Q2 2025 Market Commentary: Tax Wins, Resilient Sectors, and the Debt Maturity Wall
As mentioned in the Q1 2025 commentary posted on this blog, we plan to post every future quarterly commentary here. In the past, we shared the market commentaries with only our investors in our quarterly reports. We hope you find it helpful as you consider investing in commercial real estate!
Introduction: Cutting Through the Noise
Three years of higher interest rates have rewritten the commercial real estate landscape. Headlines warn of an “office collapse” or “retail apocalypse”—but the truth is more nuanced. Behind the noise, resilient asset types, favorable legislation, and a looming wall of debt maturities are creating opportunities for disciplined investors.
At Wellings Capital, our commitment is to dig through the headlines and focus on what truly matters: protecting capital, generating income, and capturing long-term growth.
1. Where We Stand: Market Conditions and Legislation
Interest Rates and Market Backdrop
Higher rates since 2022 have slowed transactions, complicated refinancing, and pressured valuations. Office remains the most challenged, retail is reinventing itself, and many multifamily operators are feeling distress.
In contrast, needs-based sectors—manufactured housing communities, workforce multifamily, shopping centers, and self-storage—continue to demonstrate resilience.
The “Big Beautiful Bill”
Perhaps the most meaningful development this quarter was not from the Fed, but from Congress. On July 4, lawmakers passed the One Big Beautiful Bill, which permanently restores 100% bonus depreciation and preserves the 1031 exchange.
For Wellings investors, this locks in lasting tax certainty. Because our funds are structured to pass through depreciation, this change helps shelter income and significantly enhances after-tax returns.
2. Where We’re Investing: Sector Insights
Self-Storage
Storage demand is largely tied to the 4 D’s: downsizing, death, divorce, and dislocation. Short leases allow rent adjustments in real time. The sector has faced headwinds including oversupply, higher interest rates, and fewer home sales.
Thankfully, most of our self-storage assets are in tertiary markets with minimal new supply, so they have not been impacted as much as those in larger markets.
According to CBRE Investment Management, supply remains a risk (Figure 4 below). New supply can reduce move-in rents, and therefore self storage income. Indeed, move-in rents fell consistently during the record deliveries from 2016-2020.
Given the current supply and ongoing construction, CBRE’s forecast does not anticipate move-in rent growth nationally until 2026.
Manufactured Housing Communities (MHCs)
The U.S. faces an alarming affordable housing crisis. Manufactured housing offers one of the most affordable home ownership paths. Residents rarely move, creating more stable communities and, generally, more predictable revenue.
Despite high interest rates slowing home purchases since 2022, MHCs have outperformed. Trepp data shows delinquency rates in manufactured housing are a fraction of CRE averages.
Small Bay Industrial
E-commerce and re-shoring continue to boost demand for last-mile small bay industrial facilities. Many small bay industrial properties are owned by mom-and-pop owners, creating opportunities for our operating partners to improve income and value. While tariffs add uncertainty for small bay tenants, long-term demand drivers remain strong.
Workforce Multifamily
Rent growth has slowed over the past few years as supply has increased, but demographics still favor demand for workforce housing. Preferred equity and JV hybrid equity opportunities are surfacing as distress rises. We are regularly approached by capital brokers and sponsors with large-scale opportunities in this space.
This graphic from ITR Economics provides a sobering reality check on the U.S. situation right now. There is no easy fix for this situation. Workforce multifamily and manufactured home communities are well-positioned now, and it is hard to see how it won’t do well (in general) in the decade to come…but it is still critical to invest with seasoned sponsors.
3. What’s Next: Rates, Refinancing, and Strategy
The Interest Rate Environment
Treasury yields have already moved lower in anticipation of a September Fed rate cut. If realized, lower rates should ease refinancing stress and help stabilize valuations.
For Wellings, this creates both opportunity and challenge:
Opportunity: Our current investments could benefit from lower financing costs and improved market sentiment.
Challenge: It will become more challenging for us to deliver mid-teens returns with our preferred equity as rates drop and as lenders loosen their purse strings, reinforcing the importance of our JV hybrid equity strategy.
We also expect more competition for quality assets if rates fall, compressing cap rates and shortening the window to acquire distressed deals.
The Coming Maturity Wall
The next 18 months will be pivotal. Over $1 trillion in CRE loans mature by 2026, including $150.9 billion in private-label CMBS in 2025 alone (Trepp). Many borrowers will struggle to refinance, creating distress and acquisition opportunities for well-capitalized investors.
Our Strategy and Core Principles
In this environment, our approach remains disciplined:
Avoid over-leveraged sponsors
Align with proven operators
Invest with a meaningful margin of safety*
Prioritize ROI to investors above AUM growth
We’d rather deliver strong risk-adjusted returns than pursue growth for its own sake. If we serve investors well, growth will follow naturally.
Conclusion: A Generational Setup
The setup for investors is compelling:
Lasting tax benefits from the Big Beautiful Bill
Resilient asset types like MHCs, workforce multifamily, self-storage, and small bay industrial
Unique acquisition opportunities created by the 2025-26 maturity wall.
The noise in commercial real estate is loud. But the opportunities for disciplined capital are even louder.
As always, thank you for entrusting us as partners. If you have any questions, please contact us or use this link to schedule a call with us.
- Ben Kahle and Paul Moore
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 is an SEC-registered investment advisor, however 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.
