Annual outlooks are usually either too vague to be useful or too specific to be honest. We try to land in the middle: five themes we're actively underwriting around going into 2026, each one specific enough to act on and uncertain enough that we could be wrong.
Here's what we think matters.
Theme 1: The small-bay supercycle has another 24 months in it
Our Q1 2026 research shows small-bay industrial in South Florida trading at a roughly 40 basis point premium to big-box, with vacancy in the segment running ~300 bps tighter than the broader market. The structural drivers behind that gap — population in-migration, the rise of service-trade and last-mile tenancy, no institutional construction pipeline — aren't going anywhere on a 24-month view.
What we are watching: the first few small-bay developments to actually break ground. We've seen three projects move from rumored to under-construction in the past six months. If that pipeline materializes faster than expected through 2026, the supply imbalance starts to soften. We'd revise our view down before we revise it up.
Theme 2: Debt costs are normalizing, but slowly, and unevenly
Senior secured CRE debt on stabilized industrial product is currently pricing around 6.4% on 5-year terms — down from the 7%+ peaks of 2024, but still meaningfully above the 4.5% world of 2021. We don't expect a return to that prior regime. We expect a gradual grind toward 5.5% over the next 24 months, with significant rate volatility along the way.
The implication for our underwriting: we're sizing loans assuming our refinance event happens at the current rate environment, not at a projected lower-rate world. If rates do come down faster than we expect, that's upside. We don't want to be in a position where it has to.
Every deal we close needs to pencil at refinance or sale assuming today's coupon, not tomorrow's hoped-for coupon. The deals that only work if rates come down are the deals you don't want to own when they don't.
Theme 3: Florida insurance is still the wildcard
The insurance cost line has been the single most disruptive operating expense across every deal we've closed since 2023. We've watched premiums double in two years on assets where nothing material changed about the underlying risk profile.
Some of the legislative reforms passed in 2023 and 2024 are starting to show up in carrier appetite. We've seen the bid-ask between primary and excess carriers narrow modestly in the past six months. But it would be premature to underwrite a normalized insurance environment in 2026.
What we're doing about it: we underwrite a 15% step-up in insurance year over year for at least the first three years of every hold. If the actual outcome is flat, it's accretive. If it's another doubling, we have margin. The deals that don't have that margin built in are the deals that are going to find themselves on the wrong side of a renewal cycle.
Theme 4: Population in-migration is sustaining, not slowing
The consensus view in late 2024 was that South Florida population growth would normalize toward national averages as the post-pandemic relocation wave exhausted itself. The actual 2024–2025 data shows roughly 35,000 net new residents per year in Palm Beach County alone, with a sustained skew toward households earning $200k+.
That's not a thesis we're betting heavily on going forward — demographic trends can shift, and the wealthy-relocator narrative could become a story about backflow if state-level fiscal or insurance dynamics get materially worse. But the durability of the trend through 2025 was stronger than we'd assumed at the start of the year. We're updating our base case modestly upward, not aggressively.
Theme 5: Capital concentration is creating dispersion among sponsors
The most interesting non-asset trend we're tracking isn't a market dynamic — it's a sponsor dynamic. The middle-market PE and CRE space is bifurcating. The top quartile of sponsors are raising capital faster than they can deploy it. The bottom half are struggling to close fund extensions.
What that means for deal flow over the next 18 months: we expect to see more attractive opportunities surface from sponsors who closed deals in 2021–2022 at structures that no longer work, and who can't extend their hold to ride through. Some of those deals will be excellent assets at compelling prices, dragged into the market by capital-structure failures rather than asset failures.
We've been raising our reserve allocation for that exact opportunity set. We don't expect a fire-sale environment. We do expect a 12–18 month window where well-capitalized, disciplined buyers can pick off the best assets out of broken capital structures at meaningfully better entry economics than peak-market underwriting would suggest.
What could prove this all wrong
The themes above hang together if a few things hold:
- Rates grind down rather than spike up
- SFL population growth holds at or above 80% of the 2024 pace
- Insurance reform translates into actual premium relief by 2027
- No serious recession in 2026
None of those are certain. If the rates curve reverses and inflation re-accelerates, the deals we close in 2026 are going to look harder to refinance in 2028. If a serious recession breaks small-business tenancy in our small-bay portfolio, our highest-conviction segment becomes a stress test instead of a tailwind.
"Forecasts are useful mostly because they force you to be specific about what you'd have to see to know you were wrong. We'd rather be specifically wrong than vaguely right."
We don't try to predict the macro. We try to underwrite deals that survive most macro outcomes, then weight our deployment toward the themes we have the highest conviction in. Right now those are small-bay industrial, conservative leverage, and the willingness to wait for the right deals — at the right basis — to come our way.
That's the playbook for 2026.