Wall Street Is Ready to Scoop Up Commercial Real Estate on the Cheap

Wall Street firms are raising new funds to acquire office buildings, apartments and other troubled commercial real estate, looking to scoop up properties at a fraction of the price investors paid a few years ago.

Cohen & Steers, Goldman Sachs, EQT Exeter and BGO, formerly known as BentallGreenOak, are among the prominent names raising billions of dollars for funds to target distressed assets and other real estate with slumping values, according to regulatory filings.

“The last few weeks, I’ve been saying, ‘holy mackerel, they’re coming out of the woodwork,’” said Kevin Gannon, chief executive of Robert A. Stanger & Co., an investment-banking firm that tracks real-estate fundraising.

The new funds are seeking to capitalise on one of the most troubled commercial-property markets in decades. Values have nosedived since interest rates spiked last year, driving up borrowing costs in the highly leveraged business. The office market, one of the largest sectors, has also been clobbered by a sluggish return-to-office rate, which has sent vacancy rates soaring. Apartment buildings, an investor haven in the past, look vulnerable as owners try to refinance at much higher rates. Mall owners are contending with steep value declines, some of more than 70% over the past few years.

Commercial-property sales have been moribund until recently because most sellers haven’t been willing to cut their prices to the levels that buyers are demanding. Now, a small but growing number of office owners have begun to capitulate, unloading distressed properties.

The capitulation marks a new phase in the commercial real-estate upheaval, as more beleaguered property owners turn over properties to lenders or decide to take what they can get, rather than hold out hope for an eventual recovery. This wave of fundraising is the latest sign that sales activity is expected to increase as more sellers yield on price.

In one recent example, the owner of a downtown San Francisco office tower unloaded the property for $41 million to developer Presidio Bay. The seller, Clarion Partners, had purchased the property for $107 million in 2014.

While the clearest distress is in the office sector, many property owners with floating-rate debt may also feel pressured to sell at marked-down prices because they are unable to refinance at today’s higher rates. In addition, fund managers expect values to fall as regional banks, under pressure from this year’s rash of bank failures, unload commercial-property loan portfolios at discounted prices.

“There are selective opportunities beginning to arise for investors that are in a position to take advantage of weakness,” said Rich Hill, head of real-estate strategy for Cohen & Steers, which is aiming to raise more than $2.5 billion in a new nontraded real-estate investment trust.

Commercial-property values already have fallen about 10 to 15 percentage points from their peaks in the third quarter last year, and might fall a total of 20 to 25 percentage points, said Hill. “You have to go back to the [savings and loan] crisis and the global financial crisis to see such big declines in property valuations,” he said.

The volume of distressed commercial real estate grew by $8 billion in the second quarter, reflecting the rise in cases where the owners defaulted or lenders foreclosed, according to data provider MSCI Real Assets. That is the biggest quarterly increase since the second quarter of 2020.

While most of the new funds are looking to buy property, some are planning to lend to property owners and fill the void left by the cutback in activity from regional banks and mortgage real-estate investment trusts. With less competition, the lenders who are still active are able to charge higher rates and get better deal terms from borrowers.

Invesco Real Estate, which has a long track record of raising funds from institutional investors for real-estate credit funds, is raising its first such fund targeting the retail audience.

Many of the new funds, such as those being raised by Invesco and Cohen & Steers, are targeting individual investors. Smaller investors have shown an enormous appetite for property investments in recent years, especially with the growth of the nontraded real-estate investment trust industry which raised about $100 billion in the past seven years.

But many of the non traded REITs that were formed before last year’s rise in interest rates have been under pressure to redeem money back to investors who want to cash out. Over $9 billion was redeemed in the first six months of this year, according to Stanger, and many investors have been forced to wait to get their money because of the rush to the redemption door.

Still, the new funds will be facing a lot of competition from cash-rich funds aimed at institutions. Opportunistic real-estate funds run by private-equity firms have nearly $145 billion in so-called dry powder for future investments, up from $120 billion at the end of last year, according to data firm Preqin.

It is still possible that distressed opportunities won’t arise if the U.S. economy has a soft landing, in which inflation is tamed by the Federal Reserve without tipping the economy into recession.

Sales volume will likely increase when debt markets stabilise and values become more clear. “Broadly speaking, people are waiting to see what the world looks like,” said Michael Stark, co-head of the PJT Park Hill Real Estate Group, a global advisory firm and placement agent. “They’re waiting for motivated sellers.”

Byron Bay’s most compelling homes have always taken their cues from the climate. They open to the breeze, dissolve the boundary between inside and out and use tropical landscaping to create privacy without shutting out the natural world.

At 17 Kendall Street, those familiar coastal ideas have been elevated into something more architectural.

The five-bedroom residence is designed around a spectacular open-air courtyard, creating a private internal landscape where glass, stone, timber and water meet. Floor-to-ceiling glazing draws natural light into the interiors while framing the heated swimming pool and established tropical gardens from multiple points within the home.

The home was originally built in 2016, but underwent a major renovation last year following its $5.3 million sale in 2023. Sotheby’s Byron Bay agent Will Phillips has a $15 million price guide.

The transformation focused on both the home’s scale and its level of detail. Soaring voids and bold architectural forms create drama, but the material palette keeps the atmosphere warm. Rich timber, natural stone and handcrafted finishes temper the contemporary lines, allowing the residence to feel calm rather than imposing.

A sculptural spiral staircase forms the architectural centrepiece, connecting the home’s different spaces while providing a strong visual counterpoint to the horizontal lines of the courtyard and pool.

The planning is centred on connection. Multiple living and entertaining areas open to covered terraces, enabling the house to expand and contract according to the occasion. Smaller spaces support quiet family life, while the principal living zones and alfresco areas can accommodate considerably larger gatherings.

At the centre, the courtyard operates as more than an impressive arrival feature. It brings light and garden views deep into the plan, provides separation between the home’s different wings and creates a protected outdoor environment for year-round living.

Accommodation comprises five generously proportioned bedroom suites supported by five designer bathrooms. Their distribution through the residence gives family members and guests a greater sense of privacy, while the tropical outlook maintains a consistent connection between rooms.

Wellness Wing

The home’s most distinctive inclusion may be its dedicated wellness wing.

A private sauna, gym, Zen room and traditional Japanese soaking bath combine to create a retreat within the retreat. Rather than treating wellness as a single-purpose gym placed in a leftover room, the design gives it a dedicated sequence of spaces intended to support exercise, recovery and quiet.

The Japanese soaking bath is especially appropriate to the home’s broader architecture. Compact, deep and designed for immersion rather than conventional bathing, it complements the restraint of the Zen room and the calming views into the garden.

Outside, the heated pool and covered dining terraces provide the more social side of resort living. Tropical landscaping creates privacy around the residence, while the courtyard design allows greenery to remain visible throughout much of the interior.

Belongil Boom

The location adds another dimension to the property. Kendall Street sits near the Belongil side of Byron Bay, within walking distance of Belongil Beach and local dining including Belongil Bistro, Treehouse, Féu and the town centre’s broader collection of cafés, restaurants and boutiques.

That northern pocket is increasingly emerging as a prestige counterweight to Wategos and the tightly held Marine Parade strip at the opposite end of Byron Bay.

Much of the most visible investment has centred on nearby Border Street and the Belongil beachfront. Hospitality billionaire Justin Hemmes has assembled four residential holdings in the neighbourhood at a reported combined cost of about $45 million. His acquisitions include a beachfront holding bought for $16 million in 2023 and a subsequent creek-front purchase.

The Block judge and interior designer Darren Palmer and his husband, Olivier Duvillard, have also moved into the precinct, paying $4.2 million for an original home with creek views.

Luxury developer and builder GRAYA has made an even larger commitment. The Brisbane group acquired a substantial Border Street beachfront site for about $20.65 million in 2024, with plans for a major trophy-home project. Part of that holding was subsequently sold in a transaction that underlined how dramatically land values have moved.

The strongest evidence came from Chemist Warehouse director Damien Gance and his wife, Sasha Robertson. The couple paid $33.5 million in cash for the beachfront residence Malia, setting a Byron Bay house-price record and surpassing the $30 million sale of Watermark at Wategos in 2023. They then reportedly spent another $20 million securing the neighbouring vacant parcel, taking their combined Belongil investment to $53.5 million.

Those transactions do not make Kendall Street directly comparable with absolute beachfront property. They do, however, illustrate the growing weight of capital and attention shifting towards Byron Bay’s northern edge.

For decades, Marine Parade at Wategos has been the region’s clearest shorthand for trophy property. Border Street and the wider Belongil precinct are now building a comparable identity, supported by larger holdings, beachfront scarcity and an expanding concentration of prominent owners.

Property details

Address: 17 Kendall Street, Byron Bay, NSW
Location: Near Belongil Beach and Byron Bay town centre
Original construction: 2016
Last sale: $5.3 million in 2023
Renovation: Major renovation completed in 2025
Current price guide: $15 million
Bedrooms: Five
Bathrooms: Five
Key features: Central open-air courtyard, heated swimming pool, tropical landscaping and multiple indoor-outdoor living areas
Wellness facilities: Sauna, Zen room, gym and traditional Japanese soaking bath
Nearby: Belongil Beach, Belongil Bistro, Féu and Treehouse

Wall Street Is Ready to Scoop Up Commercial Real Estate on the Cheap

Firms are raising billions of dollars for funds to target assets with slumping values

Wellness Wing

Belongil Boom

Property details