Ackman-Ziff Market Update (January 2026)

We believe we’re entering the early innings of a capital markets equilibrium, where return expectations, underwriting standards, and asset values are beginning to align.

Does this mean the long anticipated wave of distress has arrived and bargains are everywhere? Not quite.. And barring something catastrophic, it likely never will at the scale many once expected.

For distress to attract opportunistic equity, there needs to be an oversupply of it, so much that buyers can’t keep up, providing bargain opportunities driven by a lack of competition. That moment never really materialized. Instead, we’ve seen value degradation across certain assets, with private credit and preferred equity stepping in to right-size capital stacks where long-term financing rates could not be appropriately serviced by cash flow.

In many of the situations we’re evaluating, even when common equity is partially or fully impaired, structured solutions still exist for the right assets, keeping them out of a formal sales process. That said, sponsors can’t, or don’t want to, carry today’s borrowing costs indefinitely while waiting for a better exit. And frankly, that dynamic has been good for our business at Ackman-Ziff, where we focus exclusively on debt and equity. In a true distress cycle, investment sale brokers get the call. In this one, owners are coming to us for capital solutions rather than looking to sell.

If we were investing our own capital today, we would, for the most part, rather be the pref or mezz in distressed recaps, or in ground-up development pref. However, we believe the balance is beginning to shift back toward sponsors, or at least toward an equilibrium. Private credit returns have become increasingly efficient, and as supply/demand rebalance, returns to structured capital may soon offer less relative value compared to the potential upside available in common equity.

We’re currently in the market recapping a 2020-vintage multifamily development in a major gateway market. Key facts:

• 450 units above 20,000 SF of retail (sole anchor tenant vacated in Dec. 2024)

• 1,000+ units delivered nearby over the past nine months, with concessions increasing from 1 month to 3-4 months, but occupancy never dipping below 90%

• $8.0M of NOI in 2024; $7.0M T-3 NOI (down from lost retail + concessions); $10.0M stabilized NOI once retail is re-leased and concessions burn off

• $100M construction loan (7.0% DY on in-place; 10.0% DY stabilized)

• $45M preferred equity (5.0% DY in-place; 7.0% stabilized)

• $48M common equity (3.6% YoC in-place; 5.2% stabilized)

At a 5-cap on current NOI, the preferred equity is effectively 100% LTV, with the common equity at a 0.0x valuation. But stepping back, the capital markets can still underwrite better days ahead.

Recent supply in the immediate area delivered at a basis north of $550K/unit basis, versus the last dollar of the pref equity at just $320K/unit. No new projects have received financing in this submarket for nearly two years, and likely won’t anytime soon, given rents would need to grow ~20% for new development to pencil.

That’s the foundation of an equilibrium: when the herd of the market underwrites peak cap rates and fully depressed NOI. The real question then becomes the cost of capital required to solve the problem, and how that pricing supports our view that equity markets are approaching a more balanced footing.

We recently received an outlier term sheet from a $40B investment manager that, in our view, signals a shift in the risk-adjusted returns of equity:

• $145M whole loan (nearly cash neutral after closing costs)

• S+225 bps current with a $1.5M interest reserve, plus 225 bps accruing

• 2 + 1 + 1 structure

• Lender’s underwritten untrended stabilized NOI: $9.0M → fully accrued terminal debt yield of 5.9%!

The lender will utilize note-on-note financing, with a $100M A-note at S+225 (meaning there is no positive leverage on the current pay). The incremental cost of capital on the $45M mezz B-note will return approximately 13.5% to the investor.

That is remarkably inexpensive capital for last-dollar risk between 90% and 100% LTV. Would you accept a fixed 13.5% return for that exposure (a 5.0% going-in yield in a gateway market with retail vacancy risk and 3-4 months of concessions to burn off)? Maybe not. And that’s actually good news for the market! Finally, a structured deal where we wouldn’t want to be the pref/mezz.

We’re not saying we would want to be pari passu to the common equity investor, either, given their basis is $200M with $48M of and asset value today is $150M. But when looking at the underwriting, one could make a stronger case for bullishness.

• Get the retail lease —> $1M of additional NOI

• Go from 90% occupancy to 95% —> $500K of additional NOI

• Concessions stabilize and 3% rent growth in years 2 & 3 —> $1M of additional NOI

• Lastly, cap rates go from 5.00% in this market to 4.50% —> asset value jumps from $140-$150M today to $220M in 3-4 years!

When capital gets this cheap, three things tend to happen:

1. Investors begin asking for more upside in exchange for thinner pref returns (starting to look a lot like common equity…).

2. Asset values rise as sponsors can finally transact into a market willing to accept lower overall returns.

3. “Distress” capital raised for 20%+ IRRs becomes uncompetitive and is forced to move up the risk curve into development or heavier value-add strategies.

If you offered the sponsor the same $45M mezz/pref position outlined above, which outcome would you rather own:

1. 13.5% fixed preferred return

2. 8% fixed preferred return with a 20% profit participation

We’re increasingly drawn to the latter.

On this transaction, having an advisor mattered. Once we helped educate the market, multiple capital sources sharpened pencils, matching or exceeding the best terms, and in some cases at even higher leverage points.

Something is clearly brewing.. Competition within private credit is compressing returns, and that pressure inevitably pushes the pendulum back toward equity. If asset fundamentals and capital supply are rebalancing at the same time, the conditions for the next bull cycle may quietly be taking shape.

Early innings, folks.

Wanted to share information on a great educational program our company hosts each summer called "AZ Educate". Thought it might be of interest for any analysts, interns, family members, or close friends who are college-aged or recent grads.

It’s a four-day, online crash course focused on relationships, network, and ethics, led by Simon Ziff, with industry leaders joining throughout the program.

A few highlights for participants:

• 150-200 new peer connections within the CRE network they likely wouldn’t otherwise have access to.

• We’re seeing AZ Educated listed on resumes across NYC, Miami, LA and other major markets.

• Faculty from NYU and Columbia, as well as founders of CRE firms, have reached out to share strong feedback they’ve heard about from the program.

Applications are open through May 15. You can find more details and the application here: https://www.ackmanziff.com/azeducate/

Jordan Brustein; Andrew Rudy

E: [email protected]; [email protected]

M: (JB) 516-996-7722; (AR) 858-947-8738