Morning,
Every cycle has its moment of euphoria, a period when policy, liquidity, and sentiment all point in the same direction, and capital flows as though gravity has been suspended.
That moment is now approaching again.
In Washington, the tone of regulation has shifted decisively. The planned rollback of post-2008 “Basel III endgame” capital rules – the very framework designed to prevent another financial crisis – will soon free $2.6 trillion in new lending capacity and roughly $140 billion in regulatory capital for the largest U.S. banks, according to Alvarez & Marsal.
The mechanics are technical but the effect is simple: banks will be able to lend more, hold less, and distribute more capital to shareholders. The proposed reforms weaken the supplementary leverage ratio, loosen the common equity tier-one (CET1) requirements that cushion losses, and lighten the Fed’s annual stress-testing regime. The appointment of Michelle Bowman as Vice Chair for Supervision at the Federal Reserve all but guarantees this deregulatory pivot. Bowman has long argued that stringent capital rules pushed credit creation into less-regulated private markets. She now has the authority to reverse that trend.
The timing couldn’t be more consequential.
Just as capital requirements are easing, the next monetary inflection point is already visible. Whether before Chair Powell’s term ends in May or immediately after, the Fed will begin cutting rates. It will do so because it must – growth is slowing, labor is softening, and political pressure to support the economy ahead of 2026 will be immense.
Put together, those two forces – regulatory loosening and monetary easing – represent an enormous liquidity shock to the system. One that will ripple through credit markets, equities, and most visibly, commercial real estate.
Lessons from the Last Flood
To understand what’s coming, it helps to remember the last time America tried to engineer growth through liquidity.
In the early 2000s, the combination of low rates, light regulation, and moral hazard created the housing boom that defined the decade. By 2008, household debt approached 86% of GDP, and underwriting had become entirely detached from risk. When the Global Financial Crisis arrived, it wasn’t merely a housing crash, it was a systemic reckoning with excessive liquidity.
Regulators responded with Dodd-Frank and Basel III, forcing banks to hold more capital and absorb more risk internally. Those constraints were meant to act as circuit breakers, brakes on the next speculative surge.
Now, those brakes are being released.
The New Liquidity Machine
The irony is that today’s liquidity machine is even more powerful than the one that fueled the GFC. Back then, it was mortgages. Today, it’s everything – from AI infrastructure to data centers, from corporate buybacks to private credit.
Large U.S. banks, already sitting on record cash reserves, will soon be able to expand their balance sheets aggressively. JPMorgan alone could free $39 billion in capital under the proposed rules, translating to a 31 % increase in earnings per share. Across the system, the relaxation of CET1 requirements is expected to lift bank profitability by roughly 35 %, incentivizing more lending, not less.
That lending will seek yield wherever it can find it. With the 10-year Treasury expected to drift lower once rate cuts begin, spread products and real assets will look increasingly attractive. Real estate, still digesting the repricing of 2022–2023, will become a prime destination for that capital, initially cautious, then euphoric.
In my conversation with former Bureau of Labor Statistics commissioner, Eric Groshen, last week, she described this coming scenario as a “sugar rush” – a burst of energy that feels like genuine strength but fades as the stimulus wears off. That metaphor fits perfectly here. Liquidity is the sugar; deregulation is the spoon.
The Boom Phase: Adrenaline and Amnesia
The first stage will look like recovery.
Lending volumes will rise. Cap rates will compress. Values will spike. Deals that didn’t pencil at 6 % debt will suddenly work at 5 %. Developers will talk about “stabilizing conditions” and “market normalization.”
By late 2026, expect headlines about “the return of capital markets” and “record inflows to private real estate funds.” Syndicators will see investor enthusiasm return as money chases yield again. Institutional allocators will re-enter sectors they swore off two years earlier.
But beneath the optimism, the same structural fragilities will persist; oversupply in office, inflated construction costs, and uneven rent growth. Lower rates won’t change that; they’ll just make the math look better temporarily.
This is the classic late-cycle setup: easy credit, rising leverage, and a collective suspension of disbelief.
The Hangover
Eventually, the sugar runs out.
As liquidity flows into asset markets, valuations rise faster than fundamentals can justify. When policy finally tightens or even just stops easing, leverage turns from friend to foe. That’s when the hangover begins.
The timeline is uncertain, but the pattern is familiar. Asset prices surge first, confidence peaks second, defaults appear third, and regulation returns last. It happened in 2008. It happened after the dot-com bust. And if this current trajectory holds, it will happen again by the late 2020s.
When that turn comes, the correction could be severe. The very capital buffers being dismantled today were what allowed banks to absorb losses without collapsing last time. Remove them, and the shock absorbers are gone.
The Implications for Sponsors and Investors
For commercial real estate professionals, the message is clear: the next 12–24 months will be a period of extraordinary opportunity and heightened risk.
The opportunity lies in the liquidity wave. Financing will loosen, spreads will narrow, and equity will re-engage. Sponsors with clean balance sheets and well-underwritten projects will be able to refinance, acquire, and expand investor networks faster than at any time since 2015.
The risk lies in forgetting that this window is temporary. The Fed’s eventual rate cuts will look like salvation – until they aren’t. When inflation stabilizes and policy normalizes, yields will rise again, liquidity will recede, and the assets bought during the euphoria will be the first to fall in value.
The smartest sponsors will treat the next phase not as a boom to ride, but as a cycle to prepare for. They’ll lock in long-term financing while rates are low, maintain discipline in underwriting, and build liquidity reserves while capital is still cheap.
The End of the Pendulum
The cycle that began with over-regulation after 2008 and swung to under-regulation in 2025 will, in time, find its midpoint – probably through another correction. Until then, we’re heading into a market fueled by easy credit and fading restraint.
The sugar rush will feel real.
So will the crash that follows.
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If you’re a seasoned sponsor with few, if any, legacy issues, a strong but under-engaged investor base, and a pipeline ready to scale into the coming boom, let’s talk. I build institutional-grade investor acquisition platforms – and, in select cases, lead investor relations directly – and can help you raise as much capital as you're going to need.
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Thought provoking? Join the conversation on LinkedIn. I posted a shorter, less detailed version this morning.
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Adam