Yes, We're Still Investing in Mid-2025 - But Not in the Way You May Think
As I write this article in June 2025, we’re seeing some negative headlines about commercial real estate. For example, here’s a June 19th, 2025 article from Financial Times:
Regulators warn of hidden vulnerabilities in $12tn commercial property market (link)
Here are a few more…
The Approaching Commercial Real Estate Financial Crisis -- Jimeson Birr, February 28, 2025 (link)
Commercial Real Estate Distress is Spreading -- Bloomberg, June 21, 2025 (link)
Multifamily distress jumps 40 basis points to 13% - Multifamily Dive -- February 20, 2025 (link)
Right now, the headlines do not reflect the facts, nor do they tell the whole story of what's happening.
Below, I’ll unpack what’s really happening and explain why preferred equity—the lane we first spotlighted for the past two years—still gives us an edge today. And I’ll introduce our two brand-new funds designed for this exact moment in the economic cycle.
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Why You Can’t Trust the Headlines
Remember the 2023 Business Insider piece predicting CRE values would “crater 40% by 2025”?
It turns out the article was 100% about office, zero-percent about self-storage, mobile-home parks, or anything else with four walls and a rent roll. Same selective storytelling today. Journalists grab eyeballs. We grab context.
My friend David is a nationally renowned copywriter. He says there is a thin thread of truth between headlines and facts, especially in tabloids. This is how they avoid lawsuits.
We believe this is one of those cases.
The content in the article following that shocking headline was entirely about the values of commercial office space! In fact, it quotes a few other sources that are wholly focused on plummeting office values.
The author didn’t consider (or even hint at) the values of self-storage, manufactured housing communities, or any other CRE asset type. And there are other embellishments as well, like "up to 40%," which could mean anywhere from 1-40% (right?).
The problem is that many of us form opinions based on headlines without actually reading the article and checking the sources. I’ve certainly done this, and I’m guessing you have done this at least a few times as well.
The Truth About Commercial Real Estate Right Now
Office is still the whipping boy—nationwide vacancy just pushed 19-20% and keeps inching upward. (commercialedge.com)
But step outside the cubicle:
Industrial and data-center rents keep setting records.
Build-to-Rent (BTR) communities are growing, with rents forecast to rise another 2% this year. (jbrec.com)
Manufactured-housing remains the cash-flow camel of CRE—slow, steady, drought-resistant.
The bigger macro concern? Debt. More than $1.5 trillion in CRE loans mature before 2026, and many of them were underwritten for a 3-handle on SOFR. (pbmares.com) That wall of maturities is where bargains (and bruises) are born.
How is Wellings Capital Investing in Mid-2025?
2025 Investment Strategy #1 *
We’re still closing occasional common-equity deals—sparingly and only with operators that meet our due-diligence gauntlet. Recent example: a 2009-vintage multifamily asset acquired at ~50% of replacement cost, underpinned by a 30-year PILOT tax abatement. Immediate equity cushion? 30%+. Not bad for “risky” real estate.
2025 Investment Strategy #2 *
Our real edge remains Preferred Equity—especially in the overlooked under $15 million tranche. Buffett did something similar with Goldman in 2008. We’re simply following tested wisdom.
Typical terms we’re seeing today:
8 – 12% current pay
15 – 20% total projected IRR
Payment priority over common equity (cue sighs of relief)
And now we have two vehicles tailor-made to capture those deals:
Wellings Evergreen Income Fund – open-end, yield-centric, targets 10-13% net.
Wellings Growth Fund II – closed-end, appreciation-oriented, targets 14-18%.
Both funds embed preferred-equity tranches alongside carefully vetted common-equity plays.
See this article for a glossary on preferred equity terms. See this email for more detail on what preferred equity is. See this email for more detail on why right now is a limited window for preferred equity.
Two Brief Preferred Equity Deal Examples
We highlighted these two deals in a video here.
Example #1 *
Our Wellings Real Estate Income Fund made its first preferred equity investment in Spring 2023 in a commercial-grade single-family rental portfolio with approximately 1,000 units. Our investment is ahead of the common equity, which is 20% of the capital stack. In theory, 20% of the value of the portfolio could go down and our investment would lose nothing.
Our Fund is receiving 10% “current pay” cash flow out of the gate. Our Fund is also accruing 5% annually, which we will receive upon a recapitalization or sale. We also negotiated a 2.5% (of our preferred equity investment) common equity kicker. *
This investment is projected to benefit our fund investors by providing current cash flow as well as appreciation. The targeted total annual return on this investment, including the common equity kicker, is ~16%*. This is considerable in light of the priority position in the capital stack.
Example #2 *
More recently, our Wellings Real Estate Income Fund invested preferred equity in a multifamily deal with an experienced operator. The operator assumed a fixed-rate Fannie Mae loan at 3.7% that matures in 2031 with interest-only four more years.
This project is paying our Fund 9% annually, reserved in advance for the first year. Our Fund is also accruing 8% upside, payable at refinance or sale*. We also structured a minimum MOIC (Multiple on Invested Capital) of 1.3x if the operator refinances our preferred equity out of the deal early.
There is 25% common equity behind us in the capital stack, which shields us from losses if the property is sold at a 25% or less loss. We negotiated cash flow sweep and forced-sale provisions to provide additional protection.*
We are evaluating several other preferred equity opportunities with similar metrics right now. One of them pays 15% current pay with a 2.5% fee up front. There is no guarantee that we will close on these deals, so these results may not be achievable.
The Mechanics of Investing in Preferred Equity
Other investors may be able to access some of the common equity deals we invest in. However, we usually get better terms due to our check sizes, and some deals have minimums that are impractically high for most individual investors (like a self-storage firm with a $5 million minimum).
But preferred equity is entirely different. Individual investors have virtually zero access to these opportunities. Even large family offices would be hard-pressed to replicate the deals we’re doing. Here’s why:
You would need to source a quality operator with a quality deal, and you would need to know what “quality” looks like.
You’d have to negotiate terms and know how to ensure you don’t get screwed in the deal.
You’d have to know how to work with transactional attorneys in order to draft lengthy legal agreements.
You’d want to go through a rigorous due diligence process on the operator and property, and know what questions to ask.
You’d need to invest at least a million dollars or much more.
And you may have a hard time finding the best deals. We’ve all seen “preferred share class” opportunities from well-known multifamily sponsors. The issue is that these investments typically cap you at 8-10% total return with no chance of upside.
We’re seeing preferred equity deals every week with projected total returns between 15-20%. We seek additional upside through points, MOIC floors, equity kickers, promote participation, and conversion rights.
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Still Focused on the Basics
Though we’ve added preferred equity as an investment strategy, we’re still highly focused on the basic tenets of what has made us successful to date as we invest in both common equity and preferred equity. And we’re still committed not to invest just for the sake of deploying capital, making fees, or growing our fund.
Our five income funds are performing at or ahead of schedule, and as of June 2025, none have missed a distribution or decreased distributions since inception. We’re especially proud of that given the environment we’re operating in and the chaos unfolding around us.
Here are some cornerstones of our philosophy and practice:
Historically recession-resistant asset types: Note that I didn’t say recession-proof. No such thing.
Due diligence: The non-negotiable in everything we invest in.
High margin of safety: Buffett said this is the key to investing success. We agree.
Selecting investments with moderate leverage: Besides sponsor risk, debt is the #1 risk in most deals.
Fixed interest rate or all-cash acquisitions: Describes 89% of our properties in our Wellings Real Estate Income Fund as of 6/30/23.
Working with operators who source off-market acquisitions: Brokered deals are typically overpriced.
Working with operators who acquire assets from mom-and-pop owners: A key in acquiring undervalued assets.
Conclusion
I'm encouraging you to take the time to dig a little deeper the next time you see an alarming headline. Consider what the article really says and realize that the devil is in the details. There is so much nuance in the commercial real estate space, and not all asset types, states, cities, and neighborhoods are equal. And within a specific asset type, there is a significant difference between investing in common equity vs. preferred equity.
If you're a current or prospective Wellings Capital investor, I invite you to schedule a time to speak with us about how we're navigating this economic environment and why we're as bullish as ever on commercial real estate.
I'll leave you with this oft-repeated quote from billionaire investment manager Howard Marks:
"The worst of deals are done during the best of times. And the best of deals are done during the worst of times."
* There is no guarantee that these results will be achieved. Past performance is no guarantee of future results. These results may not continue. There is also no guarantee that future opportunities will have similar characteristics.
DISCLAIMER: Investors should consider the investment objectives, risks, charges, and expenses before investing. For a prospectus or a summary prospectus with this and other information about any Wellings Capital fund, please call us at 800-844-2188 or contact us at invest@wellingscapital.com. Read the prospectus carefully before investing.
This article is for educational purposes only and is not to be relied upon as the basis for entering into any transaction or advisory relationship or making any investment decision A more detailed explanation of the various assumptions and risks associated with hypothetical information in this email is set forth in the Private Placement Memorandum ("PPM") for Wellings Real Estate Income Fund ("WREIF"). Please read the PPM before making any investment decisions. All terms of this section are subject to the terms of the PPM. All investing involves the risk of loss, including a loss of principal. We do not provide tax, accounting, or legal advice, and all investors are advised to consult with their tax, accounting, or legal advisers before investing. Information and any opinions contained in this article have been obtained from sources that we consider reliable, but we do not represent that such information and opinions are accurate or complete, and thus should not be relied upon as such.
