CRE isn’t dead: The deals aren’t just where you’d expect
Higher interest rates, refinancing challenges and slower development activity have driven much of the recent media coverage surrounding commercial real estate (CRE). But while those trends are real, they don't fully capture the picture of what lenders, investors and developers are seeing across the market.
Depending on where you sit, the market can look stalled or surprisingly active. Construction has slowed in several sectors; office remains under pressure in many markets and some property types are facing new supply and demand challenges. Yet capital continues to pursue opportunities aggressively in other corners of the market.
The challenge is that very different asset classes, markets and investment strategies are often discussed as if they're experiencing the same conditions. A lender focused on office refinancing may come away with a very different assessment of the market than one spending most of its time on multifamily acquisitions, value-add projects or select industrial opportunities. That's a distinction that matters.
In many cases, lenders, investors and sponsors are all chasing the same relatively small pool of opportunities. The strongest multifamily acquisitions, value-add projects and industrial assets continue to attract significant interest, while properties facing structural challenges often find a much smaller pool of willing participants.
What kind of activity is happening?
That concentration of opportunities has left certain sectors facing a much different reality. Office properties continue to struggle in many markets, self-storage fundamentals have softened in some regions, and construction lending has become more challenging in areas where new supply and rising costs have changed the equation for both lenders and developers.
At the same time, multifamily acquisitions, value-add projects and certain industrial deals continue to attract significant attention from both lenders and investors. In many cases, capital is available — the question is how many groups are pursuing the same transaction.
Another reason activity feels stronger than some headlines suggest is the volume of loans reaching maturity. Many borrowers chose shorter-term financing structures over the past several years because they wanted flexibility. As those loans come due, sponsors are weighing refinancing options, recapitalizations and potential sales, creating activity that isn't always reflected in broader discussions about a frozen market.
The competition remains fierce
One of the more interesting trends we've observed over the past year is the level of competition among lenders, which offers a counterpoint to the overarching narrative of a CRE slowdown. After all, if commercial real estate activity were truly at a standstill, lenders would not be competing this aggressively for business.
Community banks, regional banks, credit unions, insurance companies and debt funds are all pursuing the same transactions. Credit unions in particular have become increasingly active competitors in some markets, offering structures that traditional banks have historically been less likely to provide. In some cases, the competition for deals has become intense enough to drive pricing lower and loosen structures beyond what many would have expected given the broader economic backdrop.
In many respects, capital has become more selective rather than less available. The properties attracting the most attention tend to share certain characteristics: experienced sponsorship, realistic business plans, strong market fundamentals and meaningful equity investment. While debt remains available, lenders are placing greater emphasis on capital structures and sponsor strength than they did during previous cycles.
Equity continues to play a critical role as well. The amount of equity being invested — and where that equity is coming from — can significantly influence how lenders evaluate a transaction. In an environment where uncertainty remains elevated, strong capitalization provides an important measure of stability.
This dynamic helps explain why some market participants describe today's environment as highly competitive, while others see it as challenging. Capital is still pursuing opportunities aggressively, but it is increasingly concentrated around projects and sponsors that lenders believe are best positioned to perform through a range of economic conditions.
A local case study: Chicago’s CRE strengths
Chicago offers a prime example of how local market conditions can diverge from broader national narratives. While headlines often focus on national CRE challenges, multifamily fundamentals remain healthy across many Chicago neighborhoods. Rent growth has remained resilient, acquisition activity continues, and refinancing opportunities remain available for well-positioned properties. Those conditions have created opportunities for both borrowers and lenders, even as other regions and asset classes face a more difficult environment.
The city also illustrates why local market knowledge continues to matter. CRE has always been a fundamentally local business. Supply and demand dynamics, employment trends, demographic shifts and neighborhood-level fundamentals often have a greater influence on performance than national headlines.
That reality has become even more apparent over the past several years. Chicago's multifamily market has benefited from steady demand, resilient rent growth and a development pipeline that has generally remained more balanced than many high-growth markets. While challenges certainly exist, those fundamentals have helped sustain acquisition and refinancing activity across many neighborhoods.
In markets where competition is intense and transactions are increasingly complex, local market knowledge and certainty of execution remain valuable differentiators for borrowers evaluating financing options.
The fundamentals still matter
Looking ahead, interest rates, employment data and absorption trends will remain important indicators for the CRE industry. Greater stability in those areas would likely add additional transaction activity and investments across the board, but in the meantime, the market continues to reward the same fundamentals that have always mattered: strong sponsorship, disciplined underwriting, meaningful equity and a clear business plan. Those factors may not generate the same attention as broader market forecasts, but they continue to drive transactions in markets across the country.
CRE has always been cyclical, but it has rarely been uniform. Today's environment is no exception. While certain sectors continue to face meaningful challenges, activity remains healthy in others. That's one reason broad narratives often fall short: commercial real estate is still, and always will be, a market shaped by local fundamentals, individual assets and specific business plans.
Matt Robertson and Sarah Hunter are senior vice presidents of Byline Bank’s Commercial Real Estate Group.