Investors looking for a major buying wave in commercial real estate may still be early.

While distress has clearly spread across the market, especially in multifamily, many assets have not yet reached the point where direct acquisitions offer the best risk-adjusted entry. In the meantime, discounted debt appears to be creating more compelling opportunities.

A large volume of multifamily loans that matured in 2024 and 2025 had already been extended once, and many are now running into the same obstacles again: higher borrowing costs, lower values and fewer workable refinance options. In markets that added a heavy dose of new apartment supply, those pressures have become even more visible. Properties underwritten during the peak pricing era are now generating less income than originally projected, leaving owners with shaky capital stacks and limited flexibility.

Texas has become one of the clearest examples of that strain. A growing stream of commercial loans has been moving into foreclosure auctions, with apartments making up a large share of the activity. Houston and Dallas-Fort Worth, in particular, are feeling the combined effects of aggressive multifamily development and debt structures that no longer fit current market conditions. Policy changes affecting affordable housing economics have added another layer of stress for some owners.

That does not necessarily mean the best time to buy real estate outright has arrived. In many cases, lenders are still deciding whether to foreclose, extend, restructure or sell troubled loans. As a result, the more immediate opening may be in the debt itself rather than in the underlying property.

Discounted notes can offer multiple paths to value creation. Buyers of distressed debt may be able to collect income at an attractive basis, negotiate revised terms with borrowers, take control of the collateral through foreclosure if needed, or exit as pricing recovers. That flexibility gives note buyers more levers than a traditional property acquisition, while also placing them higher in the capital stack.

The setup is particularly compelling where the real estate remains functional but the financing is broken. Many Class B and Class C apartment communities in growth markets still serve durable housing demand, even if the original leverage assumptions no longer hold. In those situations, the real estate may have staying power even though the ownership structure does not.

That is why discounted debt has become an appealing complement to direct property investment. Stabilized real estate may still offer dependable, tax-efficient income, but distressed debt can push yields higher while remaining secured by hard assets. For investors willing to navigate workouts and loan structures, the return profile can materially exceed what is currently available through direct acquisitions.

History also suggests the full direct-buying opportunity may take longer to develop. If the last cycle is any guide, the strongest acquisition window often arrives several years after peak pricing, once distress has worked deeper through the system and lender-owned inventory builds. Since this cycle appears to have topped out in 2022, that could place the broader buying window closer to the end of the decade, though some markets could reprice faster.

Texas may be among the first to offer those earlier direct opportunities as foreclosure activity rises and REO inventory grows. Nationally, however, the reset still looks incomplete. Many deals struck at peak valuations with floating-rate debt and aggressive leverage are unlikely to recover under today’s financing conditions. More fallout is still expected as the market continues to unwind.

For now, that leaves distressed debt as one of the more productive ways to stay invested in commercial real estate while waiting for direct acquisitions to become more attractive on a wide scale.

Source: RE Business