Q2 2026 Market Commentary: Distress Does Not Mean Cheap
There is no shortage of free, high quality commercial real estate research available online. I don’t want to simply summarize it and call it insight.
What I can share is something the research reports can't: what we see each week across the 20 to 30 deals we review and the 10 to 20 conversations we have with high-net-worth investors.
Here are four things that stood out to us in Q2 2026.
1. The scars from the last cycle are making capital harder to raise
A surprising number of the investors we talk with have taken severe or total losses across multiple deals and multiple operators in the past four years. These are smart, experienced people. In many of the cases we hear about, they lost 50% to 100% of their invested capital.
The causes vary. Some picked operators who looked great at first. Some invested in deals with floating rate debt or aggressive rent growth assumptions. Some were outright defrauded. There is example after example of fraud in this industry.
So some investors tell us they are finished with private real estate entirely. Others are still investing, but more slowly, and with much harder questions.
Private real estate fundraising totaled $92.6 billion in the first half of 2026, down 38% YoY and the weakest first half in nine years, according to PERE and Colliers. Yet roughly 70% of funds that closed met or exceeded their targets.
Capital is not leaving. It is concentrating.
Investors are still writing checks to sponsors they trust. We think the added skepticism and the harder questions are healthy for this industry.
The irony is that the hardest capital raising environment in nine years is arriving at the same time we are seeing some of the most compelling investment opportunities of the last several years.
2. multifamily Distress Does Not Mean Cheap
There is real distress beneath the surface in multifamily, concentrated in the Sun Belt. We hear about it weekly from operators, brokers, and other investors.
Loan maturities. Higher debt costs. Tenant credit problems. Insurance increases. Soaring property taxes. Flat or negative rent growth. Many owners are covering shortfalls out of pocket every month, sometimes tens of thousands of dollars.
So why haven't we seen a wave of forced sales and foreclosures?
Because lenders often have little incentive to foreclose. If an extension or a modification gives them a better chance of being repaid, they take it. Troubled deals can stay alive far longer than most people expect.
At the same time, there is still plenty of capital chasing quality multifamily.
Cap rates have risen since the 2021-2022 peak, but nowhere near enough to create widespread bargains. Colliers put core multifamily cap rates at roughly 5.2% in Q2 2026, with pricing essentially flat year over year despite everything happening beneath the surface. For multifamily and industrial, negative leverage is typical.
The fundamentals help explain why buyers remain interested. In Q2, national multifamily absorption totaled 152,856 units versus 67,268 units delivered, while occupancy climbed to 95.6% (source: Colliers U.S. Capital Markets Q2 2026).
Much of today's multifamily distress is a capital structure problem, not a demand problem. Many deals bought in 2021 with the wrong debt and basis are in trouble. The apartments themselves are still leasing.
Our perspective: a distressed seller does not automatically make a good buy. We underwrite what an asset is worth, not what the prior owner needs to get out.
3. The last four years have exposed mediocre operators
I’ve been reading a biography of John D. Rockefeller, and one passage about the years right after the Civil War stopped me.
Banker Thomas Mellon, describing 1863 to 1873, called it the kind of stretch that comes along maybe once in a lifetime. In his words, "One had only to buy anything and wait, to sell at a profit." He singled out real estate as one place where those profits came fast and large.
From roughly 2011 to 2022, commercial real estate felt exactly like that. Debt was cheap. Rents went up. You could buy almost any property, hold it a few years, and sell for a significant gain. People got addicted to it. Some assumed it would never end.
In late 2022, the tide went out. Since then we have watched a long public list of operators exposed as skinny dippers.
What actually matters in this cycle, and honestly in any cycle:
Right people in the right positions in the company
A healthy culture
Real systems and processes
Extreme attention to detail
A willingness to get into the weeds of asset management
A small example from our own portfolio. At one multifamily property we invested in, the operator replaced an underperforming property manager with a new full-time manager in March of this year. Occupancy improved from 92.7% in Q1 to 94.4% in Q2. NOI finished 4.1% above projections, helped in part by tighter expense control.
Sometimes the difference really is one person in one seat.
That is also why we spent much of the last year strengthening our own asset management platform, and why we keep pushing harder on sponsor calls, monthly financials, and site visits. You cannot evaluate execution from a distance.
4. The national story and the local story don't always line up
Office is the obvious example. The submarket in the Atlanta MSA where we recently invested has roughly 7.6% vacancy, according to CoStar. That looks nothing like the national office headlines.
Housing is another example. We have all heard some version of this: there is a housing shortage, and buying a home has become unaffordable for many Americans.
Both statements are true. The shortage is well documented, and multifamily can be an excellent place to invest. But the logic is incomplete.
Austin, Texas was one of the most popular multifamily markets of the last cycle. Job growth and population growth were both outstanding. As of July 2026, Austin rents were down 3.7% YoY, largely because of new supply (source: Yardi Matrix National Multifamily Report - July 2026).
If there is a national housing shortage, why have Austin rents fallen three years running?
Because national averages do not lease apartments. Submarkets do.
National office distress does not mean every office submarket has 20% vacancy. A national housing shortage does not mean every metro needs more apartments.
"Office is dead" and "multifamily is distressed" are not useful statements. We underwrite the building, the operator, the basis, the capital structure, and the business plan.
What this means for how we are investing
Capital is increasingly selective and concentrated, which can improve our negotiating position. Multifamily distress is real but has not created widespread bargain pricing, so basis discipline matters more than deal volume. Operator quality remains one of the largest variables in outcomes. And investment decisions have to be made at the property and submarket level, not the headline level.
All four reinforce the same discipline: underwrite the specifics, not the narrative.
Thank you for entrusting us with your capital. If you have questions about anything in this commentary, or about how we are viewing opportunities right now, please contact us or schedule a call.
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