The False Pricing Floor & The Old Guard: Why CRE Transaction Volume Is Frozen

Because owners with stable income and fixed-rate debt have no reason to sell at a discount. Many locked in low-rate loans before 2022, so holding is cheap and selling means giving up that financing and accepting a lower price. Owners who don't face a maturity or capital need simply wait. Supply only comes to market when loans mature, funds hit the end of their lives, or lenders force the issue.

Usually because financing, diligence, or the seller's expectations shift after the deal is agreed. Common causes include a lender cutting loan proceeds, an appraisal coming in low, rising insurance or tax estimates, environmental or physical issues found in diligence, or a seller who won't adjust price to reflect them. Deals that pencil only with optimistic assumptions break at the first surprise; buyers with conservative underwriting and committed capital close more often.

Yes, but far fewer than in 2021–2022, and mostly specific kinds of deals. Activity tends to cluster around motivated sellers facing maturities, lender-driven sales and note sales, smaller assets financed by local banks, owner-users, and well-capitalized buyers paying cash or assuming existing low-rate loans. Many acquisitions teams report long stretches of underwriting with few closings, because the spread between buyer and seller pricing remains too wide on most marketed assets.

Industry trackers show activity well below the 2021–2022 peak, though off the lows of 2023–2024. Deal flow has improved unevenly: industrial, multifamily, and necessity retail trade more readily, while office volume remains thin outside distressed sales. Much of the recovery is driven by forced sellers and refinancing deadlines rather than broad confidence. A full rebound still depends on sellers accepting lower prices and long-term rates stabilizing.

Because closing would cost them more than the deposit. If financing costs rise, the asset's value falls, or diligence turns up problems after the deposit goes hard, a buyer may calculate that losing the deposit is cheaper than overpaying or closing into a loss. On large deals, a deposit of a few percent of the price can be small compared with a value drop of 10% or more.

It reprices as loans mature and owners are forced to transact. Prices adjust deal by deal, not all at once. With long-term rates high, cap rates can't fall much, so values for overleveraged assets have to come down to meet buyers. Rescue capital and loan extensions delay that process, which is why the reset has taken years rather than months and is still working through office, bridge-financed multifamily, and other troubled segments.

Because property prices haven't fully adjusted to higher Treasury yields. Cap rates rose more slowly than bond yields after 2022, so the extra return for owning real estate instead of risk-free Treasuries shrank. Sellers holding out for older prices and rescue capital propping up values keep cap rates artificially low. Historically, thin spreads have been followed either by falling rates or by rising cap rates and lower prices.

Only if you expect growing income or can buy below today's typical pricing. A Treasury pays a fixed return with no risk, while an apartment's going-in yield should be higher to compensate for operations, leverage, and illiquidity. When the two are close, the case rests on rent growth, value-add upside, tax benefits such as depreciation, or a discounted purchase. Without one of those, the Treasury is often the better risk-adjusted choice.

Cap rates tend to move with interest rates, and the gap between them drives cash-on-cash returns. The cap rate is net operating income divided by price. If the loan's interest rate is below the cap rate, leverage boosts cash-on-cash returns; if the rate is above it, borrowing reduces them, called negative leverage. Rising rates push buyers to demand higher cap rates, which lowers prices for the same income.

Most sectors are in a late correction or early recovery phase, with wide differences by property type. Prices fell after rates rose in 2022, and many owners are still working through refinancing. Industrial and necessity retail are further along, multifamily is absorbing a supply wave, and office remains in a deeper reset. Watch distressed sales, lender behavior, and new construction starts for signs of the next phase.

Office cap rates vary so widely today that a single number is misleading. Well-leased, newer buildings with strong tenants still trade at relatively low cap rates, while commodity older buildings sell at much higher cap rates or are priced per square foot because income is uncertain. Many office sales are distressed or land-value plays where cap rates barely apply. Recent local comparable sales and lease rollover matter more than national averages.

A common rule is to set the exit cap rate above the going-in rate. Many underwriters add roughly 10 to 25 basis points per year of hold, or a flat premium, to reflect an older building and uncertainty about future rates. Then cross-check against long-term averages for the property type and market, and test the deal at several exit caps. If the deal only works with an exit cap at or below today's, the plan depends on market luck.

Start with the return you could earn elsewhere and add risk premiums. A practical approach is the current Treasury yield plus a premium for the property type, location, lease risk, and leverage, checked against what investors are actually targeting for similar assets. Higher interest rates mean discount rates are higher than in 2021, which lowers present values for the same cash flows. Use a range, not a single number, and see how sensitive value is.

They work backward from the return they need. Investors underwrite realistic income and expenses, apply current financing terms, set a conservative exit cap rate, and solve for the price that hits their target return. They then check that figure against comparable sales, replacement cost, and the seller's likely debt payoff. The final offer reflects all three: what the numbers support, what the market has paid, and what the seller can accept.

Keep underwriting deals and talking to people who close them. Review offering memorandums, track closed sales in your target markets, and ask brokers and lenders where recent deals actually traded versus their asking prices. Follow lender term sheets for current debt pricing, and read quarterly reports from research firms. Underwriting a few deals a month, even without bidding, keeps your assumptions grounded in the market.

Compare the return on today's equity to what that equity could earn elsewhere. Estimate the property's current value, subtract the loan and selling costs, and ask whether holding that net equity will earn more than redeploying it. Factor in the loan maturity, upcoming capital needs, tax consequences such as depreciation recapture and 1031 options, and how much below-market financing you'd give up by selling.

Sometimes, yes, if the discount is smaller than the full cost and risk of renovating. Count the hard and soft costs, lost rent during the work, carrying costs, financing, and the chance of overruns. If a buyer with lower costs or a different plan will pay a price that leaves you better off than finishing the work yourself, selling as-is can be the higher-return choice. Many owners underestimate the time and capital a renovation consumes.

Treat it as information, not an obligation. Get a current valuation or broker opinion of value, verify the buyer's ability to close, and compare the offer with your hold plan and tax position. An unsolicited offer often signals more demand than you realized, so testing the market quietly with a few qualified buyers may produce a better price. Don't sign a letter of intent with exclusivity until you know what the property is worth.

For privacy, speed, and control. Off-market sales avoid alerting tenants, employees, or competitors, and let the seller negotiate with a few known buyers. They can also suit sellers who want certainty of close over the last dollar. The trade-off is price: limited exposure can leave money on the table, so off-market sellers should still benchmark offers against comparable sales and a professional valuation.

Usually because something the comparables don't have is wrong with it. Common reasons include short remaining leases or a vacating tenant, deferred maintenance, environmental contamination, title or zoning problems, below-market leases, a forced or lender-driven sale, or a difficult location. A low price can be a real opportunity, but buyers should identify the reason through diligence before treating it as a bargain.

Because selling or redeveloping would force them to recognize a loss. Owners and lenders may keep a struggling mall running to avoid writing down the value, to preserve tax benefits, or while waiting for a better offer. Anchor leases and reciprocal easement agreements can also give multiple parties veto rights over redevelopment. Change usually comes when the debt defaults, the land becomes more valuable for another use, or the municipality steps in with incentives.

Transaction-dependent brokers have been hit hard, while those with advisory skills are adapting. Fewer sales and refinancings mean fewer commissions, and brokers whose value was mainly listing and marketing assets have struggled. Brokers who help owners through maturities, recapitalizations, note sales, and creative financing remain busy, because distressed and complex situations still need experienced intermediaries.

Not for every deal, but often for complex ones. An experienced owner with lender relationships can finance a simple, stabilized property directly. Debt and equity brokers earn their fees when a deal needs a wider lender search, a layered capital stack, or terms the borrower can't negotiate alone, which is common in today's tighter market. Judge a broker by the lender and investor relationships they actually bring, not by their pitch.

For patient investors buying at reset prices, it can be. Periods of frozen volume and forced selling have historically produced some of the best entry points, because buyers face less competition and can negotiate. The key is buying assets whose income supports the price at today's interest rates, using moderate fixed-rate leverage, and avoiding deals that rely on falling rates or quick appreciation. Timing the exact bottom is less important than paying the right price.

In distressed and overlooked situations. Common targets include loan maturities that force sales, note purchases from lenders, recapitalizations that need fresh equity, industrial and outdoor storage in growing markets, necessity retail, and properties in smaller submarkets that institutional buyers ignore. The common thread is buying from motivated sellers at prices that work with today's financing costs.

Some developers are, but far fewer than a few years ago. Projects that move forward usually have a low land basis, public incentives, tax-exempt bond or agency financing, a market with little new supply, or a well-capitalized sponsor that can fund more equity. Many others are on hold because construction costs, interest rates, and scarce LP equity make returns too thin.

Because owners there aren't being forced to sell yet. In some major markets, owners hold stable assets with long-term, fixed-rate debt, so listings stay scarce even when demand exists. Elsewhere, buyers avoid markets with high property taxes, weak population growth, or policy uncertainty, so capital markets activity stays thin in both directions. The opportunity often sits in off-market deals, lender-held assets, and smaller nearby submarkets.

The floor may give way before your timeline does. Rescue capital propping up values accrues at 12%–18% or more ahead of common equity, loans keep maturing, and lenders are shifting from modifications to discounted debt sales at 30%–85% markdowns. When those sales set real comps, owners who waited can face lower prices, a maturity they can't refinance, or a lender that controls the outcome.

Get a realistic number and a plan before a deadline forces one. Order a current valuation, subtract the loan and selling costs, and compare holding that equity with redeploying it, counting the loan maturity, capital needs and tax position such as a 1031. Then test the market quietly with qualified buyers and hire the broker who can create the most competition, even from outside your market. Talk with Carson before signing an exclusive letter of intent.