A Framework for Evaluating the Cycle

While we believe we are at the beginning of the real estate cycle, not all real estate is equal. This divergence is central to our outlook and shapes how we are deploying capital across the private real estate landscape. Rental housing remains in decline, industrial is near its trough, and retail is in growth mode.

Source: CenterSquare, as of January 1, 2026.

Rental Housing: Late-Cycle Fundamentals Demand Structured Solutions

Despite improving sentiment in parts of the market, we do not believe rental housing has bottomed. Supply remains elevated and markets need to absorb new 2026 deliveries as well as some 2025 deliveries still in lease-up (Figure 2). At the same time, demand has moderated. Slowing job formation tied to AI-driven workforce shifts and evolving immigration dynamics are weighing on incremental renter growth. As a result, stabilization is likely to take longer than many expect, and we do not anticipate a true bottom until 2027 or later.

Policy uncertainty adds another layer of complexity. Housing affordability has bipartisan focus, and proposals ranging from restrictions on institutional ownership to accelerated development approvals could materially impact fundamentals.

Source: CoStar, as of February 18, 2026.

Importantly, pricing has not fully adjusted to this reality. In some markets, 4-5% cap rates still imply robust future rent growth and exit cap rate compression, leaving little margin for error. In contrast, public multifamily REITs are trading at implied cap rates of 6-6.5%, reflecting these challenged fundamentals. Meanwhile, a refinancing wave is building: loans originated in 2021–2022 at peak valuations and low interest rates are coming due (Figure 3). As senior loan proceeds are reduced to satisfy DSCR and LTV constraints under higher rates and lower valuations, gaps are emerging in the capital stack requiring new equity or structured capital.

Source: Newmark Research, MBA, Trepp, MSCI Real Capital Analytics, CenterSquare as of January 2026.

Given these dynamics, we believe the best risk-adjusted returns in rental housing today can be achieved by deploying capital through structured investments rather than common equity. Debt-oriented preferred equity and mezzanine investments that provide gap capital offer attractive entry yields, meaningful current pay, and the potential for mid-teens total returns—potentially exceeding equity returns at this stage of the cycle. These investments are secured by high-quality, infill Class A assets with modern amenities and strong sponsorship. This approach prioritizes downside protection while capturing compelling risk-adjusted returns in a volatile environment.

Industrial: Trough Conditions Create Opportunity in Niche Segments

Industrial fundamentals peaked in 2021 and 2022 before softening under the weight of elevated supply. Today, conditions are stabilizing. Absorption has improved, leasing activity has normalized, and supply growth is decelerating. We believe most of the downside is in the rearview, placing industrial near the bottom of the cycle and at the early stages of recovery. Further, surveys show institutional investors continue to view industrial as one of the most appealing property types for 2026, reinforcing its position as a core focus area for capital deployment.

Success, however, we believe depends on differentiation. Rather than competing in the crowded bulk warehouse market, the strongest fundamentals and risk-adjusted returns in the sector exist in a niche product we call essential service industrial (ESI): smaller infill buildings leased to a wide array of local service-oriented tenants whose businesses are integral to the surrounding community. These assets benefit from limited new supply, sticky demand, and lower institutional competition. In fact, in many markets, net supply of this product is shrinking as existing properties are converted into higher and better uses like residential. This segment also demonstrated the most resilient leasing demand in the last few years as the rest of the industrial market digested wavering demand (Figure 4). Altogether, the vacancy for this segment of the market is just 3.6%, compared to 6.7% for the industrial market overall according to data from CBRE.

Source: CBRE, as of June 30, 2025.

Retail: A Golden Era of Fundamentals

Retail stands apart in the current cycle. The sector did not experience the extreme cap rate compression seen in multifamily and industrial during the post-COVID period, and as a result, entered this cycle at a more rational valuation. Importantly, investor sentiment toward retail is finally turning positive after more than a decade of negativity.

Today, retail fundamentals are the strongest in decades with high occupancies and robust leasing volumes and rental rate growth. The primary driver of this strength is structural undersupply. Over the past two decades, the U.S. population has grown by more than 30 million people, yet retail development has been negligible. This imbalance is now translating directly into pricing power.

While large investors tend to prefer grocery-anchored shopping centers, we believe the strongest risk-adjusted returns remain in a niche subsector of retail called Essential Service Retail (ESR) - unanchored strip centers located at highly trafficked intersections with strong visibility and service-oriented tenants. The lack of investor competition for this property type allows us to deploy capital at compelling valuations that enable core-plus returns with a strong cash-on-cash yield and limited business plan execution risk. Demand for these spaces remains healthy as tenants prioritize locations with strong demographic characteristics and accessibility, and supply remains curtailed, driving durable fundamentals and an attractive long-term growth trajectory (Figure 5).

Source: CoStar, as of February 18, 2026.

Other Pockets of Strength: Data Centers and Senior Housing

While our highest conviction deployment in 2026 remains concentrated in rental housing, industrial, and retail, other segments of private real estate are benefiting from powerful secular tailwinds and attracting growing institutional interest. Two of the most prominent areas are data centers and senior housing, both reflecting structural demand drivers that extend well beyond the traditional real estate cycle.

Data centers continue to stand out as one of the most compelling long-term growth themes in global real assets. Unlike sectors where recovery is driven primarily by supply normalization, data centers are fundamentally demand beneficiaries. The acceleration of cloud computing, artificial intelligence workloads, and digital infrastructure has created what appears to be an insatiable requirement for computing capacity. Institutional investors are increasingly recognizing this dynamic.

At the same time, data centers remain a highly specialized segment of the market. Much of today’s opportunity in the private market is development-oriented, requiring deep technical expertise around power sourcing, cooling technologies, and hyperscaler relationships. As a result, successful investment here depends less on traditional “sticks and bricks” underwriting and more on operating platform capabilities. For many investors, exposure through specialized operators or public REIT strategies may offer a more efficient path than direct private development.

Senior housing also shows strong structural momentum entering 2026. Demographic trends are increasingly supportive as the baby boomer cohort ages into higher-demand years, creating what is often referred to as the “silver tsunami.” After a prolonged period of operational disruption through the pandemic era, fundamentals in many senior housing markets are among the best in the real estate industry, supported by rising occupancy, limited new supply, and growing need-based demand. However, like data centers, senior housing is also operationally intensive, requiring specialized management, staffing, and healthcare-adjacent expertise. Returns in this sector are driven as much, if not more, by operational execution rather than simply the underlying real estate.

Together, these sectors highlight an important feature of the next cycle: some of the strongest opportunities in private real estate are increasingly found in niche, operationally complex segments supported by secular demand drivers.