Owen McCarthy (OM): Real estate has been a stalwart in investment portfolios for decades. What do you think has provided this staying power, and what is your long-term outlook for the asset class?

Jimmy Carroll (JC): Several characteristics have contributed to real estate’s durability:

• Portfolio diversification: Private real estate, our area of focus, has a very low correlation to other asset classes like stocks and bonds.
• Attractive risk-adjusted returns with relatively low volatility: Over the past 20 years, the NCREIF Property Index (NPI), which tracks total returns for private commercial real estate (CRE), has averaged an annual return of just over 7%. That compares to roughly 3% for Treasuries and investment grade bonds and 12% for the S&P 500. Moreover, NPI’s 7% return is on an unlevered basis. Returns for the sector are even higher once (even moderate) leverage is utilized and its positive attributes are factored in. In terms of volatility, the NPI has had only five negative-return years over its 47-year history, on par with investment grade bonds and fewer than Treasuries or the S&P 500.
• Inflation protection: Rising rents and fixed-rate financing can help hedge against inflation.
• Leverage and tax benefits: The ability to use leverage increases purchasing power and diversification, while depreciation and tax deferral strategies, such as 1031 exchanges and Qualified Opportunity Zones (QOZ), add to the appeal.

Our long-term outlook remains positive. We expect real estate to continue playing a pivotal role in investment portfolios, as the fundamental advantages we just discussed remain intact. In fact, recent legislation – the One Big Beautiful Bill Act – expanded the QOZ program, which should further incentivize investment in real estate.

OM: As you look at the real estate market today, what major trends are you observing?

JC: Broadly speaking, it feels like we’re past the trough of the private CRE market this cycle. We see this in pricing, lending standards, and transaction volume.

The NPI has posted positive total returns for four consecutive quarters , signaling that second quarter 2024 likely marked the bottom following a two-year downturn.

Lending standards also appear to be stabilizing. As of third quarter 2025 , only 11% of domestic banks tightened standards for nonresidential commercial loans and 5% for multifamily properties, well below the fourth quarter 2023 highs of 67% and 66%, respectively.¹ Lenders are reentering the market, including in the office sector, and have been more willing to negotiate and restructure loans rather than foreclose.

Transaction volume for CRE has picked up. According to MSCI Real Capital Analytics and Principal Asset Management, volume has grown year-over-year for five consecutive quarters, the longest stretch since 2022. Demand is growing for high-quality deals with lower risk, while higher-risk transactions still see less interest. Sellers have become more comfortable with current pricing, helping to close the bid-ask gap.

Overall, these indicators suggest we’re moving in the right direction and may be entering a new market cycle.

Another significant trend is the surge in artificial intelligence (AI)-driven demand for data centers. Rapid technological advancement has led to record-low vacancy rates, just 1.6% in North America as of mid-2025, and below 1% in Northern Virginia’s “Data Center Valley.”² The space under construction is expected to double U.S. inventory over the next decade.

That said, caution is warranted. Massive amounts of capital are flowing into the sector, and we’ve yet to see which investments will prove most successful. Building a hyperscale facility costs over $1 billion, and the pace of technological change raises the risk of obsolescence for today’s data centers.

OM: How would you define BBH’s “investable universe” as it pertains to real estate? What makes these areas attractive?

JC: Our BBH Real Estate platform (BBHRE) invests in U.S. institutional-quality private CRE across multiple strategies.

In our Income strategy, we focus on stable, income-generating properties that meet strict criteria around age, tenant quality, building standards, and market fundamentals such as job and population growth. Property types include multifamily, industrial, retail, and office.

Our Enhanced Value strategy targets existing multifamily properties in the Southeast and Midwest with potential to increase net operating income through value-add improvements: physical, financial, or operational.

We like the Income strategy for its stability and ability to weather short-term volatility while benefiting from long-term cash flow growth and potential appreciation. The Enhanced Value strategy invests in properties with greater upside potential, though income during the hold period may be lower. Markets with limited supply and strong demographic trends are particularly compelling because they support rent growth and high occupancy.

OM: Given the national diversification of BBH’s real estate portfolio, what is your process for conducting diligence on both prospective and existing properties?

JC: Every prospective property undergoes rigorous evaluation. We start with market analysis: assessing location fundamentals and consulting our industry network. We then review financials, stress-test assumptions in our underwriting models, and identify a clear exit strategy.

Once under contract, we perform on-site inspections, review leases, and conduct tenant interviews. If all checks out, we proceed to closing: finalizing legal documentation, title, insurance, financing, and structure.

For properties we already own, we maintain close oversight of property managers and regularly review performance reports. We collaborate with sub-advisors and operators on annual business plans and budgets, visit properties periodically, and continuously monitor market conditions to optimize exit timing.

OM: With over $1.5 trillion in CRE debt maturing by the end of 2026, what impact do you expect from this “maturity wall”?

JC: For context, total outstanding CRE debt is roughly $4.8 trillion, per the Mortgage Bankers Association.³ The $1.5 trillion maturing by 2026 represents about 30% of the total, but that’s split across two years: $957 billion in 2025 and the rest in 2026. Given that most CRE loans have five- to ten-year terms, this volume (on a percentage of total) isn’t unusually high.

The challenge lies in refinancing. Many loans originated during the low-rate era must now be refinanced at higher rates. Borrowers facing tighter lending standards and lower property valuations may need to contribute additional equity to meet loan-to-value ratios.

The more favorable option is loan extensions. Fortunately, we’re seeing that lenders have been open to extensions rather than forcing sales or foreclosures. As values rise and lending stabilizes, we don’t anticipate widespread distress—though some isolated challenges will likely persist.

OM: With the rate-cut debate dominating headlines, how are you navigating this uncertainty?

JC: Real estate is highly sensitive to interest rates, so we monitor rate movements closely. We manage our loan maturities proactively and structure our debt to mitigate volatility, all outstanding loans are fixed-rate or hedged to a fixed value.

If rates stay higher for longer, distressed opportunities may emerge that we could capitalize on. Conversely, if rates fall faster than expected, we may consider opportunistic sales to capture market appreciation.

OM: What is the one thing you want readers to take away from our interview?

JC: The data suggests we’re past the trough of the CRE market, making this a potentially compelling time to buy, especially for long-term investors. Beyond private real estate, there are other ways to gain exposure, such as public real estate investment trusts (REITs) or direct ownership of smaller residential properties. We’re always happy to assist with any real estate-related questions or opportunities.

OM: Jimmy, thank you for your time.