On May 19, 2025, the commercial real estate capital markets might have inaugurated a new era.
That afternoon, RXR CEO and Chairman Scott Rechler signed a letter of intent to buy 590 Madison Avenue, a 1 million-square-foot office property in the heart of Midtown Manhattan, for $1.1 billion. It would be the first office sale in New York City to surpass the coveted $1 billion mark in nearly three years.
SEE ALSO: Melo Group Buys Miami Office Site for $212M
Just three days earlier, during Commercial Observer’s New York State of Office Forum, Rechler may have tipped his hand when he admitted to holding contrarian instincts in times of economic uncertainty. As opposed to playing it safe, Rechler said he preferred to invest in office buildings now due to what he called “the extraordinary value reset” in commercial real estate across the country.
“That’s been an opportunity for us, because when you have that sort of dislocation, most institutions find office to be an uninvestible asset class,” said Rechler. “And, when institutions find something uninvestable, that’s a good time to invest because that means you have less competition.”
The contrarian instinct held by Rechler and others is one of the great X factors in CRE investing, as it has helped make the careers (and fortunes) of dozens of the most impactful investors in the field — think David Walentas buying empty Brooklyn warehouses 40 years before they became Dumbo; or Bill Zeckendorf Jr.’s much maligned Worldwide Plaza pioneering Eighth Avenue development in the late 1980s; or a 31-year-old outerborough kid named Donald Trump making his bones in Manhattan by transforming the Grand Central corridor through his Grand Hyatt redevelopment in the late 1970s.
“Sometimes in the market, you have to be very brave and very smart, and there are times when it’s hard to figure out and you need to be both brave and smart, and most people don’t have the mettle to be both,” said Charles Foschini, senior managing director at lender Berkadia. “There’s a lot of money available, and in most cases it’s very shy about coming out.”
Now, at a time of soaring Treasury yields, trillion-dollar federal budget deficits, ad-hoc international trade agreements, and a persistently high cost of capital, the strategy to buy into CRE goes against the traditional maxims of “buy and hold” and “wait until values recover,” truisms that have defined the behavior of many investors to withstand economic upheavals.
Chad Carpenter, founder of Reven Capital, launched a $1 billion office REIT last year solely devoted to purchasing equity positions in distressed office properties. Carpenter called himself “definitely a contrarian,” and credits his experience of buying distressed notes and equity positions into at least 11 million square feet of office property at the nadir of the early 1990s real estate recession for forming an instinct to swim while others tread water.
“In 1993, people thought I was crazy, and the market wouldn’t come back,” recalled Carpenter. “We just thought that if you can buy a building at half the replacement cost, and have it a 20 percent cash-on-cash return at 50 percent leased, that’s a pretty good bet if you think the sky won’t fall and the world will recover.”
Carpenter credited Rechler for buying 590 Madison at what he called likely “a significant” discount to replacement cost, and for recognizing the upside latent in the property management component that a vertically integrated firm like RXR will likely profit from. But he hedged his praise by noting that it will take strong rents for any conservative underwriting to meet investors’ expectations.
“If rents continue to go up for 10 years in New York, he’ll do fantastic. If rents go down for a few years, maybe he’ll be soft,” Carpenter said. “But, if rents go down for 10 years, it will be a disaster. You just don’t know.”
As founder and managing partner of Criterion Real Estate Capital, Chuck Rosenzweig has overseen $6 billion of transaction value over the last 16 years in a career that goes back to the beginning of the commercial mortgage-backed securities market in the early 1990s. Rosenzweig told CO that his contrarian side comes out through his ethos to try to invest in good assets when capital is retreating from certain sectors and asset classes.
“Capital flows dictate what prices people pay, and how people value things, almost as much as fundamentals,” explained Rosenzweig. “So, when we see things are overinvested, prices too high, then they become underinvested, and those become good entry points, so we are contrarian in that regard.”
Knowing when to exit is almost as important as timing one’s aggressive entrance. Take Sean Hehir, the CEO, president and managing partner of Trinity Investments. His firm has $5.4 billion in assets under management and has invested in hotels holding a collective 14,000 keys since 1998.
On May 20, Trinity executed the largest hotel sale of 2025 so far, when it disposed of the 950-room JW Marriott Phoenix Desert Ridge Resort & Spa for $865 million. Trinity had closed on the asset five years ago amid COVID-19 in a $602 million deal, and endured supply chain challenges and a multiyear travel shutdown as it invested more than $100 million in a renovation that took four years to complete. But the gamble paid off.
“We’re not passive investors — we’re active, operational real estate. Every day our team gets in there and makes real-time decisions, driving change, driving performance,” said Hehir. “That requires lots of hands-on asset management, but it also benefits you in times of uncertainty because we’re able to be proactive as opposed to reactive.”
Outside of the perpetually distressed asset classes of hotel and office, which took the brunt of the early 2020s COVID realignment, investors in asset classes like industrial have been doing their best to weather an uncertain supply chain system beset by high interest rates and even higher tariffs.
Jason Sturman, president and chief executive officer at Ambrose, a developer and investor in industrial and e-commerce assets, told CO that his firm is currently submitting offers on several existing Class A industrial assets in the Western U.S. after closing on a 33-acre industrial park in Denver late last year for $61 million.
“It’s because we only do one thing: industrial. We’re sharpshooters,” said Sturman. “The bets we’re making, we feel very confident in based on being in the trenches, based on our on-the-ground knowledge.”
It’s this targeted approach to acquisitions and equity investments that several CRE experts argue is the key to exploiting what can be called nothing less than a profoundly uncertain time in the capital markets, but one occurring at a time of strong real estate fundamentals.
Supply is declining across industrial and multifamily, office leasing is picking up across the U.S., and grocery-anchored and necessity-based retail are experiencing their highest occupancy levels ever, according to Todd Henderson, real estate head for the Americas at asset manager DWS.
“What’s important to note is this is not a ‘buy the entire market’ kind of market,” said Henderson. “It’s more of a stock picker’s moment. You have to be careful, you have to be diligent, but, if you are, you’re going to find real value in certain places.”
So what happened to render the marketplace a contrarian’s hunting ground and a place so damn dangerous for traditional commercial real estate players?
The cruelest month
It wasn’t supposed to go like this.
After an up-and-down 2024, which saw interest rates stay persistently high for the first half of the year, the second-half surge following a long-awaited rate cut from the Federal Reserve in September, and the election of a pro-growth, anti-regulation second Trump administration in November, presaged an honest-to-God return to form for frothy capital markets in 2025.
“There was momentum coming out of the election, for deregulation, reinvestment — headlines that caused large investment houses to have optimism to deploy capital again,” explained Jon McAvoy, chief investment officer at investor PRP. “It looked like we were headed in the right direction coming into 2025, and from the second week of January to early March we had momentum for the first time in awhile. … Unfortunately, we sort of hit a freeze moment again in April and into May.”
Indeed. And then came April 2, otherwise known as “Liberation Day.”
Days after President Donald Trump announced widespread, unilateral tariffs across hundreds of U.S. global trading partners, the stock market collapsed and bond markets went haywire.
The S&P 500 plummeted more than 12 percent from April 2 to April 8, while the Dow Jones Industrial Index fell nearly 10 percent between April 2 and April 21. Treasury yields rose 50 basis points one week in April and fell back 50 basis points by the end of the month. By all accounts, numerous commercial real estate deals were put on hold as principals attempted to gain some semblance of understanding on the ramifications of the administration’s actions.
“There was clearly a lot more caution in early April, and it’s only been just over a month, where the large GPs [general partners] I speak to went from being really cautious — like they might walk away from deals — to a place where they might transact again,” explained Doug Weill, co-founder and co-managing partner of Hodes Weill, a CRE investment and fundraising firm.
This pause in activity has occurred even while investment opportunities lurk for those brave enough to push their chips onto a table that appears at risk of collapsing in on itself: Debt capital markets are relatively liquid, credit spreads remain tight, and supply is remarkably constricted across asset classes. However, concerns about the yield curve will remain in place so long as international tariff policy and national interest rate movements remain subject to the famously mercurial machinations of the resident of the Oval Office.
“It’s certainly a market where there’s a lot of uncertainty in the broadest way possible with changes in administrations, changes in interest rates, and a post-pandemic reordering of how people go to work,” explained Criterion’s Rosenzweig. “When you combine those things, it feels like that type of uncertainty we haven’t really seen in prior cycles.”
And it’s not just an impromptu tariff policy, or a jittery bond market, that is making life difficult for CRE investors. Trump hinted at abolishing the Federal Reserve’s long-standing independence during the height of the trade debacle, after Fed Chair Jerome Powell refused to lower the federal funds rate at Trump’s request. Powell also stated publicly he would sue to keep his seat if Trump removed him before his second four-year term expires next year.
“The biggest threat that we run is being seen as illegitimate, and there was a tinge of that when Trump was talking about firing Powell,” said Miles Treaster, president of capital markets in the Americas at Cushman & Wakefield. “But that’s kind of gone by the wayside, and now the biggest challenge becomes the reserve currency status of the U.S. dollar.
“That’s why people might be losing a bit of sleep at night,” he added.
Here Treaster is honing in on both trade policy and fiscal policy and its impact on the bond market, which powers all commercial real estate transactions. Recall: there’s no law mandating that global allies use dollars — and not yen, renminbi, euros, pounds or bitcoin — to fuel international trade and commerce.
“If we’re pissing off all of our allies, are we ruining all these bilateral trade agreements, will people continue to see the U.S. dollar being the reserve currency of the world?” Treaster asked. “As it relates to the 10-year Treasury and the 30-year Treasury, that is leading to some of these rates going up.”
It is the fiscal side to the capital markets equation we must turn to next — specifically its complex relationship with the bond markets — to understand how policy in Washington is impacting the decisions made by CRE investors.
Debt bomb
Few numbers are more important to commercial real estate investors than Treasury yields.
By pricing their investment capital off the 10-Year Treasury (the reference point for most fixed-rate loans) or the 30-year Treasury (a chief indicator of expectations for long-term borrowing costs), CRE investors achieve stability and the ability to underwrite deals in ways that
aren’t always available for other types of financing such as construction loans and value-add plays, which are pegged to short-term SOFR yields (the cost of borrowing overnight).
Usually, there’s some consistency to the bond market. For instance, between July 2019 and October 2021, yields on the 10-Year Treasury never rose past 2 percent; and between April 2008 and October 2022, nearly 15 years, yields didn’t crest 4 percent once. Investors could price their deals under the assumption that their cost of capital, and cap-rate underwriting, would remain steady throughout the lifetime of a loan or equity infusion.
And now? Since 2023, 10-year Treasury yields have routinely surged past 4 percent, with spikes reaching beyond 4.7 percent in October 2023, April 2024, and January 2025 (hitting an 18-year high of 5.01 percent on Oct. 29, 2023). During this same period, yields have fallen to as low as 3.6 percent percent on several occasions, dropping that low as recently as Sept. 15, 2024.
“From one day to the next, you can have a 50-basis-point swing, and those swings in the capital markets make it hard for people to peg value or write a thesis they can hang their hat on,” said Berkadia’s Foschini. “The price of capital can be very different from the time you sign a contract to close.”
Even value-add and short-term CRE investors like those in multifamily have been burned by the movement of SOFR and the federal funds rate, both of which have moved from basically zero (as they stood from 2020 to 2022) to between 4.5 and 5 percent for the last two years.
“It’s drastically changed how people value construction projects and timelines, and it’s caused a lot of projects built on time and on budget to be dislocated based on cost of capital alone,” added Foschini.
Chief among the concerns for investors is how to underwrite cap rates — the primary metric to estimate returns in CRE — and how hard it’s been in recent years for investors to borrow at a cost of capital that is higher than the cap rates they’re buying at, in turn diluting income returns and dividend yields, as rent growth hasn’t kept pace with a steeper yield curve or the increased cost of borrowing.
“If you believe in a 50 percent chance of recession, are you confident enough to model growth in your financial models to outpace that cost of debt capital?” asked Weill, who defined the conundrum as a pure tradeoff between yield and growth.
“I think that’s a big question in the market today: How much growth can you really model? … And I’m not sure the market can absorb another 50 basis point [uptick] without cap rates really coming under pressure,” he added.
Unfortunately for investors, fiscal policy out of Washington, D.C., is adding further pressure to the yield curve. On May 22, the House of Representatives passed Trump’s signature “Big Beautiful Bill,” to extend his 2017 tax cuts, while increasing defense and border security spending. But the bill, which still needs to pass the Senate, includes a $3 trillion tax cut (weighted toward the wealthiest Americans and corporations) and locks in annual deficits of $2.5 trillion until 2035.
Perhaps not surprisingly, bond markets went haywire following the House vote, as their yields are pegged to the likelihood that the Treasury will find buyers for its notes now and in the future. To wit, days after the legislation passed, the 30-year Treasury reached 5.1 percent, its highest level since 2007, just before the Global Financial Crisis.
The forward curve of the 10-year is now expected to sit at 5.25 percent within five years, a number which PRP’s McAvoy candidly admits might be too high for commercial real estate to bear.
“For the first time in awhile, people are losing faith in the stability of the Treasury market and the ability to somewhat have bounds on where the Treasurys are going to run,” said McAvoy. “We have to be careful about [the long side of the curve on Treasurys] because that will be incredibly disruptive for commercial real estate.”
Treasury yields are directly correlated to U.S. fiscal policy. The U.S. debt, which is created by annual federal budget deficits, currently stands at $36.2 trillion. Between 1982 and 2001, the nation’s debt increased steadily, but moderately, from $1.1 trillion to $5.8 trillion. Even during the George W. Bush years, which included tax cuts and two wars, the debt only doubled to $10 trillion by 2008.
However, between 2009 (the response to the GFC) and 2019 (the last year before COVID-19) the debt rose from $11.9 trillion to $22.7 trillion, and, since 2020, U.S. budget deficits have averaged $2.1 trillion per year to bring us to the $36.2 trillion threshold.
Reven Capital’s Carpenter castigated both the Biden and Trump administrations for running $2 trillion deficits, and peppered his comments with the assumption that it seems the U.S. is attempting to spend its way out of a recession by reducing the debt-to-GDP ratio (currently at 124 percent) while also increasing revenue through new tariff agreements, thereby avoiding a recession through growth.
“Interest rates are going to be higher for longer, the party will continue with all this spending, Trump’s going to try and prop up the economy — it’s almost like extend and pretend at a U.S. level,” mused Carpenter. “So a recession will be postponed because another $2 or $3 trillion will be pumped into the economy.”
Assumptions aside, reality has an ugly way of entering the picture: $9.2 trillion of marketable U.S. debt matures in the next 12 months, requiring high yields to entice buyers for those notes.
Questions abound on investor appetite for U.S. T-bills after Moody’s and two other ratings agencies downgraded the U.S. credit rating from Aaa to Aa1, the first time in history the U.S. has fallen below the highest tier of investor confidence.
Faith and foreboding
Amid the uncertainty, and buyer beware lights flashing bright red around U.S. bonds, does this still make it a good time for contrarians to buy into the market?
Chad Lavender, president of capital markets for North America at Newmark, said the construction pipeline of most asset classes is drying up in 2026. Lavender said student housing, senior housing and general multifamily housing are where he wants to hide going forward.
“There are lots of great opportunities in this market, and most everything is trading well below replacement cost,” he said.
KKR’s Justin Pattner, head of real estate equity Americas at KKR, described his firm as “thematically-oriented investors,” who follow larger corporate, consumer and demographic trends that reveal inefficiencies in capital markets.
“In times of uncertainty, there tend to be inefficiencies, which makes it a good time to invest,” he said.
For some, there’s faith in the resilience of the U.S. capital markets system. Weill said he spoke with the chief investment officer of a major sovereign wealth fund recently, who told him that while international capital might briefly pull back from the U.S., the nation still represents 40 percent of the world’s investable assets and has historically provided the best returns.
“The idea, on a medium- to long-term basis, that they’ll downplay capital investment into the U.S. is really not practical,” said Weill.
Other contrarians like Trinity’s Hehir turned to history as their survival guide, recalling that over a 27-year career he’s invested into, and survived, the 1998 Russian debt crisis, 9/11, the 2008 GFC, and COVID-19 in the early 2020s.
“It further instills in me that you have to be disciplined, you have to be disciplined in the types of assets you go into,” said Hehir. “Markets go sideways for a period of time, but they always rebound.”
Against-the-grainers like Carpenter, view the current moment with a bit more foreboding. They will be happy to make it out alive, with their capital stacks intact, if things continue as they are going.
“If you have realistic underwriting, if you’re buying at a low basis, if you think you can get through five to 10 years, yeah, you can buy,” admitted Carpenter. “But you are taking a lot of risk.”
Brian Pascus can be reached at bpascus@commercialobserver.com