Discipline Amid Higher Rates, Focus on Cash Flow

Ares Management’s real estate chief warns that rising interest rates are straining lower-quality office assets and secondary-market properties, creating persistent challenges for underperforming segments. Despite headwinds, lending conditions remain favorable for high-quality real estate investments, with disciplined capital allocation expected to mitigate broader market risks. The focus shifts to cash flow stability as higher borrowing costs pressure leveraged assets, pushing investors toward more resilient, income-generating properties. Secondary markets face deeper distress due to limited liquidity and weaker demand, while prime urban and industrial assets retain stronger investor confidence. Solomon emphasizes strategic discipline in 2026, urging investors to prioritize well-positioned assets amid volatile rate environments and evolving market dynamics.