For over three years, lenders showed a willingness to extend maturities and work with developers who were hoping for a swift recovery. This period of wait-and-see is now coming to an end. Jacob Feingold, head of origination at Canyon Partners Real Estate, explained in this regard that the era of continuous loan extensions was over. Persistent interest rate pressure and the mounting volume of refinancings are forcing the market to adjust, noticeably opening the window for higher-risk, opportunistic investments.
Market participants continue to see particular opportunities in construction finance. Robert Schwartz, co-founder and principal of private credit firm S3 Capital, stressed that additional returns could be achieved here to offset the impact of higher interest rate levels. At the same time, lawyers such as Y. David Scharf of Morrison Cohen observe increasing selectivity. Because expectations of a rapid rate pivot have been disappointed, investors are scrutinising the capital strength of market players far more rigorously. Financing structures that were already destabilised by minor rate movements of 25 to 50 basis points are now being cleared out.
Pressure from maturity walls and reappraisals
Above all, the maturity wall that has built up since 2022 is giving lending banks a dominant position in negotiations and loan sales. Feingold explained that credit institutions with sound balance sheets and strict regulatory requirements are now more willing to realise losses, and are therefore decisively demanding action from their borrowers. At the same time, determining future exit yields is hampering price discovery. Scott Singer of Avison Young pointed out that higher assumed exit capitalisation rates implied lower future values, requiring operators to generate significantly more added value to make transactions profitable.
For debt providers, mezzanine tranches, bridge loans and exit financings are moving into sharp focus. Josh Zegen, managing principal at Madison Realty Capital, described navigating this transitional market as the central task of 2026. Discrepancies between valuations, cost estimates and operational realities called for more complex financing structures in repositioning schemes and distressed projects.
Historic discounts on residential and office property
On the equity side, notable entry opportunities are emerging for liquid buyers. Ivan Barratt, founder and CEO of BAM Capital, reported that he had not experienced such a favourable buyer environment in fifteen years. Distressed sales were increasingly coming to market at clearing prices, allowing even recently completed assets to be acquired well below replacement costs. His firm plans to take over nearly 1,000 residential units for around $200 million between October and January. Newer multi-family properties are trading at discounts of 20 per cent, and older stock at discounts of more than 30 per cent.
Similarly profound adjustments are taking shape in the office segment. Manus Clancy, head of data strategy at LightBox, reported office transactions closing at an 80 per cent discount compared with values from ten years ago. For well-capitalised investors with an appropriate risk tolerance, these historic valuation markdowns offer opportunities that rarely appear across the cycle.
