Lessons from CRE's Toughest Years

Rising interest rates, inflation, and rising construction and insurance costs hit the commercial real estate industry hard. Some sponsors called for extra capital. Others just walked away from their projects.

Now, as the market shifts, many are reevaluating their alt portfolios and asking tough questions. Was this simply a bad cycle — or are there deeper challenges in the category?

At Crowd Street, we're committed to engaging with our members through good times and bad. Here's our take on recent vintages and what it could mean for our members and marketplace.

Shared Struggles in CRE

Before diagnosing anything, let's address the obvious: many of those who put money into CRE during the 2019-2021 vintages are facing higher-than-usual rates of poor performance or missed expectations.^1^

Broadly speaking, this isn't about any specific asset class, region, or sponsor. It's not even unique to all the deals on Crowd Street's marketplace. These vintages recorded the toughest performances since the pre-2008 crash years of 2005-2007.^2^

The NCREIF Property Index (NPI), which tracks the performance of institutional commercial real estate investments, reflects this pressure. It's seen several quarters of flat or negative growth—another sign of the tough stretch CRE investors have been navigating.

The NCREIF Property Index (NPI) offers useful context on private CRE trends.

The Dow Jones U.S. Real Estate Index tracks publicly traded REITs, not private, but its uneven performance is another reflection of recent market trends. ^3^

Blackstone Mortgage Trust, a relatively deep-pocketed real estate lender backed by commercial properties, also struggled during this period.^4^

Chart pulled on February 14, 2025.

Equity Residential, the largest multifamily REIT, saw challenges in 2022 and 2023.^5,6^

We're not saying every deal from recent vintages performed poorly, nor has every portfolio or fund. But for investors scrutinizing their decisions in recent years, it's an important reminder: you're not alone.

That said, you're probably not here for a reminder that the last couple of years have been tough — we all know that. Let's focus on why these challenges happened and what they could mean.

A Market Turned Upside Down

The year 2020 and its aftermath delivered one unprecedented disruption after another. The first global pandemic in a century. The highest inflation in decades. The fastest rate-hiking cycle in 40 years.^7^

These conditions triggered changes in CRE — some positive, some negative. Above all, three developments stand out to us for their impact on the sector: (1) the interest rate cycle, (2) rising costs, and (3) overoptimism about supply and demand dynamics. Let's dive into those.

First, interest rates. CRE is a 'levered asset class,' meaning it typically depends heavily on borrowed funds to finance projects. Leverage can amplify gains or losses. When interest rates surged, borrowing became more expensive for developers and acquirers, and refinancing existing projects was exceptionally difficult. The result was a sharp drop in CRE transactions, with the sector hitting its lowest transaction count in over a decade.^8^

Second, rising costs. When pandemic and geopolitical disruptions affected the supply chain, CRE took a hit. Building material prices increased, skilled labor became scarce,^9^ and many developers struggled to stay on budget and execute their plans. This was coupled with rising insurance premiums, especially in natural disaster-prone areas like the Gulf Coast and California, where costs increased by as much as 50%.^10^ This led to paused projects, significant delays, and many developments that remain unfinished.^11^

Third, overoptimism about supply and demand dynamics.^12^ Before interest rates shot up, they were at record lows, and many developers launched large-scale projects, banking on high occupancy rates and steady growth. When the market shifted and demand fell short of expectations, many sponsors struggled to meet their performance targets.^13^

These factors aren't the only ones affecting struggling vintages, but together, they created a perfect storm for CRE.

How Crowd Street Is Meeting the Moment

All of these factors matter — but they don't mean we at Crowd Street are shrugging and saying, 'bad timing is bad timing.' Quite the opposite. We'll never be able to control market performance, but we can control the deals that reach our platform. That's why we're investing in processes to curate opportunities we think our members would be interested in given today's CRE climate.

First, Crowd Street's due diligence process is more robust than ever. We're approaching opportunities and sponsors with the rigor that we believe is on par with of some of the most sophisticated, well-resourced institutions. We encourage every Crowd Street user to learn about the intense scrutiny we apply to our marketplace, described in detail on our due diligence page.

Second, we've invested in a powerful analytics strategy. Right now, a dedicated task force is analyzing investments on Crowd Street's platform — realized and active. Our analytics team is focused on one goal: giving you a wealth of information as you evaluate opportunities.

Third, we're not going to stop sourcing opportunities in CRE Crowd Street was founded during an exceptional moment for the sector, but we're not trend chasers — and neither are the investors we serve. There will always be strong vintages and challenging ones.

Ultimately, whether you're planning to double down on CRE or steer clear for now, decisions about your portfolio are yours to make. But whatever you choose, you can count on Crowd Street to strive to go above and beyond in creating a marketplace for our members — and that commitment will never change.