I Predicted a 2024 Buying Opportunity. I Was Early: Here’s What I Got Wrong
Roughly a year ago, I wrote that rising interest rates and a wave of loan maturities would create a compelling buying opportunity in commercial real estate in 2024, particularly for SoCal apartments. My logic was straightforward: higher borrowing costs would compress values, force transactions, and reset pricing across the market.
I still believe the direction of that call was right. However, the timing was wrong.
Instead of a sharp reset in 2024, it has taken nearly two additional years for the CRE market to begin meaningfully repricing. Sellers didn’t capitulate on the original timeline I expected, and the adjustment has been slower, more uneven, and more psychologically driven than I anticipated.
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What I underestimated
The biggest miss in my original outlook was assuming that financial pressure on owners from higher interest rates and looming debt maturities would quickly translate into transaction volume. That’s not what happened.
Owners held on longer than expected, and lenders were often willing to extend rather than force outcomes. As a result, many capital structures, while clearly under strain, were not immediately pushed into distress. The system bent, but it didn’t break.
I also underestimated the role of human behavior in delaying the reset of asset prices. Many sellers remained anchored to 2021 pricing and were reluctant to accept materially lower valuations. Many mom-and-pop owners postponed routine estate planning decisions that typically comprise a meaningful share of transaction volume under normal market conditions. These factors created a prolonged standoff between buyers and sellers, which in turn caused transaction volume to fall sharply.
What I got right
While I was early, several core trends have played out largely as expected.
Higher interest rates have indeed reset the market by pushing cap rates up across virtually all asset classes. Apartment pricing has adjusted meaningfully, with cap rates in many markets rising by roughly 100–200 basis points from 2020–21 levels. At the same time, transaction volume declined significantly as the bid-ask spread widened and deals became harder to pencil.
While these dynamics did not unfold on the timeline I originally predicted, the underlying thesis has largely held.
Where we are now
Today, we are finally beginning to see early signs of real price discovery.
Transaction volume remains below historical norms, but it is starting to recover gradually. More importantly, a growing number of assets are coming to market at prices that reflect today’s higher cost of capital and financing conditions. For the first time in several years, we are seeing a meaningful increase in realistically priced deal flow.
This shift is subtle, but it matters. It is being driven less by forced distress and more by a gradual acceptance among sellers that the market has structurally reset to a higher cost of capital environment, which is unlikely to change anytime soon.
The market is adjusting, just slowly
Rather than a sharp correction, what we are experiencing is a slow and deliberate move toward equilibrium.
Debt costs remain elevated, and cap rates have adjusted accordingly. Buyers have stayed disciplined throughout the cycle, while sellers are now beginning to adapt to the new reality. The result is not a dramatic clearing event, but a drawn-out normalization process that is gradually bringing the market back into balance.
Our updated outlook: cautiously optimistic
At this point, our outlook can best be described as cautiously optimistic.
We are no longer waiting for a future dislocation, as the repricing process is already underway. Values are adjusting, transaction activity is improving, and the gap between buyer and seller expectations is beginning to narrow.
More importantly, the opportunities emerging today are increasingly grounded in fundamentals rather than timing. The project-level economics we are underwriting today (e.g., 7%+ stabilized yields on cost) are among the best we’ve seen for workforce housing in a supply-constrained gateway market since the 2008–09 GFC. That is a healthier and more sustainable foundation for long-term investment.
The lesson
If there is one clear takeaway from the past few years, it’s that markets do not reprice on anyone’s schedule.
Even when the fundamentals point clearly in one direction, the path and timing of adjustment can be far more gradual than expected. Capital markets, lender behavior, and human psychology all play a role in extending the cycle.
I expected a moment of dislocation. What we got instead was a process.
This report reflects the opinions of Paladin Realty and does not constitute legal advice. Paladin Realty is not a legal expert. Readers should not rely on the accuracy of the information herein and should consult carefully with their legal counsel to further understand existing and potential rent control laws, ordinances and regulations and should not make investments based on the brief summary of complex laws, ordinances and regulations provided herein. This report does not and will not constitute a part of any offering memorandum and is not intended to constitute investment advice and does not take into account the investment objectives, financial situation, or particular needs of a recipient. Paladin Realty does make any representation or warranty as to the accuracy or completeness of the contents of this report and takes no responsibility for any loss or damage suffered as a result of any omission. The opinions contained in this report are subject to change without notice. The author(s) of this report and Paladin Realty’s research team may participate in investment decisions and receive compensation based upon the performance of Paladin Realty and/or certain of its investment funds.
