CRE Investment Outlook: Capital Flows Shift Amid Rate Volatility

By Majid Radaei, RadCRE · 2026-04-08 · Market Updates

Q1 2026 data shows a nuanced shift in CRE capital flows, with investors targeting defensive asset classes and value-add strategies as interest rate uncertainty persists. Transaction volumes remain subdued.

Q1 2026 Sees Continued Capital Re-pricing in Commercial Real Estate

The first quarter of 2026 continued to reflect a commercial real estate market grappling with persistent interest rate volatility and ongoing price discovery. While macroeconomic indicators show resilience, the cost of capital remains a primary determinant for investment activity, influencing acquisition strategies and asset valuations across all property types – with the notable exception of industrial, warehouse, logistics, and data center sectors, which are outside RadCRE's primary focus.

Transaction Volumes and Asset Class Preferences

According to preliminary data from MSCI Real Assets (formerly RCA), Q1 2026 saw aggregate U.S. commercial property sales volumes remain approximately 40% below the five-year average, a trend consistent with the latter half of 2024 and 2025. This subdued activity is largely attributed to the bid-ask spread between buyers and sellers, which has only marginally narrowed in some select markets.

Capital deployment continues to favor defensive asset classes and situations offering clear distress or significant value-add potential. Multifamily housing, while experiencing some cap rate expansion compared to its 2021-2022 peaks, remains a preferred sector, particularly in growing Sunbelt markets. Hospitality assets, especially well-located select-service and extended-stay properties, are attracting renewed interest as occupancy and RevPAR continue their recovery trajectories, albeit with a focus on strong operational fundamentals. Retail, specifically necessity-based and grocery-anchored centers, has also shown unexpected resilience, drawing capital looking for stable cash flows.

Notably, a recent report by CBRE highlighted a 75-basis point average cap rate increase across all property types year-over-year as of Q4 2025, with further adjustments anticipated as the market fully digests the 'higher for longer' interest rate narrative. This re-pricing is creating opportunistic entry points for well-capitalized investors.

Financing Landscape: A Tale of Two Markets

The lending environment remains bifurcated. Traditional banks are exercising greater caution, leading to tighter underwriting standards and lower loan-to-value (LTV) ratios. The current Secured Overnight Financing Rate (SOFR) hovering around 4.31% continues to impact floating-rate debt coupons. For instance, bridge loans, a common instrument for value-add strategies, are typically priced at SOFR + 300-600 bps, placing all-in rates for borrowers well into the 7-10% range. This significantly affects debt service coverage ratios (DSCRs) and return expectations.

Conversely, non-bank lenders, including debt funds and private credit vehicles, are stepping in to fill the void, particularly for transitional assets or those requiring more flexible capital structures. CMBS spreads have stabilized somewhat, generally seen in the T + 150-300 bps range, offering long-term fixed-rate options for stabilized assets. Agency lenders (Fannie Mae, Freddie Mac) remain aggressive in the multifamily space, offering competitive terms for qualifying properties.

RadCRE Perspective

Majid Radaei, Founder of RAD Commercial Realty, notes, "We're seeing a clear shift in how smart money is being deployed. The days of simply buying anything with a pulse and expecting appreciation are over. Our clients are keenly focused on basis, operational efficiency, and true value creation. For hospitality, that means understanding individual market dynamics and identifying properties that can either benefit from significant CapEx infusion or are simply well-positioned assets with strong brand affiliations in undersupplied markets. We're actively advising on situations where sellers have to meet the market, and those are becoming much more prevalent. On the financing side, while rates remain high, there are still ample capital sources for good deals. We're structuring a lot of transactions with hybrid capital stacks – think a senior bank loan at 50-55% LTV, topped with a preferred equity or mezzanine piece at 12-18% for the next 15-20% of the capital stack. This blended cost of capital, while higher than historical norms, can still generate attractive equity returns when the acquisition basis is right and the business plan is solid. For our hospitality clients, SBA 7(a) loans, with rates currently around Prime (8.50%) + 2.25-2.75%, continue to be a fantastic option for owner-operators, offering high LTVs and favorable amortization. The key is knowing which capital source aligns best with the asset, the sponsor, and the business plan – which is exactly where our underwriting and advisory come into play. Many sophisticated buyers are moving past the 'wait and see' mentality and are actively pursuing these nuanced opportunities."

Outlook for the Remainder of 2026

While the market is not without its challenges, the current environment presents compelling opportunities for well-capitalized and strategically agile investors. The expectation is for a gradual increase in transaction volumes as price discovery stabilizes and a clearer interest rate trajectory emerges. Properties requiring recapitalization or facing imminent loan maturities are likely to drive increased deal flow. RadCRE continues to leverage its deep market insights and robust underwriting capabilities to identify and execute on these opportunities for our clients across hotel investment sales, CRE financing, and value-add acquisitions.

Tags: commercial real estate investment, capital flows, CRE financing, hospitality investment sales, multifamily cap rates, bridge lending, CMBS, SBA 7(a) loan

Sources: MSCI Real Assets, CBRE Research, Commercial Observer, CoStar, Mortgage Bankers Association (MBA)