JV and pref equity investors are actively looking to deploy capital but count on them to be highly selective. There should be a slight pickup in transactions during the second half of the year with investors being fundamental and basis driven. As pricing begins to reset and spreads between yield-on-cost and exit cap rates improve, new capital is coming back into the market. Investors who were sidelined over the past few years are re-engaging as underwriting assumptions become more aligned with reality. At the same time, sponsors are motivated to get deals done, which is creating new partnership opportunities. While opportunities are few and far between, the market should normalize in nine to 12 months, especially once more true data points because available.
CenterSquare Investment Management predicts activity to increase in the second half of 2026, driven by improving macroeconomic visibility dependent upon duration of war in the Gulf, a closing of the valuation gap between buyers and sellers and pressure from LPs and others to liquidate and receive capital back to re-invest at this point in the cycle. Pensam believes that while new acquisitions deal volume has slowed in Q1, refinancings will continue to be strong through 2026 and new acquisition deal volume will pick up significantly in the back half of the year. Canyon Partners Real Estate foresees more robust opportunities with increased transaction volume across performing and non-performing assets. Tryperion Holdings sees a hot credit market, making equity more attractive and better equity returns since credit is cheaper.
LEM Capital predicts that 2026 will likely be a continuation of 2025 with moderate deal flow, supply slowing and meeting demand, and flat to slightly up operational growth. Time Equities believes investment in commercial real estate will remain selective yet opportunistic in 2026, as a steadier rate environment is expected to revive transaction activity and create repricing opportunities. Newport Capital Advisors predicts a strong buyer’s market where many sellers have finally capitulated, accepting the price reduction necessary to get deals done. Sometimes that has been due to loan maturities where the lender refuses further extensions or modifications.
Atlantic Pacific expects 2026 to be a highly active year for pref equity investing in multifamily. The convergence of several structural tailwinds — including over $160B in multifamily loan maturities hitting in 2026, continued bank retrenchment from CRE lending and more conservative senior loan proceeds — is driving significant demand for gap capital. Sponsors facing refinancing shortfalls increasingly need pref equity to bridge the delta between reduced senior proceeds and existing debt payoffs. At the same time, the supply pipeline is decelerating meaningfully, with units under construction down over 47% from the 2023 peak, which should support rent growth recovery in the back half of the year and into 2027. This environment creates a compelling opportunity to deploy discretionary capital into well-sponsored, well-located Sun Belt multifamily assets at attractive risk-adjusted returns.
Also watch for HIMCO, PGIM, Barings, FCP, Affinius Capital, CrossHarbor Capital Partners, Forman Capital, MORE Capital, Red Starr Investments, Peakline Real Estate Funds, Amstar Group, ABR Capital Partners, Phoenix Capital Management, KBS, Hines, 3650 Capital, Parse Capital and Dekel Capital to be some of the most active players. Pearlmark, Related Companies, Basis Investment Group and Blue Vista Capital Management will be active in both JV equity and pref equity, particularly in value-add and development opportunities with strong sponsorship.
Investors are generally targeting 17%+ IRRs, with ground-up developments often needing to achieve 20%+ to justify the risk. Opportunistic deals will need high teens to low 20% returns. Core-plus investors will seek 11% to 16% returns. Value-add transactions will need 14% to 18% net returns and 16% to 20% gross project-level returns. Equity multiples are typically in the 2.0x to 3.0x range, depending on the business plan and hold period. While some comparable sales are still trading at tighter cap rates, investors are underwriting deals with wider exit cap assumptions — particularly in prime markets — to account for potential oversupply and macro uncertainty.
Equity investors will target industrial and newer-vintage multifamily assets trading at a discount. Softness in multifamily operations and tighter profiles will cause some investors to pull back. Industrial, retail and self storage will also be sought after. Look for more interest in senior housing and health care deals because of demand. Investors will return to office as they can get paid for their risk and new data points become available. Hotels and SFRs will be more challenging. In SFR, investors are waiting for more clarity around the political and regulatory environment, while in hotel development costs remain elevated and value-add opportunities are limited and expensive to execute.
There is strong interest in ground-up development and value-add opportunities that can generate meaningful cash flow early in the hold. Older vintage assets from the 1980s and early 1990s, especially those with functional obsolescence such as low-ceiling heights, are more difficult to finance and execute in today’s environment. Value-add multifamily deals will be stagnant for the time being.
Investors will target the top 25 markets. Watch for increased interest in the Midwest, coastal markets and the Carolinas, where fundamentals remain attractive and pricing is more rational. The Midwest is seeing rent increases because of muted development pipelines. Areas with potential job growth such as Seattle, Phoenix and California’s Silicon Valley will see an increase in equity dollars. Markets such as East Coast Florida, Los Angeles, Denver, Austin and Houston have cooled slightly, with investors taking a more measured approach as they wait for supply-demand dynamics to stabilize. There could be some caution in the Smile states because of new supply that still needs to be absorbed. Office is starting to recover in New York City and San Francisco, and investors will start to trickle back into those areas.
Investors are not taking any sponsorship risk. Partnering with sponsors who understand the current market environment and underwrite conservatively is critical. Investors are prioritizing experienced sponsors with deep local market knowledge and a clear, executable business plan. There is a strong focus on alignment as investors want operators who are committed to long-term performance, not short-term fee generation. Execution capability and a proven track record are critical. Investors will be looking very closely at the quality of the management teams, the track record and the ability to weather many cycles. They want to see how sponsors solved issues in the past and their success and failures. Investors also want to make sure the business plan matches the experience.
