Yes, We're Still Investing in Mid-2025 - But Not in the Way You May Think
Updated September 2026: This post reflects market conditions and fund offerings as of June 2025. Today, Wellings Capital invests preferred equity and JV Hybrid Equity alongside experienced operators across manufactured housing communities, multifamily, small bay and flex industrial, open-air retail, and select self-storage. For our latest market view, see our most recent quarterly commentary. For current offerings, see Investments.
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?
Strategy #1: Selective Common Equity*
We’re still closing occasional common equity deals, sparingly, and only with operators who make it through our 26-step due diligence process. A recent example: a 2009-vintage multifamily property acquired at roughly 50% of replacement cost, supported by a 30-year PILOT tax abatement.
Strategy #2: Preferred Equity *
Our real edge remains Preferred Equity, especially in the overlooked tranche under $15 million. Warren Buffett did something similar when he invested in Goldman Sachs preferred stock in 2008. We’re simply following tested wisdom.
Typical terms we were seeing in mid-2025:
8 to 12% current pay
15 to 20% total projected IRR*
Payment priority over common equity (cue sighs of relief)
We also launched two vehicles built to pursue these deals:
Wellings Evergreen Income Fund – open-end, income-focused fund, targets 10-13% net.
Wellings Growth Fund II – closed-end, growth-oriented, targets 14-18%.
Both combine preferred equity positions with carefully vetted common equity investments.
For definitions, see Preferred Equity in Private Real Estate: Terms and Definitions. 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: Single-Family Rental Portfolio*
Our Wellings Real Estate Income Fund made its first preferred equity investment in spring 2023, in a commercial-grade single-family rental portfolio of approximately 1,000 units. Our position sits ahead of the common equity, which makes up 20% of the capital stack. That common equity provides a cushion before our position would be affected by a decline in value.
At closing, the investment was structured to pay our Fund 10% current pay, plus a 5% annual accrual payable at a recapitalization or sale. We also negotiated a 2.5% common equity kicker, calculated on our preferred equity investment.
The targeted total annual return on this investment, including the kicker, was approximately 16%.* That is meaningful, given the investment’s priority position in the capital stack.
Example #2: Multifamily With Fixed-Rate Debt*
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 four more years of interest-only payments.
The investment was structured to pay our Fund 9% annually, with the first year reserved in advance, plus an 8% accrual payable at refinance or sale.* We also structured a minimum 1.3x MOIC (multiple on invested capital) if the operator refinances our preferred equity out of the deal early.
There is 25% common equity behind us in the capital stack, which provides a cushion if the property’s value declines. We also negotiated cash flow sweep and forced-sale provisions for additional protection.
There is no guarantee that future opportunities will have similar terms.
Why Individual Investors Rarely Access Preferred Equity
Other investors may be able to access some of the common equity deals we invest in. However, we usually get better terms because of 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).
Preferred equity is entirely different. Individual investors have very limited access to these opportunities, and even large family offices would find them hard to replicate. Here’s why:
You would need to source a quality operator with a quality deal, and know what “quality” looks like.
You’d have to negotiate terms and know how to protect yourself in the deal.
You’d have to work with transactional attorneys to draft lengthy legal agreements.
You’d want a rigorous due diligence process on both the operator and the property, and know what questions to ask.
You’d typically need to invest at least a million dollars, often much more.
And the best deals can be hard to find. You may have seen “preferred share class” offerings from well-known multifamily sponsors. These often cap your total return with little or no upside.
In the preferred equity deals we pursue, we seek additional upside through points, MOIC floors, equity kickers, promote participation, and conversion rights.
Still Focused on the Basics
Though we’ve added preferred equity as a strategy, we’re still focused on the basic principles that have guided us from the start, in both common and preferred equity. And we’re committed not to invest just for the sake of deploying capital, earning fees, or growing a fund.
Here are some cornerstones of our philosophy and practice:
Needs-based asset types: Housing, storage, and other properties people rely on in any economy. Note that I didn’t say recession-proof. There is no such thing.
Due diligence: The non-negotiable in everything we invest in.
A high margin of safety: Buffett said this is the key to investing success. We agree.
Moderate leverage: Besides sponsor risk, debt is the number one risk in most deals.
Fixed-rate debt or all-cash acquisitions: Limiting exposure to rising interest rates.
Operators who source off-market acquisitions: Brokered deals are often fully priced.
Operators who buy from mom-and-pop owners: A key to acquiring undervalued properties.
Conclusion
The next time you see an alarming headline, take the time to dig a little deeper. Consider what the article really says, and remember that the devil is in the details. There is so much nuance in commercial real estate. Not all asset types, states, cities, and neighborhoods are equal. And within a specific asset type, there is a big difference between investing in common equity and preferred equity.
If you’re a current or prospective Wellings Capital investor, I invite you to schedule a time to talk with us about how we’re navigating this environment and why we remain bullish on commercial real estate.
I’ll leave you with a line often attributed to billionaire investor 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: Past performance is not indicative of future results. There is no guarantee that any forecasts or projections will be achieved. Any investment involves significant risk, including the possible loss of principal. Investors should carefully consider the investment objectives, risks, charges, and expenses of any Wellings Capital Management, LLC (“Wellings”) investment program. Offering documents containing this and other important information are available by calling 800.844.2188, emailing invest@wellingscapital.com, or visiting wellingscapital.investnext.com.
The information in this article is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction where such an offer or solicitation would be unlawful. Wellings does not provide tax, legal, or accounting advice. Investors should consult their own advisors regarding any investment. 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.
