In mid-2024, you discussed the 鈥淕reat Reset鈥� in commercial real estate. How did you define that, and how did it play out in 2024?
When I wrote 鈥�,鈥� I argued that the combination of historically low interest rates, suppressed cap rates, and increasing operating costs had left many properties over-levered and underperforming. That dynamic still holds true, but what鈥檚 changed is the level of volatility and uncertainty. The shift in interest rates we saw in Q3 2024鈥攑articularly the drop-in long-term rates鈥攖emporarily energized the market. We saw a bump in CRE transactions as owners rushed to lock in financing or sell while the 10-year Treasury dropped into the high 3% range. Since these deals take 45 to 90 days to close, much of that activity showed up in Q4 2024.
How did investor sentiment evolve post-election, and what did that mean for the CRE market?
Initially, investor sentiment was positive. The prospect of lower regulations and lower or stable income taxes created a sense of momentum. Credit spreads tightened by 25-50 bp as liquidity returned to the market and lenders鈥攊ncluding banks, life companies, CMBS providers, and debt funds鈥攊ncreased their allocations for 2025. That showed up quickly in the numbers. For example, Trepp reported that CMBS issuance began to outpace 2024 levels, and debt yields on office-backed loans dropped meaningfully from the prior year, signaling renewed lender appetite鈥攑articularly for CRE transactions and high-quality assets.
The outlook seemed promising after the election, but that momentum didn鈥檛 last. What changed in the months that followed?
What we鈥檙e seeing now is what I鈥檇 call the 鈥淕reat Uncertainty.鈥� The initial optimism around lower regulations and potential tax stability quickly gave way to unease as policy shifts introduced more volatility than expected. Announcements around tariffs were made, delayed, and revised鈥攍eaving businesses unsure of how to plan. Immigration crackdowns raised serious concerns about labor availability, particularly in sectors like construction and hospitality that rely on immigrant workers. Companies that had been poised to invest held back, and consumers began to feel the impact of policy-driven cost increases. In March 2025, the University of Michigan Consumer Sentiment Index dropped by 11%鈥攁 significant decline that reflects broader anxiety. The stock market responded in kind, with the S&P 500 falling nearly 10% from its recent highs. At the same time, the 10-year Treasury yield dropped more than 50 basis points on recession fears. All of this has created a sense of instability that鈥檚 hard to ignore鈥攁nd it鈥檚 started to affect both business confidence and consumer behavior.
How does this uncertainty impact the future of the Great Reset in CRE?
It鈥檚 a double-edged sword. On one hand, heightened uncertainty typically increases risk premiums for CRE assets, driving up credit spreads. If economic growth slows and unemployment rises, that puts downward pressure on rent growth and upward pressure on vacancy rates. And if cap rates increase due to sustained uncertainty, property values could decline even further. That would slow transaction velocity as both lenders and owners take a wait-and-see approach.
Is there any upside for investors in this environment?
Absolutely. Uncertainty also breeds opportunity鈥攑articularly for well-capitalized buyers. In some markets, like multifamily in the South or industrial in areas with fewer barriers to entry, we鈥檙e seeing signs of oversupply. That could open the door for distress funds and other investors to acquire assets at a discount. But for that to happen, lenders need to push over-levered owners to bring those properties to market鈥攁nd accept that there may be significant equity destruction in the process. The investors who can reset their basis now and work with forward-looking lenders will be well positioned for future gains.
Looking ahead, what other trends could shape the next chapter of CRE?
One of the biggest factors will be construction costs. They鈥檝e already increased dramatically over the past few years, and now we鈥檙e layering on additional pressure from tariffs and immigration crackdowns. Construction labor was already tight鈥攁nd now it鈥檚 even harder to source. That means less new development in 2026 and 2027, especially in cost-sensitive markets, ensuring very limited future supply. When the market eventually finds equilibrium again, those who bought during the Reset鈥攁t lower values鈥攚ill benefit from rising rents and more stable credit conditions. In other words, the Great Uncertainty might slow the pace of the Great Reset, but it won鈥檛 derail it. It will just reward those with discipline, timing, and long-term perspective.
About the Author
has served as Executive Vice President and Head of Commercial Real Estate and Specialty Finance of since January 2019. Previously, John was Senior Vice President, Group Head, Commercial Real Estate, at Byline. Prior to joining Byline in 2014, John served as a consultant and Chief Credit Officer at Bridgeview Bank, a Principal with Mbark Financial, LLC, Executive Vice President 鈥� Asset Management and Special Asset Consultant at ST Residential, LLC, as well as various commercial real estate lending positions culminating in Executive Vice President and Chief Credit Risk Officer at Corus Bank, N.A. Prior to his career in banking, John also practiced corporate law at Christy & Viener and Jones & Blouch. John received a bachelor鈥檚 degree in English literature from Columbia University鈥檚 Columbia College, a Juris Doctor degree from New York University School of Law and an MBA with honors from the University of Chicago Booth School of Business.
