The commercial real estate transaction market is moving again.
U.S. commercial property sales increased 14% year over year in the second quarter of 2026, according to MSCI Real Assets. CBRE expects U.S. commercial real estate investment volume to increase approximately 16% this year to roughly $605 billion.
Lending activity is recovering as well. The Mortgage Bankers Association reported that commercial and multifamily mortgage originations increased 16% year over year during the second quarter and 12% from the first quarter. That reflects greater availability of capital. It does not reflect cheaper capital, which has moved in the opposite direction.
For middle-market buyers and sellers, those are encouraging developments.
This is not a return to the environment of inexpensive leverage and steadily compressing capitalization rates. In September, the Federal Reserve raised the federal funds target range 25 basis points to 3.75%–4.00%, its first increase since 2023. Long rates have moved further and faster: the 10-year Treasury yield reached roughly 5.3% in early October, its highest level in about two decades and more than 50 basis points above where it stood a month earlier.
For commercial real estate, the move in the 10-year matters more than the Fed’s action itself. The 10-year is the reference point for most permanent financing, and a yield in the low-5% range sets a materially higher floor under mortgage coupons than the above-4% environment contemplated in mid-year forecasts. CBRE’s midyear outlook anticipated capitalization rates remaining largely stable through 2026. That assumption is harder to carry if long rates hold near current levels.
That makes the economics of the individual property—and the capital structure supporting the transaction—particularly important.
A Better Market, But a More Disciplined One
For much of the recent cycle, higher interest rates and uncertainty around valuations created a substantial gap between what sellers expected and what buyers could economically justify.
That gap is beginning to narrow.
More transactions are occurring, lenders are becoming more active and price discovery has improved. But today’s buyer still has to make an acquisition work with today’s debt costs and today’s underwriting standards.
MSCI recently characterized the environment as increasingly a “stock picker’s market.”
That description is particularly relevant to the middle market.
Individual asset quality, tenant performance, lease structure, location, operating expenses, capital requirements and financing can matter considerably more than broad national trends.
For buyers and sellers alike, understanding those economics before entering a transaction can materially affect the outcome.
Buyers: Sustainable NOI Drives Value
For a middle-market acquisition, one of the most important parts of financial due diligence is determining sustainable net operating income.
That analysis should go beyond accepting historical financial statements or the NOI presented in marketing materials.
Current rents and leases should be reconciled. Operating expenses should reflect the property’s actual cost structure. Property taxes, insurance, management expenses, repairs and capital requirements should be evaluated under the buyer’s expected ownership.
Tenant concentrations, lease expirations, deferred maintenance and future tenant-improvement and leasing-commission requirements can also materially affect cash flow.
The valuation impact can be significant.
At a 7% capitalization rate, a $1 million difference in sustainable annual NOI represents approximately $14.3 million of property value.
For a middle-market transaction, that difference can materially alter the purchase price, financing proceeds, equity requirement and expected investment return.
Financial due diligence therefore should do more than confirm historical results. It should establish an independent view of the cash flow the property can reasonably be expected to generate.
Financing Should Be Underwritten With the Property
The financing structure is equally important.
MBA’s latest data show that lenders are returning to the market. Second-quarter originations increased 61% year over year for retail properties, 47% for office, 19% for hotels, 8% for multifamily and 6% for industrial.
Depository lending increased 61%, while CMBS originations increased 68%.
Greater capital availability is constructive. It is not the same as more affordable debt. Lenders are competing for quality transactions, but they are competing at today’s index levels, and the amount and structure of debt remain transaction-specific.
For a middle-market buyer, leverage, interest rate, amortization, debt-service coverage, debt yield, recourse, guarantees, reserves, covenants and maturity all affect the economics of the investment.
A $50 million acquisition financed with $30 million of debt is fundamentally different from the same acquisition financed with $35 million—not simply because of the additional proceeds, but because of the resulting debt service, equity requirement and risk.
Financing therefore should be analyzed as part of the acquisition rather than arranged after the purchase economics have already been established.
Buyers Should Underwrite the Downside, Too
Base-case projections are only one part of an acquisition analysis.
Middle-market investors should understand how an investment performs if rents grow more slowly, occupancy declines, operating expenses increase, capital expenditures exceed expectations or refinancing occurs at a higher rate than initially projected.
Exit assumptions deserve similar scrutiny.
An acquisition should not depend upon significant future cap-rate compression to produce an acceptable return — particularly with long rates at their highest levels in two decades.
The strongest transactions generally have economics that can be supported by the property’s operations rather than by an optimistic exit assumption.
Sellers Need to Prepare for Financial Due Diligence
The same discipline applies to sellers.
A sophisticated buyer—and ultimately that buyer’s lender—will develop its own view of the property’s cash flow and value.
Middle-market sellers can improve transaction readiness by ensuring that financial statements, rent rolls, leases, operating expenses and capital expenditures reconcile before a property goes to market.
Nonrecurring expenses and unusual items should be clearly identifiable. Significant tenant concentrations, upcoming lease expirations and known capital requirements should be understood before they emerge during diligence.
This preparation does not eliminate transaction risk.
It reduces avoidable uncertainty.
And uncertainty has a financial cost. When buyers cannot substantiate an earnings or cash-flow assumption, they may reduce the value assigned to it, increase reserves, modify financing assumptions or seek additional transaction protections.
The Buyer’s Financing Matters to the Seller
Sellers should also understand the financing economics of their property.
A buyer may agree conceptually with a valuation but still need a lender to support the transaction.
Today’s lender will evaluate property cash flow, leverage, debt-service coverage, debt yield, collateral quality and sponsor strength.
If the property’s cash flow supports materially less debt than prospective buyers anticipated, the transaction may require additional equity. That can affect returns and ultimately the price a buyer is willing or able to pay.
Understanding likely debt capacity can therefore be useful to a seller before establishing expectations for a transaction.
Property Type Still Matters
The recovery is not uniform.
The National Association of Realtors reported in September that office demand continues to improve, but the recovery remains concentrated in Class A properties. Class B remains under pressure and Class C continues to lose tenants.
Multifamily conditions have improved as new supply has slowed, with absorption exceeding deliveries for the first time in nearly five years. Retail vacancy remained relatively tight at 4.3%, while industrial markets continued working through recently delivered supply.
Commercial mortgage performance is mixed rather than uniformly improving. In its second-quarter survey released in late September, MBA reported that delinquencies declined for CMBS loans, to 6.53% from 6.95%, and for bank and thrift portfolios, to 1.20%. Rates rose modestly for life company portfolios, to 0.48%, and for Fannie Mae and Freddie Mac multifamily loans, to 0.60% and 0.51% respectively. CMBS delinquency remains substantially elevated relative to every other capital source, and MBA cautions that reporting standards differ enough across lender types that the absolute rates are not directly comparable.
For middle-market investors, broad asset-class trends are useful context. They are not a substitute for understanding the specific property, submarket, tenants and capital structure involved in a transaction.
In the Middle Market, the Numbers Can Change the Transaction
The commercial real estate market is becoming more active. Transaction volume is increasing and lenders are returning. Financing conditions themselves are a more complicated picture: capital is more available than it was a year ago, and it is more expensive.
But today’s market still requires discipline.
For middle-market buyers, a relatively small change in sustainable NOI, leverage or financing cost can translate into millions of dollars of value or equity.
For sellers, understanding those same economics before going to market can improve transaction preparedness and reduce surprises during diligence.
The opportunity in today’s market is not simply that commercial real estate is trading again.
It is that well-prepared buyers and sellers can make decisions based on a clearer understanding of cash flow, value and capital.
Where Perrin & Co. Can Help
Perrin & Co. provides capital structure and investment advisory services related to commercial real estate transactions and financing — acquisitions, dispositions and recapitalizations.
For buyers, that typically means financial due diligence, normalized NOI analysis, acquisition and scenario modeling, debt-capacity analysis and the evaluation of financing alternatives.
For sellers, it means preparing and normalizing financial information, identifying likely diligence issues, analyzing transaction economics, and evaluating hold, refinance, recapitalize or sell alternatives.
We work alongside attorneys, brokers, CPAs, lenders and other transaction professionals. Our role is focused on the financial analysis, capital structure and execution considerations surrounding the transaction.
Sources: MSCI Real Assets, September 2026; CBRE, U.S. Real Estate Market Outlook Midyear Review 2026, August 2026; Mortgage Bankers Association, Quarterly Commercial/Multifamily Mortgage Bankers Originations Survey, August 2026; Mortgage Bankers Association, Quarterly Commercial/Multifamily Mortgage Delinquency Rates, Second Quarter 2026, September 2026; National Association of Realtors, Commercial Real Estate Market Insights, September 2026; Board of Governors of the Federal Reserve System, FOMC Statement, September 16, 2026; U.S. Department of the Treasury, Daily Treasury Par Yield Curve Rates, October 2026.
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