The commercial real estate market is in a period where capital access is sharply divided. Family offices and private funds with strong balance sheets and established banking relationships are taking advantage of opportunities that traditional investors cannot pursue, due to ongoing lending constraints. This split is giving well-capitalized players a clear edge as the market navigates higher rates and tighter credit.
Jason Brooks, Shareholder and Office Managing Shareholder at Buchalter Law Firm, works closely with ultra-high-net-worth family offices and private funds managing between $2 billion and $50 billion in assets. His transactional work spans deals of $5 million to over $500 million in 30 to 35 states each year, giving him broad visibility into how the market is operating under current conditions.
The Capital Advantage
In today’s slower commercial market, family offices and private investment groups are leveraging their capital strength to remain active while many competitors stand on the sidelines. Brooks notes that these investors are less dependent on raising outside capital or waiting for fund closings, allowing them to move quickly when deals surface. “When the market’s slower, they can be more active because they’re less reliant on capital raises, and the deals are better,” Brooks says.
Their advantage extends beyond simply having cash on hand. Many of these family offices and private funds maintain direct relationships with private bankers, which translates into more favorable loan terms than those available in the broader market. For example, if the prevailing commercial rate is 6%, these clients might secure financing at 4.9%. This differential can make the difference between a viable deal and one that doesn’t pencil out.
Interest Rate Pressures
The current interest rate environment is a major source of stress for many commercial property owners. Loans originated during the recent era of historically low rates — often between 3.25% and 4.25% — are now coming due and must be refinanced at substantially higher rates, often around 6.75% to 7%. This 200-basis-point jump or more is straining cash flows and making refinancing difficult, even after accounting for moderate rent growth over the same period.
As a result, many owners are negotiating loan modifications and extensions, a pattern widely described as “extend and pretend.” Lenders allow borrowers to delay principal repayments or extend loan maturities, hoping that rates or property values will improve before a true reckoning is required.
Brooks points out that this approach cannot last forever. “At some point, you can’t just continue to modify loans. You either have to report them as in default and bad loans, or you have to get them refinanced out,” he explains. The inevitable outcome will be more forced sales as banks require owners to resolve outstanding debts, creating acquisition opportunities for buyers with capital ready to deploy.
Bank Control and Owner Pressure
The pressure on property owners is not just theoretical. In many cases, banks are now exerting direct control over property cash flows. Brooks describes situations where lenders “are sweeping all the cash” from a property and dictating operational decisions, even while the owner remains nominally in place. Ultimately, these arrangements typically resolve with the bank forcing a sale, the owner losing the property through foreclosure, or a negotiated transfer.
For family offices and private funds, these situations offer a pipeline of distressed or forced-sale opportunities. With fewer buyers able to secure financing at today’s rates, well-capitalized investors can negotiate better pricing and terms, often closing deals that would have attracted far more competition in a lower-rate environment.
The Pressure to Deploy Capital
While distressed sellers face pressure from lenders, private funds are under their own pressure to put capital to work. Many closed-end funds and investment vehicles have preferred return obligations that begin accruing as soon as capital is raised, not when it is actually invested. Brooks explains, “When the money comes in, you start having to pay the preferred return even before the money’s been allocated out. The money can only sit on the sidelines for so long before it has to go into the market.”
This dynamic pushes fund managers to accept deals with slimmer profit margins rather than continue paying out preferred returns on uninvested capital. “A lot of people are saying, let’s just get the money into the market and find a deal that maybe our return is going to be a little bit less than what we would normally go for, but we’re not paying preferred return on money that isn’t deployed yet,” Brooks says.
This urgency is driving activity in segments of the market that might otherwise remain stagnant. Even with compressed returns, the need to deploy capital is bringing funds to the table for transactions that would have been passed over in more favorable conditions.
Rate Policy and Market Expectations
Looking ahead, anticipated changes in Federal Reserve leadership and the possibility of rate cuts are fueling speculation about when market activity will accelerate. Many investors are hoping for more aggressive rate reductions, but Brooks cautions that a cut in the Fed funds rate does not always translate to lower long-term borrowing costs. “When you cut the Fed funds rate, it doesn’t necessarily lower the 10-year treasury rate, which is the driver of a lot of commercial loans,” he says.
Still, there are signs that funds are preparing for a pickup in activity. “You’re starting to see some of the funds in anticipation, starting to underwrite a lot of deals. They’re starting to draft LOIs for many deals. So it might get active sooner,” Brooks notes.
Varied Transaction Activity
Despite broader market headwinds, Brooks’ firm continues to handle a wide range of transactions across asset classes and price points. Recent deals include high-end residential purchases from $20 million to $200 million, multi-state portfolio loans, and ground-up development projects with construction financing. This diversity reflects that, while overall deal volume is down, capitalized buyers are still finding ways to execute on targeted opportunities.
Brooks attributes the firm’s effectiveness to his team’s operational backgrounds. Many attorneys have worked at funds, family offices, or in-house at development companies, providing a practical perspective on deal structuring and client priorities. This experience enables the team to anticipate challenges and design solutions aligned with investors’ real-world objectives.
Strategic Positioning for a Potential Rebound
The current environment is setting the stage for increased transaction activity. A combination of dry powder seeking deployment, looming forced sales, and expectations of lower rates suggests a period of heightened deal flow may be approaching. For family offices and private funds, the key is to remain prepared to move quickly as distressed opportunities surface, and competitors remain hamstrung by lending restrictions.
Brooks emphasizes that, even as rates in the 6% to 6.5% range are “historically ridiculously low,” the abrupt adjustment from the ultra-low rates of recent years is forcing the entire industry to recalibrate expectations and underwriting standards. Buyers who can adapt to this new reality—by adjusting return targets, structuring deals for flexibility, and leveraging their relationships—are most likely to succeed.
Implications for Investors and the Market
The divergence in capital access is likely to persist as long as lending standards remain tight and rates are elevated. For family offices and private funds, this period offers a rare window to acquire assets at favorable prices while other investors are sidelined. The urgency to deploy capital, combined with a growing pipeline of distressed sellers, is driving activity in segments of the market that have otherwise slowed.
At the same time, the broader market will remain under pressure until rates fall or lenders become more willing to extend credit. Property owners facing refinancing at today’s rates must either bring new equity, negotiate with lenders, or sell, often at a discount. For those with the resources and relationships to act, the next phase of the market will be defined by selectivity, speed, and the ability to underwrite deals in a more challenging environment.
As the market awaits clarity on rate policy and the true extent of distress among leveraged owners, family offices and private funds will continue to play an outsized role in shaping the next wave of commercial real estate transactions. Their ability to act decisively, while others wait for conditions to improve, will determine who emerges strongest from this extended lending cycle.
