We're currently in the steepest part of the CRE Re-pricing J-Curve—the point just before peak distress. Smart capital is already strategically positioning itself.

The CRE Re-pricing J-Curve explains the current commercial real estate cycle as a period of initial severe decline followed by an eventual recovery.

The "steepest part" of this curve is the current Trough, characterized by maximum pain and illiquidity where asset values have fallen (due to high borrowing costs forcing cap rate expansion), but transaction volume remains near zero.

This stagnation is caused by a standoff: sellers refuse to accept the lower valuations required by the market, while buyers wait for a true wave of distressed assets to emerge.

This wave is imminent because the high-rate environment is making it impossible for owners of assets with maturing low-rate debt to refinance, forcing banks to stop offering short-term extensions and begin pushing assets toward discounted sales, creating the opportunity for new, well-capitalized investors to step in and initiate the recovery phase.

We're seeing three primary ways investors are positioning for the upswing:

"Dry Powder" on Standby: Investors are securing subscription lines of credit or pre-approving LP commitments now so they can move in under 45 days when the right opportunity (often from bank-forced sales) hits the market.

Focusing on Debt Purchase: Instead of buying the asset, some are looking to acquire the discounted debt on maturing assets from regional banks unwilling to hold non-performing loans, gaining control at a lower basis.

Low Leverage/All-Cash Deals: Moving with high equity to eliminate reliance on bank debt, which allows them to capture a higher discount and avoid today's painful underwriting standards.

🔥 Actionable Insight: The time to prepare your capital is now, not when the deal hits your desk. Speed is the ultimate advantage in a distress cycle.

What percentage of your portfolio are you holding in dry powder right now?