Pricing resets, selective equity and operational pressure: The forces redefining private real estate strategies

Private funds real estate moves through 2026 in a moment of recalibration. Pricing has reset, debt remains abundant, equity is cautious, and fundamentals are shifting unevenly across sectors. Conversations across IMN’s Real Estate Private Funds Summer 2026 converged on two pressing questions: How healthy is the funds landscape today? And what does resilience look like amid global economic headwinds? This recap distils the insights shaping investor strategy in this new phase.

Key takeaways

• Debt liquidity is strong while equity capital remains selective, widening the performance gap and reshaping deployment strategies.
• Distress is increasingly fundamental, driven by obsolescence rather than over‑leverage, especially in office.
• Pricing stability and reduced supply support an attractive entry point, but only for disciplined underwriters.
• Sector divergence is narrowing, but intra‑sector variation is widening, making market, size and subtype selection critical.
• Operational performance is becoming the primary driver of returns, replacing the cap‑rate compression of prior cycles.

How healthy is the funds landscape in 2026?

The most immediate pressure point for managers is the widening disconnect between debt and equity. Debt markets remain highly liquid, with lenders competing aggressively across construction, bridge and structured finance. Equity markets, however, are far more selective, slowing transaction volume and extending hold periods.

The debt markets are super active… probably amongst the best times to be a borrower right now.
Shaunak Tanna, Executive Director, PGIM Real Estate

This imbalance is reshaping the capital stack. Borrowers are refinancing rather than selling, and institutional investors are favouring debt strategies while waiting for equity pricing to fully reset.

Banks are back, and changing the rules

After years of regulatory‑driven retrenchment, banks have re‑entered the market with higher leverage and more competitive terms. Construction loans that once capped at 55–60% LTC are now reaching 65% LTC non‑recourse, compressing spreads for debt funds but lowering back‑end leverage costs.

The result: more leverage is available, but structured lenders must operate higher in the stack and accept slightly lower returns.

Distress is not what it used to be

Unlike the post‑GFC era, today’s distress is driven by fundamentals, not financial engineering. Older office buildings lacking modern amenities, efficiency or capital investment are struggling to find relevance.

It’s fundamental distress… something that just doesn’t fit any need anymore.
Jim Costello, Head of Real Estate Economics, MSCI Real Estate

Local operators — not large financial buyers — are leading most distressed acquisitions, reflecting the hands‑on repositioning required.

Sector signals: Office and data centres

Beyond distress, two sectors illustrate how pricing resets and liquidity constraints are shaping underwriting today:

• Office: Basis resets and a tale of two markets

Despite headlines, office is not monolithic. Basis resets are creating attractive entry points: one New York asset saw equity basis fall 55% and debt basis 40% from its 2016 valuation. But TI/LC costs (often 1.5 to 2 years of rent) remain a major drag on valuations.

Still, leasing momentum is improving, and obsolete supply is being removed. For disciplined investors, select corridors offer opportunity.

• Data centers: High interest, low liquidity

Data centers remain a “shiny new thing,” but liquidity is thin — just 49 sales tracked last year, heavily concentrated in one deal. Their hybrid nature (infrastructure + real estate) and long‑term hold profile make them less tradable than traditional sectors.

What does resilience look like amid global economic headwinds?

The second major pressure point is the macro environment: inflation re‑accelerating, long‑term rates rising, and geopolitical uncertainty shaping investor behaviour. Yet despite these pressures, the outlook for private real estate is more constructive than headlines suggest. In the session “Global economic headwinds & real estate’s resilient path forward,” speakers consistently pointed to a reset phase defined by pricing stability, selective capital, and greater operational discipline.

Pricing stability and reduced supply support the entry point

Real estate values have already adjusted to the higher‑rate environment, and new supply has fallen sharply across most sectors. This combination is creating a more predictable entry point for investors who can underwrite with discipline.

Transaction volumes rebounded in 2025 and early 2026, narrowing bid‑ask spreads and signalling that buyers and sellers are finally operating off the same pricing reality.

We don’t believe there’s going to be further devaluation.
Emi Adachi, MD & Co-head, Heitman

The panel noted that short‑lease sectors are particularly well positioned to absorb moderate inflation, and capital flows into real estate remain strong. The implication for managers is clear: resilience now comes from leaning into sectors where fundamentals can reset quickly, rather than waiting for further pricing correction.

The next cycle: Intra‑sector divergence

One of the strongest themes across the discussion was that the dramatic sector swings of the last cycle have converged. Industrial is no longer universally surging, retail is no longer universally struggling, and office is no longer uniformly declining. Instead, the next cycle will be defined by variation within sectors.

Highlighted themes included:

• Industrial: Strength at the small‑bay and mega‑bulk ends; weakness in mid‑sized assets; regional divergence driven by shifting trade patterns.
• Multifamily: Midwest and Northeast outperforming high‑growth Sun Belt markets due to lower supply pressure.
• Alternatives: Senior housing and self‑storage showing strong fundamentals; student housing facing demographic headwinds.

The key takeaway? Resilience now depends on precision. Choosing the right sub‑market, the right unit mix, and the right operational model, rather than relying on broad sector calls.

Higher for longer: Valuations must adjust

Long‑term rates are rising due to tariff spillovers, AI‑driven productivity shifts and increasing term premiums. Inevitably, creating a valuation disconnect between public and private markets: REITs are trading at higher cap rates than private core assets.

This gap is contributing to persistent bid‑ask spreads and slowing capital deployment. The implication for managers is that underwriting must reflect a higher‑for‑longer rate environment, with more emphasis on cash‑flow durability and less reliance on cap‑rate compression.

Multifamily: Operational pressure rising

Multifamily fundamentals are under pressure. Published shelter inflation data is lagging reality: rent growth is muted, delinquencies are rising, and supply is weighing on both Class A and workforce housing.

What we’re seeing boots on the ground is not much rent growth.
David Moghavem, Director, Trion Properties

It is evident that the challenge is shifting; from capital‑stack distress to operational distress. Resilience in multifamily now depends on stronger asset‑level execution — tighter expense management, better tenant retention, and more proactive operational strategies.

The hospitality shift

Hospitality remains one of the few sectors where inflation is a tailwind. Nightly rate resets allow operators to capture pricing power quickly, and travel demand remains strong. Speakers noted that 70% of discretionary spending continues to flow toward experiences, supporting luxury and upper‑upscale performance.

The implication is that hospitality’s flexibility makes it structurally advantaged in a higher‑rate environment, with resilience driven by dynamic pricing and strong demand fundamentals.

The road ahead for private funds

Private Funds real estate is entering a reset phase defined by pricing stability, reduced supply and widening intra‑sector divergence. Debt remains abundant, equity cautious, and operational performance increasingly central to returns. For investors navigating this evolving market, it is evident that resilience will come from disciplined underwriting, sharper asset selection and a willingness to lean into complexity.

For more conversations to delve further into this evolving landscape, join us in January for IMN's Real Estate Private Funds Winter 2027.