How Tax-Deferral Strategies Deliver Certainty in Uncertain Markets

Entering 2026, commercial real estate investors are emerging following several years of volatility and entering a market shaped more by recalibration. Pricing expectations have largely adjusted, and interest rates, while still elevated compared to the prior decade, have become more predictable. Capital is also, slowly but steadily, finding its way back into the market. After years of waiting on pricing, rates and clarity, 2026 is shaping up as the year investors stop asking if they should transact and start asking how to do so with certainty.

This shift is changing how investors evaluate and execute transactions. Tax-deferral strategies, such as 1031 exchanges, reverse and concurrent exchanges, and alternative structures like Delaware Statutory Trusts and 721 UPREITs, are becoming more prominent. They are being used as tools for tax mitigation, but also as mechanisms for execution certainty, risk management, and strategic portfolio repositioning.

---

LIKE THIS CONTENT? Subscribe to the CPE Capital Markets Newsletter

---

Across geographies and property types, a consistent theme of confidence is emerging:  Investors are willing to transact only when they can assess with some degree of uncertainty what comes next—both operationally and economically—after a sale or acquisition.

At a national level, transaction volumes are expected to trend modestly higher in 2026 compared to the trough years of 2024 and early 2025. J.P. Morgan anticipates more transactions in the commercial real estate market in the coming year, and the National Association of REALTORS has said it expects that home sales will edge up in 2026. Those forecasts, combined with the consensus outlook from other real estate and financial institutions, point to a gradual recovery, rather than a sharp rebound this year, yet that recovery is predicted to be uneven across the different asset classes and regions. Macro-economic indicators, such as employment trends, consumer demand and GDP growth, will remain critical in shaping investor confidence and transaction timing over the coming year. In Southeast Texas, for example, employment tied to logistics, energy, and manufacturing is a key driver. Further east, Florida’s population growth and service-based economy continue to provide relative resilience to the local markets.

When these types of macro-indicators stabilize, investors are often more inclined to transact, and to deploy tax-deferral strategies to reposition their capital with greater precision. It is within this context that certain asset classes, particularly multifamily, are beginning to show signs of renewed transaction momentum.

Multifamily and its measured rebound

Multifamily appears to be positioned for the strongest recovery when it comes to transaction activity. That is especially true in growth-oriented markets that are working through the tail end of a major supply wave.

In Southeast Texas, transaction volume is expected to recover meaningfully as new deliveries taper off and as the prices for class A and B assets stabilize and start to attract investor interest. Some sellers who may have delayed dispositions during periods of peak uncertainty are starting to re-enter this market due to stabilizing cap rates and more predictable financing terms. Still other owners are being forced to become sellers as loans come due that would need to be refinanced at less attractive rates and require additional investor capital, a dynamic that also puts upward pressure on transaction volume.

Similar forces are also appearing in Florida where markets that were once in top development mode from about 2023-2025 are now shifting toward recapitalization and other operational resets, which tend to unlock more trades as sellers adjust to the new pricing.

Colorado shows a slightly different story, where stabilized assets remain liquid with many sub-$20 million properties, acquired by syndications during the pandemic, are facing financial stress. By 2026, this could result in increased receivership activity and could create both risk and opportunity for investors who are willing and able to navigate complexity. From a buyer’s perspective, there’s no better seller than a “motivated” one.

Across most geographical markets, multifamily exchanges in 2026 are likely to be driven by realistic rent growth assumptions, manageable capital expenditure requirements, as well as a renewed focus on durable submarkets and operational efficiency as opposed to speculative upside.

Industrial remains the most consistent performer

Industrial is possibly the most stable asset class as we head further into the start of 2026, but it too faces a supply overhang that’s somewhat similar to multifamily.

In Southeast Texas, the industrial demand is tied to ports, logistics, and manufacturing, which continues to attract investors who are seeking needs-based fundamentals. If you look at Florida’s industrial markets, particularly along the I-4 and I-75 corridors, market pace is moving away from hyper-growth to a more balanced cycle. However, leasing activity as well as investor interest remain healthy, though the availability of new industrial space provides tenants with more opportunities to shop around. Las Vegas and Colorado are also seeing consistent industrial trades, with both small-bay and institutional properties consistently changing hands.

Although cap rates have adjusted upward from their historic lows, industrial’s perceived durability is what makes it a preferred replacement option for many 1031 investors who are looking for certainty.

The selective, bifurcated and complex office market

Office is an uneven asset class across all geographic areas.

In Southeast Texas and Florida, for example, well-located, amenitized buildings that have strong tenancy can still perform, but the older or commodity office assets are only trading through distress, workouts, or deep discounts. In Colorado, a pricing reset has allowed new ownership to offer aggressive rental rates and concessions causing an increase in office closings. Las Vegas is another area that is unique and nuanced where suburban office locations and office condos are gaining traction.

Medical office properties, however, consistently stand apart across regions as they continue to bring in premium pricing due to tenant stability and insulation from remote-work trends.

Interest rates, financing and 1031s

Interest rate fluctuations have slowed and, while they are no longer rising, they are still high enough to influence behavior. The result of that is fewer optional sellers and more emphasis on execution certainty.

Across all markets, investors are asking if they sell, can they realistically identify and close on replacement property within the 45- and 180-day timelines and they’re researching how lenders are treating their asset class and submarket in the current environment. They are also wondering whether they should lock in financing now or wait, weighing how that decision affects their exchange proceeds, and they’re considering if a reverse or concurrent exchange would reduce timing risk.

In Southeast Texas, for example, the higher rates have reduced speculative selling and increased demand for exchange structures that align sale and purchase timing. In Florida and Las Vegas, some owners, mainly those that have little or no debt, are still reluctant to sell and re-leverage at higher rates, even though pricing there has stabilized.

In Colorado, by contrast, investors seem more focused on economic fundamentals than on rates alone. Many of them are consciously factoring capital gains taxes into their decision to stay in cash rather than risk redeploying capital into assets that might underperform in a weakening economy.

Capital availability, liquidity and exchange feasibility

Capital availability is key to determining whether tax-deferral strategies are truly feasible. In markets like Southeast Texas and Florida, for example, improving liquidity reduces execution risk – when deals close on schedule and underwriting assumptions hold, investors are more confident pursuing 1031 exchanges. However, when capital tightens and closings stretch, the risk of potentially missing exchange deadlines increases.

Places like Las Vegas remind us that capital moves real estate, where many investors are focusing first on securing financing and only considering tax deferral once that hurdle is cleared. In Colorado, capital is available, but risk aversion among investors has pushed many to prioritize balance-sheet preservation over tax efficiency.

The key takeaway: Tax-deferral strategies thrive when liquidity supports predictable execution.

Inflation, replacement costs and alternative srategies

Inflation and elevated replacement costs continue to influence sell-and-reinvest decisions. High construction costs support the value of newer assets and make it difficult for buyers to replicate existing properties at current pricing. However, owners of older assets facing looming capital expenditures might see 2026 as a perfect time to sell and reinvest.

Alongside traditional 1031 exchanges, investors are looking at alternatives based on life stage, risk tolerance, and management preferences. For some time, Opportunity Zones have represented a smaller share of conversations than in prior years, largely because the early basis step-up benefits were no longer available and the deferral window was nearing its 2026 recognition date. However, following the One Big Beautiful Bill Act’s permanent extension and enhanced incentives, including new rural-focused benefits, Opportunity Zones may attract attention. Investors will remain selective given complexity, project risk, and evolving IRS guidance during the transition into the post-2026 framework.

721 UPREIT transactions are also gaining traction among long-time owners who may be looking for diversification or passive income. DST or Tenancy in Common structures also continue to serve investors who face inventory constraints or timing challenges, though many investors are scrutinizing the fees, returns and sponsor reputation more closely than in past cycles.

The rise of concurrent and reverse exchanges

In our view, one of the clearest structural shifts heading into 2026 is the increased use of concurrent and reverse exchanges. Limited high-quality inventory, longer closing timelines, and greater sensitivity to execution risk are pushing investors to engineer certainty wherever possible. So, rather than relying on sequential closings, many investors are aligning sale and purchase transactions more closely, or they are acquiring the replacement property or properties first in order to protect timelines and preserve flexibility.

In Colorado, for example, we’ve seen that abundant residential inventory has contributed to a rise in concurrent exchanges. In Southeast Texas and Florida, complex portfolio reallocations are driving similar trends.

Overall, the market in 2026 isn’t expected to deliver a major surge in transaction volume, but we do expect that it will offer investors greater clarity and stability than last year. With pricing expectations largely reset and more predictable financing conditions, tax-deferral strategies are again emerging as tools for portfolio management, meaning early planning can be a competitive advantage, not a compliance step. So, for savvy investors who plan ahead, stay flexible, and engage with experienced legal, tax and 1031 exchange advisors to navigate all the complexities of these types of transactions, 2026 can bring meaningful opportunity to preserve and grow capital.

Julie Baird is president of First American Exchange Company. Xander Snyder is senior commercial real estate economist for First American Financial Corp.