11 Costly Mistakes That Could Sabotage Commercial Real Estate Returns in 2026

Part 3 of the Investor’s Plan for Success Series

By David W. McCoy, Otimo Properties

Introduction — Why Avoiding Mistakes Matters More in 2026 Than Ever

In strong markets, many mistakes are invisible. Appreciation hides poor underwriting, weak operations, and fragile capital structures. But in transitional markets — like the one we are entering in 2026 — mistakes compound quickly and become painfully expensive.

In this environment, disciplined investors are not only focused on how to grow returns, but also on how to avoid destroying them.

The following mistakes are not theoretical. They are already quietly eroding performance across the market.

1. Carrying 2021–2022 Assumptions Into a 2026 Market

Many investors are still underwriting deals as if the past cycle never ended. They overestimate rent growth, underestimate vacancy risk, ignore cap rate expansion, and assume easy refinancing.

Yesterday’s math does not survive today’s market.
And it certainly won’t survive 2026.

2. Over-Leveraging in a Volatile Interest Rate Environment

High leverage magnifies outcomes — both positive and negative. In uncertain rate environments, thin margins and floating-rate exposure can quickly destabilize even well-located assets.

Leverage should amplify strength, not compensate for weak fundamentals.

3. Underestimating Refinancing and Liquidity Risk

Most real estate failures occur at refinancing, not at acquisition.

Loan maturities, lender pullbacks, rising equity requirements, and shifting credit standards are forcing painful decisions for many owners. Investors who fail to plan early for refinancing risk often discover too late that they have far fewer options than they expected.

4. Chasing Yield Without Understanding Risk

High yields often mask fragile income.

Investors chasing income without fully understanding tenant quality, lease durability, market fundamentals, and long-term demand are frequently buying volatility disguised as return.

5. Ignoring Location & Market Fundamentals

A great building in the wrong market is still the wrong investment.

Weak employment bases, declining demographics, underinvestment in infrastructure, and hostile regulatory environments quietly undermine even the best physical assets.

6. Failing to Actively Manage Assets and Capital Structure

Passive ownership is no longer viable.

Ignoring operating inefficiencies, deferring maintenance, neglecting leasing strategy, and failing to proactively manage debt and capital structure erode value every day. Assets decay without attention — and so do returns.

7. Refusing to Cut Losses When the Data Changes

One of the most destructive behaviors in commercial real estate is the refusal to admit when an investment thesis is no longer valid.

Markets change. Tenants change. Capital structures change.
When the data changes, strategy must change with it.

Clinging to a failing position out of pride, hope, or sunk-cost bias transforms manageable losses into permanent damage.

8. Ignoring Opportunity Cost When Evaluating Projects

Capital that is merely “not losing money” is often losing the most.

I once knew an owner who held a property for decades because she refused to sell below $2 million — despite being offered close to $1.5 million thirty years earlier. On paper, she never took a loss. In reality, the opportunity cost of that trapped capital far exceeded the $500,000 difference she fought to protect.

Opportunity cost is the silent killer of long-term returns.

9. Overconfidence and Confirmation Bias

Experience is valuable.
Ego is expensive.

Falling in love with deals, ignoring contradictory data, and selectively validating assumptions leads investors into preventable mistakes. Strong investors actively seek opposing views — and listen when the data challenges their narrative.

10. Failing to Build Exit Optionality

Every investment should contain multiple viable exit paths.

When investors design deals with only one acceptable outcome, they surrender control. Optionality — the ability to refinance, reposition, recapitalize, sell, or hold — is the difference between managing risk and being exposed to it.

11. Choosing the Wrong Advisory Team

Bad advice is one of the most expensive risks in commercial real estate.

Inexperienced brokers, weak lenders, poor legal counsel, and ineffective property management quietly destroy returns. In complex markets, execution quality determines outcomes — and execution quality is driven by the team behind the investment.

Conclusion — Survival Is the First Step Toward Outperformance

In 2026, capital preserved becomes capital deployed.

The investors who avoid these mistakes will not merely survive the next phase of the market — they will be positioned to outperform it. Discipline compounds. So do errors.

In the final article of this series, we move from strategy to execution with a month-by-month investor playbook for navigating 2026.

Continue to the final post of this series, the Month-by-Month Investor Playbook