Opportunistic real estate investing targets buildings and properties that come with unique challenges or complexities that, when expertly managed, have the potential to generate outsized returns. While opportunistic real estate can be an effective strategy throughout all phases of the market cycle, opportunities to acquire stressed real estate tend to be most abundant during periods of market volatility and macroeconomic instability.

Current market conditions make a compelling case for opportunistic real estate investment. The capital markets volatility that ensued after the 2022-2023 rapid rise in interest rates placed stress on borrowers and depressed traditional bank lending. In 2023, the higher cost of capital drove transaction volumes 60% lower than in the prior year, putting downward pressure on valuations (Figure 3)

At the same time, a large quantity of debt issued when interest rates were low is due to mature over the next few years (Figure 4). We believe these headwinds for borrowers create compelling conditions for opportunistic real estate investors, as undercapitalized borrowers become motivated sellers, seeking to offload assets they can no longer manage or finance. In addition, limited liquidity may lead to less competition for investments, and more favorable pricing.