The Smart Money Has Company Now in Commercial Real Estate

If nothing succeeds like excess, is the flood of capital coming into commercial real estate a sign of a resurgent year to come, or warnings of dumb money — and corresponding behaviors — undermining a recovery? 

Abundant capital has made it seem to some as if players in the market, especially newer ones, can’t resist an opportunity to deploy it. Pricing has reset, sellers are motivated, and years of declining construction activity — outside of data centers —means investors see a chance to grow their portfolios. 

What’s clear is that the money spigot has been turned on, said Jay Neveloff, a partner and real estate chair at the law firm HSF Kramer. 

Amid a post-COVID rebound and surging retail driving investment, Neveloff sees two main factors steering money toward commercial real estate. First, real estate continues to gain a larger and larger percentage of the investment market because investors such as fund managers and family offices are making larger allocations to real estate in their investment mix. PriceWaterhouseCoopers found in a survey of family offices that total investment in real estate, which dropped as low as 26 percent in late 2023, shot up to 39 percent during early 2025, the highest level in six years. 

Second, with interest rates coming down and largely stabilized, real estate deals are more readily underwritten, making it easier to snap up properties, especially in the growing private market. Recent Cushman & Wakefield research pegs the growth in commercial real estate’s private capital base at 6 or 7 percent annually. 

But, are firms so desperate to deploy capital that they’re making deals that don’t make sense, rushing to close and seize the moment without the proper aversion to risk? 

The current bullishness in the debt and equity markets hasn’t become reckless or dangerous — yet —according to Matthew Pestronk, co-founder of Post Brothers, a real estate investment, development and management company.

“I don’t think it’s gotten to a level of systemic risk,” he said.

It’s simply a case of a market regaining some equilibrium after years of being so unfavorable for those seeking capital, Pestronk added. It’s a case of exuberance, not endangerment. 

Putting commercial real estate in a wider perspective, it’s hard to avoid the sense of momentum across the investment world. The Economist proclaims an accelerating American economy is coming in 2026, and investors see a coming wave of multibillion-dollar deals and industry-reshaping mergers about to crest. Jonathan Davis, a corporate partner at law firm Kirkland & Ellis, told the Wall Street Journal that “for the first time in several years, there’s a growing perception that the failure to act quickly risks losing the asset.” 

In CRE, the lending momentum, in private and public markets, has reached a frenzy unseen since at least 2018. Recent CBRE data shows the firm’s Lending Momentum Index jumped 112 percent in the third quarter compared to the same period in 2024, driven by a 36 percent year-over-year increase in permanent loan activity. Core capital is returning and shaping equity pricing, and stabilizing financing costs are narrowing the bid-ask gap. 

“This dynamic is fueling transactions and unlocking new opportunities,” said James Millon, president and co-head of capital markets for the U.S. and Canada for CBRE.

Pestronk points to the commercial mortgage-backed securities (CMBS) market, which he called the single biggest creator of wealth in real estate and which just had its biggest year since the Global Financial Crisis. He said it’s a significant sign of the formerly pent-up market showing more life. Pestronk estimates CMBS volume has doubled every year since 2023. 

“When CMBS is liquid, it’s on fire,” he said. 

CMBS financing can fit current markets well: Lenders will go up to 80 percent loan-to-value, making them useful for borrowers seeking cash-out refinances. And half of such loans in recent years, per Slatt Capital, are interest-only, helpful for those looking to reinvest in property improvements or acquisitions.

In addition, collateralized loan obligations (CLOs) remain “resilient and active,” according to Fitch Ratings. Activity was robust through the first three quarters of 2025, with Fitch-rated U.S. CRE CLOs constituting $21.6 billion in transactions, and continuing to outperform the broader market. 

“I think the market actually has a lot more capacity,” Pestronk said. “It feels like it’s just getting started now.”

But, has that explosion of interest, coupled with interest rate changes, led to deal-making that simply wouldn’t have gotten a green light before? Pestronk said part of the sense of “anything for a deal” that may be pervading markets is that properties that have sat inactive and unloved due to the challenging financial markets in the past are suddenly getting new looks. That can mean new offers that actually meet an owner’s needs. 

“They took the deal from the first person who gave them what they wanted,” he said. 

Take an asset like San Francisco apartments, which were disfavored for years until recently snapping back amid the city’s AI frenzy at a speed few forecasted. Now, vacancy rates are lower than they’ve been since 2014. 

“What I am seeing is not pressure or a rush to invest, but rather investors more willing to invest for the right transaction,” said Neveloff. “We have a perfect storm: an abundance of capital prepared to invest in real estate, a market that has stabilized in terms of the ability to be underwritten, and existing deals that need to be refinanced at values that are in some cases lower than when those parties originally invested.”

And Neveloff foresees deal volume surging in 2026, as more investors are prepared to be in the equity in the capital stack — the adage of getting equity returns on debt is simply no longer the norm. He’s not alone. Data giant CoStar envisions a more bullish 2026, based in part on rising transaction volumes. 

The question is when an emerging bull market might start getting ahead of itself. 

“You get to a place where people are so bullish and people have so much capital, the market inevitably gets to a place where the market is so crazy that vacant space is worth more than leased space, right?” said Pestronk. “People just have a projection that rents are going to keep growing forever. We’re not near that yet, but that’s kind of where the market goes.”