The commercial real estate lending market is entering a more constructive phase of the cycle as liquidity gradually improves and investors begin deploying capital with greater conviction after two years dominated by distressed situations.
“We believe the market has decisively shifted into what we would describe as an origination-focused phase,” said Dean Dulchinos, group head of real estate debt at ORIX USA. “Liquidity is improving incrementally, investor confidence is returning, and there’s a more constructive appetite to deploy capital earlier in the cycle.”
Over the past two years, much of the market activity was centered on resolving distressed situations created by capital structures that no longer aligned with rising interest rates and shifting financing conditions. Those pressures led to foreclosures, deeds in lieu and other restructuring outcomes that have largely worked their way through the system.
“What dominated the market was forced-sale distress tied to problematic capital structures,” said Dulchinos. “Much of that lower-quality distress has now been flushed through the system.”
What remains today, he said, are generally higher-quality assets with fundamentally sound operations but capital stacks that are no longer appropriate for the current financing environment.
“That disconnect between asset quality and capital structure is where we see the most actionable opportunity today,” said Dulchinos. “Particularly for lenders and investors who can provide right-sized, flexible capital solutions.”
Multifamily continues to represent a core area of focus for the firm, reflecting strong underlying demand fundamentals and deep market liquidity. At the same time, the strategy is evolving to include selective exposure to other property types where competition is lighter and lending terms remain more attractive.
“We continue to see multifamily as a core opportunity,” said Dulchinos. “At the same time, we are selectively expanding into sectors like hospitality and industrial, particularly in subsectors where competition is lighter and terms remain more favorable.”
A key component of the strategy involves identifying markets where the recent wave of multifamily supply may soon give way to tighter conditions.
Many metropolitan areas experienced significant development activity in recent years, which placed downward pressure on rents and occupancy levels. Dulchinos said, however, that focusing solely on recent data can cause investors to overlook markets that may be approaching a turning point.
“We believe one of the most important aspects of today’s environment is identifying multifamily markets where supply has recently peaked and is now slowing,” he said.
In those markets, ORIX USA looks closely at forward-looking indicators such as construction pipelines, absorption trends and the feasibility of new development starts.
“When we see deliveries slowing while demand fundamentals remain intact, we view it as an attractive entry point for both lending and equity,” Dulchinos said.
This view also informs how the firm approaches underwriting.
“We don’t underwrite to today’s headline metrics alone,” he explained. “We focus on where fundamentals are likely to be over the next 24 to 36 months.”
In markets transitioning from oversupply to undersupply, Dulchinos expects improving occupancy levels and renewed rent growth to follow as development pipelines contract.
The approach requires looking beyond near-term weakness in order to identify longer-term opportunities. Dulchinos believes investors can misjudge markets when they rely too heavily on backward-looking data.
“Markets rarely remain static,” he said. “Mispricing often occurs during these transition periods. We aim to lean into markets where temporary headwinds obscure improving fundamentals.”
Rather than overlooking short-term challenges, the goal is to place them within the broader cycle.
“The objective isn’t to ignore near-term risk,” Dulchinos explained. “It’s to contextualize them properly so fundamentally strong assets aren’t misjudged during periods of short-term dislocation.”
Bridge lending, Dulchinos added, is built around underwriting these transitional phases.
“Underwriting the transition correctly is where we add value,” Dulchinos said.
Shifting capital structures also plays a significant role in shaping where opportunities emerge today. While the most acute distress already has been addressed, many properties have capital structures that no longer align with the current environment.
“Many assets still carry leverage levels that are misaligned with current cashflows,” Dulchinos said. “Even though the underlying real estate may be performing reasonably well.”
This dynamic is creating a steady pipeline of recapitalization and refinancing opportunities where lenders can step in with new capital solutions.
At the same time, financing conditions are evolving. Traditional banks remain cautious about direct lending, but they are increasingly providing back leverage to private lenders.
“We’re seeing attractive risk-adjusted pricing and structures in that market,” Dulchinos said. “And we expect this dynamic to continue.”
Although multifamily remains a central focus, increased competition in the sector has also led to spread compression as more private debt capital reenters the market.
“We believe multifamily will continue to be one of the most resilient and liquid property types,” Dulchinos said. “But we also recognize that spread compression is an inevitable result of increased capital inflows.”
To balance that dynamic, the firm is complementing multifamily exposure with higher-yielding opportunities in areas such as hospitality and middle-market industrial assets, where loan structures often include stronger protections and wider spreads.
“These sectors often offer stronger structural protections, lower advance rates, and wider spreads, which we find attractive in a more competitive lending environment,” Dulchinos explained.
As capital returns to the market, Dulchinos said discipline will become increasingly important.
“We believe one of the key risks today is the rapid return of capital,” he said. “As lenders come off the sidelines, competition intensifies, which can pressure spreads and underwriting standards.”
The greater concern, he adds, is not the availability of liquidity but how that capital is deployed.
“In our view, some participants may stretch on structure, collateral quality or pricing in order to put money to work quickly,” Dulchinos said.
Investors also face the risk of what he describes as “one-sided underwriting,” where market participants fail to account for both near-term headwinds and improving supply dynamics.
“Real estate is cyclical,” he said. “Investors who fail to account for both near term head winds and improving supply dynamics or shifting demand trends, risk mispricing assets or missing opportunities.”
While the firm continues to monitor broader macroeconomic considerations, including tariffs and potential changes to the government-sponsored enterprise framework, Dulchinos said those factors are not expected to create significant near-term disruption for lenders.
Overall, he believes the current phase of the cycle favors a disciplined approach to credit selection and capital deployment.
“We believe this stage of the cycle rewards disciplined credit selection paired with the ability to move quickly when high‑quality assets require recapitalization or fresh financing,” Dulchinos said. “We intend to remain focused on forward-looking fundamentals and thoughtful credit selection, which we expect will be key differentiators as competition continues to increase.”