Cottonwood has closed a $1 billion real estate "special situations" fund aimed at buying troubled commercial properties at a time when distress is spreading. Delinquency rates in commercial mortgage backed securities have climbed past seven percent this year, with office loans nearing eleven percent. The combination of refinancing challenges and weaker demand is creating the kind of market Cottonwood was waiting for.
The broader trend is clear. Rising defaults are not just confined to office but are also hitting retail and lodging, sectors still struggling to regain pre-pandemic footing. Each uptick in delinquency expands the pool of assets likely to be re-priced, giving opportunistic capital new targets.
Cottonwood is not alone. Brookfield, Oaktree, and other investment managers have been raising multi-billion-dollar distressed funds in anticipation of more fallout. Cottonwood's billion-dollar raise might be smaller in comparison, but it underscores a growing conviction that what looks like pain for many owners will translate into long term gains for those with patient capital. What makes Cottonwood's raise notable is the timing, it signals conviction that dislocation, not downturn, is the opportunity.