2025: The Wild West


Where Have We Been, And Where Are We Going?

2025 Macro Predictions


1)     High investment volatility in the backdrop of converging geopolitical and economic forces, making it difficult to forecast real growth and price risk across all investments.


2)     Sustained higher interest rate environment amidst sticky inflation. Rates are unlikely to drop back to pre-pandemic levels. Investors demand higher compensation in exchange for taking fixed income risk during times of instability. Inflation may not ‘stabilize’ to a mean like it has historically but if it does, it should be higher than the 2% historical average.


3)     Government spending and fiscal deficits will increase which will impact the supply and demand of treasury bonds, a baseline index that materially impacts the price of commercial real estate. Heightened global unrest and political / social instability will increase pressure to invest in national security. Public and private investment into the low carbon transition, AI boom, energy infrastructure, healthcare sector, & food sector will all increase significantly.


4)     Private credit will continue to dominate CRE lending market share as banks work through their balance sheet issues. Banks will not be a large player in our space again until office price discovery is fully realized.


5)     Elevated wage growth, fueled by more restrictive immigration policies to come, will aid residential and commercial real estate net operating income growth in the wake of our aging working population.


6)     More sensitive equity capital across the stock market and alternative investments such as real estate. This will lead to price volatility and shaky sentiment following big market/geopolitical events.


7)     Higher interest rates will restrict new supply, making it difficult for developers to meet the demand of renters and buyers of housing in high growth markets. Home prices and multifamily values will rise in desirable areas. This will make the Feds job of controlling inflation even more challenging, since > 30% of the CPI is derived from housing.


8)     More liquidity, more transaction volume, higher nominal asset valuations. Currency will chase alternative assets with a more fixed supply, such as real estate. Some CRE asset classes will produce real returns. Others will be slower to recover from earlier highs but may still track 1:1 with the expansion of the money supply (inflation).


9)     Greater institutional investment into land development, data science centers, affordable housing, and untraditional CRE assets. Greater experimentation, access, and adoption into tokenized real estate investments.


10) The rise in treasury rates will be somewhat offset by reduced credit spreads (higher credit competition) and higher growth expectations from investors. Reduced correlation between interest rates and cap rates is likely. Anticipated historically low spread between 10-year treasury and cap rates for multifamily.


Let's remind ourselves of where we have been and where we might be going...


Over the last five years, the CRE industry has witnessed unprecedented developments. In 2020, the Fed made borrowing almost free to curb a severe market disruption and record-high unemployment (14.7%) caused by the pandemic and global supply chain related issues. However, beginning in March of 2022, the Fed completely reversed its stance by raising interest rates 11 times to combat inflation—an inflation they significantly contributed to through various money printing and liquidity measures. To make matters worse, in the summer of 2021, the Fed misled the market by labeling inflation as transitory, assuring that rates would stay low and encouraging investment at those lower levels. Don't you just love when the Fed tries to prevent pain in the market? Every time they try to prevent a market crash, they end up hurting the free market much worse in the long run, and we all get to pay for it. Yippee. We are all waiting for the day austerity gets to play its course, but the political threat of an economic deleveraging will keep the Feds foot on the money printing pedal for as long as humanly possible, so we think.


As a general reminder, Fed likes to issue debt below the growth rate of our economy so they can pay the debt back with cheaper dollars later. But the merry-go-round of “fake growth” always comes to an end, historically. And central governments such as ours are up against pacifying the public so they can remain in office, satisfying their public mandates of maintaining low employment / price stability, and fueling their selfish desires for power, greed, and wealth. Without real economic growth though, it is all a house of cards, and the fall is a matter of “when” not “if”.


Okay. So what happened to real estate, and where are we now?


Investors loaded up on this cheap debt. Banks loaded up on cheap bonds. Institutions issued cheap debt and then sold that debt to other private and public entities. The entire market fell to recency bias, believing in the Feds messaging that rates and inflation would remain somewhat low. 60% of the total US dollar supply was created since the pandemic, and this printed debt chased assets and products, inflating them on paper at unhealthy levels. The only problem? People were not working or being productive to service this debt. Instead, millions of Americans received printed helicopter money. Some saved it, others spent it. Cheap debt allowed real estate investors to solve for higher prices, and we saw astronomical asset peaks, well above the cost to replace these assets brand new. A red flag of overvaluation. Without real growth in net operating income, the nominal price growth was unsustainable. Suddenly in Q3/Q4 of 2021, inflation was not transitory, but the Fed was playing with fire and opted to wait too long to raise interest rates to curb demand. From March of 2022 to July of 2023, the overnight borrowing rate increased from 0% to 5.5%, marking the largest rate hike acceleration in recent history. This is the rate at which banks can borrow from the Fed. At the same time, the 10 year treasury went from 1.7% to nearly 4%. See the chart pictured at the end of the article.


And the result? Broken mechanics across the entire investment industry since market participants are reliant on debt to fund their business capitalizations. The worst bond selloff since 1787. Bond investors wiped out, major pricing resets, and substantial 'implied' equity losses. But, lenders and investors alike believed in a light at the end of a super short tunnel, so they kicked the can down the road as most people would. Instead of foreclosing on borrowers and writing off bad loans, they played the extend and pretend game waiting for the Fed to lower rates and fix the mechanics to bail them out of their hole. Well, the Fed didn't follow through with the rate cut bail-out in the way we all expected. Instead, they reached out their hand just to let go and push us deeper into the hole.


These massive rate hikes caused tectonic shifts in risk and reward expectations in the capital markets, largely stalling investment activity in 2023 and 2024, and that brings us to where we are today… much lower rate cuts than expected due to stickier inflation. The Fed began lowering the Fed Funds rate in September of 2024, and they have made a total of 1% in rate cuts. More importantly, though, is how fast future expectations for inflation changed in just months. The Feds went from baking in a 3%-3.5% landing zone range for Fed funds in 2025 to 3.75%-4%. Investor expectation followed suit. If you go back and look at the SOFR Forward Curve in July of 2021, the market's projection of short-term rates (closely linked to Fed Funds) were just around 1% through 2027. Fast forward to the end of last month, and projections are now hovering around 4% through 2027, a massive swing in sentiment around inflation expectations. It is no surprise that this caused major dislocation in the marketplace.


As a result of the short-term volatility and structural forces at play disrupting the business cycle that we all thought we were subject to, investors have shown heightened sensitivity to long-term assets such as longer dated treasury bonds. Risk becomes harder to price when inflation eases but growth persists. There were and still are several variables at play each interacting with one another. Traditional 60/40 stock and bond portfolio allocations, like the ones we are all used to hearing about from investment advisors, are unlikely to meet the needs and goals of investors going forward.


We are entering into an era of systemic and structural shifts as central governments look to position themselves for security, growth, and value creation in the wake of heightened volatility.


It is safe to expect a rather wide range of potential growth and investment outcomes in 2025 and beyond. Our thesis has pushed us to be proactive in our approach to altering our investment strategy, prompting us to shift more heavily towards land development as well as more secure investment positions like direct lending.


We expect higher transaction activity, greater liquidity, elevated interest rates, and fragmented cap rate spreads across the commercial real estate investment market in 2025 as investors place their risk-adjusted bets. 

Into the Future – Making Sense of Rates in a World That Doesn’t

By Christian O'Neal • June 24, 2025
In the world of capital markets, clarity is often fleeting — and today, it feels downright elusive. The Federal Reserve’s latest June dot plot offered little in the way of certainty. While the median projection sees the Federal Funds Rate in the mid-3% range by the end of 2026 , the dispersion among voting members is striking. Seven members predict no rate cuts in 2024 , reflecting just how divided the committee remains in the face of conflicting data. This latest update marks a 25-50 basis point shift downward from May , but the overarching theme is one of caution, not conviction. That sentiment is mirrored in the economic projections. Core PCE inflation , the Fed’s preferred inflation measure, is now expected to end 2025 at 3.0% , 30 basis points higher than earlier forecasts. Meanwhile, real GDP is forecast to slow from 2.3% in Q4 2024 to just 1.7% in 2025 — another sign that the lagged effects of monetary policy are expected to begin to show. At the same time, the Fed’s balance sheet has shrunk dramatically, from a peak of $9 trillion in April 2022 to just $2.3 trillion today . That quantitative tightening, coupled with a lack of consistent inflation suppression, leaves both equity and bond markets vulnerable to further volatility. This all feeds into an uncomfortable truth: rates are likely to remain higher for longer , and the market is struggling to price that reality. The VIX index , a 30-day forward-looking gauge of volatility in equities, is trending higher. When volatility rises even as indices fall, credit spreads widen , liquidity tightens, and financing risk surges. For commercial real estate investors , this has enormous implications. As we explored in our recent article on CRE Price Discovery , the market remains in flux. The bid-ask spread in real estate is still somewhat wide, and most transaction activity today is being driven by maturing debt — not opportunistic investments banking on future growth. This means valuations are being forced downward, especially for assets that were purchased or refinanced at ultra-low rates in 2021–2022. Consumer behavior is also in transition. Household formation is slowing, and personal savings rates are slowly ticking up although they are significantly down from longer term averages – which could reflect folks bracing for economic turbulence. U.S. household formation currently stands at 1.058 million, down 7.68% from last month’s 1.146 million and down 47.73% from 2.024 million a year ago. Looking globally, demand for U.S. Treasuries remains a critical economic indicator that has trickling effects on the economy . A strong bid-to-cover ratio — like the 2.67x seen at the June 11th 10-Year Treasury auction , with nearly 88% of bids from foreign banks — is encouraging. It suggests continued faith in U.S. fiscal credibility and currency strength despite market apprehensions in our strength, such as the US credit rating being downgraded by Moody’s. This equilibrium is rather fragile. Should the U.S. continue to run massive budget deficits with a debt-to-GDP ratio north of 120% , investors may begin to demand higher yields — or worse, seek refuge in alternative stores of value. Gold is one such store. The World Gold Council recently reported that 76% of central banks expect to increase their gold holdings over the next five years , up from 69% in 2023. This flight to real assets reflects growing concern about the long-term value of fiat currencies — and a desire to hedge against systemic risk. The Bottom Line  Rates are likely to remain high through 2025 and into 2026 Inflation remains persistent but progress has been unclear Growth is slowing, and volatility is rising Real estate is repricing around debt maturity events Global capital is shifting cautiously, looking for safety At Alpha Equity Group, we believe this is a time for discipline, not risk-taking. We’re staying patient, watching the data, and investing defensively — focusing on secured debt positions and capital preservation. While others chase uncertain upside, we’re building long-term value through downside protection while we wait out the convergence of dozens of factors completely outside our control.

Navigating Volatility – Why We’re Leaning Into Debt

By Christian O'Neal • June 24, 2025
When markets break from fundamentals, the prudent real estate investor doesn’t chase noise — they reposition around truth. And the truth is this: we are entering a prolonged period of macroeconomic and geopolitical volatility . The world is realigning, and capital is responding accordingly. Global central banks are moving away from the U.S. dollar. According to the World Gold Council, 76% of central banks plan to increase their gold reserves — a jump from 69% last year — citing crisis protection, inflation hedging, and diversification as key drivers. This reflects a growing caution around U.S. fiscal policy , rising deficits , and ballooning national debt , now over 120% of GDP . Meanwhile, money market fund balances are climbing — a signal that institutional and retail investors alike are parking cash on the sidelines. These short-term investment vehicles offer safety and a yield that closely tracks the Fed Funds Rate. In other words, investors would rather earn 5% in cash than take risk in longer-duration assets, treasuries, or swinging equities. These trends are further complicated by geopolitical uncertainty. Ongoing wars, potential tariff escalations , and questions around U.S. fiscal leadership all introduce headline risk. Should unemployment rise , or growth falter , the Fed may face pressure to intervene — but its tools are limited. Cutting rates could re-ignite inflation. Raising taxes or cutting spending is politically unpopular. The Fed is cornered, managing debt service costs, inflation expectations, and political realities simultaneously. For CRE investors, this creates both risk and opportunity. Real estate pricing is driven by capital flows, leverage, and the cost of debt . When long-term Treasury rates rise , the “risk-free rate” increases — and with it, lenders widen their spreads to reflect perceived risk. Even when treasuries fall, spreads going higher can keep all-in interest rates higher. Spreads are higher for construction loans, transitional assets, and tertiary market, reflecting in lower asset prices. The net effect is simple: lower loan proceeds and higher cost of capital . As a result, buyers must lower offers to meet equity return thresholds . We are already seeing this play out in real time. In markets where price discovery is finally happening , bids are falling, and assets are being marked to market — especially those with near-term debt maturities. Until this repricing completes and stability returns, we believe it is wise to lean into debt rather than chase speculative equity returns. Debt Offers Strategic Advantages Right Now: Senior positioning in the capital stack offers downside protection Current yields are attractive , often exceeding return thresholds without relying on appreciation Shorter durations allow us to stay nimble as the market evolves And we can structure loans with sponsor-friendly terms , aligning ourselves with developers who need flexible capital during this transition period At Alpha Equity Group, we’re also putting our own capital to work on the equity side of the deals we know best — infill residential development. But we are doing so carefully, underwriting with stress-tested assumptions, and leaning on our operational expertise. As we’ve seen in prior cycles, market dislocation creates fertile ground for investors . With uncertainty around every corner, we see this moment not as a challenge, but as an opening — a window to preserve capital, generate yield, and position for long-term outperformance once growth does come back. What to Watch: The yield curve : steepening curves may signal higher inflation and longer-term rate risk U.S. bond auctions : demand strength, especially from foreign investors, impacts long-term borrowing rates. The US is expected to start buying treasuries and bonds again in 2026, increasing its balance sheet again after rounds of tightening alongside the recent rate hike cycle. Credit spreads : widening spreads reflect rising risk aversion and lender caution Geopolitical escalation : new conflicts or trade wars can drive capital away from U.S. assets and toward gold or other alternatives Fiscal response : keep an eye on Trump-era tax reform 2.0, tariffs, or large-scale spending plans heading into the election cycle. This can affect bets on future inflation, bonds, capital availability, and CRE prices. In short, we are in a time of reordering — politically, economically, and monetarily. Investors who embrace this shift and position accordingly will be well-rewarded. We’re not just investing in the market we have — we’re preparing for the one that’s coming.  That’s why we’re taking a conservative credit-first approach , with upside optionality where it makes sense, and defense where it matters most.

Why Risk-Adjusted Returns Matter—And Why We Bet on Multifamily

By Christian O'Neal • May 27, 2025
Multifamily Housing and Risk-Adjusted Returns
Show More