesses and could incrementally increase property values (through higher NOI) in the coming years.
Bottom line for Miami: The market’s resilience and buzz are backed by real numbers – record-low vacancies in some sectors, steady rent growth, and surging investor interest. Sponsors in Miami can likely command favorable financing terms (relative to other markets) and should focus on delivering quality, as the market has become bifurcated: top-tier assets thrive, while mediocre properties are less forgiving of missteps. For capital allocators, Miami offers a story of growth and relative safety – it’s one of the few major markets where the office narrative is positive, and where capital flows remain very robust.
New York City: Cautious Recovery in a Global Gateway
Capital Flows & Sentiment: New York City, the nation’s largest real estate market, is experiencing a cautious recovery in 2025. On one hand, NYC remains a global gateway that international investors and institutional capital cannot ignore – its sheer size and long-term track record ensure it will eventually bounce back. On the other hand, recent data show that New York has been an underperformer in the early 2025 rebound. For example, in nationwide tallies of transaction activity, most major coastal metros outpaced the national average – except New York (and San Francisco) which were notable exceptions altusgroup.com,altusgroup.com. That implies that investment volume in NYC has lagged, reflecting greater hesitation. Indeed, by mid-2025, New York’s property sales volumes were still depressed and pricing adjustments ongoing, particularly in the office sector. Global investors who historically target Manhattan trophy assets have been more tentative, partly due to uncertainty around office usage and partly due to local regulatory/tax concerns. That said, sentiment has improved compared to 2023. The availability of some distressed or repriced opportunities is drawing opportunistic buyers – for instance, reports of office buildings trading at fractions of their prior values have piqued interest from private equity players looking for a high-risk turnaround play.
Leasing Trends: On the leasing front, New York’s picture is mixed but generally trending better. Office leasing activity has picked up in 2025, especially in premier buildings. As major employers (notably on Wall Street and in tech) push return-to-office initiatives, demand for prime “trophy” office space has been spilling into well-located second-tier buildings credaily.com,credaily.com. In other words, Class A and top-quality Class B offices in Midtown and select Downtown submarkets are seeing a flurry of leasing as flight-to-quality plays out – tenants are consolidating into better buildings to entice workers back. According to a CRE Daily briefing, the big five brokerage firms (CBRE, JLL, Cushman, Colliers, Newmark) all reported surprisingly strong leasing revenues in Q2 2025 and collectively raised their outlooks for the first time since 2020, citing NYC’s uptick as a contributing factor credaily.com,credaily.com. This is a remarkable turnaround: the leasing momentum suggests that tenants and landlords are finally meeting in the middle on rents and concessions to get deals done. However, it’s crucial to note that NYC’s office availability remains elevated. Depending on the survey, Manhattan’s overall office vacancy is around 17%–19% (including sublease space) – better than Sun Belt cities like Houston or poorer Midwest markets, but roughly double the pre-pandemic vacancy rate. The bifurcation is stark: newer or recently renovated buildings near transit, with top amenities, are achieving solid leasing (sometimes even with modest rent increases), while older vintage offices in the Garment District or parts of Downtown struggle with vacancy and may ultimately be candidates for conversion or repurposing.
In other sectors, NYC multifamily is relatively healthy – rent growth cooled after 2021’s surge, but occupancy remains very high (~97%) and rents are inching up again in 2025 as hiring improves and migration normalizes. Retail in NYC is also showing signs of life, especially in prime corridors: luxury retail in Manhattan has benefitted from tourism’s return and high-income residents, though secondary retail streets still have some vacancies. Hospitality (hotels) had a robust 2023–24 recovery with occupancy nearing 85% in summer, but new supply (from conversions of distressed offices to hotels, for example) could weigh on that sector.
Pricing and Dislocation: NYC’s pricing adjustment has been significant in certain areas, but there are also signs of resilience. Office valuations in NYC have been hit hard – many office buildings have seen 20-30% (or more) value declines from peak. One stark statistic: as of mid-2024, Green Street estimated Manhattan office values were down roughly 40% from 2019 levels on average. Some recent trades support this – for instance, an older Downtown office tower might sell at a 7%–8% cap rate, double the cap rate of a premier Midtown asset, highlighting the huge risk premium investors now require for commodity office in NYC. This is the pricing dislocation in action. By contrast, multifamily and prime retail cap rates in NYC have only risen modestly. Well-located apartment assets may trade at ~5% cap rates (versus 4% in 2019), reflecting that investors still regard NYC residential as a stable long-term bet. Likewise, a flagship retail condo on Madison Avenue might trade at a 4.5%–5% cap if leased to a credit tenant. These pockets of strength underscore NYC’s enduring appeal for certain asset classes.
One emerging theme is adaptive reuse and asset repurposing in NYC. The City and State have introduced incentives for office-to-residential conversions and other reuses to tackle the office glut. A few high-profile conversions are underway, which in time could remove some office inventory and help stabilize that sector’s pricing.
Capital flows in NYC are expected to improve going into 2026 as more investors sense a bottom. A recent analysis even predicted “moderate price appreciation of 3-5% across the city” in 2025 for NYC real estate overall fciq.cafciq.ca – an optimistic view predicated on the notion that once interest rates ease, a flood of global capital will re-engage. We temper that optimism given lingering challenges, but indeed if the Fed cuts and if NYC demonstrates leasing traction, one could see a thaw. Already, foreign investors from the Middle East and Asia have reportedly been scouting for NYC assets, lured by a currency advantage (a softer dollar in 2025) altusgroup.com,altusgroup.com and the long-term cultural cachet of owning in Manhattan.
Bottom line for NYC: Caution is still warranted. NYC is in recovery but not fully recovered. Sponsors should focus on asset repositioning – making sure properties align with what post-pandemic tenants want – and be realistic on underwriting (for example, shorter lease terms or higher TIs for offices). Family offices and private investors might find unique entry points now, especially in sectors outside office. And while NYC will remain a higher beta market (volatility in values), it’s also one that could offer outsized gains if one buys at the trough of sentiment.
Dallas–Fort Worth (DFW): Growth Market Momentum
Capital Flows & Investment: The Dallas–Fort Worth metro continues to be a darling of investors due to its strong economic and demographic growth. DFW has been one of the fastest growing metros in the country, attracting corporate relocations (especially from more expensive coastal cities) and a steady inflow of residents. This has translated into robust capital flows even through recent choppy times. Transaction volumes in North Texas held up better than most markets in 2023 and have accelerated in 2025. By midyear 2025, investment activity in DFW spans every property type – from institutional investors acquiring large industrial portfolios to private capital pouring into multifamily developments.
An illustrative metric: within the office sector, Dallas has pockets like Preston Center that are exhibiting extremely tight fundamentals – prime office vacancy in Preston Center was just 3.9% in Q2 2025, one of the lowest submarket vacancies in the nation cbre.com,cbre.com. Investors notice metrics like that, and as a result, Dallas has not seen the same capital flight from office as cities like Chicago or San Francisco. Moreover, Dallas is often grouped with Sun Belt peers (Austin, Atlanta, etc.) where multifamily and industrial investment is booming due to population growth.
Leasing and Fundamentals: DFW’s economy is firing on most cylinders in 2025. Industrial real estate is a cornerstone: Dallas is a logistics hub, and despite a wave of new warehouse construction, demand has largely kept pace. In fact, industrial vacancy in Dallas ticked down to 9.4% in Q2 2025 (from 9.7% prior) cushmanwakefield.com, indicating absorption of new supply. Warehouse/distribution tenants – especially e-commerce, retail logistics, and manufacturing-related users – continue to drive leasing, and DFW’s central location and infrastructure (DFW Airport, rail, highways) keep it atop expansion lists. Multifamily in Dallas had a huge delivery pipeline in 2022–2024, which pushed rent growth into slight negative territory as that supply was absorbed. However, construction starts have slowed, and 2025 is seeing about half the new multifamily deliveries of 2024 scribnerdfw.com, allowing the market to catch its breath. Occupancy remains solid in the mid-90s% and effective rents are expected to resume growth as the excess is leased up. For context, Dallas has been among the top metros for population growth, so the demand base for apartments is steadily expanding.
Office and Retail: Office in Dallas is two-sided: the metro has enjoyed lots of corporate expansion (particularly in suburban campuses and relocations to areas like Plano/Frisco), so newer Class A properties in those areas boast healthy occupancy. However, older offices and some parts of downtown Dallas do have higher vacancies as tenant preferences shift. Overall, Dallas’ office vacancy is around the national average, but importantly the DFW market has seen large new leases and even new construction in 2025 by firms betting on Texas’ growth (such as tech and financial firms establishing regional HQs). Retail in DFW is relatively strong as well – population growth means more rooftops to support stores, and key retail nodes in wealthy suburbs are thriving. Neighborhood centers and grocery-anchored retail are particularly favored by investors for their stable cash flows.
Pricing and Resilience: Dallas property values have been more resilient than most markets, reflecting the strong fundamentals and investor demand. Cap rates in Dallas ticked up in 2022–23 but generally remain a notch tighter than U.S. averages for comparable assets (investors are willing to pay a premium for growth markets). For example, a stabilized suburban multifamily asset in Dallas might trade at a 5.25% cap in 2025, versus maybe 5.75% in a slower-growth Midwest city. The depth of the buyer pool in Dallas – from private syndicates to institutional core funds – has kept bidding competitive. Even when debt markets were difficult, Dallas saw equity-heavy buyers (like family offices or 1031 exchange investors from California) step in, preventing fire sales.
Dallas also benefits from a friendlier development and business environment, which, while leading to more supply, also assures investors that the metro will continue attracting business. There hasn’t been significant pricing “dislocation” except perhaps in older office assets which, as everywhere, have had to trade at discounts if they trade at all. But in sectors like industrial, Dallas pricing is near peak levels; some industrial assets in Dallas are still trading at sub-5% cap rates given long-term rent growth prospects.
Capital flows specifically: Texas in general has seen huge capital inflows from both coasts. Investors who rotated out of pricey coastal markets often reallocated to Dallas or Austin. There is also strong lender interest: virtually all lender groups (banks, life companies, agencies, debt funds) are “open for business” in Dallas, especially for multifamily (the agencies have large lending allocations here) essexcapitalmarkets.com,essexcapitalmarkets.com. This means financing is a bit more accessible and potentially more competitively priced in Dallas than in, say, a stagnating market.
Bottom line for Dallas: It remains one of the most dynamic and investable markets in the U.S. The key for sponsors is not to overbuild or overleverage – the market can digest new supply, but discipline is needed given interest rate uncertainty. For investors, Dallas offers a blend of growth and comparatively lower regulatory risk (no state income tax, etc.), making it a continued favorite for both equity and debt capital. We expect Dallas to end 2025 with some of the highest transaction volume growth among major U.S. metros, and pricing that in many cases is back to pre-correction levels or higher for top assets.
Chicago: Diverging Outlook – Distress and Opportunity
Capital Flows & Sentiment: Chicago’s CRE capital markets in late 2025 present a bifurcated picture. On one side, Chicago is grappling with serious challenges in its office sector and investor perceptions of its business climate, which have dampened capital flows. On the other side, certain segments like industrial and select multi-family investments are performing well and attracting robust capital, showcasing Chicago’s enduring strengths as the Midwest’s economic hub. Broadly, investor sentiment toward Chicago is cautious. Major coastal and Sun Belt markets often get first pick of capital, whereas Chicago has seen some capital outflows (or at least hesitation) due to concerns like population stagnation, fiscal issues (Illinois’ taxes, etc.), and high office vacancy. Indeed, in the first half of 2025, Chicago did not experience the same volume rebound as some Sun Belt markets.
However, there are bright spots drawing capital. The industrial market around Chicago is a prime example: Chicago is a logistics powerhouse (with its rail interchanges, O’Hare airport cargo, etc.), and industrial investors remain very bullish. Local industrial players note that capital flows into Chicago’s industrial real estate “show no signs of slowing” – for instance, one prominent investment firm acquired $750 million of industrial assets in 2024 and anticipates even greater investment in 2025 rejournals.com,rejournals.com. Strong allocations from institutional partners are backing these moves, spanning everything from warehouse distribution centers to data centers around Chicago rejournals.com. So, while office towers might be struggling to find bidders, logistics facilities in Joliet or Kenosha (the greater Chicagoland region) have plenty of eager buyers and lenders.
Leasing and Fundamentals: Office is undoubtedly Chicago’s weakest link. The downtown Chicago office vacancy hit a record ~27% by mid-2025 chicagobusiness.com,chicagobusiness.com, an all-time high that underscores how much demand has fallen off relative to supply. Large blocks of space remain empty as companies downsize footprints or relocate. Even the suburbs have elevated office vacancies (suburban Chicago ~25% vacancy) rejournals.com. Leasing activity has improved slightly in 2025 (a few major tenants have inked deals for high-quality space), but the overall office recovery is tepid. Landlords are having to offer heavy concession packages to lure tenants, and face competition from newer buildings with better amenities. Some older office properties are being handed back to lenders or slated for conversion to apartments or other uses.
In contrast, industrial leasing in Chicago remains strong. The region consistently ranks in the top tier for industrial space absorption – through Q1 2025, Chicago saw over 8.5 million sq. ft. of industrial move-ins over 12 months rejournals.com cawleycre.com, keeping vacancy relatively low (in the mid-single digits in core submarkets). Rents for modern distribution space have risen, and developers still see opportunities (though construction has moderated from peak levels). Multifamily in Chicago is also relatively stable; the metro’s population isn’t growing like Sun Belt cities, but there’s a steady urban core demand and limited new supply in downtown since financing tightened. One report noted Chicago’s apartment vacancy was roughly flat year-over-year around 19.6% – this figure likely includes a broader definition (maybe including some shadow inventory)avalonreal.com, but generally Class A multifamily in Chicago is performing decently with stable occupancy and slight rent growth resuming.
Pricing and Dislocation: Chicago’s biggest pricing dislocations are in its office sector. Some office buildings, especially older vintage or those in the Central Loop, have seen their values drop by 50% or more from pre-pandemic peaks. We’ve seen cases where towers that sold for $300 per square foot years ago now trade (or appraise) at under $100 per square foot, essentially land value in some cases. This reflects both the spike in cap rates (investors applying 8-10% cap rates or higher for risky offices) and declines in cash flow (occupancy and rents down). Distress is evident: over $20 billion in Chicago office CMBS loans are in special servicing or have missed maturities, and some high-profile buildings have gone back to lenders. That said, such distress can attract bold investors looking for value-add plays – there have been a few transactions where well-capitalized local developers bought near-empty office properties at deep discounts, aiming to upgrade or convert them.
Outside of office, Chicago’s pricing has been more stable. Industrial cap rates remain tight (many deals in the low-5% range), comparable to Sun Belt industrial cap rates, because Chicago industrial is considered core real estate. Multifamily cap rates might be in the 5.5%–6% range for stabilized assets, only slightly above the national norms, indicating that institutional investors still view Chicago apartments in a favorable light due to solid NOI yields and less regulation compared to, say, coastal cities. Retail is a mixed bag – suburban Chicago retail (especially necessity-based centers) is doing okay, but some urban retail corridors are weaker.
Capital Strategy: Given the headwinds, local Chicago sponsors and owners are having to get creative. Some are investing in capital improvements to differentiate their buildings (especially offices, adding amenities to compete). Others are exploring public-private partnerships or incentives – for example, Chicago’s city government has touted initiatives for converting redundant office space and possibly offering tax relief for such projects. Investors looking at Chicago now might find contrarian opportunities: the ability to buy quality assets at a discount relative to their replacement cost or relative to coastal equivalents. The key is selectivity and a strong asset management plan.
Bottom line for Chicago: It’s a market of high contrasts. We advise sponsors and investors to approach Chicago with a sector-specific lens. Industrial and logistics – full steam ahead, strong fundamentals justify continued investment. Multifamily – stable, with decent yields, but be mindful of location and property tax nuances. Office – extremely challenging; any investment here should underwrite very conservatively with plenty of contingency for leasing costs and possible changes of use. Retail – pick necessity and high-traffic centers, avoid fringe locations. Family offices with long-term horizons might selectively invest now while others are fearful, but they should partner with experienced local operators. Overall, Chicago requires careful navigation, but it’s not without opportunity – after all, it’s still a diversified $700+ billion economy with over 9 million people in the metro.
The Great Refinancing Wave (2025–2026): Risks and Responses
Across the U.S., the wall of CRE debt maturities in 2025–2026 looms large. Industry observers have dubbed it a refinancing “wave” or even a potential “refinancing crisis” for certain property types. The numbers are daunting: An estimated $1.7 trillion of U.S. commercial mortgages are set to mature by the end of 2026, including roughly $950 billion that was due in 2024 alone prea.org. This includes all debt sources (banks, CMBS, life companies, debt funds). In 2025 specifically, thousands of loans – many originated 5 or 10 years prior when interest rates were far lower – are coming due and will need refinancing, extension, or payoff.
Office and Transitional Assets at the Epicenter: The refinancing wave is most threatening for office properties and other transitional assets (e.g., value-add projects, hotels or malls in turnaround). As highlighted earlier, office values have fallen 20–50% from their peaks in many markets prea.org, meaning a loan that was 70% LTV at origination could now be well over 100% LTV on current value. Office loans account for nearly one-quarter of all CRE loan maturities in 2025 fdic.gov, a disproportionate share. Many of these are secured by older offices with uncertain cash flows – a recipe for difficult refinancings. Similarly, transitional assets that haven’t yet stabilized (lease-up apartments, hotels recovering from Covid, retail centers mid-redevelopment) are facing a much higher interest rate environment now than when their bridge loans were made.
Refinancing Challenges: Borrowers confronting 2025 maturities are often seeing interest rate quotes that are double their previous coupon, and loan proceeds offers that are significantly lower (because lenders have cut leverage). For example, a loan maturing from 2015 might have carried a 4% interest rate; today’s refinance could be at 7%+. If the property’s NOI has not grown commensurately (and for office it likely shrank), the debt service coverage on a new loan may not meet lender thresholds. In cases where the existing loan was interest-only or had minimal amortization, the jump in debt costs is even more problematic. As a result, refinancing risk is elevated – many loans won’t refinance “out of the box” without changes. We are seeing a range of outcomes: some loans are getting extended (with higher rates and reserves, essentially “extend and pretend” hoping conditions improve later), some sponsors are being forced to inject fresh equity or capital to right-size the loan, and some assets are being handed back or sold under duress if no viable refi is possible.
The regulators are well aware: the FDIC noted in its 2025 Risk Review that high interest rates have increased refinancing risk for CRE borrowers, especially given how much debt was originated at sub-4% rates fdic.gov,fdic.gov. Lenders will be scrutinizing vacancy rates, rent rolls, and reappraisals closely. Assets like offices with high vacancy and short-term leases are particularly hard to underwrite for a long-term loan now – some banks simply won’t refinance these without substantial paydowns.
Sponsors Adjusting the Capital Stack: In response, savvy sponsors are actively adjusting their capital stacks to weather this storm. One common strategy in 2025 is adding a layer of “gap” capital – often in the form of preferred equity or mezzanine debt – to fill the shortfall between the new senior loan and the old loan balance. As one industry expert noted, “Preferred equity will become more necessary in 2025 to help plug the gap to a cash-neutral refinance. Sponsors would rather give up some interim cash flow… than need to do a capital call” commercialsearch.com,commercialsearch.com. This encapsulates the trend: instead of injecting all new equity themselves (which many sponsors or their investors are loath to do), they’ll accept a pref equity partner who takes a subordinated position, accruing a return but not diluting ownership unless certain triggers. In 2024, many borrowers avoided these structures, hoping the Fed would cut rates enough to make refinances easier commercialsearch.com. But by mid-2025, the reality set in that rates may not fall quickly, and sponsors have warmed to bringing in rescue capital to extend runway commercialsearch.com. Debt funds and opportunistic investors have raised funds specifically for these recapitalizations, often targeting mid-teens returns for filling the gap.
Another approach sponsors are taking is negotiating loan extensions proactively. Rather than try to refinance in a stressed market, some are working with their lenders for 1–2 year extensions, sometimes by pre-paying some principal or pledging additional collateral. Lenders, especially banks, have shown a willingness to extend maturities on otherwise-performing loans – in part to avoid realizing losses immediately. Indeed, a growing number of loans are “lingering unresolved beyond term” or formally extending past maturity credaily.com trepp.com. Trepp data showed over $23 billion in CMBS loans had passed their maturity date without resolution as of mid-2025 credaily.com. This extend-and-pretend can kick the can, but not indefinitely. Where extensions aren’t feasible and additional capital isn’t available, some sponsors have made the hard choice to default and let the lender take the asset. We’ve seen this in cases of deeply underwater offices – better to cut losses than pour in new cash.
Office and Transitional Refinancings – Specific Adjustments: For transitional assets like value-add multifamily or hotels, debt fund lenders are offering bridge extensions but at a price – higher spreads, more equity. Some multifamily sponsors hedged their floating-rate debt and thus have time, but those who didn’t face painful resets. In multifamily, a wave of loans on recently built properties will mature in 2025–2026; many of these deals are adding equity or selling stakes to raise funds for payoff, especially if lease-up took longer or rents underperformed. The positive is that agencies (Fannie/Freddie) are active and interest rates for multifamily have stabilized somewhat essexcapitalmarkets.com,essexcapitalmarkets.com, so good apartment assets can usually find refinancing – albeit at lower leverage (65-70% LTV rather than 75-80% previously).
For office, the outlook is tougher. Some sponsors are repurposing space (e.g., turning offices into labs or residential) to improve future cash flow, which can justify a new loan, but that requires fresh capital and construction risk. We also see sponsors engaging in loan sales – where they or new partners buy their discounted debt from lenders – effectively a way to deleverage if the bank is willing to take a haircut.
Impact on Capital Providers: This refinancing wave is also shaping behavior of capital providers. Private equity real estate funds are raising “rescue capital” vehicles. REITs with strong balance sheets might find chances to acquire assets or debt at a discount from distressed owners. Banks, for their part, are triaging their loan books: the FDIC reported banks are adding to credit loss reserves especially for office loans fdic.gov, fdic.gov. The CMBS market is seeing lower payoff rates – Trepp noted that by late 2024, less than 40% of maturing CMBS office loans paid off on time prea.org, with many going into modification or extension. This will likely continue through 2025–2026.
Takeaways: The refinancing wave means sponsors and owners must be proactive and creative. Those who engage lenders early, provide transparent business plans, and are willing to infuse capital or bring in partners will have the best chance of steering through. Family offices and opportunistic investors might find this period attractive to deploy capital as preferred equity or mezzanine financing – essentially acting as the “white knight” for owners in need, in exchange for strong returns and protective terms. Public market participants (like REITs) might see distress as an opportunity to acquire high-quality assets from forced sellers at a basis that will prove attractive long-term.
Yet, one must be selective: not every distressed asset is worth saving (some offices truly face “existential crisis,” as one report put it prea.org). Lenders too will differentiate; some will extend credit to facilitate refis, others will choose to sell notes at a discount and exit problematic loans. For the broader market, how this wave is navigated will influence CRE pricing and stability into 2026. If handled well (extensions, capital infusions, etc.), the market can avert a cascade of forced sales. If mishandled, we could see more fire-sale transactions that reset values in a downward spiral. At Sterling Asset Group (“we”), we are monitoring these dynamics closely and working with clients to structure resilient capital stacks ahead of maturities.
Strategic Takeaways for Sponsors, Family Offices, and REIT/Public Investors
For Property Owners & Sponsors: The late-2025 landscape demands active asset management and strategic capital planning. Sponsors should take a hard look at upcoming debt maturities now – don’t assume interest rate relief alone will bail out a refinance. We recommend conducting “in-house re-underwriting” of each asset with today’s cap rates and lending terms, to identify capital shortfalls early. Engaging with lenders well before maturity to seek extensions or modifications is prudent; demonstrate a realistic business plan and willingness to contribute capital if needed. Given the prevalence of value declines, sponsors must be prepared to inject fresh equity or bring in preferred equity partners to satisfy lender requirements commercialsearch.com. While this dilutes cash flow in the interim (pref equity takes a priority return), it can be preferable to a distressed outcome or a capital call to all investors. Sponsors should also proactively cut costs and boost NOI where possible – every bit of cash flow improvement helps the refinancing case. Focus on leasing up vacancies, even if at lower rents, to stabilize income. For developments or heavy transitional projects, consider phasing or scaling back until financing markets improve. Overall, sponsor strategy should pivot from offense to defense: fortify balance sheets, extend debt runway, and avoid forced asset sales in a down market.
That said, offense is not off the table for strong sponsors. Those with dry powder or access to equity can play offense by acquiring distressed notes or assets, or by recapitalizing weaker hands. We encourage sponsors with capacity to look for partnership opportunities – e.g. stepping in as JV equity on a good asset whose current owner is overleveraged, thus securing a stake at a favorable basis. Being a solutions provider in this environment can yield excellent long-term assets once the market recovers.
For Family Offices and Private Investors: Family offices often have the advantage of patient capital and flexibility. Now is the time to leverage that patience. Opportunities will arise to invest in high-quality real estate at adjusted valuations – whether through acquiring properties outright from motivated sellers or providing mezz/pref capital in restructurings. We advise family offices to partner with experienced operators when dipping into distressed situations, as workouts can be complex. Also, consider diversification across regions and sectors to capture upside in resilient markets like Miami or Dallas while opportunistically entering recovering markets like NYC or Chicago on a selective basis. Importantly, family offices should remain disciplined: require thorough due diligence even on “bargains” and stress-test any new investment for further interest rate or leasing shocks. Many family offices are also lenders; if acting as a lender, negotiate strong covenants and perhaps shorter terms (2-3 year bridge loans) to maintain flexibility. The key takeaway for private investors is to stay nimble but prudent – the next 12-18 months could offer some of the best real estate buying chances in a decade, but distinguishing a value opportunity from a value trap is paramount (again, sector and asset quality are critical).
For REITs and Public Market Participants: Publicly traded REITs largely weathered the volatility of 2022–2024 by shoring up liquidity and reducing leverage. Many REITs are entering this period with relatively healthy balance sheets (debt-to-EBITDA for equity REITs is at multi-year lows) and a majority of fixed-rate debt. This positions REITs to be acquirers rather than sellers in late 2025. Indeed, REIT executives have signaled that they see “tremendous opportunities” ahead as private owners face capital constraints reit.com,reit.com. We expect well-capitalized REITs in sectors like industrial, residential, and specialty property types to cherry-pick assets coming to market at discounts or even to do entity-level mergers where they can absorb portfolios from distressed private funds.
Public market investors should monitor REITs’ cost of capital advantage – if REIT share prices trade at or above NAV, REITs can issue equity to fund growth (though as of mid-2025, many REITs still traded at slight NAV discounts, which has tempered equity issuance). On the debt side, REITs have generally locked in low rates, but any that have near-term maturities should follow the same advice as private sponsors: refinance early or term out debt with bonds while rates are peaking.
From a strategy perspective, REITs and public players should continue portfolio optimization. For example, a REIT might dispose of non-core or weaker assets (even at today’s prices) to focus on properties that align with future demand trends (high-quality, modern, green-certified, etc.). Public investors will reward clarity and quality – we’ve seen the REITs with portfolios concentrated in high-growth markets trade at better multiples than those with mixed bags including troubled offices.
At Sterling Asset Group, we see this period as one requiring both strategic defense and smart offense. As a firm, we encourage prospective partners to engage with us to design creative capital stack solutions – whether it’s restructuring a loan, sourcing a pref equity tranche, or executing a strategic sale or acquisition. The complexity of today’s market calls for bespoke strategies; a one-size-fits-all approach won’t maximize value. Our team stands ready to help investors navigate interest rate uncertainty, assess market-specific opportunities, and position their portfolios for long-term success.
Call to Action: In these challenging yet opportunity-rich times, we invite you to partner with us. Whether you are looking to shore up an existing asset’s capital structure or to deploy capital into dislocated markets, Sterling Asset Group can provide the strategic advisory and capital markets expertise to achieve a winning outcome. Together, we can craft a capital stack and investment game plan that not only withstands the current headwinds but also positions you to prosper as the winds shift. Reach out to our team to explore how we can add value to your CRE strategy through Q3–Q4 2025 and beyond. We look forward to helping you capitalize on the possibilities ahead.
Disclaimer: This report is provided for informational purposes only and does not constitute investment advice or an offer to provide any specific investment services. The analysis and views expressed herein are drawn from independent sources deemed reliable naiop.orgcbre.com, but Sterling Asset Group makes no representation as to their accuracy or completeness. Real estate investments involve risk, including potential loss of principal. Past performance is not indicative of future results. Readers should conduct their own due diligence and consult with professional advisors before making any investment decisions. Sterling Asset Group and its affiliates may have positions in or advisory relationships with entities referenced in this report. No liability is accepted by Sterling Asset Group for any direct or consequential loss arising from the use of this report or its contents.