CRE Shows Strategic Patience Amid Policy Shifts and Emerging Opportunities
As the commercial real estate (CRE) market adjusts to evolving economic conditions and shifting federal policies, many investors are taking a strategic pause, but the long-term outlook remains optimistic. According to Geoffrey Arrobio, FVP of Capital Markets at Matthews Real Estate Investment Services, now represents a time of recalibration rather than retreat.
“There’s definitely a wait-and-see buildup in the market, aside from those with 1031 needs,” said Arrobio. “Investors are being more thoughtful. Some are monitoring tariffs and Treasury policy, others are looking closely at economic fundamentals to better position themselves for what’s ahead.”
While certain sectors have faced recent headwinds, CRE remains fundamentally strong. Interest in long-term growth, supported by policy momentum, and a growing focus on U.S.-based investment, is keeping sentiment cautiously optimistic.
“We’re seeing a market that’s adapting to change,” Arrobio said. “It’s not a retreat, it’s a repositioning. The pro-growth stance of the administration takes time to work through the system, but there’s a lot of confidence that it will.”
Market Stability Ahead as Treasury Policy Takes Lead
Despite speculation around the Federal Reserve’s next move, Arrobio believes other forces are playing a more decisive role in shaping the CRE environment.
“I think you have to take the Fed out of the equation for now,” he said. “Treasury yields are being driven more by Treasury policy, outlook and broader economic indicators. The Fed will adjust the overnight rate once we see sustained trends like rising unemployment, wage deceleration, disinflation or a major economic event.”
“The Administration’s economic policy of reshoring, lower energy costs (adding more energy options like nuclear), less government oversight, is already reshaping the capital flow landscape. Capital follows medium-to-the-long-term policy decisions and with that new construction, expansion and development with commercial real estate being prime benefactor. It’s not a question of ‘if,’ but rather ‘when.’”
Banks Lean in with New Lending Strategies
Despite broader economic caution, banks are being more creative and opportunistic in how they engage with CRE.
“Banks are changing their investment strategies, we’re seeing more activity in the bridge loan space,” Arrobio noted. “They’re moving into shorter-term lending to capture more yield, which also gives them greater flexibility in this environment to work out distressed loans on book.”
By entering the 12-to-36-month bridge space, many institutions are positioning themselves to enhance returns while continuing to support high-quality CRE sponsors. “It’s a smart play,” he said. “This allows banks to offset pressure from older loans while staying engaged in the market.”
Construction lending remains tight, but that could change as rate pressures ease. “Until we see lower short-term rates (SOFR and Prime), the bank construction market will not be as aggressive as they were several years ago, in addition, developers remain constrained to due to high input costs and lower return on costs. Until that equation reverts to the mean, construction transactions will remain muted.” Arrobio said. “Banks will continue to be conservative regarding loan to cost, sponsorship experience and liquidity. They continue to work through troubled loans on their books and until they do, their capital will be tied up for several quarters.”
Resilient Asset Classes Lead the Way
Certain asset types are emerging as clear standouts in today’s market, and investor demand remains strong where fundamentals are solid.
“Grocery-anchored retail continues to be a solid performer, pending strong year-over-year sales and foot traffic counts,” Arrobio said. “Retail lenders are being more careful, especially with single-tenant, non-credit deals, but quality still wins.” However, he notes that if the market heads into a consumer-related recession, lenders will scrutinize the tenant mix and overall creditworthiness.
Industrial remains a favorite, especially as the onshoring movement gains steam. “We’ve seen some softening in large, big-box properties, but multi-tenant industrial is still very attractive. If onshoring delivers as expected, this sector will remain a top performer.”
Multifamily is another bright spot, however, city and state regulations within some states (CA, NY, IL, etc.) present challenges, overall supply constraints and strong demand are creating a positive outlook. “With fewer units coming online, well-built, well-located multifamily assets, with minimal deferred maintenance and modern amenities are positioned to outperform,” he said.
Disciplined Lending Driving Healthy Deal Flow
Lenders are maintaining a high bar, but Arrobio sees that as a sign of strength, not weakness.
“Lenders are focused on quality sponsorship and have been very selective with whom they do business with,” he said. “Sponsors who possess liquidity, strong net worth statistics, and proven track records are still getting deals done.”
Arrobio explained that the typical benchmark remains 15% liquidity of the loan amount, with a net worth equal to or greater than the loan request.
Underwriting has also become more holistic, factoring in everything from turnover and operating history to insurance and utility costs. “Lenders are doing their homework and asking the right questions as there are issues to tackle, like rising insurance premiums, increasing utility costs and rent control in some areas; so, they are staying engaged and are being smart about where they deploy capital.”
Optimism for the Long-Term Market Trajectory
While short-term market volatility has created pockets of uncertainty, Arrobio is confident in the underlying strength of the U.S. economy and its potential to support long-term CRE growth.
“The real question is how the Treasury handles the national debt,” he said. “But even with volatility in the bond market, CRE is adjusting to higher interest rates, higher capitalization rates and asset quality. Investors are recalibrating expectations and taking a longer-term view in order to take advantage of what is to come.”
He added that market fluctuations are part of the investment cycle — and for those with a strategic mindset, today’s environment offers opportunity. “We’re entering a period where fundamentals matter again. That’s a good thing. Investors are being more deliberate, and in the long run, that creates a more stable and sustainable market. Investors were spoiled with near zero interest rates for 10 years which was an anomaly. We have reverted to a market where you have to do your homework and where fundamentals take a front seat.”
Despite the caution, Arrobio sees CRE emerging stronger and more focused. “We’re seeing discipline, creativity, and smart capital at work,” he said. “That’s not a slowdown — that’s the foundation of a healthy, evolving market.”
