Commercial real estate's operating and industry fundamentals are sound. And while CRE pricing appears to have peaked, there are no signs that values are headed for a crash.

But something is askew anyway. One major warning sign came in February when Mill Valley, CA-based Redwood Trust announced it decided it was no longer profitable to acquire CRE loans—namely, GSE loans from Fannie and Freddie—for securitization, in part because of the increased market volatility.

“Excess lending capacity, pressure on CMBS spreads and increased market volatility over the past 15 month have significantly eroded the profit opportunity,” Brett Nicholas, Redwood Trust's president, said in an analyst call that month.

The “unrelenting competitive pricing pressure” on such loans also played a role in Redwood's decision, Nicholas said. But CEO Marty Hughes made clear the change was largely due to the “severe volatility” in the debt markets. “Our near-term posture is to operate defensively and cautiously,” Hughes said during the same call.

Redwood is not the only lender that is shying away from the random volatility of the capital markets. In fact, many predict it will soon have a lot of company.

“I don't think many people in the commercial real estate industry grasp the extent of what is happening in the debt markets—and what will happen if these trends continue,” says Steve Pumper, the Dallas-based executive managing partner of capital markets and asset strategies at Transwestern. “Everyone is being pickier about debt now.”

Furthermore, the traditional avenues of finance—the CMBS market and the GSEs—will be limited in what they can provide. Originations in the CMBS market have slowed to a crawl this year, and with new regulations coming into effect at the end of 2016, it's difficult to say whether this market will be back in play in 2017.

Thanks to the GSEs' cap, their lending will top out in October, Pumper notes. After that, multifamily borrowers will have to find another source of financing. As for life insurers, “they're saving their debt for the best companies.”

On top of all that, a confluence of events that have nothing directly to do with real estate is eroding market confidence, such as global volatility and the free fall in the price of oil. In short, it's time for companies to think creatively about their capital needs.

To be sure, much of the upheaval in the CRE capital markets occurred at the beginning of the year, which was then followed by a period of calm in the real estate capital markets. By March, CMBS spreads had tightened and REIT equity values rose 15% from their February 2016 lows, Fitch Ratings noted.

Also despite frowns from the regulatory community, banks' appetite for providing unsecured term loans to real estate companies has continued unabated. “We've always had large banks competing with us. Now, though, they are blowing us out,” Kevin Westra, regional director at Northwestern Mutual Real Estate in Dallas, said at the recent RealShare Houston conference. “We're not used to that, but returns are so low on CDs, banks are beating us by half a percent for deals.”

Finally, the private placement market remained open to real estate borrowers throughout the volatility and at reasonably attractive rates, Fitch said, including for inaugural issuers that had been shut out of the bond markets.

But who's to say this period of calm will last? By the time you read this, we could be off on another loop of this roller-coaster market.

Consider how quickly things went south in just the past few months. At its annual Commercial Real Estate/Multifamily Housing Finance conference in Orlando this past February, the Mortgage Bankers Association projected a new record level of CRE lending for year, with originations expected to top 2007's volume by $3 billion.

“This past year was extremely strong for commercial real estate finance,” Jamie Woodwell, VP of research and economics, said at the time. “Property incomes are rising, interest rates are low and property values are up. We expect the momentum to continue into 2016 and to support both the demand for and supply of commercial and multifamily mortgage capital.”

Only a few weeks later, MBA returned to the discussion with a Research Datanote highlighting some of the issues confronting lending sources this year. “A number of market and regulatory factors are impacting the commercial and multifamily real estate finance markets,” Woodwell said in March. “As just one example, in the past month, several Wall Street analysts have reduced their expectations for 2016 CMBS issuance by 25% to 30%.”

This back-and-forth, needless to say, is incompatible with lenders' approach to risk. The macroeconomic shocks have not helped, either.

“We value clarity and the substantial drop in oil has shocked a lot of us,” Michael Dopler, vice president of acquisitions at AEW Capital Management in Boston, said at the recent RealShare Houston conference. “We are waiting to understand, maybe not where the bottom is, but when will the markets stop getting worse.”

Even banks' appetite for real estate assets is likely to scale back. Multifamily and commercial real estate lenders overwhelmingly expect a peak in the market cycle this year or next, according to the Winter/Spring 2016 RELA-Chandan survey. Less than 10% of lenders expect the market peak to come after 2017. Over the next year, underwriting will tighten and loan pricing will increase, they predicted.

Granted, the net share of lenders anticipating an increase in term loan prices was only 4% but the increase is notable as this is the first time in the survey's post-crisis history that lenders have said that they expect that loan pricing will increase over the next year, according to Chandan Economics head Sam Chandan.

To further muddy an already depressing outlook, there will be plenty of loan demand from the pending CMBS loan maturities “but many of these refinancing opportunities will not meet their institution's credit risk profile,” Chandan says.

So this is the lay of the land facing CRE borrowers: increasingly skittish established lenders, tightening underwriting and a wave of debt maturities hitting the market that many assumed would be absorbed by the refi market with no problem. How much worse it will get, or whether it will suddenly improve, is anyone's guess.

However the real estate market is, if nothing else, extremely responsive to gaps in supply—whether in the physical supply chain or the financial one. New debt lenders are entering the market space with their eye on these opportunities. And little wonder: for all the aforementioned issues with the capital markets, CRE stands out as a high-yielding investment class with average national returns of 12.50%.

“Debt funds will be established to fill some of the void left by the significant drop-off in CMBS volume,” according to Transwestern's Pumper. “The market isn't seeing it yet, but funds are being established to start to place debt in Q2 and the second half of 2016,” he said.

In another sign of how quickly the market is moving, Pumper made that comment to Real Estate Forum at the end of March. By the beginning of April, New York City-based Orangewood Partners had launched a specialty finance platform called Peaceable Street Capital to provide preferred equity for most real estate asset classes. It is being led by David Henry, former vice chairman and CEO of Kimco Realty Corp., and Fred Kurz, former general manager of preferred equity investments at Kimco.

“The retreat of traditional sources of capital due to regulatory restrictions and the current volatility of the CMBS market has created an opportunity for financing small and medium-sized real estate transactions,” Henry said at the company's debut.

USAA Real Estate Co. is also targeting this space through its alliance with Square Mile Capital Management, formed in 2013, according to the Dallas-based Carrington Brown, executive director of Investments at USAA Real Estate Co.

“They're active in the stretch senior mortgage space, filling the gap where banks have retreated,” Brown says. “They're well-capitalized folks similar to ourselves in that we both are seeking equity-like returns in a subordinate position.”

More providers will follow now that companies can get a sense of the cost of capital—a topic that John Jardine, chairman and interim co-CEO of Chicago-based Ares Commercial Real Estate Corp., discussed in a recent earnings call.

After the volatility of the start of the year, it's becoming more clear how to price risk, he said. “We've seen some CMBS deals go out,” he told listeners. “We've seen some insurance company loans. We've also seen some of our competitor's pricing. We are at the point now where we've got a framework where I can appreciably price risk, and that's exactly what I could not do in the first 30 days of 2016.”

The upshot of this clarity is that, at least at the time of this call in early March, ACRE Capital has been able to differentiate its mortgage bank “from other capital markets-oriented platforms that are currently pricing loans approximately 100 basis points above ACRE Capital GSE offerings,” Jardine said.

Other funds, too, will be coming to market in the second quarter and beyond, a source tells Forum. They are currently studying how to structure themselves to provide even more targeted financing while avoiding regulatory overreach, the source indicated.

Private equity and shadow finance providers are not subject to as much regulatory oversight as established players like banks and life insurance companies are—much to the regulators' chagrin and that of the regulated entities, who must compete with their unregulated counterparts.

It is assumed by many that regulators will try to establish some control over these companies, given half a chance. Hence, the very careful structuring of this latest series of bond funds.

Some short-term, floating-rate lenders are also actively eyeing this emerging demand for financing. Some—but not all. At the start of this year, mortgage REITs and other investors found themselves shut out of the low-cost, government-backed financing provided by the Federal Housing Finance Agency. Technically, one could say they weren't supposed to be availing themselves of this funding source in the first place as mortgage REITs were always ineligible for membership. But in the past few years they had found a workaround, investing in capital insurers to gain indirect access to the FHFA funding. In January, the FHFA put a stop to that.

But short-term money in general is available from other providers, such as bridge lenders. In February, for example, ReadyCapital Structured Finance, a New York City-based nationwide commercial real estate bridge and mezzanine lender, closed a $3.12-million loan for the refinance and stabilization of a self-storage facility in California. The non-recourse loan, which came with a two-year term with a one-year extension, was to refinance an existing CMBS loan.

If these more traditional sources of alternative capital don't fit borrowers' needs, there are some other options to consider.

The foreign bond markets, for example, is a possibility for some borrowers—especially Israel, where pension funds are eager to invest. US property companies, especially New York City developers, have been hitting Israel's bond market in increasing numbers for the past year, via the Israeli Securities Exchange.

Another possibility is a stock buyback, but be aware of the stigma this tool has in some circles. At a recent NAIOP conference, one of the speakers, real estate economist Mark Dotzour, left little doubt as to his view. He called them financial sleight of hand tools that allow companies to pretty-up an earnings report even as profits remain flat.

“A stock buyback is the CEO is telling investors that 'I can't find a place to invest your money so I am giving you your money back.' He is borrowing money to get rid of you, the investor,” said Dotzour, who was the chief economist of the Real Estate Center at Texas A&M University in College Station for 18 years and now advises a range of private-sector companies.

The other view is a more old-school approach to stock buy backs, in which the companies plow the proceeds back into their operations or use the capital for some other reason, but always in support of the operations and not to boost earnings.

Either way, stock buybacks have become a de facto source of capital for many companies.

For example, Bethesda, MD-based Walker & Dunlop secured board permission to buy back about $75 million of its stock this year. It will use the proceeds to rebuild its interim loan portfolio to $400 million by the end of 2016 and fund $50 million to $75 million in CBMS loans through its branded conduit.

Another example is Ashford Hospitality Prime, a REIT focused on luxury hotels, which recently decided against a sale after a strategic review of its options by its board and after several buyers expressed interest in the company.

Instead, the REIT decided it would launch a $50-million stock-buyback program and sell some non-core assets. Currently, the company is authorized for approximately $75 million of share repurchases.

The REIT pretty much spelled out why it was raising capital as quickly as possible: it needed to take immediate actions to boost stockholders' value and to make structural changes following push back from activist shareholder Sessa Capital to increase value to the REIT's shareholders. Ashford Prime has called Sessa Capital's activities “disruptive” and says they're “destroying stockholder value by forcing the company and management to expend significant time and resources.”

Finally, if companies need capital for an acquisition they can also recycle their assets. This is an oldie-but-goodie strategy and there is no shortage of examples of companies making use of this strategy in the current environment. REITs, thanks to that nagging disconnect between their stock price and discount to net asset value, are increasingly substituting asset sales for equity issuance to fund investments, Fitch Ratings reports.

Companies don't have to be in a troubled position to recycle assets either; in fact, it's become routine as few companies can hold onto to assets indefinitely without selling. New York City-based Vornado Realty Trust, always a conservative investor, has been acquiring new assets—but with an eye toward selling off less attractive ones in roughly the same time period, according to CEO Steven Roth's annual letter to shareholders that was filed with the Securities and Exchange Commission in April.

In recent years, Roth wrote, “We have pushed away from acquisitions that are off-the-fairway, non-strategic or over-priced.” This, he said, has been Vornado's strategy since 2012, when its acquisitions began to decline “in response to a rising market.”

It was a far-sighted decision for 2012—one that others in the market are suddenly coming to appreciate now.