Industry Leaders See Early Stages of Pricing Recovery

Prominent commercial real estate figures participating in this year’s Summer Leadership Series had plenty to say about a broad recovery in pricing—so much that a single article wasn’t enough to contain all of their responses. Therefore, we’re returning to the question that launched the series nearly three weeks ago. In this installment, you’ll find insights from Jim Dillavou, Principal, Paragon Commercial Group; Jenna Unell, senior managing director, Greystone Servicing Company LLC; and Tyler Chesser, Co-Founder & Managing Partner – CF Capital.

Commercial property pricing remains depressed compared to the recent peaks in 2022, although a few asset classes have recovered. How soon do you anticipate a general recovery in pricing, and what will lead to this occurring?

Jim Dillavou: The CRE investment period prior to early 2022 was characterized by a “risk-on” mentality encouraged by the low-interest-rate environment. In 2022-2023, the proverbial brakes were slammed on the economy as the Federal Reserve aggressively raised rates and the greatest investment period of my lifetime came to an abrupt end.

In response, the CRE industry quickly pivoted to a “risk-off” mentality where fundamentals once again took center stage. Phrases such as “income durability” and “cash flow” and “stress test” re-entered the real estate lexicon. Risk assets with speculative upside such as office fell out of favor while “boring” cash-flow investments such as necessity retail became attractive to both investors and lenders searching the CRE landscape for risk-mitigated investments. This phenomenon helped catapult necessity retail to the forefront of the CRE landscape for the first time since the GFC and this continues today as inventory remains limited, tenant demand remains high, construction remains stalled, and necessity retail quickly adapts to the demands of e-commerce and last-mile distribution.

It would be a fool’s game to expect CRE pricing returns to 2022 levels; however, necessity retail pricing recovered quickly, remains strong, and appears to have reached a healthy equilibrium for the foreseeable future.

Jenna Unell: We are probably in the early stages of a general recovery in property prices. While interest rates are not rising, it is unlikely that there will be significant reductions in interest rates in the near term. As noted, some sectors are very strong, including generally multifamily housing and industrial properties. In addition, high-quality and well-located office product is doing well. Most of the multifamily distress is due to overleveraging and aggressive rent escalation assumptions that did not materialize. Demand in that area, however, remains generally high and new construction has slowed, reducing the competition such that these properties, most likely, will rebound quickly.

The significant looming debt maturities remain a factor. The decline in new construction will impact values of existing product as demand begins to exceed supply. The economic uncertainty and increased cost of capital and construction costs have slowed new constructions across all property types. Demand for office is rising due to changes in work from home policies and pushes to bring workers back to the office. A significant portion of the existing viable office product requires a substantial investment of capital to mitigate its obsolescence risk but as demand rises and supply of new construction diminishes, the investment will pay off in increased property values.

Tyler Chesser: The bid-ask spread that’s persisted for the past three years won’t resolve through optimism—it’ll resolve through pressure. We’re still in the early innings of distress, particularly among owners facing near-term maturities on underwater assets. A broader recalibration will require forced transactions—driven by loan maturities, lender actions, and capital stack restructurings. Once we see that capitulation at scale, meaningful price discovery and transaction volume will follow.

Multifamily is likely to lead the recovery, but the next phase will look different. The asset class remains fundamentally strong, but future gains will be driven by operational execution, not capital exuberance. Tightened supply, strong demographic demand, and persistent renter needs are in place, but pricing won’t rebound meaningfully until liquidity returns and operations stabilize.

Importantly, recovery will be uneven. Gateway markets with constrained supply and population inflows will bounce back sooner than overbuilt or policy-constrained metros. Investors need to underwrite recovery timelines at the market level—national narratives are no longer sufficient.