Where Opportunistic Investment Is Finding Deals in 2026

“For three years, lenders have been willing to extend and play ball with sponsors who are hopeful there’s a brighter day ahead. That era is effectively ending right now.”

So said Jacob Feingold, head of originations at Canyon Partners Real Estate. And, with that era ending, the next logical question would be: How long will the window for opportunistic investment — those high-risk, huge-reward dislocated deals that many in commercial real estate assumed were available only briefly — remain firmly cranked open?

“We continue to see opportunity, particularly in construction lending, where there’s been occasions to create incremental yield that offsets the impact of elevated interest rates,” said Robert Schwartz, co-founder and principal of S3 Capital, a private credit firm. 

Some players, however, believe elevated interest rates and the accompanying market dislocation have made the opportunistic investment window a little precarious to climb through. 

Y. David Scharf, partner and chair of the executive committee at Morrison Cohen, described the window as “just a little narrower, because there’s so much capital looking for opportunities.”

That said, Scharf noted that because capital markets expectations have changed so rapidly over the course of 2026 — as “Stay alive until `25” failed to turn into ‘“It’ll be fixed in `26” — lenders and investors alike have become more selective about where they put their capital. Deals written too thin to handle 25- to 50-basis-point upswings are now being exposed, making everyone wary.  

“Disruption is a weed whacker — it takes out the deals that were too thin to begin with and creates opportunities for the deals that were built to last,” he said. “It changes the nature of the strength of the sponsor.” 

If this sounds like a fraught landscape to invest and lend into, you’re right. Still, some experienced executives believe the danger is inherently lucrative. 

Feingold, in a contrarian take, argued the window to invest opportunistically “actually opens wider when rates rise this quickly,” simply because prices have to adjust, deals under contract start to fall apart, and owners who need to refinance can no longer wait for rates to fall, especially when it’s unclear if they will anytime soon.

Feingold added that the wall of maturities that has been compounding and growing significantly since 2022 has put lenders — primarily big banks — in a position to call the shots and dictate the terms of workouts and loan sales. 

“You have lenders, bank lenders, who hold the majority of that maturing debt and have a better balance sheet, and better regulatory framework, and are more well positioned today to incur losses, if they need to,” he explained. “So they’re forcing action on their borrowers.” 

Myriad recent events thrown at the CRE industry — including COVID-19, a smorgasbord of indigestible macroeconomic and economic shocks, and ongoing interest rate hikes, holds and uncertainty — touched off the current environment for opportunistic investment.  

“The challenge in rising rate environments, whether 2022 or 2026, is in trying to reach an agreement on what the terminal cap rate will be,” explained Scott Singer, principal and co-lead of tri-state debt and equity finance at Avison Young. “If an investor assumes higher terminal cap rates, that implies lower values later, which means an operator has to create more value to make it an accretive transaction.” 

For lenders, opportunistic finance can mean providing bridge loans, mezzanine debt and exit financing into distressed projects, ground-up developments or repositionings — deals that are normally fruitful, at least down the line, but can also go south at any time, especially early on. 

“The biggest challenge we’ve encountered as a lender in 2026 has been navigating a commercial real estate market in transition,” said Josh Zegen, managing principal and co-founder at Madison Realty Capital. “Disconnects among valuations, business plans, construction costs and operating realities have created more complex financing needs.”

While it takes a brave soul to fearlessly take a chance on opportunities when uncertainty swirls, some say there’s plenty to feast on for those who dabble in the equity part of the capital stack. 

“I haven’t seen it this good on the buy side in 15 years,” said Ivan Barratt, founder and CEO of BAM Capital. “Essentially, we’re seeing forced sales start to hit the market, forced by the lender at a market-clearing price, and, at this spot in the cycle, we can pick off assets far below what it would cost to rebuild them, even though they were just built.”

Manus Clancy, head of data strategy at data analytics firm LightBox, said he’s seeing office deals done for 80 percent of the value they were selling for 10 years ago. 

“Certain area offices are still so deeply discounted that they’re too cheap to ignore,” Clancy said. “So there’s definitely opportunity for those who have a firm constitution, if you will.”

Barratt added that he is seeing newer multifamily assets sell for 20 percent discounts and older multifamily vintages sell for discounts of more than 30 percent. He told Commercial Observer that between October and January, his firm expects to close on nearly 1,000 units for roughly $200 million in capital. 

“As a buyer of these assets, I don’t get too many of these corrections over my career, so part of me is like a kid in a candy shop,” he said.  

But, as all kids learn, too much candy isn’t good for you. 

Dislocation dangers   

Now that the market is settling into higher-for-longer interest rates, three different lanes are opening for those looking to wheel and deal through this dislocation. 

One-third of players will suffer losses, one-third will secure extension and pretend nothing is wrong, and one-third will bring in outside capital to help make a good asset straddled with bad pricing and bad debt a little bit better, according to Clancy.  

“They need more capital, they need to retrade, and, if we see a CMBS pullback or insurance pullback, it’s an opportunity for some lenders to be the one who can gain market share,” said Clancy. “I’m thinking of private credit and banks, if they’re so inclined.”

Within the opportunistic space today are chances for both equity and credit to enter the picture as white knight investors offering capital stack support. 

But other lenders noted problems associated with so much repositioning, primarily on older vintage or loans made in recent years under the assumption a new Fed chair would lower rates, or that inflation would abate and push the 10-Year Treasury downward. 

“It’s a challenging time to be a lender, but it depends on what type of lender you are,” said S3 Capital’s Schwartz. “If you have a big portfolio of bridge loans that need to be refinanced, you’re probably not benefiting right now.”

As for equity, some are unwilling to put their money into a deal entirely contingent on interest rate stability. 

For instance, over the last several weeks, some investors might have seen borrowing rates 50 to 70 basis points higher than they were a week ago, creating turmoil around what terminal cap rates were predicted to be and potentially changing the purchase price on any active deal, according to Avison Young’s Singer.  

“So there’s a disconnect created between buyers, equity investors and sellers that can occur depending on the returns necessary to secure the equity investors’ participation,” he said. 

Even without any certainty in interest rates, and the sometimes stubborn positions lenders and borrowers take in negotiations, the demand gap for capital is actually greater than it was in 2023, toward the start of the rate hike cycle, according to Feingold. That’s simply because time has run out on so many sponsors. 

“Now the borrowers that have been supporting assets for three years are really faced with a stressed balance sheet across their portfolio, or their funds, and are being forced into making a decision of ‘How do I exit, how do I refinance?’” said Feingold. “This will be a very opportune time for opportunistic investors, whether that’s opportunistic credit or equity.” 

Places to park 

So where exactly can money be made in such a difficult, shape-shifting market?

One place capital has moved is into value-add investments. But, for those who want to play in that space, experience is paramount. 

“Volatility in outcomes is widespread, and nowhere is that more apparent than in value-add lending, where the distance between a well-structured deal and a poorly underwritten one is tangible,” said Toby Cobb, co-founder and managing partner of 3650 Capital, a private credit firm. 

Canyon Partners’ Feingold emphasized that acquiring assets at a substantial discount-to-replacement cost is a compelling trade, especially at a time when it remains unclear how terminal cap rates will shake out vis-a-vis the fluctuating 10-Year Treasury yield. 

“Given the amount of uncertainty today around cap rates, business plans that actually improve cash flows dramatically with a tangible model, whether that’s renovations or conversions, really create new cash flow rather than rely on existing cap rates,” Feingold said. 

Even these value-add opportunities are fraught with risk — as well as lower returns — leaving many equity players considering whether to enter in the first place. 

Singer said that the biggest investment challenges today are in the value-add space, as those lower-risk deals project good returns, but very few groups are considering entering as the limited partner equity at such modest returns, regardless of the risk profile. 

“The lack of capital that exists is especially around value-add and core-plus transactions, these lower-risk transactions,” Singer said. “But there is an enormous amount of capital that I believe is ready to deploy for opportunistic risk.” 

Others, like Jim Corl, head of private real estate at Cohen & Steers, an investment firm, argue that “opportunistic investment has gotten way overblown,” and that the problem lies in the cyclical nature of commercial real estate. Obeying those cycles requires waiting for dead seasons to pass and dysfunction to die down, which may not line up with opportunistic investment timelines, Corl said.  

“Now, it’s probably a good time to raise an opportunistic fund, but investors are so irritated that the largest funds raised in 2021 and 2022 blasted all this capital out into terrible vintages, and now many of those funds are doomed into years of underperformance because they raised money and spent money at the worst time,” he said. 

Corl argued that investors would be better off targeting publicly traded real estate investment trusts (REITs), which have been knocked down by Federal Reserve monetary tightening and are poised for a comeback. 

“If you bought during that downturn in REITs in 1994 and in 2004, it was an amazing buying opportunity, because 1995, 1996, 2005 and 2006 were all huge for REITs,” he said. 

Better yet, at least for credit, Clancy argued that the current period of dislocation recalls early 2023, when the collapse of Silicon Valley Bank sparked a regional banking crisis. That, in turn, blew out spreads, raising fears about volatility and creating a great entry point for those courageous enough to deploy capital. 

“It was great for private credit due to fears about deposit runs around banks,” he said. “It led to an explosion of CRE CLOs that took market share away from the banks.”

Regardless of where the good money amid the big money sits, some real estate executives believe fundamentals — particularly working with dependable, established partners — matter more than any recent trends or broader market movements. 

“What has changed as the interest rate environment goes up is lenders and capital partners feel a resolve to find good partners and better sponsors,” said Morrison Cohen’s Scharf. “It’s an amazing thing that the market keeps needing reminders that overleveraged or thinly underwritten deals with inexperienced sponsors are usually a recipe for disaster.”

Last chance extension

One other critical ingredient in the opportunistic soup is what many lenders and investors are calling a gradual unwinding, if not end, to the extend-and-pretend strategy employed by the market for the better part of the last six years. 

“The can-kicking era is coming to an end,” said Nailah Flake, a managing partner in Brookfield’s credit group. “‘Extend and pretend’ was a rational strategy when interest rate cuts seemed imminent, but continued extensions in a higher interest rate environment are becoming harder to justify.” 

Others in the lending sphere argue that kicking the can isn’t so much over, as gradually transitioning into a different dynamic that will require preparation, partnerships and foresight. 

“The better borrowers are coming to the realization that rates are not heading materially lower, and waiting for that outcome is no longer a viable strategy,” said Cobb. “If anything, the opposite is more likely.” 

Scharf said that as kicking the can eases away, the market has already seen more foreclosures and more receiverships, creating yet new opportunities. 

“I’m not saying that’s universal, but that’s what we’re seeing as a velocity,” he said. “Third-party asset managers are looking to position themselves in the market. They want to be available to take over projects that are self-managed or need a new manager.”

But, amid so much dislocation, confusion and opportunity, market players know they can count on a combination of abundant real estate capital and the need for new financing solutions as existing loans from an older, earlier vintage mature.

“Ultimately, I believe 2027 will reward lenders that can remain disciplined while moving quickly to capitalize on opportunities,” Flake said. 

Brian Pascus can be reached at bpascus@commercialobserver.com.