CRE Recovery Gains Ground, but Equity Shortage Curbs Deals
Commercial real estate investors are finding greater access to debt capital, but scarce equity, volatile interest rates and persistent pricing gaps continue to limit a broader transaction-market recovery, according to a new industry survey.
Cozen O’Connor’s 2026 Real Estate Market Pulse Survey found that financing was generally available but remained selective, with healthier lending conditions for stabilized properties and well-capitalized sponsors. Equity was substantially harder to secure, particularly for development projects, middle-market sponsors and less-favored property sectors.
“The equity capital markets remain constrained, primarily for mid-market fund sponsors, not for the Big Five — Blackstone, Brookfield and the other largest managers,” said Howard Grossman, senior counsel at Cozen O’Connor, told Connect Money.
Grossman attributed that divide to three factors: “hesitancy to deploy where uncertainty continues about market direction and interest rates,” a lack of significant returns of deployed capital since 2021 and an oversupply of fund sponsors competing for investor commitments.
Debt markets are showing a different dynamic as refinancing needs and large acquisitions generate demand for capital.
“On the debt side, there has been a very large demand for both refinancing of loans originated in the 2021-2023 time frame and for large portfolio and platform acquisitions being initiated by the large market players,” Grossman said.
He said significant capital raised by an expanding universe of debt funds is available for investment. Investors have also shown substantial appetite for commercial mortgage-backed securities, while major banks are attempting to preserve their market positions.
“The big banks do not want to be left out,” Grossman said.
Access varies considerably by sponsor and property sector.
“We see fairly broad access to debt capital across all borrower types, and, of course, the big players have virtually unlimited access,” Grossman said. “The most favored asset class for lenders continues to be industrial properties, with retail coming in a strong second.”
Office and hotel properties continue to face financing headwinds. Exceptions include trophy offices, major office developments and office-to-residential conversions in leading metropolitan markets, which Grossman said have demonstrated relatively easy access to debt.
Multifamily financing has also tightened outside agency lending from Fannie Mae and Freddie Mac.
“We are seeing financing for apartments becoming more constrained as fundamentals remain very soft,” Grossman said.
Pricing remains another obstacle. More than 70% of survey respondents reported at least some misalignment between buyers and sellers. Many owners remain anchored to valuations established during the low-rate environment of 2021 and 2022, while buyers face higher financing costs and return requirements.
“Of course, this varies over asset classes,” Grossman said. “In general, we see this as a function of sellers not ‘hitting the wall’ on debt maturities and their unwillingness to sell at pricing that does not provide acceptable returns or even recoup their investments.”
Grossman said the pricing disconnect is attributable less to broad changes in capitalization rates, which have remained relatively stable outside non-trophy offices and some hotels, than to higher interest rates and buyers’ cost of financing.
“As history tells us, this will change gradually when interest rates start to fall, which we now see as unlikely, or when debt maturity pressures require an exit,” he said.
Transaction activity has nevertheless increased during 2026, suggesting buyers are beginning to adjust their expectations and allow more capital to move into the market, Grossman added.
The ability to secure loan extensions or restructurings depends heavily on sponsorship and asset quality.
“Strong sponsors have been quite successful in extending, modifying and restructuring, often with equity infusions,” Grossman said. “Weaker sponsors do not have the ability to meet these requirements.”
Lenders are more likely to take aggressive positions when loans mature or properties experience cash shortfalls in challenged sectors.
“Non-trophy and Class B office, and one- to three-star hotels, are most likely to see more aggressive lender positions on maturity and cash shortfalls,” Grossman said.
Treasury-market volatility has compounded the uncertainty by making borrowing costs and exit capitalization rates harder to forecast. Respondents said the volatility was increasing deal selectivity, delaying investments and weakening pricing for assets marketed for sale.
Political and geopolitical risks added another layer of caution. About 70% of respondents said the U.S. political environment was having a strong or moderate effect on investment planning. The conflict involving Iran was affecting transaction timing and asset selection through its impact on inflation, energy prices and interest rates.
Development faces additional pressure from nonresidential construction costs, which the report said were increasing at twice the inflation rate. Developers are delaying projects, reducing their scope or redesigning plans to preserve returns.
Artificial intelligence adoption remains uneven. Respondents reported testing AI for leasing, tenant communications, research, maintenance coordination and asset management, while fewer had incorporated the technology into investment decisions.
The cautious survey results contrast with improving transaction data. First-quarter U.S. commercial real estate investment volume increased 19% from a year earlier to $117.3 billion, led by office, hotel and industrial properties. Multifamily and data center volume declined.
Cozen surveyed 60 professionals working in investment, lending, development, brokerage, construction, leasing and asset management from May 19 through June 11.
Pictured: Howard Grossman, Senior Counsel, Cozen O’Connor
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