Next-gen investors are flipping CRE's playbook toward alternative properties. The four pillars of commercial real estate—office, industrial, retail, and multifamily—are getting shaken up by a new generation of leaders who favor data centers, life sciences labs, and self-storage over traditional assets. Deloitte predicts that by 2034, alternative properties could balloon from today's 42% of portfolio values to nearly 70%, driven by a 15% compound annual growth rate. The shift makes sense: alternatives have crushed traditional properties with 11.6% annualized returns versus 6.2% over the past decade. With nearly 60% of current industry leaders hitting retirement age within a decade, younger decision-makers are 10% more likely to chase these emerging sectors. The transition won't happen overnight—elevated interest rates are slowing portfolio shifts—but the writing's on the wall for CRE's next chapter.

Private equity turned hospitals into a financial extraction machine. Here's how the scheme worked: Private equity buys hospitals, loads them with debt, then sells the real estate to Medical Properties Trust in sale-leaseback deals worth billions. PE firms pocket massive dividends while hospitals become tenants paying rent they can't afford. The result? Seven major hospital operators have failed or gone bankrupt since 2017, including Steward Health Care, which collapsed owing MPT $7.5 billion in rent. Cerberus made $790 million on Steward while the hospital system lost $800 million between 2017-2020. MPT's stock has cratered 79% from its 2022 peak as the circular financing model—where the REIT loans money to struggling tenants to pay rent—unravels. Senators from both parties are demanding investigations, with Elizabeth Warren calling for criminal probes. The model squeezed billions from critical healthcare infrastructure while leaving patients with closed hospitals and reduced care.

Fed officials split on rate cuts as Powell fights for his inflation legacy. Wall Street expects the Fed to cut rates this year, but economists think the market is missing crucial signals about Powell's determination to crush inflation before his term ends in May. Fed Governor Chris Waller sees a path to "good news" rate cuts if tariff-driven inflation proves transitory and underlying price pressures ease toward the 2% target. But former Fed staffers say Powell won't cave to market pressure—he engineered one of the fastest tightening cycles in history and is laser-focused on his legacy, wanting to avoid "losing an inflation fight for a second time." The central bank faces conflicting pressures: Trump's public demands for cuts, soft economic data suggesting weakness ahead, but also stubborn inflation that could force hikes if consumer expectations shift higher. Most officials remain in "wait and see" mode through September.

I remember the exact moment I realized everything I believed about real estate investing was wrong.

I was sitting at my desk, staring at a refinancing proposal for one of our best properties: a building we'd bought right, managed lean, and stabilized beautifully.

The numbers should have been celebrating.

Instead, they whispered a truth I didn't want to hear: the cash flow had vanished into thin air.

For years, I'd preached the gospel of mailbox money.

You know the sermon: Buy smart, manage lean, pay down debt, and in return?

You get passive income.

Freedom.

The American Dream wrapped in monthly distributions.

But recently, I've had to face a harder truth: Even disciplined investors (people who did everything right) are barely seeing 1–2% cash flow (on asset value) after debt service and LP pref.

And that's on solid commercial portfolios with decent leverage.

So I started asking myself: Did something fundamental change in real estate investing?

The short answer is: temporarily, yes.

Here's what woke me up.

We own several properties that we bought well.

After stabilization, our basis sits at 10%-12% cap rates.

Solid deals.

Strong tenants.

Good locations.

When we refinanced into mid-6% debt, the cash flow nearly vanished.

What used to generate 4-5% cash flow (on asset value) dropped to maybe 1-2% after new debt service and paying out investors.

The math is brutal but simple: You can't buy a 6%-cap deal with 7% debt and expect passive income.

The numbers tell the story:

Let's break that down with a simple example.

Say you bought a property with a $5M cost basis after stabilization.

You're sitting on a 10% cap on total cost — meaning you're pulling in $500,000 in NOI annually.

With 75% leverage and a 25-year amortized loan at 3% interest, your annual debt service would be about $213,400.

And let’s say with $1M in LP money at an 8% pref (which is $80K per year), you're making $206K in cash flow, or 4% based on asset value.

Now, let's recalculate with today's reality—refinancing that same loan at 6.75%.

The annual debt service jumps to $310,900. With the same LP pref still in place, your cash flow plummets to just $109,100—about 2% of the asset value.

That's almost half of your cash flow gone.

Same deal, good asset, awesome tenants, great location, just different economics.

There's a kind of gaslighting happening right now in real estate circles.

The loudest voices still preach, "Just buy cash-flowing assets and live off the income."

Grant Cardone is still out there selling the "10X your cash flow" dream.

But in today's debt environment, that advice is dangerous.

Sorry, Kiyosaki.

Sorry, Cardone.

Your thesis doesn't work right now.

You can't buy a 6-cap deal with 7% debt and expect passive income.

That playbook worked in the 3%-4% rate era.

Now it's just fantasy with a spreadsheet.

We need to stop selling this dream to people who are putting real capital at risk.

Many LPs bought into the "financial freedom through passive income" story.

But what they're getting instead are quarterly update PDFs with lines like:

📍 "We're in a holding pattern"

📍 "No distributions this quarter"

📍 "Planning for a refinance in 2026"

They're realizing what most sponsors already know: this has become a game of value creation, not income production.

Commercial real estate deal velocity has dropped significantly, almost in half since 2023.

Some operators are pivoting to business acquisitions.

Others are exploring crypto or AI stocks.

But this isn't about institutional money fleeing to other asset classes.

It's about everyone waiting for the market to find its bottom.

The "easy money" era of real estate is over, at least for now.

Here's where it gets interesting.

I've started modeling exits differently.

Instead of just optimizing for NOI, I'm also calculating what a building would be worth 100% vacant to an owner-user.

Why?

Because owner-user prices on bite-sized buildings often exceed optimized NOI prices.

We've sold two properties since rates went up, both to owner-users for significantly more than an optimistic pro forma would get us from investor buyers.

A contractor, small manufacturer, or logistics company will pay more for control and utility than an investor will pay for yield.

What used to mean selling to a California investor now means selling to a user who's squeezed by high rents and would rather buy.

That's a different kind of value creation.

And in this market, it's often the smarter play.

Three tactical shifts I'm making:

📍 Avoiding Heavy Lifts: With debt costs this high, I can't afford projects taking longer than 24 months. The carrying cost becomes too heavy beyond two years.

📍 Dual Exit Modeling: I underwrite both scenarios: optimized NOI for investors and vacant building value for owner-users. Whichever delivers higher returns becomes my target.

📍 Value Creation Over Cash Flow: I'm optimizing for equity growth, not monthly distributions. The returns are there, they're just not arriving as mailbox money. Instead, they're building like a piggy bank until you sell or trade in 1031 exchange.

Look, real estate moves in cycles.

In 2010, many believed housing would never recover.

Most were wrong, myself included.

Over 20 years, it's ridiculous to think cash flow won't dominate again at some point.

But right now?

Cash flow is significantly harder to achieve compared to the value you can create through strategic improvements and equity growth.

And while debt costs remain elevated (potentially for years), chasing pure cash flow feels like pushing a boulder uphill.

This isn't a crisis.

It's our new reality, and it may last longer than we expect.

The operators who survive this cycle will be those who:

📍 Build genuine value, not just financial engineering

📍 Stay flexible on exit strategies

📍 Stop over-promising cash flow to LPs

📍 Focus on assets that perform in multiple scenarios

We've temporarily left the "mailbox money" era.

We're now in the value-builder era.

Cash flow will return when the fundamentals align again.

Until then, I'd rather build value and sell strategically than chase phantom yields.

The Cardones and Kiyosakis can keep peddling yesterday's playbook.

The rest of us will adapt and thrive.

For Current LPs: Expect your sponsors to prioritize value creation over distributions for the next 12-24 months. Ask about their exit strategies and whether they're modeling for owner-user sales, not just traditional investor exits.

For New Investors: This is actually a compelling time to enter the market, if you adjust your expectations. Look for operators who are honest about current conditions and have concrete value-add plans that don't depend solely on rent growth.

For Fellow Operators: Now's the time to get creative. Consider selling to owner-users, explore owner financing structures, and remember that sometimes the best deal is the one you walk away from.

Here's the truth I've learned after two decades in this business: Real estate investing isn't about following someone else's playbook, it's about reading the market in front of you and adapting fast.

This challenging market has actually made me a better investor.

When easy money vanishes, you quickly discover who really knows how to create value.

You're forced to underwrite conservatively, operate efficiently, and exit strategically.

Sure, I miss the days of predictable cash flow.

Who doesn't?

But I've also stumbled onto something unexpected in this tough market: the deep satisfaction of creating genuine value instead of just riding market waves.

When the next cycle turns (and it always does) we'll be ready.

Not because we sat on the sidelines waiting, but because we learned to master an entirely different game.

And maybe that's the most valuable lesson of all.

What’s your take on it?

I’m really curious how do you see this?

Hit reply. (I personally read every email)