Commercial real estate values have plunged, but Kevin O'Leary sees a window for buyers who avoid excessive debt. With $2.2 trillion in loans maturing by 2028, investors face both risk and potential reward in a shifting market
Commercial real estate has been battered over the past three years, with office buildings sitting half-empty and property values slashed as cap rates have climbed. Many investors have avoided the sector, wary of falling prices and the mounting pressure on regional banks holding troubled loans. Yet Kevin O'Leary, known for his role on Shark Tank, argues that the same correction driving others away is now creating real opportunities-if approached with caution.
Market Reset
Office properties have absorbed the brunt of the downturn. According to Benzinga, cap rates for these buildings have jumped from pre-pandemic levels of 3%-4% to between 5% and 9%, depending on quality. Since cap rates and property values move inversely, this shift has cut values by roughly half in many cases. O'Leary points to this dramatic repricing as a source of potential bargains for disciplined buyers.
Industry data supports the idea that the worst may be over for offices. Cushman & Wakefield projects vacancy rates will fall below 18% this year, and lending activity has increased 35% year over year heading into 2026, according to CNBC. While pricing has largely reset, distressed properties remain available for those willing to navigate the risks.
The Debt Trap
O'Leary's optimism comes with a major caveat: excessive leverage can turn a promising deal into a financial disaster. He warns that using too much debt-especially in a volatile market-can quickly wipe out even the best investment. This risk is especially acute now, with about $2.2 trillion in commercial real estate debt coming due before 2028. Much of this debt was issued when interest rates hovered around 3%. Today, refinancing often means accepting rates of 7% or 8%, which can make previously viable deals unworkable.
When property values fall and financing costs rise simultaneously, owners may be forced to inject more equity, accept unfavorable refinancing terms, or surrender properties to lenders. This dynamic has played out across office markets nationwide and continues to pressure both investors and banks.
To mitigate these risks, O'Leary recommends financing no more than one-third of a property's value, rather than the two-thirds leverage common in many deals. Lower leverage provides a buffer against further declines and reduces the likelihood of being forced to sell at the worst possible moment.
O'Leary's Approach
Rather than chasing large, distressed office towers, O'Leary favors a more manageable strategy: buying a handful of rental properties in neighborhoods he knows well, keeping leverage low, and focusing on long-term value. He suggests that investors concentrate on five or six properties in familiar areas, rather than pursuing unfamiliar markets or oversized deals.
He also emphasizes the importance of actively improving properties and maintaining strong relationships with tenants. In his view, investing in upgrades and tenant retention can help properties weather downturns and benefit from neighborhood revitalization over time. O'Leary cites Brooklyn as an example of a market where formerly overlooked neighborhoods have become some of the most valuable in New York City-a pattern he believes could repeat in other cities where values have not yet fully recovered.
Broader Implications
The commercial real estate shakeout is not just a property story. Regional banks hold a disproportionate share of commercial real estate loans, and stress in this sector can spill over into small-business lending and local economies. As confidence slowly returns and deal activity picks up, the market remains bifurcated: some properties are stabilizing, while others remain distressed and available at steep discounts.
For investors, the lesson is clear. Opportunities exist, but only those with conservative debt structures and a willingness to be patient are likely to benefit from a recovery. The risk of overleveraging remains high, especially as refinancing challenges persist and economic uncertainty lingers.
According to the Mortgage Bankers Association, commercial and multifamily mortgage originations fell 46% in 2023 compared to the previous year, reflecting both tighter lending standards and investor caution. Meanwhile, the Federal Reserve's ongoing rate policy continues to shape borrowing costs and property valuations across the sector.
Understanding cap rates is essential for anyone considering commercial real estate. The capitalization rate, or cap rate, measures a property's expected annual income as a percentage of its purchase price. When cap rates rise, property values fall, all else equal. This relationship means that even small changes in cap rates can have an outsized impact on valuations, especially in a market where financing costs are also rising. For investors, managing leverage and focusing on properties with resilient income streams can help navigate these shifts and avoid the pitfalls that have trapped many owners in recent years.
